November 13, 2020: Well, That’s Some Weird… Stuff

November 13, 2020: Well, That’s Some Weird… Stuff
Doug Noland Posted on November 14, 2020

The “average stock” Value Line Arithmetic Index jumped 6.4% for the week. The NYSE Arca Oil Index surged 19.8%, with the Philadelphia Oil Services Index up 17.4%. The KWB Bank Index rose 11.5%, as the Nasdaq Bank Index advanced 13.6%. The Bloomberg REIT Index jumped 6.8%.

The S&P600 Small Cap Index gained 7.5% for the week, as the S&P400 Midcaps rose 4.3%. The Bloomberg Americas Airlines Index jumped 12.9%. The JPMorgan Leisure Travel Index surged 15.3%. Major equities indices rose 13.3% in Spain, 11.9% in Austria, 11.5% in Greece, 10.5% in Belgium, 8.5% in France, 6.9% in the UK and 4.8% in Germany. Turkish stocks surged 8.3%. Crude (WTI) prices jumped 8.1%. Meanwhile, Zoom was down 19%, Netflix 6.2%, Facebook 5.6%, Amazon 5.5%, and Tesla fell 5.0%. Well, That’s Some Weird… Stuff.

I have no interest in disparaging Pfizer’s (and BioNtech’s) Monday announcement of 90% effectiveness for their Covid vaccine. It’s encouraging news. But it is a two-shot vaccine that reportedly can induce strong post-shot reactions. Moreover, logistical challenges await a vaccine requiring extreme cold storage (negative 100 Fahrenheit). There will be limits to its availability, but mainly I expect a majority of American’s initially to approach Covid vaccines with caution. While many questions remain unanswered, the bottom line is 90% effectiveness bodes well for Covid vaccines generally.

Monday’s market reaction to the news doesn’t bode so well for general market stability.

November 13 – Bloomberg (Justina Lee): “Jon Quigley says he probably should have known something big was coming — even if his risk models didn’t. Just a day after the Great Lakes Advisors manager watched CBS’s ‘60 Minutes’ about America’s unprecedented efforts to deploy a vaccine when it comes, Pfizer Inc. revealed significant progress on its pandemic cure. That revelation spurred the biggest moves ever in Quigley’s $3.9 billion portfolio. While stock benchmarks cheered the news, Wall Street’s most popular styles of quant trading got hit by a historic storm. ‘Events happened that statistically never could happen,’ said the chief investment officer of disciplined equities… Quigley spelled out the odds to clients in a note. As he computed it, the crash in the momentum factor was so rare that writing out the chances of occurrence on any given day required a 16-digit number — followed by 63 zeroes.”

Monday’s Pfizer announcement followed pivotal elections by only a few trading sessions – an election I have posited as the most hedged individual event ever. Markets were already in a state of acute instability prior to the news, having been spurred sharply higher by the unwind of hedges and short positions.

Those positioned bearishly had suffered only deeper impairment, while derivatives markets were moving toward dislocation. Holders of puts were in liquidation mode, while those that had written out-of-the-money call options (and similar derivatives) were facing rapidly escalating exposure. In the leveraged speculating community, the more sophisticated strategies were performing poorly. In particular, long/short strategy performance was suffering the effects of a brutal short squeeze along with violent rotations. A marketplace consumed with momentum was all Crowded together in the favored technology and “stay-at-home” stocks.

The Pfizer news showered gasoline upon the bonfire. It was a melt-up dislocation and short squeeze as intense as I’ve witnessed over recent decades. Segments of the market traded as if some hedge fund and sophisticated derivative strategies were “blowing up”. As for long/short strategies, things went from bad to cataclysmic. From Bloomberg: “…Market winners and laggards switched positions at the fastest rate on record Monday.” Attacked savagely, the persecuted bears were hit with a fateful blow. A “bear” ETF lost 11% of its value in a chaotic Monday trading session.

Sure enough, such a market outcome “statistically never could happen.” In reality, such a freakish backdrop created a high likelihood of just this kind of mayhem and market dislocation (either up or down).

Especially in the current backdrop, market melt-ups come replete with risk. For one, most have now turned crazy bullish. Ignoring risk continues to be rewarded. Equities funds attracted a record $44.5 billion over the past week (ending Wednesday). State Street’s SPDR S&P 500 ETF (SPY) received Monday inflows of $9.8 billion. Meanwhile, Wall Street strategists are climbing over each other to raise market targets.

I often highlight the late-cycle phenomenon characterized by extreme divergence between inflating securities prices and deflating economic prospects. I have surmised this gulf is the greatest since 1929. And this chasm has only widened since the election, especially during Monday’s session.

The pandemic has profoundly impacted market dynamics. An already acutely speculative marketplace has been only further emboldened. Not only has “the Fed has the market’s back” view been solidified. After a $3 TN ballooning of the Fed’s balance sheet, there is no doubting the Fed’s capacity to deliver an effective market backstop.

A contested election and upheaval in Washington – no problem. Covid infections spiraling out of control throughout the entire country – not a market concern. The prospect of a dark, Covid winter with social strife and economic vulnerability today seems the furthest thing from Mr. Market’s triumphant mind.

As readily espoused by the bullish punditry, markets are a discounting mechanism – and these days are doing what they’re supposed to do: price securities for the eventuality of a favorable post-vaccine economic landscape. Look past the valley. Robust recovery is only an issue of when.

And that’s what makes this pandemic market environment unique. This is a horrendous pandemic inflicting terrible damage to health, the economy and social stability. But it will pass – and in the meantime the Fed is happy to print Trillions. Fiscal authorities have gladly disbursed Trillions more. No matter how bad things get, speculative markets can imagine nothing but (oodles of “money” and) blue skies ahead.

Importantly, so long as market imagination fancies a sensational future, booming markets support confidence, spending and investment. The resulting loose financial conditions ensure that even weak borrowers (individuals, corporations, municipalities and others) enjoy access to cheap finance. This bolsters business spending, while obscuring the scope of a festering Credit debacle. Moreover, wealth effects continue to underpin economic recovery. And let’s not overlook the rapidly inflating Bubble in housing markets across the country.

Things, however, will just not play out to match bullish hopes and dreams. The pandemic will pass. But it will leave deep and lasting scars. The current Bubble has been inflating for a very long time. Structural impairment has worsened over time, with the greatest damage now inflicted during pandemic “Terminal Phase Excess.” At this point, markets are scary dysfunctional. Melt-ups lay the groundwork for breakdowns. And the longer markets disregard reality, the more destabilizing the eventual reckoning. There’s a major economic crisis shoe to drop when market Bubbles succumb.

Friday’s reporting had a daily record 182,000 of new infections (worldometer), with the seven-day average now surpassing 132,000. Hospitalizations nationally posted new records on four straight days (having doubled in a month to almost 69,000). Daily cases are spiking higher in a growing number of states, with particularly troubling increases in Wisconsin, Illinois, Minnesota, Michigan, Ohio, Pennsylvania, Indiana, Iowa, Kansas, Nebraska, North Dakota, South Dakota, New Mexico, Colorado, Wyoming, Utah, and Massachusetts. A message from Ohio Governor Mike DeWine: “We are facing a monumental crisis in Ohio.”

New restrictions were imposed in New Jersey, Oregon, New Mexico, Idaho, Virginia, and elsewhere. The West Coast states issued a joint travel advisory, while California is warning of tougher measures to come. Northeast governors are planning a weekend “emergency summit meeting.” New York City will likely close schools Monday.

The Covid crisis is again reaching fever pitch, which was previously associated with stronger compliance and peak daily infections. But this time is different. Virtually the entire nation is experiencing rapidly rising case numbers, and we’re heading right into the winter season. Hospitals are filling. On a national basis, resources will be in short supply and difficult to shift to hot zones. It’s all ominous.

Speaking of ominous, interesting developments this week out of China, along with the release of October Credit data.

China experienced a broad-based Credit slowdown in October. Aggregate Financing expanded a weaker-than-expected $215 billion, down from September’s $526 billion and the slowest growth since February. It’s worth noting last October was 2019’s weakest monthly Credit expansion ($131bn). For the first 10 months of 2020, Aggregate Financing surged $4.696 TN, 45% above comparable 2019 and 64% ahead of comparable 2018 growth. Aggregate Financing was up $5.315 TN over the past year – a historic Credit binge. The 13.7% year-over-year growth rate was the strongest in years.

New Bank Loans slowed to a below-expectations $103 billion, down from September’s $281bn, and the slowest growth in a year. The year-to-date expansion increased to $2.511 TN, 19% ahead of comparable 2019. One-year growth slowed slightly to 12.9%. Two-year growth was at 26.9%, with five-year growth of 83.6%.

Consumer Loan growth slowed to $66 billion, down sharply from September’s $147 billion and the weakest reading since February’s contraction. Year-to-date growth of $992 billion was 7.4% ahead of comparable 2019. Consumer Loans expanded 14.6% y-o-y, with two-year growth of 32%, three-year 56%, and a five-year expansion of 135%.

Corporate Loans dropped to $35 billion, down from September’s $143 billion to the weakest growth in a year. Year-to-date growth of $1.633 TN was 29% ahead of comparable 2019 and 49% above comparable 2018.

M2 money supply contracted $218 billion during October, the largest monthly contraction since July 2014. This reduced year-to-date M2 growth to $2.469 TN, or 11.7% annualized. M2 expanded $1.798 TN over comparable 2019. M2 expanded $3.088 TN, or 10.5%, year-over-year.

With October a seasonally slow month for lending and Credit growth more generally, we shouldn’t at this point read too much into weak data. Yet policymakers have clearly moved to pull back on stimulus measures. Consumer loans declined meaningfully during October, held in check at least partially by measures to tighten mortgage Credit.

Faith that Beijing has everything under control runs as deep as ever. But China’s Credit growth has been averaging an incredible $470 billion monthly over the past 10 months. This Credit onslaught has kept a lot of weak companies solvent. It has also stoked a stock market mania and additional apartment Bubble excess. Policymakers are not oblivious to these risks and have moved to cautiously rein in lending and speculative excess. But history informs us that attempts to let some air out of Bubbles are fraught with risk. For a historic and prolonged Chinese Bubble, fragilities and vulnerabilities are acute.

November 13 – Bloomberg: “China’s ex-finance minister said it’s time to consider withdrawing the monetary stimulus injected into the economy this year and fine-tune fiscal policies as the recovery strengthens… ‘It is time for China to study an orderly exit of loose monetary policies,’ Caixin quoted Lou Jiwei, who was finance minister from 2013 to 2016, as saying… That doesn’t mean it would be an immediate exit, he added. The challenge is to carefully manage the pace of the exit, Lou said, given high debt levels in the economy. If liquidity is withdrawn too soon it could trigger debt crises, he said.”

November 13 – Bloomberg: “The surprise default of a state-run Chinese coal miner and a slump in bonds of a prominent chipmaker took center-stage this week, deepening concerns over the health of state-owned enterprises. Dollar bonds of several Chinese state-owned firms tumbled Wednesday after Yongcheng Coal & Electricity Holding Group’s onshore default and rising stress at a prominent chipmaker triggered broader concern about the sector. Tsinghua Unigroup’s dollar bonds extended their recent plunge on Thursday amid growing concern over the company’s future and its ability to repay its debts.”

November 10 – Bloomberg (Zheping Huang and Coco Liu): “Xi Jinping’s Communist Party stepped up efforts to rein in some of China’s most powerful companies, jolting investors and dealing a blow to the country’s richest entrepreneurs. Beijing… unveiled regulations to root out monopolistic practices in the internet industry, seeking to curtail the growing influence of corporations like Alibaba Group Holding Ltd. and Tencent Holdings Ltd. The rules, which sent both stocks tumbling over two frenetic days and sparked a wider selloff in Chinese equities, landed about a week after new restrictions on the finance sector triggered the shock suspension of Ant Group Co.’s $35 billion initial public offering.”

From Bloomberg: “PBOC Deputy Governor Liu Guoqiang said last week that ‘[stimulus] exit is a matter of time and it is also necessary.” China’s 10-year sovereign yields jumped seven bps this week to a one-year high 3.26%. Three-month “repo” rates (3.30%) rose to the high since December. According to Bloomberg, “The interest rate on 1-year negotiable certificates of deposits issued by AAA-rated companies climbed to the most expensive since June 2019.”

There were indications this week of the start of a consequential tightening of financial conditions. From Bloomberg: “China State Banks Said to Cut Corporate Bond Exposure Amid Rout – A number of Chinese banks are cutting their holdings of corporate bonds, with some focusing on notes sold by state-owned firms, after a string of defaults roiled the market…” Also Friday from Bloomberg: “Stress in China’s Credit Market Spills Over to Financial Stocks – The default of a Chinese coal miner has triggered mounting concern over the health of state-owned firms and their lenders. The SSE 50 Index of Shanghai’s largest stocks slumped as much as 2.3% on Friday, led by banks and insurers.”

Is it a coincidence that Credit issues are erupting in the wake of one month of slowing Credit expansion – with the first hint of a winding down of massive policy stimulus? It’s certainly ominous. Beijing moved aggressively to contain Covid, and then historic Credit growth spurred economic recovery. But over $4.5 TN of new Credit in 10 months only exacerbates China’s financial and economic fragilities. With U.S. elections and Covid, China has been off the radar. Time to pay attention.

For the Week:

The S&P500 gained 2.2% (up 11.0% y-t-d), and the Dow jumped 4.1% (up 3.3%). The Utilities rose 2.3% (up 4.3%). The Banks surged 11.5% (down 22.8%), and the Broker/Dealers gained 6.6% (up 13.9%). The Transports rose 4.1% (up 10.9%). The S&P 400 Midcaps jumped 4.3% (up 2.4%), and the small cap Russell 2000 surged 6.1% (up 4.5%). The Nasdaq100 declined 1.3% (up 36.7%). The Semiconductors slipped 0.8% (up 35.6%). The Biotechs added 1.3% (up 9.6%). With bullion down $62, the HUI gold index sank 8.9% (up 30.3%).

Three-month Treasury bill rates ended the week at 0.0825%. Two-year government yields increased three bps to 0.18% (down 139bps y-t-d). Five-year T-note yields rose five bps to 0.41% (down 128bps). Ten-year Treasury yields jumped eight bps to 0.90% (down 102bps). Long bond yields gained five bps to 1.65% (down 74bps). Benchmark Fannie Mae MBS yields rose four bps to 1.37% (down 134bps).

Greek 10-year yields dropped six bps to 0.75% (down 68bps y-t-d). Ten-year Portuguese yields added a basis point to 0.09% (down 36bps). Italian 10-year yields increased three bps to 0.67% (down 75bps). Spain’s 10-year yields increased one basis point to 0.11% (down 36bps). German bund yields jumped seven bps to negative 0.55% (down 36bps). French yields rose five bps to negative 0.31% (down 43bps). The French to German 10-year bond spread narrowed two to 24 bps. U.K. 10-year gilt yields gained six bps to 0.34% (down 48bps). U.K.’s FTSE equities index surged 6.9% (down 16.3%).

Japan’s Nikkei Equities Index advanced 4.4% (up 7.3% y-t-d). Japanese 10-year “JGB” yields were little changed at 0.03% (up 4bps y-t-d). France’s CAC40 surged 8.5% (down 10.0%). The German DAX equities index gained 4.8% (down 1.3%). Spain’s IBEX 35 equities index surged 13.3% (down 18.5%). Italy’s FTSE MIB index jumped 6.2% (down 11.1%). EM equities ran higher. Brazil’s Bovespa index rose 3.8% (down 9.4%), and Mexico’s Bolsa jumped 5.9% (down 6.3%). South Korea’s Kospi index gained 3.2% (up 13.5%). India’s Sensex equities index advanced 3.7% (up 5.3%). China’s Shanghai Exchange was little changed (up 8.5%). Turkey’s Borsa Istanbul National 100 index surged 8.3% (up 12.9%). Russia’s MICEX equities index rose 4.5% (down 0.7%).

Investment-grade bond funds saw inflows of $3.471 billion, and junk bond funds posted positive flows of $4.565 billion (from Lipper).

Freddie Mac 30-year fixed mortgage rates rose six bps to 2.84% (down 91bps y-o-y). Fifteen-year rates added two bps to 2.34% (down 86bps). Five-year hybrid ARM rates surged 22 bps to 3.11% (down 34bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up nine bps to 3.07% (down 105bps).

Federal Reserve Credit last week expanded $16.1bn to a record $7.126 TN. Over the past year, Fed Credit expanded $3.120 TN, or 77.9%. Fed Credit inflated $4.316 Trillion, or 154%, over the past 418 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week jumped $11.1bn to $3.427 TN. “Custody holdings” were up $6.2bn, or 0.2%, y-o-y.

M2 (narrow) “money” supply jumped $56.0bn last week to a record $18.895 TN, with an unprecedented 36-week gain of $3.387 TN. “Narrow money” surged $3.623 TN, or 23.7%, over the past year. For the week, Currency increased $2.3bn. Total Checkable Deposits jumped $52.2bn, and Savings Deposits gained $5.3bn. Small Time deposits fell $9.5bn. Retail Money Funds rose $5.7bn.

Total money market fund assets declined $8.1bn to $4.327 TN. Total money funds surged $755bn y-o-y, or 21.1%.

Total Commercial Paper gained $10.5bn to $961.5bn. CP was down $170bn, or 15.0% year-over-year.

Currency Watch:

For the week, the U.S. dollar index recovered 0.5% to 92.722 (down 3.9% y-t-d). For the week on the upside, the New Zealand dollar increased 1.1%, the Mexican peso 1.0%, the South African rand 0.6%, the South Korean won 0.4%, the British pound 0.3%, the Australian dollar 0.2%, and the Singapore dollar 0.1%. For the week on the downside, the Brazilian real declined 1.6%, the Swiss franc 1.5%, the Japanese yen 1.2%, the Canadian dollar 0.7%, the Swedish krona 0.6%, the euro 0.3%, and the Norwegian krone 0.1%. The Chinese renminbi increased 0.09% versus the dollar this week (up 5.40% y-t-d).

Commodities Watch:

The Bloomberg Commodities Index gained 1.2% (down 8.9% y-t-d). Spot Gold dropped 3.2% to $1,889 (up 24.4%). Silver sank 3.5% to $24.775 (up 38%). WTI crude surged $2.99 to $40.13 (down 34%). Gasoline rose 3.8% (down 33%), and Natural Gas jumped 3.7% (up 37%). Copper increased 1.0% (up 14%). Wheat declined 1.4% (up 6%). Corn jumped 3.1% (up 8%).

Election Watch:

November 9 – Associated Press (Robert Burns and Lolita C. Baldor): “The Trump administration threw the presidential transition into tumult, with President Donald Trump blocking government officials from cooperating with President-elect Joe Biden’s team and Attorney General William Barr authorizing the Justice Department to probe unsubstantiated allegations of voter fraud. Some Republicans, including Senate Majority Leader Mitch McConnell, rallied behind Trump’s efforts to fight the election results. Few in the GOP acknowledged Biden’s victory or condemned Trump’s other concerning move on Monday: his firing of Defense Secretary Mark Esper. The developments cast doubt on whether the nation would witness the same kind of smooth transition of power that has long anchored its democracy. The Electoral College is slated to formally confirm Biden’s victory on Dec. 14, and the Democrat will be sworn into office in late January.”

November 8 – Reuters (Jeff Mason, Steve Holland, Andrea Shalal and Alexandra Alper): “After the declaration on Saturday that Democrat Joe Biden had won the race for the White House, Republican President Donald Trump and his allies made one thing clear: he does not plan to concede anytime soon. The president, who has spent months trying to undermine the election results with unproven allegations of fraud, pledged on Saturday to go forward with a legal strategy that he hopes will overturn state results that gave Biden the win in Tuesday’s vote. Trump aides and Republican allies, while somewhat conflicted on how to proceed, largely supported his strategy or remained silent.”

November 10 – Wall Street Journal (Andrew Restuccia and Eliza Collins): “Joe Biden called President Trump’s unwillingness to concede the presidential election an ‘embarrassment’ but said it wouldn’t impede his White House transition, despite a standoff with the administration that is preventing the president-elect’s team from accessing key resources. The Trump administration hasn’t issued a typically routine technical designation that would allow Mr. Biden’s staff to view detailed classified information, send representatives to embed with government agencies and have the State Department facilitate calls with foreign leaders. The delay could also hamper Mr. Biden’s selection of cabinet officials because the ability to conduct background investigations for security clearances is frozen.”

November 10 – Reuters (Richard Cowan): “Top Republicans in the U.S. Congress for now are supporting President Donald Trump’s attempt to challenge President-elect Joe Biden’s victory, but some senior aides said Trump must soon produce significant evidence or exit the stage. A handful of Republican senators have said they recognize Biden as last week’s winner. Many more have not but are suggesting limits to their patience in giving Trump the benefit of the doubt. Senator Rob Portman of Ohio… said… Biden is leading in enough states to win election ‘and President Donald Trump’s campaign must produce evidence to support allegations of election fraud.’ Portman added that he hoped states and courts would move ‘expeditiously’ to resolve the matter.”

Coronavirus Watch:

November 9 – Reuters (Michael Erman and Julie Steenhuysen): “Pfizer Inc’s experimental COVID-19 vaccine is more than 90% effective based on initial trial results, the drugmaker said…, a major victory in the war against a virus that has killed over a million people… Scientists, public health officials and investors welcomed the first successful interim data from a large-scale clinical test as a watershed moment that could help turn the tide of the pandemic if the full trial results pan out.”

November 10 – Wall Street Journal (Emma Thomasson): “Monday’s potential breakthrough in the race to develop a COVID-19 vaccine has left governments scrambling to meet the logistical challenge of distributing hundreds of millions of doses once it becomes available in coming months… But the vaccine must be shipped and centrally stored at minus 70 degrees Celsius, putting it out of reach for the moment of many poor countries in Asia and elsewhere which lack the necessary refrigeration equipment. Needing temperatures matching an Antarctic winter, it is likely to need centralized vaccination locations, Swiss health experts said…”

November 8 – Reuters (Anurag Maan, Shaina Ahluwalia and Kavya B): “Global coronavirus infections exceeded 50 million on Sunday, according to a Reuters tally, with a second wave of the virus in the past 30 days accounting for a quarter of the total.”

November 12 – Wall Street Journal (Jennifer Levitz and Talal Ansari): “States are slapping new restrictions on daily life as the coronavirus rages in a resurgence that some officials say is the most widespread and intense since the pandemic hit in March. Governors in New York, Maryland, Minnesota, Iowa, Utah and other states have imposed measures as U.S. cases hit another high Wednesday, topping 100,000 for the ninth day in a row, while hospitalizations rose to a record 65,386… The U.S. death toll approached 242,000. ‘It’s on fire. We’ve got to slow it down,’ Ohio Gov. Mike DeWine said… ‘We’ve never seen anything like this. Our spring surge and summer surge were nowhere like this.’”

November 12 – CNBC (Will Feuer and Berkeley Lovelace Jr.): “Chicago Mayor Lori Lightfoot… asked all residents to cancel Thanksgiving plans and stay at home unless they need to go to work or school or to tend to essential needs like the doctor’s office or grocery store. Chicago said it was issuing the 30-day stay-at-home advisory, asking people to refrain from traveling, having guests in their home or leaving for non-essential business ‘in response to the rapid rise of COVID-19 cases and hospitalizations in the city.’”

November 11 – Reuters (Maria Caspani, Peter Szekely and Anurag Maan): “New York Governor Andrew Cuomo… imposed a new round of restrictions aimed at curbing the spread of the coronavirus as the infection rate climbed and hospitalizations soared in the state that was the epicenter of the U.S. outbreak in its early stages. Cuomo ordered bars, restaurants and gyms in the state to shut down on-premises services at 10 p.m. nightly, and capped the number of people who could attend private parties at 10. ‘We’re seeing a national and global COVID surge, and New York is a ship on the COVID tide,’ the governor told reporters…”

November 11 – Wall Street Journal (Melanie Evans): “Hospitals across the nation face an even bigger capacity problem from the resurgent spread of Covid-19 than they did during the virus’s earlier surges this year, pandemic preparedness experts said… The number of hospitalized Covid-19 patients reached 65,368, according to the Covid Tracking Project, passing the record set Tuesday… Epidemiologists said the record is likely to be swiftly replaced by another as Covid-19 cases soar nationally. ‘We already know this is going to go far north,’ said Michael Osterholm, director of the Center for Infectious Disease Research and Policy at the University of Minnesota.”

November 11 – CNBC (Will Feuer, Berkeley Lovelace Jr., and Noah Higgins-Dunn): “Ohio has had an ‘unprecedented spike’ in Covid-19 hospital admissions. ICU beds in Tulsa, Oklahoma, are full. North Dakota’s hospitals don’t have enough doctors and nurses. And hospital administrators in Iowa are warning that they are approaching their limits. The U.S. is heading for a ‘dark winter,’ a ‘Covid hell,’ the ‘darkest days of the pandemic.’ However you describe it, the next few months of the coronavirus pandemic will be unlike anything the nation has seen yet. Even as drug manufacturers make progress on a vaccine and treatments, epidemiologists, scientists and public health officials are warning that the United States has yet to see the most difficult days of the outbreak. Those are projected to come over the next three to four months.”

November 10 – Associated Press (Lori Hinnant): “In Italy lines of ambulances park outside hospitals awaiting beds, and in France the government coronavirus tracking app prominently displays the intensive care capacity taken up by COVID-19 patients: 92.5% and rising. In the ICU in Barcelona, there is no end in sight for the doctors and nurses who endured this once already. Intensive care is the last line of defense for severely ill coronavirus patients and Europe is running out — of beds and the doctors and nurses to staff them. In country after country, the intensive care burden of COVID-19 patients is nearing and sometimes surpassing levels seen at last spring’s peak. Health officials, many advocating a return to stricter lockdowns, warn that adding beds will do no good because there aren’t enough doctors and nurses trained to staff them.”

November 9 – Bloomberg (Jason Gale): “Eight months and more than 50 million documented cases into the pandemic, there’s still much we don’t understand about SARS-CoV-2. We do know that the majority of those infected with the novel coronavirus display no or mild symptoms. Worryingly, a not-insignificant portion of the 20 million people globally who’ve recovered suffer lingering effects, including lung, heart, and nervous system impairment… Meantime, post–Covid-19 clinics are opening to cater to an expanding population of so-called long haulers (survivors left with scarred lungs, chronic heart damage, post-viral fatigue, and other persistent, debilitating conditions), a sign that enduring disability will perhaps weigh on health systems and the labor force long after a vaccine becomes widely available. The phenomenon of what’s known as ‘long Covid’ isn’t unique; postviral syndromes occur after many infections, including with the common cold, influenza, and Epstein-Barr. What’s novel about SARS-CoV-2 is the broad spectrum of symptoms that are being reported and the duration of months, not weeks.”

Market Instability Watch:

November 10 – Reuters (Thyagaraju Adinarayan and Saikat Chatterjee): “News of a breakthrough in the race to find a COVID-19 vaccine sparked one of the heaviest trading days since the height of the pandemic crisis, according to early data analysed by Reuters, with nearly $2 trillion changing hands on Monday. Traders stampeded to the riskier plays in equities, foreign exchange and bond markets after Pfizer Inc released positive data on its vaccine trial, while rotating out of safe havens such as technology stocks, Japanese yen and top-rated bonds. ‘Volumes (are) also surging as programmes and baskets go to work to either correct portfolio balances or address margin calls,’ said Mark Taylor, sales trader at Mirabaud Securities…”

November 10 – Financial Times (Robin Wigglesworth): “The history of financial markets has more wild plot twists, temper tantrums and triumphant comebacks than a daytime soap opera — or a US presidential election for that matter. Even by Wall Street’s standards, 2020 has been exceptional, yet for some active asset managers it offered the promise of salvation of sorts. Over the past two decades there has been an epochal shift of power from the pedigreed stockpickers and bond kings who have straddled markets, to the cheap, passively-managed index funds now in the ascendancy. In the past 10 years, passive equity funds have enjoyed inflows of more than $2tn, even as traditional, active ones have suffered outflows of over $1.5tn, according to… EPFR. There is now over $12tn in index funds globally — either passive mutual funds or the increasingly popular exchange traded funds…”

November 10 – Bloomberg (Alyce Andres and Christopher Condon): “The drumbeat for change to rules surrounding money-market mutual funds may be growing, with U.S. central bank official Eric Rosengren… once again taking aim on the subject. Money funds ‘failed again’ during the coronavirus-related market upheaval that took place earlier in the year, and there needs to be a focus on reforming the rules that govern them, the Federal Reserve Bank of Boston president said Tuesday. He said it was prime funds — those which are able to invest in non-government-backed instruments – ‘that were the problem’ and that the situation surrounding money funds is ‘quite disturbing.’”

November 13 – Bloomberg (Ksenia Galouchko): “Stock funds attracted a record amount in a busy week that included Joe Biden’s election victory and promising results for a coronavirus vaccine. Equity funds added $44.5 billion in the week through Nov. 11, dominated by inflows to the U.S. of $32.5 billion, according to Bank of America Corp. and EPFR… Exchange-traded funds led the additions, pulling in $38.7 billion with the rest going into mutual funds, according to a BofA note.”

November 10 – Bloomberg (Claire Ballentine): “The largest exchange-traded fund in the world is also the biggest loser this year, but at this rate it won’t be for long. State Street’s SPDR S&P 500 ETF Trust (SPY) just added $9.8 billion in a single day… That was the most in one session since December 2019, and one of the $319 billion fund’s three best days in more than a decade.”

November 11 – Bloomberg (Paula Seligson): “U.S. junk bond yields rode a rally in risk assets to a record low on Monday… The average yield for the Bloomberg Barclays U.S. corporate high yield index plummeted to 4.56%, sinking below the previous record of 4.83% set in June 2014. The 45 bps decline from Friday’s close was the steepest fall since April 9, when the Federal Reserve expanded its corporate bond purchases to include some junk debt.”

November 11 – CNBC (Greg Iacurci): “Retirement savers appear to be taking advantage of relaxed rules around 401(k) withdrawals during the coronavirus pandemic. Some 401(k) investors pulled $12,000 from their account in the form of a “coronavirus-related distribution,” according to a new Vanguard analysis of its client data.”

Global Bubble Watch:

November 9 – Reuters (Martin Quin Pollard): “Glaciers in China’s bleak Qilian mountains are disappearing at a shocking rate as global warming brings unpredictable change and raises the prospect of crippling, long-term water shortages, scientists say… Equally alarming is the loss of thickness, with about 13 metres (42 feet) of ice disappearing as temperatures have risen, said Qin Xiang, the director at the monitoring station. ‘The speed that this glacier has been shrinking is really shocking,’ Qin told Reuters…”

Trump Administration Watch:

November 12 – Bloomberg (Saleha Mohsin, Laura Litvan and Erik Wasson): “The Trump administration is stepping back from negotiations on a new stimulus package and leaving it to Senate Majority Leader Mitch McConnell to revive long-stalled talks with House Speaker Nancy Pelosi, according to two people… While the White House probably would consult with GOP lawmakers on details of a Covid-19 relief bill, it’s now unlikely to take the lead on talks, according to the people, who spoke on condition of anonymity…”

November 12 – Reuters (Susan Cornwell and Doina Chiacu): “Top Democrats in the U.S. Congress… urged renewed negotiations over a multitrillion-dollar coronavirus aid proposal, but the top Republican immediately rejected their approach as too expensive, continuing a months-long impasse. House of Representatives Speaker Nancy Pelosi and Senate Democratic leader Chuck Schumer ticked off a litany of grim data about the spread of the coronavirus in the United States… ‘It’s like the house is burning down and they just refuse to throw water on it,’ Pelosi said of Republicans.”

November 7 – CNBC (Jacob Pramuk): “The two most powerful people in Congress — at least for the next two months — renewed their calls for coronavirus stimulus on Friday. A relief deal could prove just as difficult to reach as it did before Election Day. Senate Majority Leader Mitch McConnell, R-Ky., again called for a targeted aid package. In Kentucky, he argued a better-than-expected October jobs report that saw the U.S. unemployment rate fall to 6.9% reduces the need for a sweeping stimulus bill. ‘I think it reinforces the argument that I’ve been making for the last few months, that something smaller – rather than throwing another $3 trillion at this issue – is more appropriate,’ he told reporters…”

November 10 – Wall Street Journal (Telis Demos): “Senate Republicans, led by Mitch McConnell, have an opportunity to fill two key posts at the Federal Reserve before President-elect Joe Biden takes office. Should they do so, it could complicate any efforts to steer financial regulation in a considerably tighter direction in the near term. There are currently two open seats on the Federal Reserve Board of Governors. President Trump has nominated Judy Shelton and Christopher Waller for those positions, but neither has been confirmed by the Senate. Republicans could potentially confirm one or both while they still are assured a majority in the body, rather than risking it on Georgia’s still-undecided Senate races or having to consider whomever Mr. Biden would nominate.”

November 12 – Reuters (Humeyra Pamuk, Alexandra Alper and Idrees Ali): “The Trump administration… unveiled an executive order prohibiting U.S. investments in Chinese firms that Washington says are owned or controlled by the Chinese military, ramping up pressure on Beijing after the U.S. election. The order… could impact some of China’s biggest companies, including telecoms firms China Telecom Corp Ltd, China Mobile Ltd and surveillance equipment maker Hikvision.”

Biden Administration Watch:

November 9 – Financial Times (James Politi): “Joe Biden wants Congress to rapidly reach a deal on new fiscal stimulus, in an attempt to boost the US recovery before he takes office in January. The US president-elect’s platform in the election against Donald Trump included a variety of measures to deliver near-term support to the world’s largest economy, such as aid to state and local governments and enhanced unemployment benefits. The urgency of that aid has increased in recent weeks as coronavirus cases have risen sharply and some local authorities have started to tighten health restrictions… The call for a swift stimulus deal represents an early test of Mr Biden’s ability to drive compromise on Capitol Hill, where he worked for most of his political career as a senator from Delaware.”

November 10 – Wall Street Journal (Richard Rubin): “President-elect Joe Biden’s tax plan is on life support even before he takes office, and his chances of raising taxes on businesses and high-income individuals likely rest on whether Democrats can win two January runoffs in Georgia to take control of the U.S. Senate. If Republicans keep their grip on the Senate, Majority Leader Mitch McConnell (R., Ky.) could block the tax increases Mr. Biden seeks and extend the low-tax Trump era. Even with control of the Senate, Democrats would be limited by what can get through the House, where their majority is shrinking.”

November 9 – Wall Street Journal (Josh Zumbrun and Yuka Hayashi): “President-elect Joe Biden will inherit a U.S. trade policy characterized by tariffs on global imports—on steel and aluminum from most of the world, on wine and cheese from Europe, and on nearly three-quarters of everything the U.S. buys from China. While Mr. Biden hasn’t detailed his specific plans, aides and advisers say he is expected to review those levies. And like President Trump, he will largely be able to act without the need for Congressional support. Some of Mr. Biden’s campaign proposals are likely non-starters if Republicans maintain control of the Senate—but not trade policy, where the president has broad authority to conduct negotiations and peel off or apply new tariffs as he sees fit. ‘It’s really going to be one of the few policy areas where [Mr.] Biden can show results and do so unilaterally,’ said Scott Lincicome, a senior fellow at the Cato Institute… ‘Because some of his signature policies are dead-on-arrival, he’s going to need to show progress elsewhere. That’s where trade and immigration will play a pretty prominent role.’”

November 11 – Bloomberg (David McLaughlin): “Since Joe Biden left office almost four years ago, antitrust enforcement has gone from a backwater of Democratic policymaking to a key tool for reshaping the U.S. economy. That trend is expected to continue — and could even accelerate — under a Joe Biden administration, according to antitrust experts and those who advised his campaign… Biden will take office as progressives have come to see antitrust enforcement as a means for tackling the power of dominant companies and improving economic outcomes for workers. There’s mounting evidence that many industries have grown more concentrated, contributing to such economic woes as income inequality, declining business investment and stagnant wages.”

November 9 – Reuters (Susan Cornwell): “President-elect Joe Biden’s hopes of enacting major Democratic priorities like expanding healthcare access, fighting climate change and providing more coronavirus aid are going to hang on a pair of U.S. Senate races in Georgia in January. Democrats fell short of their goal of taking a Senate majority and actually lost seats in the House of Representatives, making Republicans well positioned to block major Biden legislative initiatives. That leaves Biden’s party with the daunting task of trying to unseat two incumbent Republican senators in the traditionally Republican-leaning state…”

November 10 – New York Times (Jeanna Smialek): “When the Federal Reserve voted to ‘tailor’ post-crisis financial regulations for all but the largest banks in October 2019, Gov. Lael Brainard cast the lone ‘no’ vote. At the long oval table in Fed’s board room, Ms. Brainard laid out — point by detailed point — why she thought the changes risked leaving relatively big banks with too little oversight. It was not an unusual dissent. Ms. Brainard, a leading contender to be President-elect Joseph R. Biden Jr.’s Treasury secretary, has opposed the Fed’s regulatory changes 20 times since 2018. As the sole Democrat left at the Fed board in Washington, Ms. Brainard has used her position to draw attention to efforts to chisel away at bank rules, creating a rare public disagreement at the consensus-driven central bank.”

November 9 – Reuters (Alexandra Alper and Michael Martina): “When he enters the White House in January, Joe Biden will likely stick with the Trump administration’s harsh policies toward Chinese tech giants like Huawei Technologies, bowing to anti-China sentiment among U.S. lawmakers from both parties. Analysts said Biden… would take a more measured approach to Chinese tech threats but was unlikely to unwind Trump’s measures even as he enlists allies to try to force China to adhere to international rules. ‘There would be significant congressional pushback to any rollback of the actions that have already been taken,’ said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics.”

November 9 – New York Times (Cecilia Kang, David McCabe and Jack Nicas): “The tech industry had it easy under President Barack Obama. Regulators brought no major charges, executives rotated in and out of the administration, and efforts to strengthen privacy laws fizzled out. The industry will have it much harder under president-elect Joseph R. Biden Jr. Bipartisan support to restrain its power has grown sharply during the Trump administration, and shows no signs of going away as Democrats regain control of the White House. Mr. Biden is expected to take on the Silicon Valley giants on misinformation, privacy and antitrust, in a sharp departure from the polices pursued while he was vice president under Mr. Obama.”

November 11 – Wall Street Journal (Andrew Ackerman and Paul Kiernan): “A decade ago, Ted Kaufman sought to rein in big banks. Now he will have a significant role in picking the people who supervise them. In 2010, during a brief stint in the Senate, Mr. Kaufman led a push to limit the size of U.S. lenders—a move that would have led to the breakup of the biggest banks had it been successful. Mr. Kaufman is leading President-elect Joe Biden’s transition team, giving him a voice in choosing appointees to fill positions across the government, including the Consumer Financial Protection Bureau and the Securities and Exchange Commission.”

Federal Reserve Watch:

November 9 – Reuters (Howard Schneider, Ann Saphir and Jonnelle Marte): “The United States may still face a wave of debt defaults and ‘significant declines’ in asset prices because of the coronavirus pandemic and recession, the Federal Reserve warned…, in a stark reminder the economy is far from out of the woods. ‘As many households continue to struggle, loan defaults may rise, leading to material losses’ for lenders, the Fed said in its latest biannual Financial Stability Report. Business debt ‘has risen sharply as businesses increased borrowing to weather the period of weak earnings. The general decline in revenues associated with the severe reduction in economic activity has weakened the ability of businesses to services these obligations.’”

November 9 – Bloomberg (Jesse Hamilton and Rich Miller): “The Federal Reserve is warning that asset prices in key markets could still take a hit if the coronavirus pandemic’s economic impact worsens in coming months. Most assets have maintained strong levels so far, as investor appetites increased and the government intervened to support the financial system, according to the Fed’s twice-yearly Financial Stability Report… Signs of weakness are showing in commercial real estate… where property values have begun falling, according to the report. The report also said that hedge fund leverage has remained elevated and that life insurers are reaching debt levels not seen since the 2008 financial crisis.”

November 12 – Bloomberg (Erik Wasson, Christopher Condon and Laura Litvan): “Judy Shelton’s nomination to the Federal Reserve Board of Governors gained new life as Majority Leader Mitch McConnell moved to set up a confirmation vote by the Senate after a year-long delay that raised doubts about whether she would go through. Shelton is one of two of President Donald Trump’s Fed nominees pending in the Senate. If she and Trump’s other pick, Christopher Waller, are confirmed, the outgoing president will have put five of seven members on the U.S. central bank’s board.”

November 10 – Wall Street Journal (Nick Timiraos): “The success of the Federal Reserve’s emergency lending programs in stabilizing financial markets is fueling a political battle over whether the programs should be extended. Divisions over their future are being amplified by partisan gridlock in Congress over whether to provide more economic stimulus. Democrats… see the programs as a potential tool to deliver more aid if Congress doesn’t act, while some Republicans are worried about relying on central bank lending powers as a substitute for congressional spending decisions. The tussle could open a divide between the Fed and the Treasury Department, which have mostly collaborated smoothly this year over providing emergency support after the coronavirus pandemic convulsed Wall Street.”

November 9 – Reuters (Ann Saphir): “The U.S. Federal Reserve for the first time called out climate change among risks enumerated in its biannual financial stability report, and warned about the potential for abrupt changes in asset values in response to a warming planet. ‘Acute hazards, such as storms, floods, or wildfires, may cause investors to update their perceptions of the value of real or financial assets suddenly,’ Fed Governor Lael Brainard said…”

U.S. Bubble Watch:

November 12 – Bloomberg (Vince Golle): “The U.S. federal budget deficit more than doubled in October from a year earlier, reflecting a decline in revenue and increased spending tied to the government efforts to contain the economic damage from the coronavirus. The $284.1 billion shortfall in the first month of fiscal 2021 compared with a $134.5 billion gap in October 2019… Revenue decreased 3.2% and spending jumped 37.3% from a year ago. The figures extend a rapid deterioration in the government’s fiscal position this year after lawmakers scrambled to shore up an economy that ground to a halt… In fiscal 2020… the U.S. amassed a record $3.1 trillion budget shortfall.”

November 12 – Bloomberg (Prashant Gopal): “Prices for single-family homes across the U.S. increased 12% in the third quarter, the biggest annual jump in seven years, according to the National Association of Realtors. The cost of housing is rising everywhere, adding to affordability concerns as millions of Americans lose income during the pandemic. Prices rose from a year earlier in all 181 metropolitan areas measured by the group, and 117 regions had double-digit gains… Mortgage rates near record lows have fueled a surge in demand, pushing buyers to compete for a scarce supply of listings. Many are rushing to the suburbs, looking for extra space to quarantine in comfort…”

November 10 – Wall Street Journal (Lucia Mutikani): “U.S. job openings increased less than expected in September while hiring fell, suggesting the labor market recovery was petering out even before a resurgence in new COVID-19 cases which is expected to slow momentum.”

November 12 – CNBC (Jeff Cox): “First-time claims for unemployment insurance continued their decline last week, hitting another pandemic-era low in a sign that the labor market is gradually improving. …Jobless claims hit 709,000 for the week ended Nov. 7, down from 757,000 the week before… In addition to the decline in the weekly pace, continuing claims also again saw a significant decline, falling to 6.79 million, a 436,000 decrease from a week ago.”

November 11 – New York Times (Ben Casselman): “Two critical unemployment programs are set to expire at the end of the year, potentially leaving millions of Americans vulnerable to eviction and hunger and threatening to short-circuit an economic recovery that has already lost momentum. As many as 13 million people are receiving payments under the programs, which Congress created last spring to expand and extend the regular unemployment system during the coronavirus pandemic. Leaders of both major parties have expressed support for renewing the programs in some form, but Congress has been unable to reach a deal to do so. It remains unclear how the results of last week’s election will affect prospects for an agreement.”

November 11 – CNBC (Diana Olick): “Another record low interest rate on the 30-year fixed mortgage last week did not help drag homebuyers out of their recent slump. Declining demand from buyers caused mortgage application volume to fall 0.5% last week compared with the previous week… Mortgage applications to purchase a home fell 3% for the week and were 16% higher than a year ago.”

November 13 – Wall Street Journal (Alexander Osipovich and Dave Michaels): “Startups in buzzy sectors such as cannabis, electric vehicles, online gambling and space travel are going public using a structure that offers outsize potential rewards to backers while bypassing some safeguards of a traditional initial public offering. Special-purpose acquisition companies, or SPACs, are publicly traded shell companies formed to pursue deals. After such a firm merges with a target company, that company gets the SPAC’s spot on a stock exchange, enabling it to sell shares to the public—including to mom-and-pop investors who have rushed into the market… SPACs—also called blank-check companies—have announced 71 deals with target companies this year, making 2020 the busiest year so far for the process… In at least 15 of those deals, the targets had no revenue last year…”

November 9 – Bloomberg (Ragini Saxena): “The realization that most business can be conducted virtually teamed with a confusing array of testing and quarantine restrictions means many people don’t plan to resume their regular travel routines even once the coronavirus pandemic has subsided, a study by Inmarsat found. As many as 83% of passengers globally are reluctant to fall back into their old travel habits and 31% will travel less often by air, the survey of some 10,000 frequent fliers… Tuesday showed.”

November 7 – Wall Street Journal (Logan Moore): “America’s retired workers are getting squeezed on their health care. Cities and states can’t afford to keep the same medical benefits they promised government retirees. For all 50 states combined, revenue declines for 2020 and 2021 could reach 13% cumulatively, according to Moody’s Analytics projections… ‘With Covid, revenue coming into governments is diminished, making it even more difficult for cities and states to fund retiree health care,’ said Marianne Steger, director of public sector and labor strategy for Willis Towers Watson…”November 6 – Reuters (Tina Qiao and Kevin Yao): “China exports grew at the fastest pace in 19 months in October, while imports also rose… Exports in October rose 11.4% from a year earlier, beating analysts’ expectations of a 9.3% increase and quickening from a solid 9.9% increase in September… Imports rose 4.7% year-on-year in October, slower than September’s 13.2% growth, and underperforming expectations…”

November 11 – Bloomberg (Alexandre Tanzi and Ben Steverman): “Before Covid-19 hit, New York City was home to many of the richest people in the world, an elite group of 30,000 families earning at least $1 million a year. Gotham’s future will be decided by how many of these super-wealthy people remain after the pandemic is over. The top 1% of New Yorkers reported a combined $133.3 billion in income in 2018… They paid $4.9 billion in local income taxes, making up 42.5% of total income tax collected by the city. Those numbers show how the decisions of a tiny number of millionaires and billionaires could have huge fiscal consequences for a city of more than 8 million people.”

Fixed Income Watch:

November 11 – Bloomberg (Sally Bakewell, Drew Singer and Davide Scigliuzzo): “One after another, some of the most embattled names in corporate America are racing to raise easy money while they can. With the coronavirus surging anew across the nation, two prominent companies in the stricken travel industry — American Airlines Group Inc. and Carnival Corp. — outlined plans Tuesday to sell stock. Meantime, in the junk bond market, corporations with weak credit ratings are hurrying to lock in today’s ultra-low interest rates. The rush underscores the angst gripping many companies even as global investors drive financial markets to giddy heights. With reduced odds for a large stimulus package, companies looking for money to tide them through the crisis are riding an election rally and progress toward a vaccine that could end the pandemic.”

November 10 – Wall Street Journal (Esther Fung): “Mall landlords are starting to seek bankruptcy protection or shutting down, the latest signs that the pandemic is deepening a crisis that began before Covid-19. CBL & Associates Properties Inc. and Pennsylvania Real Estate Investment Trust, two midsized publicly listed mall owners, said last week they were filing for chapter 11 bankruptcy protection after their earlier debt-restructuring efforts failed… While retailers like Neiman Marcus Group Inc., Brooks Brothers and J.C. Penney Co. have filed for bankruptcy in recent months, it’s rare for real estate investment trusts that own malls or shopping centers to do so.”

China Watch:

November 13 – Reuters (Tom Westbrook and Scott Murdoch): “A smattering of high-profile Chinese debt defaults this week may give bullish foreign investors pause and likely dampen the debt sales outlook, bankers and analysts said, as a bond market selloff revived worries about flaky government support. State-owned miner Yongcheng Coal and Electricity Holding Group surprised investors and sparked a regulatory probe by defaulting this week on debt obligations just three weeks after it raised a billion yuan ($151 million). That follows, among other wobbles, stress at property developer China Evergrande, a trading halt in Tsinghua Unigroup bonds after a debt warning, and the high-profile default last month of BMW partner Huachen Automotive Group.”

November 10 – Bloomberg: “Unprecedented volume, dozens of trading suspensions and daily circuit breakers: China’s convertible bond market turned so chaotic that regulators released 37 new directives in a day just to calm it down. While the market is no stranger to bouts of speculation followed by crackdowns from Beijing, wild moves last month included one note that surged as much as 180% in a day before losing more than half its value. Activity has cooled since the China Securities Regulatory Commission released its draft rules on Oct. 23, with Tuesday’s trading volume more than 70% lower than last month’s record high.”

November 11 – Bloomberg: “China’s top banking watchdog doubled down on a push to rein in financial technology companies such as Ant Group Co., promising to eliminate monopolistic practices and strengthen risk controls in the industry. Liang Tao, a vice chairman of the China Banking and Insurance Regulatory Commission, said… fintech companies don’t change the nature of the financial industry and regulators should be attentive to the risks and challenges of digitization. Firms should be subject to the same supervision and risk management requirements as banks, he said. Liang’s comments signal that a crackdown, which last week derailed Ant’s $35 billion initial public offering, has further to run.”

November 12 – Dow Jones (Jing Yang and Lingling Wei): “Chinese President Xi Jinping personally made the decision to halt the initial public offering of Ant Group, which would have been the world’s biggest, after controlling shareholder Jack Ma infuriated government leaders, according to Chinese officials with knowledge of the matter. The rebuke was the culmination of years of tense relations between China’s most celebrated entrepreneur and a government uneasy about his influence and the rapid growth of the digital-payments behemoth he controlled.”

November 12 – Bloomberg: “Eyes are on China’s central bank for any signal of potential monetary easing, as a $900 billion funding shortage raises concerns over tighter liquidity. The first clue may come Monday, when the People’s Bank of China is expected to at least offset most of the 600 billion yuan ($91bn) of policy loans coming due this month. The funds — offered by the authorities a year ago via the medium-term lending facility — are just about 10% of the total amount local banks need to repay debt and buy government bonds by the end of 2020. While a meaningful net injection could be a sign that Beijing is committed to ensuring ample cash supply, a withdrawal may stoke fears on tighter monetary policy as the economy recovers from the pandemic. China is among the first countries in the world to consider reversing emergency stimulus measures…”

November 12 – Bloomberg (Philip Heijmans, Michelle Jamrisko, and Bryce Baschuk): “Fifteen Asia-Pacific nations including China aim to clinch the world’s largest free-trade agreement this weekend, the culmination of Beijing’s decade-long quest for greater economic integration with a region that encompasses nearly a third of the global gross domestic product. The Regional Comprehensive Economic Partnership, which includes countries stretching from Japan to Australia and New Zealand, aims to reduce tariffs, strengthen supply chains with common rules of origin, and codify new e-commerce rules.”

November 11 – Financial Times (Mercedes Ruehl and Tom Mitchell): “Semiconductor Manufacturing International Corporation, China’s biggest chipmaker, warned… its business was suffering delays and uncertainty due to US export restrictions introduced in September, even as it reported a 32% rise in third-quarter revenue to $1.08bn. SMIC, regarded as China’s most promising hope for breaking the country’s dependence on foreign manufacturers, acknowledged it was facing ‘extended or uncertain delivery lead times’ for some US equipment as well as logistics delays due to the restrictions.”

November 11 – Reuters (Winni Zhou and Andrew Galbraith): “The Shanghai Interbank Offered Rate (SHIBOR) for the overnight tenor rose to 2.521% on Thursday, the highest since Jan. 17. The volume-weighted average of the benchmark repo for the same tenor traded in the interbank market also rose to a near 10-month high of 2.522%… Rising overnight borrowing rates in China’s interbank market this week reflect tightening cash conditions as the economy rapidly recovers, giving the central bank room for a more flexible approach to monetary policy…”

November 6 – Reuters (Tina Qiao and Kevin Yao): “China exports grew at the fastest pace in 19 months in October, while imports also rose… Exports in October rose 11.4% from a year earlier, beating analysts’ expectations of a 9.3% increase and quickening from a solid 9.9% increase in September… Imports rose 4.7% year-on-year in October, slower than September’s 13.2% growth, and underperforming expectations…”

November 9 – Reuters (Stella Qiu and Ryan Woo): “China’s factory-gate prices fell at a sharper-than-expected pace in October, weighed by soft demand for fuel even as the trade and manufacturing sectors staged impressive recoveries from their COVID-19 slump. Consumer inflation was also soft, easing to an 11-year low as pork prices snapped a year-and-a-half of steep increases that was fuelled by critical shortages of the popular meat.”

November 10 – Wall Street Journal (Xie Yu): “China Evergrande Group, the heavily indebted property developer, has scrapped plans to list a key unit after striking deals with co-investors that should avert a near-term cash crunch. However, after abandoning the plan to take its Hengda Real Estate subsidiary public, Evergrande still needs to find ways to cut its borrowings so that it isn’t in breach of official red lines on property-industry debt, analysts said. Evergrande was China’s largest property developer by contracted sales last year and is Asia’s largest junk-bond borrower. The company is known for unconventional financial tactics and for venturing into other business lines like electric vehicles.”

November 9 – Wall Street Journal (Dan Strumpf): “By most measures, China is no longer just leading the U.S. when it comes to 5G. It is running away with the game. China has more 5G subscribers than the U.S., not just in total but per capita. It has more 5G smartphones for sale, and at lower prices, and it has more-widespread 5G coverage. Connections in China are, on average, faster than in the U.S., too.”

Central Bank Watch:

November 10 – Reuters (Balazs Koranyi and Francesco Canepa): “Taking a break from fighting the coronavirus crisis, the world’s top central bankers will attempt to resolve the existential questions of their profession this week as they tune into the European Central Bank’s annual policy symposium… For now, the only consensus is that the economic order is shifting. Globalisation, climate change, digitalisation, ageing populations, rising inequality and the coronavirus pandemic are changing consumer habits, keeping a lid on prices and pushing down, sometimes below zero, the interest rate needed to keep inflation stable. ‘Whatever are the structural factors hiding behind the observed decline in natural interest rates, the downward trend poses important challenges to the existing monetary policy frameworks,’ Klaus Adam, a professor at the University of Mannheim, wrote in a paper that will be presented at the symposium.”

November 12 – Bloomberg (Craig Torres, Lucy Meakin and Jeff Black): “Just eight months after they swung into action to avert a crippling depression and credit crunch, central banks are in the uncomfortable position of relying on governments to power fragile economic rebounds. The decisions their counterparts make will affect not just the growth outlook for the next few quarters, but could shape central banks’ policy options, and even their credibility, for years to come. Monetary authorities entered the Covid-19 crisis with the least conventional policy space — namely, interest-rate cuts — of any postwar downturn. After pulling down borrowing costs near or even below zero and deploying massive asset-purchase programs, they are now practically begging governments to step up. Without aggressive fiscal stimulus now, the danger is that economies develop deep scars that hobble growth over the longer term.”

November 11 – Bloomberg (Carolynn Look and Piotr Skolimowski): “European Central Bank President Christine Lagarde said policy makers will focus on emergency bond purchases and long-term loans for their next wave of stimulus, effectively ruling out interest-rate cuts as a way to aid the economy. ‘While all options are on the table, the pandemic emergency purchase program and targeted longer-term refinancing operations have proven their effectiveness,’ she said. ‘They are therefore likely to remain the main tools for adjusting our monetary policy.’”

EM Watch:

November 8 – Reuters (Jonathan Spicer, Umit Bektas and Tuvan Gumrukcu): “Turkish Finance Minister Berat Albayrak said… he was resigning for health reasons, the second surprise departure of a top economic policymaker in two days after the central bank chief was ousted. The upheaval follows a 30% slide in the lira to record lows this year amid the coronavirus pandemic as investors worried about falling forex reserves and the central bank’s ability to tackle double-digit inflation. Albayrak’s resignation… came a day after father-in-law President Tayyip Erdogan replaced the central bank governor with a former minister whose policies are seen to be at odds with Albayrak.”

November 11 – Reuters (Marc Jones and Tom Arnold): “A swathe of top investment banks and funds are piling into emerging market assets on a double-lift in confidence after U.S. President Donald Trump’s election defeat and this week’s coronavirus vaccine breakthrough. With poorer economies that rely on natural resources, cheap manufacturing or tourism set to benefit from a recovery in global trade and travel, as well as a more predictable White House, Morgan Stanley’s message on Wednesday was simply ‘Gotta Buy EM All!’.”

November 12 – Reuters (Nivedita Bhattacharjee, Chandini Monnappa, Vibhuti Sharma and Chris Thomas and Abhirup Roy): “India’s retail inflation remained above 7% in October for a second straight month as vegetable prices stayed at elevated levels, worrying policymakers, who are struggling to pull Asia’s third largest economy from a deep slump.”

Europe Watch:

November 10 – Bloomberg (Alessandra Migliaccio, Alessandro Speciale and Chiara Albanese): “Italy may need to spend as much as 10 billion euros ($11.8bn) a month to aid businesses and workers hit by coronavirus restrictions, according to people familiar with the matter. Authorities are working on plans that would help the country navigate through a surge in infections that’s derailed the rebound from one of Europe’s worst recessions.”

November 10 – Financial Times (Robin Wigglesworth): “The current severe economic downturn may force the EU to keep its budget rules suspended for a further year, the bloc’s economics commissioner has said, as he warns there is a risk of a double-dip recession. Paolo Gentiloni said officials would discuss in the coming months whether an extension into 2022 of the ‘general escape clause’ in the EU’s budget rules is merited, and that the overriding message to member states should be that they keep their fiscal support in place as long as needed. ‘The idea of a V-shaped recovery is an illusion and I never believed in it,’ Mr Gentiloni told the Financial Times… ‘The general escape clause will remain in place [for] all of 2021. But that doesn’t mean from January 1 2022 it will be un-triggered.’”

November 11 – Wall Street Journal (Patricia Kowsmann and Margot Patrick): “European banks say they are doing just fine during the coronavirus pandemic. But regulators and bank executives are concerned about the elephant in the room: a wave of bad loans that could overwhelm lenders when government rescue packages end… Yet the unprecedented levels of government and financial-sector support, including repayment moratoriums sometimes covering a quarter of all outstanding loans, have kept households and companies afloat. That means banks haven’t had to recognize those loans as potentially soured. Even bank CEOs are wondering what happens when the support ends… The European Central Bank said bad loans in the eurozone could soar as high as €1.4 trillion, equivalent to $1.7 trillion, if the economies fall even more than expected… That amount would be more than during the aftermath of the financial crisis.”

Leveraged Speculation Watch:

November 12 – Bloomberg (Lu Wang and Melissa Karsh): “The trend is your friend until it isn’t. That’s a lesson hedge funds learned the hard way during this week’s market turmoil. Promising news on Covid-19 vaccines set off a violent rotation among stocks Monday and Tuesday that went against professional money managers. As a result, funds that make both bullish and bearish equity bets based on business fundamentals saw their alpha — the extra return above an equity benchmark — fall the most since March, according to… Goldman Sachs… Specifically, market winners and laggards switched positions at the fastest rate on record Monday…”

November 10 – Reuters (Tommy Wilkes and Saqib Iqbal Ahmed): “Short sellers betting against European and U.S. travel, leisure and bank stocks lost billions of dollars on Monday, after news of a COVID-19 vaccine triggered a rally in shares of companies that have suffered under months of virus-fueled restrictions and lockdowns. Investors positioned to profit from declines in European travel, leisure and bank stocks alone lost more than $500 million on Monday, according to… ORTEX Analytics. Among U.S. shares, just seven travel-linked companies, Carnival Corp, Expedia Group, Booking Holdings Inc, Royal Caribbean Group, American Airlines Group Wynn Resorts and Norwegian Cruise Line Holdings, accounted for $2.35 billion in losses for short sellers…”

November 11 – Bloomberg (Hema Parmar): “For years, hedge funds have blamed placid markets for their uninspiring returns. That excuse won’t fly this year. Volatile markets in which stocks move less in lockstep should be a recipe for making money. But much of the industry is struggling, and clients are losing patience. ‘This year separates the adults from the children,’ said Tim Ng, chief investment officer of Clearbrook Global Advisors… ‘If you are a fundamentally driven, bottoms-up securities manager across any asset class, this should have been the year when you did well. Everything you’ve wanted for years exists.’ The $3.3 trillion industry gained 0.4% through October, according to the Bloomberg Hedge Fund Indices, trailing both stocks and bonds. Hedge Fund Research Inc.’s index looks worse, showing a drop of more than 4%.”

Geopolitical Watch:

November 10 – Reuters (Gabriel Crossly and Ben Blanchard): “China urged the United States… to stop boosting ties with Taiwan, after Washington and Taipei announced they would hold economic talks this month that Taiwan’s government described as a ‘major milestone’ in relations. China considers democratically-ruled Taiwan its own territory with no right to formal ties with other countries, and has watched with growing alarm stepped up U.S. support for the island, including new arms sales and visits to Taipei by senior U.S. officials.”

November 12 – Bloomberg (Iain Marlow and Natalie Lung): “President Xi Jinping effectively neutered the most democratic institution under China’s rule, sending a message to Joe Biden that no amount of pressure will prompt him to tolerate dissent against the Communist Party. China’s top legislative body… passed a resolution allowing for the disqualification of any Hong Kong lawmakers who aren’t deemed sufficiently loyal. Chief Executive Carrie Lam’s government immediately banished four legislators, prompting the remaining 15 in the 70-seat Legislative Council to resign en masse.”

November 12 – Reuters (Robin Emmott): “The European Union called on Beijing… to immediately reverse new rules to disqualify elected legislators, saying the decision was a ‘severe blow’ to the former British colony’s autonomy. ‘This latest arbitrary decision from Beijing further significantly undermines Hong Kong’s autonomy under the ‘One Country, Two Systems’ principle,’ the EU’s 27 governments said… ‘These latest steps constitute a further severe blow to political pluralism and freedom of opinion in Hong Kong,’ the bloc said.”

November 7 – Reuters (Michael Holden): “Current global uncertainty and anxiety amid the economic crisis caused by the coronavirus pandemic could risk another world war, the head of Britain’s armed forces has warned. In an interview aired to coincide with Remembrance Sunday…, Nick Carter, Britain’s Chief of the Defence Staff, said an escalation in regional tensions and errors of judgement could ultimately lead to widespread conflict. ‘I think we are living at a moment in time where the world is a very uncertain and anxious place and of course, the dynamic of global competition is a feature of our lives as well, and I think the real risk we have with quite a lot of the regional conflicts that are gong on at the moment, is you could see escalation lead to miscalculation,’ Carter told Sky News.”

November 12 – Reuters (Marwa Rashad and Alaa Swilam): “Saudi Arabia will strike those who threaten the kingdom’s security and stability with an ‘iron fist’, the crown prince said on Thursday, one day after an attack on a Remembrance Day ceremony injured two in the kingdom.”

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