10 September 2019. By John Ellis
****News Items Alert! The paywall cometh. The paywall cometh September 18th, to be exact. $10 per month or $90 per annum. Group rates are available for companies, partnerships, academic institutions, government agencies, etc. Subscribers will receive uninterrupted email delivery of News Items as well as commentary and analysis from the editor (and more is planned). Click the "subscribe" button, fill in the usual data, hit "send" and you're good to go.****
1. U.S. consumer borrowing swelled in July by the most since late 2017 as Americans carried larger credit-card balances to fund both everyday and online purchases. Total credit rose by $23.3 billion from the prior month, exceeding all estimates in a Bloomberg survey of economists, Federal Reserve figures showed Monday. Revolving debt outstanding increased by $10 billion, also the most since November 2017, while the growth of non-revolving credit was little changed from a month earlier.
2. Concerns about global trade have reached nearly 10 times the peaks seen in previous decades and could shave about 0.75 percentage point off world economic growth this year, according to data compiled by the International Monetary Fund. The Americas and Asia-Pacific are most affected by concerns about the U.S.-China trade war, while Africa is least affected, the IMF said Monday in a new index aimed at quantifying trade uncertainty.
3. China's factory gate prices contracted for the second month in August and at a sharper rate, reinforcing the urgency for Beijing to step up stimulus as a deepening trade war with the United States heaps pressure on its manufacturing sector and the broader economy. The producer price index (PPI), a key barometer of corporate profitability, dropped 0.8% from year earlier in August, National Bureau of Statistics (NBS) said. It was the worst year-on-year contraction since August 2016, when it fell 0.8%.
4. For all the debate on whether the U.S. is headed for a recession there’s plenty of evidence that corners of the economy may already have tumbled into onea. After two boom years the picture has changed for America’s factories. Battered by rising uncertainty and the damper it has put on capital expenditures, slowing export markets, a stronger dollar, and higher input costs due to tariffs, U.S. manufacturers are making less than they did a year ago. A widely watched index of manufacturing activity compiled by the Institute for Supply Management showed a contraction in August—the first since 2016.
5. In the run-up to his departure on Oct. 31, ECB President Mario Draghi has signaled plans for a large, final burst of monetary stimulus to prop up a eurozone economy that is tottering under the pressure of trade tensions. But critical voices are multiplying, including a growing number from the ECB’s own 25-member rate-setting committee. Mr. Draghi’s critics say the eurozone economy isn’t weak enough to warrant aggressive new measures just a year after the ECB began phasing out its €2.6-trillion ($2.686 trillion) bond-buying program. Borrowing costs for households, businesses and governments are so low, they argue, that easier money will have little effect. The bank’s key interest rate is already minus 0.4%.
6. The global bull run that started in 1985 is now one of the most intense in the debt market’s 700-year history, comparable with a deleveraging and economic growth spurt that followed the Napoleonic wars. Despite longstanding predictions of the end of the bond bull market that started after former Federal Reserve chair Paul Volcker quashed inflation in the 1980s, government debt has kept rallying this year, taking the average annual fall in yields to 17.4 basis points (0.174 percentage points) over the past 34 years. That puts it on the cusp of surpassing the 1873-1909 bull run in length, and makes it the strongest decline in long-term interest rates since 1817-1854, when bond yields declined by 22 bps a year, according to research by Paul Schmelzing, a visiting scholar at the Bank of England.
7. Some investors are shifting money from stocks into corporate bonds, a sign that concern about slower earnings growth isn’t leading to worries about the ability of companies to pay back their debts. Last month, investors pulled a net $46.2 billion from stock funds, the biggest monthly outflow this year, and added $13.5 billion to taxable bond portfolios, according to data provider Lipper. The move highlights tensions between stocks’ near-record highs and the economic worries behind a recent rally in bonds that has sent yields, which fall as bond prices rise, toward record lows.
8. In 2017, the United States extracted from Russia an important CIA source who had provided information about the Kremlin’s interference in the 2016 presidential election, according to current and former officials. The operation, known as an exfiltration, followed mounting concerns among U.S. officials that the individual, whose identity is unknown, could be discovered by the Russian government. The exfiltration took place sometime after an Oval Office meeting in May 2017, when President Trump revealed highly classified counterterrorism information to the Russian foreign minister and ambassador, said the current and former officials, speaking on the condition of anonymity to discuss the sensitive operation. More on this here.
9. Chinese state media warned Hong Kong protesters not to test the patience of the central government and said Beijing would act against subversion after a rally calling for the US Congress to back a bill to help protect the city’s human rights. The commentaries on Monday came a day after thousands of protesters joined a peaceful march to the US consulate in Hong Kong, urging American officials and politicians to support their cause by taking diplomatic action against the city’s government.
10. Boris Johnson faced a resounding defeat before parliament was suspended early on Tuesday, after MPs blocked his second attempt to hold a snap general election on October 15. Last night’s sixth successive Commons defeat capped a calamitous week for Mr Johnson in which MPs seized control of parliament and passed legislation designed to block a no-deal exit. With parliament now prorogued for five weeks, an election cannot take place until November at the earliest. The PM committed to negotiating a new withdrawal agreement at an EU summit next month “while preparing to leave without one." in defiance of parliament.
11. Matteo Salvini took to the streets of Rome yesterday to promise demonstrators outside parliament that he would bring down Italy’s new government and retake control of the country. The former interior minister addressed hundreds of flag-waving supporters as the prime minister, Giuseppe Conte, spoke inside the building to outline the new administration’s pro-European policies. “They will all be thrown out forever,” Mr Salvini tweeted as MPs packed in to hear the prime minister.
12. The US Secretary of Commerce threatened to fire top employees at the federal scientific agency responsible for weather forecasts last Friday after the agency’s Birmingham office contradicted President Trump’s claim that Hurricane Dorian might hit Alabama, according to three people familiar with the discussion. That threat led to an unusual, unsigned statement later that Friday by the agency, the National Oceanic and Atmospheric Administration, disavowing the National Weather Service’s position that Alabama was not at risk. The reversal caused widespread anger within the agency and drew accusations from the scientific community that the National Weather Service, which is part of NOAA, had been bent to political purposes.
13. The cost of the payment protection insurance scandal to British banks hit £50 billion on Monday, after Lloyds Banking Group and Barclays revealed billions of pounds of extra charges from a deluge of last-minute compensation claims. Lloyds warned it would have to set aside £1.2 billion-£1.8 billion to cover its own bill for a mis-selling scandal that dates back to the 1990s and has ensnared every big UK lender. Barclays said it would have to pay an extra £1.2 billion-£1.6billion. The latest charges follow a blitz of warnings last week by rivals, including Royal Bank of Scotland, CYBG and the Co-operative Bank, as millions of consumers raced to submit final compensation claims before a late August deadline set by the Financial Conduct Authority.
14. Ford Motor Co. was dealt a blow by Moody’s Investors Service, which cut the carmaker’s credit rating to junk on doubts that a turnaround plan by Chief Executive Officer Jim Hackett will generate earnings and cash quickly enough. Moody’s downgraded Ford to the highest junk rating, Ba1, saying the automaker’s cash flow and profit margins are below expectations and likely to remain weak over the next two years. The descent to junk status affects one of the largest corporate bond issuers in the U.S. outside the financial sector.
15. California Democrats are poised to pass landmark employment legislation over the objections of two of the companies that would be most affected: Silicon Valley ride-sharing giants Uber and Lyft. The bill already passed the State Assembly 59-15 and is expected to be voted on in the state Senate before the legislative session ends on Friday. Democratic Gov. Gavin Newsom has said he would sign the bill, which intends to force companies that rely on “gig workers” to reclassify them as employees, likely upending the business model of those companies.
16. AT&T’s sweeping transformation from Ma Bell to a multimedia titan has gone both too far and not far enough for Elliott Management Corp. Billionaire Paul Singer’s New York hedge fund disclosed a new $3.2 billion position in AT&T, taking on one of the nation’s biggest and most widely held companies with a plan to boost its share price by more than 50% through asset sales and cost cutting. Investors applauded the development, sending AT&T shares on their biggest intraday rally in more than a decade.
17. Attorneys-general from 50 US states and territories on Monday launched an investigation into Google’s search and advertising businesses, while a separate antitrust inquiry is examining Facebook, marking fresh challenges to Silicon Valley’s dominance.
18. Alibaba Group chairman Jack Ma will step down from the Chinese firm on Tuesday, leaving his handpicked successor a daunting task of steering the $460 billion juggernaut at a time when the market for its core e-commerce business has slowed sharply. Mr. Ma, a former English teacher, founded Alibaba 20 years ago in a small shared apartment in Hangzhou city in eastern China.
19. Apple unveils the 13th iteration of its iPhones later today, with a Pro model which is expected to feature a new third camera lens and wireless charging. Analysts say the new smartphone looks set to underwhelm, but other devices and the company’s fast-growing services business are also in the spotlight.
20. SoftBank, WeWork’s biggest outside shareholder, is urging the loss-making property group to shelve its hotly anticipated IPO, as the We Company eyes a valuation between $15 billion and $20 billion.
21. Matt Levine on WeWork's foundering IPO: "....part of why WeWork is facing pushback is that it is the absolute limit case of unicorn craziness, a company that is entirely controlled by a quirky and charismatic founder who has cashed out hundreds of millions of dollars pre-IPO while retaining voting control of the company for his lifetime and beyond, employing his family members, borrowing money from the company, owning some of the buildings that it rents, starting a separate fund to own more of the buildings, starting weird side businesses like an elementary school, renaming the company “We” and charging it $5.9 million for the name, structuring it in an unusual multi-level way in which he is a co-owner of the business alongside the public-company parent, and going around saying that WeWork is “a state of consciousness” rather than a real estate company."
Quick Links: Giant radio telescope in China just detected repeating signals from across space. Lightning 'superbolts' form over oceans from November to February. Australia races to save fish as rivers run dry. Doctors have put human livers in suspended animation. Chinese scientists develop Alzheimer's drug that regulates gut bacteria. Once or twice weekly daytime nap linked to lower heart attack/stroke risk. Why people gain weight as they get older. Dozens of Google employees say they were retaliated against for reporting harassment. Google Assistant on Pixel 4 can take over calls while you’re on hold. What to expect from today's Apple 2019 iPhone event. The Chinese e-commerce giant you've never heard of. Amazon has 30,000 (not a typo) job openings. Mystery illness kills dozens of dogs in Norway.
Political Links: Nearing election day, Netanyahu says Iran hid a nuclear weapons site. President Trump pronounces Taliban agreement ‘dead’ and peace talks over. North Korea says it’s willing to hold talks with the U.S. in September — then launches two more missiles. Beijing gives Pakistan its backing amid rising Kashmir tensions. Mr. Trump claims he'll release 'extremely complete' financial details. JPMorgan tracks Trump bombshell tweets with 'Volfefe' index. Richest could lose hundreds of billions of dollars under Warren wealth tax. Trump, Pence rally support for Republican candidate in North Carolina special election. Rural Wisconsin still carries a torch for Donald Trump. Sen. Thom Tillis (R-NC) faces a serious primary challenge next year. Jon Ossoff to launch run for Senate in Georgia. For the first time ever, most new working-age hires in the U.S. are people of color. The US government projects the number of workers over 75 will double in the next decade,