Daily Commentary

MarketMinder’s View: We quibble with the oversimplified notion ECB rate hikes are directly responsible for the eurozone’s lending deceleration, but we don’t dispute the data are weak. As the chart upfront here shows, August lending to businesses rose just 0.6% y/y—its slowest rate in eight years—while households’ borrowing ticked up 1.0%. Moreover, “The ECB expects output in the 20-nation euro area to stagnate this quarter, though business surveys point to a private-sector contraction.” As one economist put it, “Overall, it looks like the weak economic outlook and higher rates will put a lid on business investment in the coming quarters.” However, none of this should come as a surprise—least of all to markets. While overall private sector lending (corporate and household) slowed from 1.6% y/y in July to August’s 0.6% (per the ECB), nearing stall speed, leading credit indicators signaled economic weakness ages ago. Loan growth has been below inflation for two years, which has long suggested real credit (adjusted for inflation) to the economy has been contractionary. Sentiment may be gloomy and weigh on markets in the short term, but widespread dour moods also sap downbeat data’s surprise power. That makes it unlikely to sway stocks longer term, setting them up to continue climbing bull markets’ wall of worry.

MarketMinder’s View: Here is one of several programs China is implementing to defuse an allegedly long-looming financial crisis that headlines have warned spells hard landing for the economy. “The Inner Mongolia region issued three ‘refinancing’ bonds worth 66.3 billion yuan ($9 billion), with maturities between 3-7 years, the Shanghai Securities News reported, citing an official document. Bloomberg reported earlier that Beijing will allow provincial-level governments to raise about 1 trillion yuan via bond sales to repay the debt of local-government financing vehicles and other state-owned off-balance sheet debt issuers. ‘This means that this year’s special refinancing bond issuance has officially kicked off,’ Huachuang Securities analyst Zhou Guannan said, adding that the program will help resolve debt risks in areas with high debt pressure, and more issuances will follow. The program is being closely watched because debt servicing costs are increasingly limiting local governments’ ability to deliver fiscal support to the economy, dragging on China’s growth. The risk of an unexpected default by local-government controlled financing vehicles also raises financial stability risks.” While refinancing 1 trillion yuan isn’t close to the IMF’s estimated 66 trillion yuan of off-balance sheet financing vehicles local governments are saddled with, it could be a step to a larger program—similar to 2015’s 12 trillion yuan debt swap. While this shifts debts onto provincial governments’ balance sheets, we think the transparency, likely lower interest rates and greater fiscal flexibility can help reduce investor uncertainty. Although Chinese economic growth is slowing amid real challenges, we think this shows that China’s government has the tools and willingness to make a hard landing an unlikely outcome, contrary to fears.

MarketMinder’s View: Everyone’s personal situation and financial circumstances are different, and there is no “one-size-fits-all” when it comes to people’s decision to work. But with many Americans living longer—and healthier—than ever before, their options have broadened, and some are charting their own path. This article opens with a former city manager who, not satisfied with “fly fishing and hiking filled” days in his golden years, decided to “unretire” and find more fulfillment teaching high school. To each their own and more power to them! But apparently he isn’t alone—according to one money manager’s research, “Some 20% of those who consider themselves retired are actually working full-time or part-time, and another 7% are actively seeking employment, the report said.” An executive from the outfit added, “Things have opened back up—and some people have realized that not only do they like the financial benefits of working, but the mental stimulation and social benefits as well.” If you are considering non-traditional retirement, the article offers some advice, including the pros of delaying Social Security for bigger benefits, the social and emotional benefits of working longer and how “Many in-between options are possible, especially since working from home has become routine. You can create your own schedule with part-time work, project-based gigs, or consulting—remotely or in person.” We think the findings here also dampen an investment-related worry. Many think aging populations are auto-bearish for markets because it supposedly makes the economy less productive. As this shows, “unretirement” trends suggest otherwise.