Displaying items by tag: US

(Washington)

In what is being seen as similar to Nixon’s China moment, President Trump has agreed to a meeting with North Korean leader Kim Jong Un. The meeting will take place within the next few months and the location has not been determined. It is very unusual for two top leaders to meet without a series of lower officials meeting first, but the White House says the approach is suitable in this situation because Un in the only one qualified to make decisions in the very authoritarian regime.

FINSUM: This is a sign of progress after 60 years of conflict, but it also raises the stakes for both sides.

(New York)

With rates looking likely to rise there are increasing concerns that the US housing market might be in for a rough patch. Rising rates mean more expensive mortgages, and combined with the lowering of the interest deduction threshold in the new tax package, real estate could be in for a rough ride. However, the opposite may be the case. The reality is there is low inventory and little new construction, leaving many buyers chasing a shortage of homes. Prices have risen steadily since the Crisis, but with the exception of a few coastal markets, have not surged, meaning pricing still looks reasonable. “Housing is in the third or fourth inning of a nine-inning game”, says one portfolio manager.

FINSUM: All the risk is in mortgage rates. If the Fed hikes very aggressively then it will hurt the market, but if things keep moving at this leisurely pace, housing will likely do just fine.

(New York)

PIMCO, perhaps the most famous bond investor in the world, has just published a piece covering their view of where yields are headed. Their conclusion is that they do see the risk for rates rising as the US budget deficit grows and the economy strengthens, but that on the whole they are not too concerned about a big jump. Their view is best summarized in their own words, “Nevertheless, we believe powerful forces are working against a permanent increase in the trajectory of economic growth in the U.S., including the aging population, productivity trends, sovereign indebtedness, credit growth, and an imbalance between savings and investments”.

FINSUM: Our readers will have noticed that this view exactly matches what we have been saying about bond yields.

(Moscow)

US-Russia relations, already on the rocks, took a definitive turn for the worse yesterday. Using the Russian version of the state of the union address as a platform, Russian leader Vladimir Putin decided to use his speech to warn the US and the West to listen to Russia as it has bolstered its nuclear capabilities. In a nearly two-hour speech, Putin said “Efforts to contain Russia have failed, face it”. Putin highlighted new nuclear capabilities, such as cruise missiles with unlimited range. The speech was accompanied by videos of the weapon systems.

FINSUM: The rumor is that Putin did this more for internal political purposes than to actually antagonize the West. Hopefully that is the case.

(New York)

Bonds have stopped their losses and there is a clear reason why—the market does not believe that the Fed is going to be as hawkish as many feared. The Fed’s January minutes were not as aggressive on raising rates as many suspected, and now bond traders are afraid that inflation may run quite hot without the Fed doing anything about it. Therefore, there is upward pressure on yields, but that force is being contained by the fact that rates are unlikely to be hiked aggressively. The current consensus, based on Fed comments, is that inflation could run to 2.5% before the central bank would become concerned.

FINSUM: The economy is doing quite well at the moment and the Fed doesn’t want to disrupt that by hiking too early.