Month: July 2019

As markets cross the halfway point for the year, other than a minor pullback in May, it’s hard to argue against the first six months as being anything but spectacular for global assets.

According to Bank of America, the S&P 500 posted the best June return (+6.9%) since 1955. Meanwhile, as Deutsche Bank notes, besides the thrust of the move, it was the broadness of returns which stands out. If we exclude currencies, then 37 of the 38 assets in Deutsche Bank’s sample which cover a variety of asset classes have delivered positive total returns in local currency terms. In other words, just one asset class is down YTD (read on to find out which).

That’s the best start to a year through the first half in terms of broadness of returns since at least 2007. As for June, well this proved to be a microcosm of the year so far with all 38 assets ending the month with a positive total return. If one looks at monthly data back to the start of 2007, “this has only ever happened once before” according to Deutsche Bank’s Craig Nicol.  Amazingly, that was back in January of this year.

In other words, January and June of this year are the only months in the last 150 which have seen all assets post a positive total return. Quite remarkable. Given that the USD weakened during June, it’s perhaps
of little surprise to hear that all 38 assets also had a positive total return in dollar
adjusted terms too.

Looking at last month’s equity performance, aU.S. equities were the clear winner, +18.5% on a total return basis, with the equal-weighted S&P 500 gaining even more (+19.6%), despite small caps underperforming large caps. Global equities lagged US equities, but still posted healthy gains (+16.3% in local currency terms and +16.6% in USD). Long-term treasuries also rose 10.9% as the 10-year yield fell 68bps, while gold gained 10.2%. The VIX index averaged 15.9 in 1H, 4% below 2018’s average.

But as DB notes, the most notable aspect of the moves last month was that it wasn’t a traditional risk-on rally that one might expect. For instance Gold (+8.0%) was the second best performing asset. Silver (+5.1%) also posted a reasonable return while Bunds (+1.1%) hit record lows and Treasuries (+0.9%) broke below 2% at the 10y level. Even a traditional safe haven currency like the JPY (+0.4%) was stronger. This all happened for a reason: central banks are back, and expected to flood the world with more cheap money before they start buying up everything that isn’t nailed down.

Interspersed between those moves though were a fairly wide range of returns for equity markets. At the top end we had the FTSE MIB return +7.6% followed by the NASDAQ (+7.5%), S&P 500 (+7.0%) and Hang Seng (+6.7%). In Europe the STOXX 600 finished in the middle of the pack with a +4.5% return while at the bottom the Portugal General (+2.2%) and European Banks (+1.6%) lagged – the latter clearly impacted by the move lower in rates.

Meanwhile, topping the June leaderboard was oil with WTI rallying +9.3% as tensions in the Middle East rose towards  the end of the month. EM equities (+6.3%), EM bonds (+4.7%) and EM FX (+2.2%) all got a boost from that move along with the weaker USD. As for credit, it was another month of solid but unspectacular returns. US and EUR HY for example returned +2.5% and +2.2% respectively, while US and EUR IG returned +2.7% and +1.6% respectively.

As for Q2, the May dip wasn’t enough to offset the strong performance in April and June. In local currency terms 31 out of 38 assets had a positive total return while 32 did so in dollar adjusted terms. The big winners were Greek and Russian equities, returning +21.7% and +13.4% respectively. DM equity markets posted much more modest returns. The DAX (+7.6%) was the big outperformer with the STOXX 600 returning +3.4% and S&P 500 +4.3%. European Banks (-0.9%) underperformed. As for bonds, Treasuries and Bunds returned +3.1% and +2.0% respectively, with Spanish (+5.5%), EM (+5.1%) and BTPs (+3.7%) delivering solid returns also. In terms of where that left credit, returns spanned from +1.7%  to +4.9% with US outperforming EUR and IG outperforming HY.

Finally, the leaders YTD are still the Greek Athex (+43.1%), WTI (+28.8%) and Brent (+23.7%). In terms of the main equity markets, the NASDAQ (+21.3%) leads the way with the S&P 500 up +18.5% and STOXX 600 +17.2%. US and EUR HY have returned +10.1% and +7.4% respectively while in bond markets Treasuries and Bunds have returned +5.3% and +4.2% respectively. 

Finally, for those asking, the only asset that remains down in 2019 is – drumroll – Silver (-1.2%).

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And just like that, the growthiness-hype from a truce in the trade-war is gone…

10Y back below 2.00%, below Friday’s closing yield…

And the jaws of death continue to widen…

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Russia’s Defense Ministry has confirmed to Interfax and TASS that 14 Russian Navy crew members have died as a result of a fire on one of its deep-sea research submersibles.

The accident is reported to have occurred in Russian territorial waters while the crew was carrying out a survey on July 2, and though little information has as yet been given, it’s believed that the sailors died as a result of smoke inhalation. 

The submersible is reported to currently be at a Russian Navy base in the northwestern city of Severomorsk, and the incident is subject of an ongoing investigation. 

According to a breaking ABC report, citing the AP: 

The fire broke out Monday while the submersible was in Russian territorial waters, the military said. The sailors extinguished the fire and the ship has since returned to port in Severomork, Russia, according to the military, The Associated Press reported.

The main base of Russia’s Northern fleet is located at Severomorsk, in the Murmansk region.

In 2000 the Kursk submarine was destroyed by an explosion in the Barents Sea – among Russia’s most devastating naval accidents – which killed 118 crew members. 

Incidentally, for the grammar nazis, a ‘submersible’ differs from a submarine in that it requires a support vessel on the surface, and though much smaller has similar deep underwater exploration capabilities as a sub. 

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As OPEC+ proudly announces it is extending its production cuts into 2020 (while desperately talking down US shale production), in a last-ditch attempt to support prices, the slew of dismal manufacturing data in the last 24 hours has sparked selling in oil.

“Although a truce has been called between U.S. and China, global manufacturing is in a very bad shape,” said Tamas Varga, an analyst at brokerage PVM Oil Associates Ltd.

WTI is back below $58, erasing all post trade-truce and OPEC-deal gains…

As global manufacturing appears to enter a recession…

Saudi Arabian Energy Minister Khalid Al-Falih said the OPEC+ pact was just the start of a long fight to contend with booming American production…

As Bloomberg notes, the OPEC pact leaves the door open for U.S. shale producers to grab more market share, as the group will have to cut deeper to achieve inventory targets, according to Goldman Sachs Group Inc. The decision creates a clearer downside risk to the bank’s forecast for Brent to average $60 a barrel next year, even though it could result in some shorter-term price spikes.

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A chain of events set off by Senator Chuck Schumer (D-NY) over competing border funding bills served to undermine his longtime ally, House Speaker Nancy Pelosi (D-CA) – a rare rift between the old friends which may put a strain on their working relationship in the months to come, according to The Hill. 

The wheels started turning when Schumer became one of 33 Democrats to vote for the bipartisan Senate bill, even though Pelosi had let Senate negotiators know that she wanted to make important changes to the legislation.

The strong Democratic support for the Senate spending bill then emboldened a group of moderate House Democrats to balk at changes favored by Pelosi and House liberals that would have put greater restrictions on money headed to the border to better protect migrants. –The Hill

In short, Schumer’s support of the Republican-backed Senate bill completely hand-grenaded Pelosi’s. 

Pelosi, faced with an internal revolt, caved to pressure and eventually accepted the Senate bill despite her objections over what she felt were insufficient protections for migrants. 

“This seems to be the only time I can remember in the last two years or three years where Sen. Schumer and Speaker Pelosi were not on the same page,” a House aide told The Hill, who added that a broad swath of Democrats are sour at Schumer for undercutting their position. The aide referred to it as a “unique situation,” however, since many moderate House Democrats favored the Senate’s bill as well. 

“I don’t think it will be repeated again,” said the aide. “The things coming down the pipeline are much bigger, more fundamental issues,” referring to upcoming negotiations between the three branches of government over the debt ceiling. 

The aide predicted that it would be difficult for Senate Majority Leader Mitch McConnell (R-Ky.) to “jam the House on a $1.3 trillion spending bill.”

“There are so many equities involved on both the House and Senate Democratic sides it’s unlikely the House Democratic position could be ignored,” the aide added.

A Pelosi spokesman offered a similar assessment, noting the unique dynamics of the migrant debate coming amid news of horrific conditions at the border — news that broke after the Senate had advanced its bill through committee. –The Hill

According to the aide, the upcoming debate over the debt ceiling will be “totally different,” since Democrats are far more aligned on their priorities on this issue, while Republicans are divided over the issue. 

“There are different leverage points on that,” said the aide. “In those talks, Schumer and Pelosi have been in lockstep.” 

Pelosi needs to be more proactive in order to avoid being railroaded again by the Senate, according to longtime Republican clerk and House Appropriations Committee staff director, Jim Dyer, who said “It might serve as a lesson about the importance that when two bodies are negotiating on these things that you’ve got to get yourself in earlier.”

Pelosi’s poor grasp of the situation and Schumer abandoning her gave a decisive victory to Senate Majority Leader McConnell, who said last Thursday “I’m proud of the Senate for stepping up, passing a bill 84 to 8, that’s as bipartisan as it gets around here, to deal with the humanitarian crisis at the border. We did not in the end continue to play these political games over this humanitarian crisis. They did and it’s their problem to resolve.” 

House liberals, meanwhile, are reportedly furious at Schumer for not pushing back more against McConnell, as a closer Senate vote (it passed 84 to 8) may have given Pelosi more leverage to negotiate for more protections for migrant children. 

“If you heard how often our Republican colleagues invoked the vote out of the Senate, it obviously significantly undermined our leverage and our ability to keep these important protections in the bill,” said Rep. David Cicilline (D-RI). 

And according to The Hill, ‘A growing public clamor for action worked against Pelosi and House liberals.” 

“You had two events in the public eye in the last week or so that got the average person saying, ‘Holy God, something’s got to be done.’ And the second was the reports of inhumane treatment of children at that facility in Texas,” said Dyer. “Democrats and Republicans, alike, are not immune to it and the push is we’ve got to do something and we’ve got to do it fast.” 

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Authored by Ethan Cai via Campus Reform,

A former University of Chicago medical patient filed a class-action lawsuit against the University of Chicago and Google, claiming that the University of Chicago Medical Center is giving private patient information to the tech giant without patients’ consent. 

About two years ago, the university medical center partnered with Google with the hope of identifying patterns in patient health records to help predict future medical issues.

Now, former patient Matt Dinerstein is filing a lawsuit on behalf of the medical center’s patients, alleging that the university violated privacy laws by sharing sensitive health records with Google from 2009 to 2016, aiding Google’s goal of creating a digital health record system, according to the Chicago Maroon.

The suit alleges that the university deceived its patients by telling them that their medical records would be protected, but ultimately violated the Health Insurance Portability and Accountability Act (HIPAA), a federal law that ensures privacy and security for personal medical data. It also claims that UChicago violated state laws in Illinois that makes it illegal for companies to participate in dishonest client practices. 

The complaint details Google’s alleged two-part plan: obtain the Electronic Health Record (EHR) of almost every patient at the UChicago Medical Center, then use the information to create its own lucrative commercial EHR system.

“While tech giants have dominated the news over the last few years for repeatedly violating consumers’ privacy, Google managed to fly under the radar as it pulled off what is likely the greatest heist of consumer medical records in history,” the complaint stated.

“The compromised personal information is not just run-of-the-mill like credit card numbers, usernames and passwords, or even social security numbers, which nowadays seem to be the subject of daily hacks.” 

“Rather, the personal medical information obtained by Google is the most sensitive and intimate information in an individual’s life, and its unauthorized disclosure is far more damaging to an individual’s privacy.”

Dinerstein’s lawsuit claims that EHRs contain patient information ranging from height and weight to diseases they carry such as AIDS or diabetes and medical procedures they have undergone.

The medical records include the demographics of patients, along with their diagnoses, prescribed medicine, and past procedures, the lawsuit alleges. According to the Department of Health and Human Services, HIPAA protects patients’ “individually identifiable health information,” which includes “demographic data, that relates to…the individual’s past, present or future physical or mental health or condition, the provision of health care to the individual, or the past, present, or future payment for the provision of health care to the individual.”

“The disclosure of EHRs here is even more egregious because the University promised in its patient admission forms that it would not disclose patients’ records to third parties, like Google, for commercial purposes,” the lawsuit continued. “Nevertheless, the University did not notify its patients, let alone obtain their express consent, before turning over their confidential medical records to Google for its own commercial gain.”

Google detailed its use of EHRs, including ones obtained from the University of Chicago, in a 2018 research paper. The Big Tech company claimed that there are no privacy concerns because the records did not include the identities of patients.

Although Google claims to lack the personal identity associated with each set of information, the complaint calls this a “false sense of security” for patients, since Google’s comprehensive data-mining abilities, along with the time and date of each treatment and notes from medical providers that the records allegedly contained, allow them to identify each individual. 

“While this type of public misinformation campaign may be expected from a tech company that has been known to play fast and loose with the information of its customers, the fact that a prominent institution like The University of Chicago would act in such a way is truly stunning,” the complaint said. 

According to the lawsuit, Google has been interested in using algorithms to predict looming health issues. To gain the necessary information, Google first developed a personal health information storage platform that it later discontinued because few consumers participated. The company then bought DeepMind, a startup that uses artificial intelligence (AI) to study health care, reported the Chicago Tribune.

UChicago is not the sole institution that has collaborated with Google regarding medical information. Stanford University and the University of California, San Francisco have similar partnerships, according to the research paperpublished by Google.

Campus Reform reached out to UChicago for comment bud did not receive a response in time for publication.

In a statement to Campus Reform, a Google spokesperson maintained that no laws were violated and that multiple individuals and boards vetted the agreement. 

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In what China’s Foreign Ministry spokesman Geng Shuang slammed as “an ugly act of hypocrisy” on Tuesday, Beijing slammed London and Washington for meddling in its domestic affairs after Western politicians backed massive protests in Hong Kong, which spiraled into clashes with police after demonstrators stormed the city’s parliament.

Beijing’s Hong Kong and Macau Affairs Office had blasted Britain, along with the US and the EU, for their position on the Hong Kong protests on Tuesday, accusing them of generating fake news. Without naming the US or Britain, the agency demanded “the relevant countries to immediately stop making false statements and actions that undermine China’s national security and Hong Kong’s prosperity and stability.”

Shuang also voiced “strong dissatisfaction and resolute opposition to one country’s gross interference in Hong Kong affairs and China’s domestic affairs.”

“We once again warn [all] countries to be careful and not interfere in Hong Kong’s domestic affairs in any way”, Geng said, after earlier stating that Britain has “no so-called responsibility” for its former colony Hong Kong and urged London “to know its place” and stop meddling in the tensions there.

Over a million people began marching and staging a sit-in protest in downtown Hong Kong in late-June, denouncing a since-suspended bill that would allow extradition of locals to mainland China. The peaceful protests escalated into sporadic clashes with police, which culminated on Monday when the protesters broke into the city’s parliament building. The rally that day coincided with the anniversary of Britain returning Hong Kong to China in 1997.

Predictably, British Foreign Secretary Jeremy Hunt backed the protesters, saying that London’s support for the city and “its freedoms is unwavering.” and on Monday, Hunt wrote on twitter that “No violence is acceptable but HK people MUST preserve right to peaceful protest exercised within the law, as hundreds of thousands of brave people showed today.”

Away from campaigning want to stress UK support for Hong Kong and its freedoms is UNWAVERING on this anniversary day. No violence is acceptable but HK people MUST preserve right to peaceful protest exercised within the law, as hundreds of thousands of brave people showed today.

— Jeremy Hunt (@Jeremy_Hunt) July 1, 2019

A similar stance was taken by Washington. President Donald Trump, who met Chinese leader Xi Jinping at the G20 event in Japan over the weekend, said that the protesters in Hong Kong are “looking for democracy.” I think most people want democracy. Unfortunately, some governments don’t want democracy.

Brussels called on all sides “to exercise restraint,” and “to engage in dialogue and consultation” in order to defuse the crisis.

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Submitted by Michael Every of Rabobank

Yesterday’s 1 July handover day celebrations in Hong Kong did not go as smoothly at all. After rain had forced the flag-raising ceremony indoors for the first time, early clashes between police and protestors were a harbinger of what was to follow. While hundreds of thousands peacefully marched, thousands of very young protesters literally tore their way through to occupy and graffiti the Legislative Council (LegCo): they blacked out the Hong Kong symbol above Chief Executive Carrie Lam’s chair; briefly lay the British colonial flag on her desk; insisted Lam resign and the Extradition Bill be scrapped, not paused; and left a banner demanding full democracy.

This raises the stakes in all manner of ways. Lam is refusing to move on any front; the silent majority might be sympathetic to the goal but are far from happy with the recent disorder; Beijing is no doubt furious; pro-China protests and groups are already emerging on the streets too, suggesting clashes may occur at some point; and journalists who spoke with the teenagers in LegCo report many profess to be desperate enough to die for their cause. In short, the situation is far from good – for Hong Kong, for markets,…and perhaps for the HKD if one looks further out(?) Don’t forget that the US will be watching closely what happens in terms of HK’s autonomy and its legal recognition of the territory.

At the same time, Iran announced, and the IEAE confirmed, it had exceeded the 300kg uranium-enriching limit set in the 2015 nuclear deal. While Tehran can still step back from this, they are demanding Europe act on circumventing US sanctions on it forthwith to do so. That action will almost certainly trigger a sharp US reaction. The military option is obviously there but is not one US President Trump favours. Yet the razor-sharp tools of tariffs and sanctions and SWIFT and the USD are all available and already being used: would the US really fire them at the EU? (It is already threatening USD4bn more tariffs over the Airbus case.)

Not coincidentally, the head of Mossad gave a rare public speech in which he stated ”I say to you, with certainty, based on the best sources of both Israeli and Western espionage, that Iran is behind these attacks. They were approved by Iranian leadership and carried out, in large part, by the Islamic Revolutionary Guard Corps and its proxies….There is nothing innocent in Iran’s actions in general and in its nuclear project in particular. All claims that the enriched uranium is for research or power are a total lie.” US Secretary of State Pompeo likewise tweeted: “Iran’s regime has taken new steps to advance its nuclear ambitions. Once again, the regime uses its nuclear program to extort the international community and threaten regional security. The world’s top sponsor of terrorism can never be allowed to enrich uranium at any level.” Moreover, the White House has made clear that maximum pressure tactics will continue, and that it no longer believes Iran should have the ability to enrich any uranium at all. In short, the situation is far from good.

For its part, Europe is still tied up in k/nots over who gets what key job and nobody can agree on anything, it seems. France’s President summed up the situation rather brutally: “We have to review all the consequences of such a failure. Our credibility is profoundly stained with meetings that are too long that yield nothing. We give an image of a Europe that is not serious.” Well, quite. If only the EU had serious leadership like Boris Johnson and his “I can confirm he owns more than one pair of socks” official statement; or Jeremy Hunt, who miraculously has billions of pounds to spend if he becomes PM – or not, says his soon-to-be ex-Chancellor Hammond. In short, the situation is far from good.

Meanwhile, against this backdrop this is now the longest US economic expansion in its entire history; the S&P is at a record high; and the Dow just had the best June since 1938.

All I can say is that there are lots of other comparisons one can make with the late 1930s at the moment, and none of them are flattering. None of them suggest a Risk On stance is the right way to go either.

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