China’s teetering economy has led to a godzilla–like credit injection.
Check out China’s all-system financing aggregate.
Since all Central Banks are stimulating their economies with monetary easing except the US Federal Reserve, will the US Fed counter? I feel like I am watching Godzilla versus Mothra.
Yes. Godzilla is Japanese, but it is a short trip across the East China Sea to Shanghai.
Here are The Fed’s Esther George and Lael Brainard invoking the Moth Spirits (as opposed to animal spirits) to combat China’s massive infusion of credit into their economy.
There is considerable divergence between China and the US in terms of financial condition. The trade disagreement between China and the US comes to mind.
First, there is considerable divergence between Hong Kong’s 1-month interbank lending rate, HIBOR, and the US 1-month interbank lending rate LIBOR. In fact, the divergence is the greatest since the financiak crisis. For the moment, the US Fed is engaged in quantitative tightening (QT) while China is frantically going the opposite direction.
Second, Central bank balance-sheet divergence is reducing the impact of China’s government-induced liquidity injections, contributing to an increase in corporate defaults. Since Fed run-off began in October 2017, the impact of People’s Bank of China (PBOC) balance-sheet expansion has diminished considerably, as the FX-adjusted effect of last year’s 1 trillion yuan in central bank stimulus resulted in a $160 billion contraction when converted into U.S. dollars. Total assets at China’s central bank rose 2.6% to a record 37.2 trillion yuan in 2018. Yet, when expressed in dollars, the PBoC’s balance sheet fell by 2.9% to $5.4 trillion.
Chinese onshore defaults rose to a record $16.5 billion in 2018, and are up $1.4 billion year-to-date. China offshore defaults rose to $3.3 billion in 2018, and are up another $275 million in 2019.
The Dow is up over 200 points on a deal preventing a US government shutdown. Democrats agreed to build a wall between the US and Mexico … 55 miles of the 2,000 mile US-Mexico border. As if drug traffickers (and cartels), human traffickers and gangs like MS-13 can’t figure out how to bypass the 55 miles of additional walls.
Financial markets are experiencing “The Crazy World of Libor, Swaps and Treasury Yield Curves.”
In other words, all three curves have a downward sloping section, all at different times, but all short-term (less than 6 year maturities).
What uncertainties are in financial markets and the unlying economies, you may ask? How about trade (e.g., US and China trade flows), Brexit, China’s recession, Japan’s ongoing stagnation (despite negative interest rates), Italy and Germany’s slipping into darkness, not to mention uncerainty about The Fed’s path for balance sheet unwind.
The Fed’s balance sheet is a particular concern since the 10-year Treasury Note yield began to rise when the unwind began, but rates have gone DOWN when the unwind got serious in 2018. Or is Fed Chair Jerome Powell really “The Iceman”?”
Here is a photo of Fed Chair Jerome Powell weiliding his “ice axe.”
The Baltic Dry Index seems to be signalling declining shipping costs … or foundering trade between the US and China.
The Baltic Dry Index is a composite of the Capesize, Panamax and Supramax Timecharter Averages. It is reported around the world as a proxy for dry bulk shipping stocks as well as a general shipping market bellwether.
Yes, the BDI is measuring some distress for China Imports YoY in USD.
No, that isn’t the SS Minnow foundering.
As Bruce Springsteen famously mumbled, The Fed’s Balance Sheet is “Goin’ Down.”
As of Feburary 6, 2016, The Federal Reserve of New York further shrank The Fed’s Balance Sheet by $14.2 billion.
This week it was $11.665 billion of US Treasury Notes and Bonds and $2,525 billion of US Floating Rate Notes. For a grand total of $14.2 billion reduction in liquidity.
Now The Fed has unwound $434 billion of its prodigious balance sheet.
While other central banks filling their punch bowls ever further.
So, The Fed is continuing its draining of the monetary punch bowl on autopilot.
The Federal Reserve’s “maybe we will, maybe we won’t” regarding further shrinking of its balance sheet coupled with keeping its target rate at 2.50% was celebrated by equity investors … and gold investors (including SPDR Gold Shares).
(Bloomberg) — Gold is poised to close out January with a fourth straight monthly gain after the Federal Reserve signaled it’s done raising interest rates for a while, hurting the dollar, and as investors sought a haven against slowing growth and U.S.-China trade disputes.
Spot bullion traded at $1,321.89 an ounce at 10:33 a.m. in London after hitting $1,323.43 on Wednesday, the highest level since May, according to Bloomberg generic pricing. The precious metal is up about 3 percent this month, while the greenback’s decline in January is the most in a year.
Gold volatility remains subdued.
And yes, Powell wounded the dollar.
Yes, The Fed benefitted equity and gold investors while wounding the US Dollar.
For excellent gold charts and analysis, see Jesse’s Cafe Americain site!
And no, that was not a seasonal effect. Existing home sales declined 6.4% MoM in December, the largest decline since November 2015.
And on a YoY basis, existing home sales plunge 10.25%.
US existing homes are very expensive compared to household income and the surge in mortgage rates during 2018 made housing ever less affordable.
The median price for existing home sales shows a seasonal pattern with June typically being the highest for the calendar year and January being the lowest.
Let’s see how Euro Zone and Japan slipping into darkness impacts the US econony and housing market.
The International Monetary Fund (IMF) has downgraded economic growth for the Eurozone to 1.6 for 2019. weoupdatejan2019. But Japan is even worse at a forecast of 1.1% for 2019.
Russia is also forecast to be sub-2% as 1.6%.
The Eurozone and Japan are drunk as a skunk on global Central Bank zero interest rate policies.
Central banks are like Willy Wonka to markets offering golden tickets.
We have the People’s Bank of China wildly expanding their repo purchases to stimulate their economy and have just announced massive investments.
Then we have Trump administration officials \considering measures to roll back tariffs on Chinese products in order to calm financial markets, the Wall Street Journal reported, a report the Treasury Department quickly denied.
Then we have The Fed taking further rate hikes off the table. It sure looks like it!
Then there is the January effect (not the January Jones effect) where stocks decline at the end of the year only to rise at the beginning of the next year.
My bet is on Jerome Powell, The Fed’s own Willy Wonka spreading golden tickets to Wall Street.
China’s central bank, the People’s Bank Of China, now has the world’s largest balance sheet topping even the European Central Bank (ECB). Only The Federal Reserve is shrinking its balance sheet … for now.
The PBOC has injected almost $1.1 trillion in the market over the past two days.
One of the impacts of the balance sheet expansion and repo injections is a reduction in the volatiilty of Chinese stocks. Better known as “numbing volatility.”
On the sovereign side, China’s yield and swaps curves are kinked.
Central bank interfernce in markets seem to be never ending.