Morning Report: Asian sell-off spreads

Vital Statistics:

 

Last Change
S&P futures 2721.25 -35
Eurostoxx index 355.01 -4.73
Oil (WTI) 69.26 0.14
10 year government bond yield 3.15%
30 year fixed rate mortgage 4.93%

 

US stock index futures are down this morning as a sell-off that started in Asia has spread to Europe. Bonds and MBS are up on the risk-off trade.

 

Chinese markets are the catalyst behind the sell-off, and it appears that non state-owned firms are having financing difficulties. The Chinese government addressed the issue on Friday, and while it soothed fears for a couple of days, investors are still worried. Financing difficulties invariably accompany bursting real estate bubbles and China’s bubble has been going on for years.

 

If China’s real estate bubble is bursting, the effect on US interest rates could go a couple of ways. The most likely event will be a drop in inflationary pressures as China’s currency drops and they attempt to export their way out of the problem. They could sell Treasuries to repatriate cash (in crises, you sell what you can, not necessarily what you want to) which would temporarily put upward pressure on US rates. The most likely scenario would be a risk-off one, where Chinese money withdraws out of risky assets in favor of Treasuries. It might cause the Fed to take a break.

 

Speaking of the Fed, the December Fed Funds futures are handicapping a 82% chance of a hike at the December meeting.

 

Economic growth moderated a bit in September, according to the Chicago Fed National Activity Index.

 

Fair Issac, the creator of the FICO score is going to re-work their model in 2019, which may bump up the scores of the more marginal borrower. Borrowers with some dings on their scores could get a boost if they maintain a few hundred dollars in their checking accounts and don’t overdraw them.

 

Jim Cramer warned that a 5% mortgage rate is a “line in the sand” for the economy.  “We’re going to see more and more bad earnings because [a] 5 percent mortgage is the end, that is the line in the sand,” Cramer said Monday on “Squawk on the Street. ” “The mortgage rate is very high in this country.” Cramer has become critical of the Fed’s tightening regime, saying that the Fed is ignoring signals of a slowdown in the economy (particularly in housing). The thing to keep in mind is that rate changes act with a lag of about a year. This year’s moves have yet to be felt in the economy.

 

Note we will get the first estimate of third quarter GDP this Friday. The consensus estimate is for 3.3% growth, a slowdown from the second quarter pace of 4.2%.

 

Donald Trump proposed 10% middle class tax cut, which will be voted on after the election. This is an attempt to rally Republicans to the polls in order to maintain Congress. As of now, it looks like the GOP will probably increase their seats in the Senate, while Democrats are looking to possibly take over the House.

26 Responses

  1. Frist. . .

    Like

  2. Goddamn media and the institutional support it has for the Republican party…

    https://www.vox.com/2018/10/23/18004478/hack-gap-explained

    Liked by 1 person

    • This past Friday, meanwhile, President Trump said that 100 percent of people planning to vote Democratic in the upcoming midterms — a majority of the electorate, in other words — are “crazy.” Nobody cared and almost nobody even noticed.

      Soft-pedaling the basket of deplorables thing, but the media noticed. Just the Democrats and their base are so worked up over everything they can’t focus long enough to weaponize. This isn’t a complaint about a Republican-biased media so much as Democratic incompetence and anti-Trump over-saturation.

      Like

    • One is the constellation of conservative media outlets

      It seems to me there is also a constellation of liberal media outlets that serve as straight up propaganda as well. This is really a complaint about market share and what generates ratings.

      Like

  3. well, i bought a ticket, cause why not.
    actually, i’m a streaky lotto player. every drawing for 2 weeks, not again for 6 months.

    in honor of that:

    Peter Gibbons : What would you do if you had a million dollars?
    Lawrence : I’ll tell you what I’d do, man: two chicks at the same time, man.
    [Peter laughs and then notices Lawrence’s dead serious expression]
    Peter Gibbons : That’s it? If you had a million dollars, you’d do two chicks at the same time?
    Lawrence : Damn straight. I always wanted to do that, man. And I think if I were a millionaire I could hook that up, too; ’cause chicks dig dudes with money.
    Peter Gibbons : Well, not all chicks.
    Lawrence : Well, the type of chicks that’d double up on a dude like me do.
    Peter Gibbons : Good point.
    Lawrence : Well, what about you now? What would you do?
    Peter Gibbons : Besides two chicks at the same time?
    Lawrence : Well, yeah.
    Peter Gibbons : Nothing.
    Lawrence : Nothing, huh?
    Peter Gibbons : I would relax… I would sit on my ass all day… I would do nothing.
    Lawrence : Well, you don’t need a million dollars to do nothing, man. Take a look at my cousin: he’s broke, don’t do shit.

    Like

  4. David Frum sums it up nicely:

    “The Caravan Is a Challenge to the Integrity of U.S. Borders

    If Trump’s opponents stand opposed to policing America’s boundaries, they will not help immigrants—they will only lose votes.
    David Frum

    Short of an election-eve exoneration by Robert Mueller, it would be hard to imagine a nicer October surprise for Donald Trump than an attempt by thousands of unauthorized immigrants to force the borders of the United States. It dramatizes every one of his themes, but none more spectacularly than this: his claim that his opponents will not defend the borders of the United States.”

    https://www.theatlantic.com/ideas/archive/2018/10/caravan-challenges-integrity-us-borders/573691/

    Coupled with the pushback to the crazy idea that sex refers to male and female, you couldn’t ask for better cultural issues to be brought up for Trump right before the election.

    https://www.theatlantic.com/health/archive/2018/10/what-the-trump-eras-new-transgender-definition-means-for-patients/573694/

    https://newrepublic.com/article/151847/trump-warping-debate-trans-rights

    Like

    • This comment has me dying!

      If they actually did nullify the elections, and their courts backed them up, and their police enforced their decrees, then we would each have to make a serious sacrifice for the first time in our comfortable lives. Stop working and peacefully occupy the streets. Risk our jobs. Risk physical violence from the police. Risk the serious prison terms that authoritarian states hand out for peaceful protest. Risk being slandered and libeled as terrorists or traitors.
      The question is: how many of us are really up for that? Am I? I have bills to pay — am I really going to lose first my job and then my life savings and then my house for a principled stand to protect freedom and democracy?

      To be perfectly frank, I probably am, because I’m not a very happy person anyway and I’ve never been all that impressed by this meat imprisonment we dignify by the name of “life,” nor, for that matter, with the company of many of you fellow creatures.

      But most of you actually derive happiness from being alive and associating with other humans. I dunno what you guys are going to do, but history shows very few of us actually are up for the challenge. Students, the Poors, people with nothing to lose — yes, they will be up for it. But they will also tend to be violent. And that will turn the broad middle mass against the cause of resistance. And that’s how fascism works — it actually enjoys popular support because it first provokes and then protects people from violence (except state violence of course).

      Fascism is like a giant game of Prisoner’s Dilemma. If everybody resists, the fascists collapse overnight. But if resistance falls below critical mass, then the resistance is easily suppressed and the penalty for resistance is torture and death. A lifetime of supermarkets and TV makes the prospect of that terrifying. Most people fold not because they are weak but because they are “all too human,” and they make rational calculations. The German people weren’t evil, but evil inundated their society because of all the effects above. And to be honest we’re a lot dumber and a lot softer than the Germans. So I suspect things will not go well here.

      Casey and Miranda October 23 · 09:08:03 AM

      Like

  5. They’ve learned nothing:

    “Could a celebrity boycott of the Super Bowl really help Colin Kaepernick?”

    https://www.vox.com/the-goods/2018/10/23/18014374/rihanna-amy-schumer-boycott-super-bowl-kaepernick

    Trump has to be hoping that they will do this.

    Liked by 1 person

    • You mean Amy Schumer might not be this year’s Doritos ad? That is a bridge too far – count me out for watching the Super Bowl this year.

      Liked by 1 person

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