“Frenzied Feast of Bullish Buyers Puts Risk Market in Danger Zone.”
Record bullish positions are building up across currency, equity and commodity markets as hedge funds and real-money investors dump the dollar and U.S. Treasuries to crowd into risk assets around the world.
Goldman Sachs warns that “extreme” sentiment is propelling global shares to their best start to a year ever, while U.S. government bonds head for their worst on record. Investors are throwing caution to wind to wager more gains are nigh. Those piling into same-way bets are causing some to warn that markets are dangerously close to overextended.
With bulls firmly in control of global markets, it’s no surprise investors are dumping safe assets like U.S. government bonds, with yields on the 10-year touching the highest since April 2014.
With unabashed enthusiasm for all things global, risky and with cash flows linked to global growth, credit markets are on a tear. Spreads on U.S. junk and investment-grade bonds continue to grind lower to the tightest in over a decade.
“If everyone is on the same side of the trade, it could become extremely overextended and therefore it can be a possible reversal signal,” Craig Erlam, market analyst at Oanda Corp. in London, said. “The general conditions are bullish. But when there’s a turn for the worse, you don’t want to be the person to say it’s going to continue on for another year and then it falls off a cliff.”
“U.S. consumer spending rises; savings drop to 10-year low.”
U.S. consumer spending rose solidly in December as demand for goods and services increased, but the gain came at the expense of savings, which dropped to a 10-year low in a troubling sign for future consumption and economic growth.
The Commerce Department said on Monday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.4 percent last month after an upwardly revised 0.8 percent increase in November.
Households continued to dip into savings to maintain spending amid sluggish income growth. Savings are now at levels last seen in December 2007, when the economy slipped into recession, and are a red flag for both consumer spending and economic growth.
The impact of low savings on consumer spending could, however, be temporarily offset by income tax cuts which came into effect in January. Savings fell to $351.6 billion in December from $365.1 billion in the prior month. They declined to $485.8 billion in 2017, the lowest level since 2007, from $680.6 billion in 2016.
The saving rate dropped to 2.4 percent, the lowest level since September 2005, from 2.5 percent in November. It decreased to 3.4 percent in 2017, the lowest level since 2007, from 4.9 percent in 2016. Personal income rose 0.4 percent last month after advancing 0.3 percent in November. Wages increased 0.5 percent last month. Income rose 3.1 percent in 2017, picking up from 2.4 percent in 2016.
Robust consumer spending helped to offset the drag from trade and inventories on the economy, which grew at a 2.6 percent rate in the fourth quarter. GDP increased at a 3.2 percent pace in the third quarter.
“German shock at car exhaust tests on humans and monkeys.”
The German government has denounced experiments funded by German carmakers in which humans and monkeys reportedly inhaled diesel exhaust fumes. German media say the health impact research was done by EUGT, a body funded by Volkswagen, Daimler and BMW.
Such tests could not be justified, the government said, demanding details. A minister called them «abominable». Daimler also condemned them. VW is embroiled in a scandal over software that gave false diesel exhaust data.
In 2015 VW admitted having fitted «cheat» devices in the US that made their engines appear less polluting than they actually were. EUGT was dissolved by the carmakers last year. The initials stand for European Research Group on Environment and Health in the Transport Sector.
«These tests on monkeys or even humans cannot be justified ethically in any way,» said Chancellor Angela Merkel’s spokesman, Steffen Seibert. Environment Minister Barbara Hendricks called the experiments «abominable» and expressed shock that scientists had agreed to conduct them.
On Thursday the New York Times reported that the EUGT research was designed to counter a 2012 decision by the World Health Organization to classify diesel exhaust as a carcinogen. It said that in 2014, EUGT had exposed 10 monkeys to fumes – in an air-tight chamber – from several cars, including a diesel VW Beetle. The testing took place at a lab in Albuquerque, New Mexico.
Daimler, manufacturer of Mercedes-Benz cars, said on Sunday «we are appalled by the extent of the [EUGT] studies and their implementation». «We condemn the experiments in the strongest terms.» Reacting to the NYT report about the monkey experiments, VW tweeted on Saturday that it «explicitly distances itself clearly from all forms of animal abuse».
“All Signs Point to Big Democratic Wins in 2018.”
History, demographics and the national mood are pointing to one conclusion about the 2018 congressional races: Democrats are well-positioned to bring one-party government in Washington under Donald Trump’s presidency to a screeching halt.
There’s a confluence of evidence indicating a so-called wave election may be building that would allow Democrats to wrest the House of Representatives from Republican control. A Democratic takeover of the Senate will be harder to achieve.
Even if only one chamber flips to the Democrats, Trump’s ability to impose his agenda would be thwarted, and his administration almost certainly would find itself pinned down by investigations and subpoenas from congressional committees.
Since the end of World War II, the party in control of the White House has, on average, had a net loss of 26 House seats in midterm elections. Democrats can win control of the House with a net gain of 24 seats in November. They’d need to win two seats to gain a majority in the Senate. Adding to that, Trump’s approval rating at this stage of his presidency, 36 percent, is lower than any of his predecessors going back to Harry Truman, according to Gallup polling data. The less popular the president, the more seats his party tends to lose.
Republicans currently hold a 238-to-193 edge in the House, with four vacancies, and a 51-to-49 advantage in the Senate, but there’s a lot of turnover in their ranks. There are 39 House Republicans who’ve announced they’ll retire or leave to run for another office, or have resigned for other reasons. Several of them are in districts won by Hillary Clinton in the 2016 presidential race. Among Democrats the number of departures is 16.
Three Senate Republicans aren’t running for re-election. Two of them, Jeff Flake of Arizona and Bob Corker of Tennessee, publicly split with Trump and likely would have faced significant primary challenges from the party’s right wing, highlighting some of the ideological splintering among Republicans.
Democrats improved their showing in well-educated, historically Republican areas in the 2016 and 2017 elections, so some hard-fought races in the fall will be in the suburbs. Among the House districts that may be in play are those of Representatives Rodney Frelinghuysen and Leonard Lance in New Jersey, John Culberson in the Houston area, Barbara Comstock in the Virginia suburbs near Washington, and Peter Roskam in the Chicago area.