Indeed, contracting household mortgage debt and stagnant corporate borrowings were leading to a highly unusual decline in private-sector Credit. The Composite Leading Indicator is the latest sign of a synchronized slowdown in global growth, adding to recession warnings sparked by industrial figures in Germany last week and slumping trade figures for China… The German DAX equities index rose 1.2%, trading this week to another record high (up 22.8%). Trading to the high since 2010, Spain’s IBEX 35 equities index surged 3.5% (up 11.1%). Italy’s FTSE MIB index gained 2.0% to a five-year high (up 21.9%). Emerging equities were mostly higher. One example: JPMorgan’s German subsidiary last week became a member of ICE Futures Europe’s clearing house in London, so it can clear credit derivatives for Lakeville first time home buyer EU customers. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week dropped $24.5bn to a one-year low $3.223 TN. Before last week, ETF investors had been bullish on U.S. Net inflows for U.S. Foreign U.S. borrowings grew SAAR $292 billion. Total Household borrowings expanded SAAR $516 billion (mortgage SAAR $314 billion. Q3. Total Business borrowings expanded SAAR $575 billion, with Corporate borrowings increasing SAAR $389 billion.
January 17 – Wall Street Journal (Benoit Faucon): “China’s state-run energy giant is making a new approach to strike a $3 billion Iranian oil field, seeking to take advantage of waivers allowed under U.S. Making payments. This story keeps going. If we went to an all-cash system, with no credit, then a lot of Capital – cash – would be tied up in payments between venders and dealers, retailers and wholesalers, customers and merchants, and the like. Prolific sales of junk bonds and significant growth in investment grade corporate debt, coupled with the Federal Reserve weaning the market off quantitative easing, have resulted in what the DoubleLine Capital LP boss called ‘an ocean of debt.’ The investment manager countered President Donald Trump’s claim that he’s presiding over the strongest economy ever. The growth is debt-based, he said… After Q2’s 6.9% rate (strongest since Q1 ’16), Total Business debt growth slowed to 3.9%. The expansion of Corporate (a component of Business) borrowings slowed markedly, from 7.2% to 4.1%. State & Local government debt contracted at a 1.4% pace (Q2 -0.38%). Yet percentage growth rates don’t do justice late in a Credit Cycle. Second, the ease of availability of speculative Credit for the leveraging of securities.
On an SAAR basis, the Federal Reserve increased Agency- and GSE-Backed Securities $1.088 TN during Q2 (nominal $272bn). Winning the Piggy Borrower contest, perennially, was our federal government. Federal borrowings expanded at a 6.8% pace, down slightly from Q2. Trump will turn pragmatic and back down. The indicator, which is designed to anticipate turning points six-to-nine months ahead, has been ticking down since the start of 2018 and fell again in November. January 14 – Financial Times (Kate Beioley): “Last year was a rocky one for stock markets and new investment trusts but a record year for passive funds, with more exchange traded funds (ETFs) listed on the London Stock Exchange in 2018 than in any previous year… Junk bond funds suffered outflows of $2.743 billion, helping along with the VIX spike to spark the biggest jump in high-yield CDS in about a year. January 16 – Bloomberg (Carrie Hong): “China will likely end Japan’s reign as the world’s second-largest bond market this year, according to Standard Chartered Plc. January 17 – Bloomberg (Alexandra Harris): “The benchmark being eyed as a potential replacement for dollar Libor is facing renewed scrutiny after a year-end surge in the market underpinning the new rate.
However, Singapore is in the midst of moving towards a different interest rate benchmark, the Singapore Overnight Rate Average (SORA). California on average in recent years as a historic drought turned the region into a tinderbox. ‘Deleveraging at SOEs is of the utmost importance,’ the Chinese president said at this weekend’s National Financial Work Conference, which convenes only once every five years. Central banks accommodated years of (“counter-cyclical”) massive deficit spending, and now big deficits are the (structural) norm. But once he dies, it is the poor wife who is now stuck with a huge house she no longer wants, an a huge mortgage that needs to be paid off. Eurozone house prices rose at an annual rate of 4.3% in the three months to September, slower than the 4.5% recorded from the start of the year. With more volatility possible, Wall Street is increasingly wondering if the nascent Secured Overnight Financing Rate will be up to the task. A resurgent dollar and higher borrowing costs are smashing through Argentina and Turkey’s currencies like a wrecking ball and raising the likelihood more broadly that emerging markets’ three-year long interest rate cutting cycle is at an end.