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June 3, 2017


Jobless Rate Falls to 16-Year Low, But Hiring Slows.

 

https://www.wsj.com/articles/u-s-added-138-000-jobs-in-may-1496406822

 

 

"In Search for Yield, Asset Owners Take on Bank Risks.
Big pension funds and other institutions are bypassing hedge funds specializing in complex regulatory bank trades, going direct and slashing their costs in the process."

http://www.institutionalinvestor.com/article/3722576/banking-and-capital-markets-banking/in-search-for-yield-asset-owners-take-on-bank-risks.html#/.WTIva-vyu0p

We're back! 

Synthetic CDO/CLO reg. arbitrage structures.

And PGGM is very popular at IACPM conferences.

 

"Census Bureau: Public Pension Funds’ Investment Earnings Down 67%."

https://www.ai-cio.com/news/census-bureau-public-pension-funds-investment-earnings-67/

 

"‘Ghost collateral’ haunts loans across China’s debt-laden banking system.

In some cases, collateral that has been pledged simply doesn’t exist. In others, it disappears as borrowers in financial distress sell the assets. There are also instances in which the same collateral has been pledged to multiple lenders. One lawyer said he discovered that the same pile of steel was used to secure loans from 10 different lenders.

 

Total debt in China rose to 277 percent of GDP at the end of 2016, according to Swiss bank UBS. 

Officially, just 1.74 percent of commercial bank loans were classified as non-performing at the end of March.

Fitch Ratings said in a report last September that it had estimated non-performing loans in China’s financial system could be as high as 15 percent to 21 percent.

The value of outstanding bank loans ballooned to $17.2 trillion at the end of April from $5.8 trillion at the end of 2009, according to data from China’s central bank.

 

That’s how the International Finance Corporation (IFC), the World Bank’s investment arm, got taken for tens of millions of dollars by one of China’s richest men.

The deception began in 2007, after the IFC lent the money to Hong Kong-listed Zhejiang Glass Co Ltd, then owned by Chinese tycoon Feng Guangcheng. Two years later, the IFC made an unpleasant discovery: In discussions with other banks it found that the collateral for the IFC loan had also been pledged to other lenders, according to a person with direct knowledge of the case.

Anxious IFC officials hurriedly dispatched lawyers to the land and company registration authorities in Zhejiang Province, where they made another startling discovery: The stamps on the mortgage certificates for the land, properties and industrial machinery used to secure the loan were fake, people familiar with the case said.

Ultimately, the IFC recovered only 2 percent of its loan, according to a person familiar with the case."

http://www.reuters.com/investigates/special-report/china-collateral-fake/

Salad Oil Scandal, updated.

https://en.wikipedia.org/wiki/Salad_Oil_Scandal

 

Also, this is one area where blockchain could work, both functionally and technically.

https://www.kynetix.com/solutions/commodities-blockchain-technology/ (for example)

Ironically enough, China is the world's largest bitcoin miner.

 

"Fretting over savings, Mrs Watanabe turns to bitcoin."

http://www.reuters.com/article/us-bitcoin-asia-idUSKBN18T0K2

'Trading Sardines', cont'd?

 

Data dump.

 

94.6% June 14 rate hike implied probability.

http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html

 

VIX at 9.75.

10yr treasury vol at 4.36. 

http://www.cboe.com/products/vix-index-volatility/volatility-on-interest-rates

 

10yr Sovereigns.

https://www.investing.com/rates-bonds/government-bond-spreads

 

FX.

https://www.investing.com/currencies/streaming-forex-rates-majors

 

Equity.

https://www.investing.com/indices/major-indices

 

Commodities.

https://www.investing.com/commodities/real-time-futures

 

"US Stocks End Higher To Hit New Records

Wall Street closed in the green on Friday, as non-farm payrolls in the US increased by 138 thousand in May of 2017 and the jobless rate dropped to 16-year low of 4.3 percent, paving the way for a rate hike in the next FOMC meeting. Tech stocks commanded gains on Friday, with all three major indices hitting fresh records. The Dow Jones gained 61 points or 0.3 percent to 21206. The S&P 500 climbed 9 points or 0.4 percent to 2439. The Nasdaq jumped 59 points or 0.9 percent to 6306. All three major indices advanced during the week, with the Dow Jones rising 0.6 percent; the S&P 500 1.0 percent; and the Nasdaq 1.5 percent. 

 

DAX 30 Closes At All-Time High

The DAX 30 jumped 158 points, or 1.3%, to an all-time high of 12,823 on Friday with autos among the best performers, after latest data showed new German car registrations rose 13 percent in May. Also, upbeat data across Europe lifted sentiment despite weaker-than-expected jobs data from the US.

 

FTSE 100 Closes At Record High

The FTSE 100 finished up 0.05 points, or less than 0.1%, at an all-time high of 7,548 on Friday, after latest data showed UK construction activity grew at its fastest rate since December 2015 last month, while weaker-than-expected jobs growth in the US weighed on sentiment. Also, other European indices closed in the green: the DAX jumped 158 points, or 1.3%, to a record high of 12,823; the CAC 40 rose 25 points, or 0.5%, to 5,343; and the IBEX 35 added 25 points, or 0.2%, to 10,906; while the FTSE MIB ended near the flat line.

 

Eurozone Producer Prices Flat In April

Industrial producer prices in the Euro Area were unchanged from the previous month in April 2017, following a 0.3 percent fall in March and missing market expectations of a 0.2 percent gain. Higher cost of non-durable consumer goods (0.3 percent from 0.1 percent in March), intermediate goods (0.2 percent from 0.4 percent), durable consumer goods (0.1 percent from 0.2 percent) and capital goods (0.1 percent, the same as in March) was enough to offset a drop in energy prices (-0.6 percent from -1.6 percent). Year-on-year, factory gate prices went up 4.3 percent after increasing by 3.9 percent in the previous month.

 

South Korea Economy Resilient Despite Turmoil

Despite recent geopolitical tensions in the Korean Peninsula and internal political turmoil, South Korea’s economic fundamentals have been surprising resilient. The GDP advanced the most in 1-1/2 years in the first three months of 2017, beating expectations and boosted by exports and investment. The stability of the Won and an outperforming stock market which climbed more than 16 percent in the first five months of 2017 continues to attract foreign investors. Yet, the economy is expected to gather pace in 2017 as foreign demand improves and consumer spending recovers. In addition, the recently elected president Moon Jae-In promised a 10 Trillion Won stimulus plan to foster job creation, support startups, small and medium businesses, alongside possible tax hikes for high income earners. On the other hand, unemployment and growing household debt remain main concerns. 

 

Canada Productivity Rises The Most In Nearly 3 Years

Labour productivity of Canadian businesses rose 1.4 percent on quarter in the first three months of 2017, following a 0.4 percent increase in the previous period and beating market expectations of 0.2 percent. It is the largest gain since the second quarter of 2014 (1.8 percent) and the second time in three quarters that productivity growth exceeded 1 percent. Despite fewer hours worked, business output continued to grow rapidly. The real GDP of businesses rose 1.1 percent. Every major industrial sector except agriculture and forestry increased production. Hours worked to produce goods and services in the business sector edged down 0.3 percent. The decline in hours worked in service-producing businesses (-0.7 percent) more than offset a 0.8 percent increase in hours worked in goods-producing businesses. The drop was widespread in service-producing industries, led by administrative services (-2.6 percent), finance and insurance (-2 percent) and arts and entertainment (-1.9 percent). 

 

Brazil Equities Fall 0.7% On Weak Economic Data

Brazil’s iBovespa lost 422 points or 0.7 percent to 62289, despite economic data showed that GDP advanced 1 percent on quarter in Q1, following a downwardly revised 0.5 percent contraction in the previous period and in line with market expectations. The first expansion in two years was boosted by a jump in exports and a smaller decline in consumer spending. However, public spending fell and investment continued to shrink. Electrobras, Bradespar, and Gerdau led declines on Thursday. Among other stock markets in America, Canada’s TSX gained 120 points or 0.8 percent to 15470. Argentina’s MERVAL jumped 170 points or 0.8 percent to 22519. Chile’s IPSA climbed 33 points or 0.7 percent to 4889. Mexico’s IPC advanced 313 points or 0.6 percent to 49102. Colombia’s COLCAP edged up 3 points or 0.2 percent to 1443. Contrastingly, Peru’s SP/BVL dropped 57 points or 0.4 percent to 15943.

 

Swiss Franc Hits 29-week High

USDCHF decreased to a 29-week low of 0.96665.

 

Coffee Hits 52-week Low

Coffee decreased to a 52-week low of 125.8 USd/Lbs.

 

Rice Hits 49-week High

Rice increased to a 49-week high of 11.24 USD/cwt."

https://tradingeconomics.com/stream

 

Summaries.

 

"US - The first quarter's unexpected weakness was labeled by the Federal Open Market Committee, in their May statement, as no more than "transitory" and that a bounce back in the second quarter, given the strong fundamentals underpinning the consumer, was definitely in the cards. Well, the cards aren't quite playing out that way. Wages are still not underpinning much of anything and may instead be holding back the consumer. And this is not very good for what now looks like a possible train wreck underway, that is second quarter GDP.

 

Week of June 5 to June 9

May updates on the service sector begin the week, first with PMI services, which accelerated in the mid-May flash, followed by ISM non-manufacturing which rose strongly in April. Also released Monday will be factory orders which will close the books on April which looks to have been a weak a month for manufacturing. Job openings in the JOLTs report, which have been rising, will be posted on Tuesday and will likely highlight the unwanted mismatch with hiring which has been lagging. Wednesday's consumer credit and Thursday's jobless claim reports will focus attention on the health of the consumer while wholesale trade, the week's final indicator on Friday, is expected to show a draw for inventories in what would be another negative for second-quarter GDP."

http://mam.econoday.com/byshoweventarticle.asp?fid=481907&cust=mam&year=2017&lid=0#top

 

"Global - Although investors traded with some trepidation, most indexes advanced during the week — and most advanced in May as well. Investors evaluated a slew of economic data including May manufacturing purchasing managers' surveys amongst other key data. The week's climax was the U.S. employment report. It disappointed. On the week, gains ranged from 2.7 percent (Topix) down to 0.1 percent (CAC). The Shanghai Composite and SET were 0.1 percent lower while the MIB lost 1.3 percent.

 

In May, most indexes advanced. The FTSE gained 4.4 percent while the CAC and Dow added only 0.3 percent. The All Ordinaries retreated 3.1 percent with the KLCI edging down 0.1 percent."

http://mam.econoday.com/byshoweventarticle.asp?fid=481906&cust=mam&year=2017&lid=0#top

 

Tech

 

"Bitcoin Firm Coinbase Seeks New Funds at $1 Billion Valuation.

Talks with VC firms come amid virtual currency’s price surge."

https://www.wsj.com/articles/bitcoin-firm-coinbase-seeks-new-funds-at-1-billion-valuation-1496403001

 

"The Most Active Investors In Augmented/Virtual Reality And Their Companies In One Infographic."

https://www.cbinsights.com/blog/active-arvr-investors-infographic/

 

"Video Friday: Robot Dance Teacher, Transformer Drone, and Pneumatic Reel Actuator."

http://spectrum.ieee.org/automaton/robotics/robotics-hardware/video-friday-robot-dance-teacher-transformer-drone-pneumatic-reel-actuator

 

Random

 

'Random Place' today - "Fraunces Tavern. This Wall Street bar was once a hub of revolutionary activity where Washington famously bid farewell to his troops."

http://www.atlasobscura.com/places/fraunces-tavern

 

Events on 6/5 (ET)

 

India  IN:PMI Services Index, 1:00 AM ET

France  FR:PMI Composite, 3:50 AM ET (up to 57.6 consensus)

Germany  DE:PMI Composite, 3:55 AM ET (up to 57.3 consensus)

European Union  EZ:PMI Composite, 3:55 AM ET (flat at 56.8 consensus)

Great Britain  GB:CIPS/PMI Services Index, 4:30 AM ET

USA  US:Productivity and Costs, 8:30 AM ET (up to -0.2% Q/Q productivity, down to 2.6% Q/Q unit cost)

USA  US:Gallup US Consumer Spending Measure, 8:30 AM ET 

USA  US:PMI Services Index, 9:45 AM ET (up to 54.0 consensus)

USA  US:Factory Orders,10:00 AM ET (down to -0.2% M/M consensus)

USA  US:ISM Non-Mfg Index, 10:00 AM ET (down to 57.0 consensus)

USA  US:Labor Market Conditions Index, 10:00 AM ET (down to 2.6 consensus)

http://online.wsj.com/mdc/public/page/2_3063-globalEconomicCalendar.html

 


 

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