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Market Morning: Hong Kong Chaos, Rates Plummet, Gold Soars, Hybrid Lull, Uber Bleeds

ME Staff

Hong Kong Continues Its Slide Into Chaos With Chinese Troops On The Border

Hong Kong stocks (NYSEARCA:EWH) are sliding again, down 15% in a month, as a second mass protest in the Hong Kong airport is threatening to shut down all international flights again. There is worry now that we could see another Tiananmen Square-type situation where the Chinese military comes in and restores order by force. The worry is being echoed by Chris Patten, Hong Kong’s last British governor who left his post when Hong Kong was handed back to Chinese rule in 1997. Patten, commenting on a possible Chinese incursion into the island, said, “That would be a catastrophe for China and of course for Hong Kong.  Since President Xi has been in office, there’s been a crackdown on dissent and dissidents everywhere, the party has been in control of everything.” He was interview by BBC radio. “I very much hope that even after 10 weeks of this going on, the government and President Xi will see the sense in establishing a way of actually bringing people together,” Patten said.

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Rates Plummet on 10Y, Eye Record Lows on 30Y

Interest rates are collapsing fast, nearing record low rates towards the end of the yield curve. Rates on the 10Y US Treasury have fallen a remarkable 48 basis points in three weeks as speculators pile in to bonds in fear of an imminent global economic slowdown. The situation in Hong Kong isn’t helping, nor is the situation in London, which appears to be on the verge of a no deal Brexit. Rates on the 10Y are within 30 basis points of record lows, but at the very long end of the curve at 30 years, rates are within a single basis point of all time record lows. In what looks a bit wacky from a fundamental perspective at least, the spread between 3-month paper and 30Y paper is only 10 basis points. The spread between the 10Y and 3M bills continues down into deeper negative territory at negative 35 basis points.

However, interestingly enough, interest rates on consumer credit cards are actually approaching 25-year highs, indicating that portions of the credit market that are not directly manipulated the Federal Open Market Committee operations may be responding to natural market forces. According to the Financial Times, us consumers are paying higher interest rates on credit card balances than they have in a quarter century. The average rate topped 17% in May. Surveys were taken from 100 national card issuers. The spread between consumer credit rates and Treasuries has only been wider once, in 2009.

Student loans are also being effected, with millennials weighed down by $1.5 trillion in total student debt outstanding. Accoding to Lemberg Law, we are starting to hear some backlash against credit reporting agencies and student loan services to match the stress in the debt markets. “Complaints about credit reporting agencies and student loan services are on pace to quadruple in 2020,” said Sergei Lemberg, CEO of Lemberg Law.

Gold Breaks Through 2011 Resistance

Gold (NYSEARCA:GLD) continues to rocket higher amid plummeting rates and increasing tensions between China and Hong Kong. The metal is now trading at $1,545 an ounce, up about $45 since yesterday and $112 in less than a month. Silver (NYSEARCA:SLV) is on the move as well, though has a long way to go before it reaches its 2016 highs around $21 an ounce. Gold moved past its 2016 highs in mid June. Curiously, gold stocks (NYSEARCA:GDX) fell broadly starting midday yesterday, even as the gold price continued to rise, indicating that either traders are taking profits too early, or that a pullback may be imminent as strong resistance is hit from 2011. Gold equities however are bouncing back in the premarket, so maybe the current rally still has some legs. We are likely to find out in the next few days.

Hybrids in Decline, Full Electric on the Rise

General Motors (NYSE:GM) and Volkswagen (OTCMKTS:VWAGY) are turning away from hybrid and towards fully electric cars in an effort to meet tough emissions standards being enforced around the globe, according to the Wall Street Journal. Volkswagen was caught trying to cheat emissions tests back in 2015, so it can’t afford to try tricking regulators again. “Our strong preference is to go all-in where the market is heading, as opposed to hybrids as a way to hedge our bets,” Volkswagen CEO Scott Keogh told WSJ. Ford (NYSE:F) and Toyota (NYSE:TM) meanwhile are sticking with hybrids, increasing investments in a hybrid F-150 and Toyota keeping up investments in its hybrid Prius.

Uber Nears Record Lows as Making Money May Be Important Again

Uber Technologies (NYSE:UBER), the perennially money-losing unicorn decentralized taxi service, has broken through a $36 handle nearing record lows at $36 flat this morning. The stock was down 7.62% yesterday, and remains well below its initial public offering of $45 a share. Uber CEO reportedly sent an internal email to employees stressing that Uber’s long term value would eventually be realized, which probably means he’s worried that it won’t be. The cash-bleeding company posted a whopping $5.2 billion loss overall, though its core ride-haling business is closer to achieving breakeven. If it can’t make money in this easy money environment, it’s hard to see how it will ever turn an overall profit without breaking up, shrinking, and raising prices on riders substantially.

 

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