Soaring U.S. Libor Rate Trickles Into Funding Markets Worldwide

(…) The Libor increase is due in part to the deluge of Treasury-bill issuance since the U.S. debt ceiling was raised in February, which has helped drive bill rates to the highest since 2008. The U.S. tax overhaul is also coming into play, by spurring expectations that companies will park cash in commercial paper as part of repatriating money. And of course there’s the fact that the Federal Reserve is tightening policy.

Whatever the explanation, the phenomenon is becoming a global one. (…)

U.S. interest rates rose after the U.S. elections but they really accelerated since last September: LIBOR spiked 62%, the 2Y 79% and the 5Y 62%. This is surely biting in both the real and finance worlds.

And now this breakout: (The Daily Shot)

BTW, did you know that capacity utilization in the Eurozone has reached its previous peak levels?

And that German export prices are on an upswing?

TRADE WARS

• Loonie, Peso Surge On Report US Drops NAFTA Demand For Auto Imports

• Trump to Block Chinese Firms Seeking U.S. Tech The White House is preparing to crack down on what it says are improper Chinese trade practices by making it significantly more difficult for Chinese firms to acquire advanced U.S. technology or invest in American companies.

(…) The administration plans to release on Thursday a package of proposed punitive measures aimed at China that include tariffs on imports worth at least $30 billion.

But the tariffs won’t be imposed immediately. Rather, U.S. industry will be given an opportunity to comment on which products should be subject to the duties. As part of the package, the White House will announce possible investment restrictions by Chinese firms in the U.S. and will direct the Treasury Department to outline rules governing investment from China. (…)

It plans to argue that Chinese state-owned firms buy U.S. technology not for commercial purposes, but to apply for military use and otherwise gain an edge in the race for global technological dominance. (…)

The U.S. also contends Beijing improperly subsidizes Chinese companies looking to overtake U.S. rivals in such advanced technologies as semiconductors, artificial intelligence and robotics.

(…) That could mean that the U.S. would insist that Chinese firms form joint ventures before doing business in the U.S., unless China dropped those restrictions.

(…) finance ministers and central bankers from the Group of 20 countries, meeting in Buenos Aires on Tuesday, failed to reach any new agreement on shared principles when it comes to trade policies, as the split between the U.S. and other major economies deepened over the U.S.’s tariff policies. (…)

• Who’s Afraid of Huawei? Security Worries Spread Beyond the U.S. National-security concerns surrounding China’s Huawei Technologies—the world’s biggest supplier of wireless equipment and No. 3 vendor of smartphones—are spreading beyond the U.S. to key allies.

The telecommunications equipment maker was a subject of debate in Canada’s Parliament this week, and the chief executive of South Korea’s largest telecom, considering vendors for next-generation wireless technology, reportedly called Huawei a “concern.”

Australia, where U.S. officials have been pushing a case that the Chinese company is a national security risk, recently pressured the Solomon Islands to drop Huawei as the contractor on an undersea cable connecting the South Pacific nation with Australia. It offered instead to fund a separate cable itself.

Australia is now consulting other nations about their security concerns around Huawei’s involvement in next-generation 5G wireless equipment, officials said. (…)

• Chinese Companies Are Buying Up Cash-Strapped U.S. Colleges

This Chart Shows Worrying Dot-com Bust Deja Vu for James Paulsen

(…) One key metric for fund-manager veteran James Paulsen, who’s now an investment strategist at Leuthold Group, looks at tech stocks versus utilities — the staid, non-cyclical, dividend-rich sector that’s been underperforming and unloved. The relationship between the two shows a potentially scary parallel to the dot-com bubble of the late 1990s, said Paulsen, who’s been in the markets since 1983.

“Similar to the late 1990s, investors today are following each other into the same popular investments and are also, en masse, abandoning discredited conservative alternatives,” said Paulsen. “Caution is increasingly being thrown to the wind and more aggressive behaviors are enhancing the chances of a mishap.” (…)

U.S. Companies Poised for M&A Shopping Spree

U.S. companies are poised to launch a spending spree linked to the recent tax overhaul, hoping to add to growth through mergers and acquisitions, according to a new survey by Ernst & Young LLP.

The professional services company surveyed some 500 executives last month of companies with over $500 million in annual revenues and found that 73% plan to “accelerate” deal making strategies, according to the report. (…)

Some 48% of companies are “willing to pay more for acquisitions in light of tax reform,” according to the survey. (…)

Three quarters of responding executives said their companies are likely to expand manufacturing efforts in the U.S., while 66% expect to pass some of the tax savings to customers. Some 89% of respondents say their companies plan to “enhance compensation,” due to the tax reform. (…)

As I wrote on January 29:

a U.S. company acquiring another company can now write off the entire value of the acquired company’s qualifying assets, effectively reducing the acquisition cost of those assets by 21%. Looked at the other way, most U.S. companies just became more valuable as a result of this wording change in the tax code.

• New law. A 100% first-year deduction for the adjusted basis is allowed for qualified property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023 (after Sept. 27, 2017, and before Jan. 1, 2024, for certain property with longer production periods). Thus, the phase-down of the 50% allowance for property placed in service after Dec. 31, 2017, and for specified plants planted or grafted after that date, is repealed. The additional first-year depreciation deduction is allowed for new and used property. (THOMSON REUTERS TAX & ACCOUNTING NEWS)
• The act also removed the rule that made bonus depreciation available only for new property. (Journal of Accountancy)
• The asset is no longer required to be new to be eligible for 100% expensing. Used property will now qualify, as long as it is the taxpayer’s first use of the property. (Forbes)

The new tax law effectively makes most companies with tangible assets more valuable since acquirers are now allowed to deduct the entire cost for those assets, even if they have already been depreciated by the acquired company. In effect, the tax code allows the same assets to be depreciated for tax purposes over and over.

• Global deals surge past $1tn at fastest ever pace Wave of consolidation in US and activity in UK, China, Germany and Japan drive market

The Paradox of European Stocks’ Failure to Catch Up With U.S.

I have repeatedly fought the “sell the U.S. – buy Europe” theme in the past. This BB article is a good pros-cons piece but it lacks the main point: Europe remains highly disfunctional which is preventing it from solving its issues. Draghi has done his best to boost the economy and markets but politicians have not done much to address key banking, labor, finance, taxation and trade issues. Plus Brexit. If you want to buy equities, why bother Europe when there’s the U.S., Canada and Japan?

Here’s a case in point from Pictet:

Now this:

Confused? You Should Be, and the Fed Too The Federal Reserve could be mistaken in two ways. The economy might be less strong than central bankers think, or it might be strong but create less inflation. Evidence for both views has been coming through this month.

• Yellen Says Gradual Fed Rate Hikes Are Needed to Prevent Overheating

(…) “I think the Fed should and has been gradually raising rates to try to stabilize the labor market, to bring down the pace of job growth to a sustainable level to avoid the economy overheating,” Yellen said Monday in Philadelphia. (…)

Meanwhile,

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2018 is 1.8 percent on March 16.

  

  

(Haver Analytics)

(Gary Shilling’s Insight)

No more Fed put?

Jerome Powell in January 2017:

(…) if risk taking does not threaten financial stability, it is not the Fed’s job to stop people from losing (or making) money.

China’s premier hopes trade war can be averted, pledges more open economy Voicing hopes that Beijing and the United States could avoid a trade war, Premier Li Keqiang told the close of the annual parliament session that China would open its economy further, so that foreign and Chinese firms can compete on an equal footing.

(…) “China’s aim is to ensure that both domestic and foreign firms, and companies under all kinds of ownership structure, will be able to compete on fair terms in China’s large market.” (…)

Li said that as China widens access to its markets, there will be no forced transfers of technology, and China will better protect intellectual property rights. (…)

[President Xi] reiterated increasing global concerns over China’s rise were unjustified and added: “Only those who are in the habit of threatening others will see everyone else as a threat.” (…)

Europe Is Only Halfway To Healthier Banks 

Here’s What Wall Street Analysts Are Saying About Facebook’s Data Scandal

(…) when it comes to digital advertising, Facebook and Alphabet Inc.’s Google have a lock on the market. Together, the two companies accounted for 58.5 percent of the U.S. market in 2017, according to EMarketer. (…)

• What is Cambridge Analytica, and what did it do? A guide to the Facebook scandal and its political fallout