Econ omic News for the week ending Friday May 21, 2021

NOTE: Only columns that most interested me are below, but I've done no editing of those columns. 

 Ye Editor, COB, CEO, VP, Director, Secretary, Wine Steward, Executive Washroom Attendant and part time Court Jester

Coronavirus  Watch:

May 21 – CNBC (Nate Rattner): 

“The U.S. is reporting an average of fewer than 30,000 new Covid cases per day for the first time in nearly a year. The seven-day average of new infections is about 29,100 as of Thursday, according to... Johns Hopkins University. This marks the first time the average has dipped below 30,000 since June 22, 2020. Federal data shows the country is reporting 1.8 million daily vaccinations on average over the past week, with 48% of the population having received one shot or more.”

Market Mania Watch:

May 19 – CNBC (Ryan Browne and Arjun Kharpal): “Bitcoin plunged 30% to near $30,000 at one point on Wednesday, continuing a major sell-off in the cryptocurrency markets that began a week ago. The digital currency hit as low as $30,001.51 as the selling intensified Wednesday before paring some of those losses. The crypto currency hasn’t traded at those levels since late January. Bitcoin rebounded as the day went on, was down 12% to about $38,205.49 shortly after 3 p.m. ET. At its intraday low, the cryptocurrency’s loss for the past week was more than 40%.”


May 18 – Bloomberg (Joe Weisenthal): “In case there were any doubt about how hot Bitcoin or ‘crypto’ is these days, look no further than the latest Bank of America fund manager survey. The poll, which captures 194 fund managers with $592 billion worth of AUM overall, says that ‘Long Bitcoin’ is the most crowded trade in the world right now. As the notes in the survey suggest, being identified as crowded has historically been associated with tops: ‘Long Bitcoin’ is now the most crowded trade at 27%. Prior ‘peaks’ in crowded trades (tech Sep'20 & Sep'18, US Treasuries Mar'20, US dollar Jan'17 & Feb'15) were associated with relative tops.’”

May 17 – Bloomberg (Noah Buhayar): “The pandemic is burnishing California’s reputation for costly housing. In the latest sign, home prices in the state shot past $800,000 for the first time in April, according to… the California Association of Realtors. The new median value of $813,980 is up 7.2% from March and 34% from a year earlier… The surge is, in many ways, a snapshot of what’s happening across the U.S., where tight inventory and low mortgage rates are fueling a rally in home prices. Last week, the National Association of Realtors reported that the median sale price for a single-family home rose to a record $319,200.”

 

May 14 – Wall Street Journal (Corrie Driebusch): “The U.S. IPO market, unstoppable for nearly a year, has hit a speed bump. Shares of rapidly growing companies have fallen increasingly out of favor with investors. Many newly listed firms, whose stocks rose after their initial public offerings, have dropped below their IPO prices. At least three companies, leery of jumping into a volatile stock market, postponed their IPOs… The IPO market, which raised a record $168 billion in 2020, has already raised a staggering $158 billion in 2021, according to Dealogic…”

May 20 – Reuters (Akanksha Rana): “Special purpose acquisition companies (SPACS) have raked in a record $100 billion through initial public offerings so far in 2021, data from Refinitiv showed, in what has been Wall Street’s biggest gold rush in recent years. About 341 global SPAC IPOs have been brought to the market since the start of this year, with U.S.-listed SPACs dominating the marketplace…”

Market Instability Watch:

May 20 – Financial Times (Eva Szalay and Philip Stafford): “The bitcoin flash crash has exposed how ‘systemic issues’ under the surface of the cryptocurrency market, combined with leverage offered by many leading exchanges, exacerbate episodes of volatility. Bitcoin prices plunged $10,000 in less than an hour on Wednesday from $40,000 in one of the most severe drops since the world’s most actively traded digital coin began its meteoric ascent to record peaks last autumn… The scale of the losses and recovery in such a short time, coupled with the frenetic nature of the trading, illustrate how even as the digital asset industry has grown rapidly, many systems underlying the market remain fragile and stutter during unusually busy periods.”

Inflation Watch:

May 17 – Yahoo Finance (Aarthi Swaminathan): “Large and popular companies including Chipotle, McDonald’s and Amazon are raising their starting salaries, and experts believe that the trend will likely put more pressure on businesses of all sizes to offer higher wages to stay competitive. ‘Recent wage growth has been strongest in the low-wage service industries where labor markets are most unusually tight,’ Goldman Sachs analysts wrote… ‘This pattern is consistent with widespread anecdotes of service-sector employers raising wages in response to labor shortages — for example, Amazon and Walmart raised wages for almost 1 [million] employees in recent months, while McDonald’s and Chipotle announced pay increases this week — and is especially notable given that unwinding composition effects remain a drag on measured wage growth.’”

May 18 – Bloomberg (Lananh Nguyen): “Bank of America Corp. will boost its minimum hourly wage to $25 an hour by 2025 from a current $20…The move follows four years of pay increases that brought the company’s minimum wage to an hourly $20 in 2020 from $15. The… lender will also require its U.S. vendors to pay employees dedicated to the bank $15 per hour or more… Of more than 2,000 vendors with 43,000 employees, over 99% meet that threshold…”

 

May 19 – Financial Times (Richard Waters): “The supply chain squeeze being felt across many parts of the manufacturing sector is set to hit profit margins at Cisco Systems in the current quarter, the US networking equipment maker said… A shortage of semiconductors has led to a scramble among manufacturers to secure enough of the key components, driving prices higher and pushing up costs throughout the supply chain.”

 
May 17 – Bloomberg (Silvia Martinez and Jorgelina Do Rosario): “Argentina is limiting shipments of beef, a staple in the world’s fifth-biggest exporter, the latest unorthodox move by the government to try to contain runaway inflation that’s approaching 50% annually.”

Biden Administration Watch:

May 20 – CNBC (Jeff Cox): “Corporations around the world should pay at least a 15% tax on their earnings, the Treasury Department said… as part of its push for a global minimum for businesses. The final rate could go even higher than that, according to a Treasury release that said the 15% minimum is a ‘floor and that discussions should continue to be ambitious and push that rate higher.’”

May 18 – CNBC (Jeff Cox): “Treasury Secretary Janet Yellen called… for business leaders to pay higher taxes to support government stimulus spending, and backed stronger labor unions and lowering barriers to foreign competition… Yellen reiterated the White House’s intent to raise taxes on corporations and the highest earners as part of an ambitious infrastructure spending plan. The administration also is seeking a global corporate minimum tax in an effort to stop companies from relocating their bases to avoid higher levies at home. ‘With corporate taxes at a historical low of one percent of GDP, we believe the corporate sector can contribute to this effort by bearing its fair share: we propose simply to return the corporate tax toward historical norms,’ Yellen said…”

U.S. Bubble Watch:

May 20 – Reuters (Lucia Mutikani): “The number of Americans filing new claims for unemployment benefits dropped further below 500,000 last week, but jobless rolls swelled in early May, which could temper expectations for an acceleration in employment growth this month… Initial claims for state unemployment benefits totaled a seasonally adjusted 444,000 for the week ended May 15, compared to 478,000 in the prior week…That was the lowest since mid-March 2020…”

May 21 – CNBC (Diana Olick): “Sales of existing homes dropped 2.7% in April from March to a seasonally adjusted annualized rate of 5.85 million units, according to the National Association of Realtors. It was the third straight month of declines, the group said… ‘I would say it is hot, that is the one word description even with the sales decline,’ said Lawrence Yun, chief economist for the Realtors. For every listing there are 5.1 offers. Half of the homes are being sold above list price.’ The supply of homes for sale at the end of April was down 20%. There were 1.16 million homes for sale, representing a 2.4-month supply... High demand and rock-bottom supply continued to push prices higher. The median price of an existing home sold in April was $341,600, an increase of 19.1% from April 2020. That is both the highest median price on record and the largest annual increase on record.”

May 20 – Bloomberg (Prashant Gopal and Jordan Yadoo): “Across the U.S., house prices are skyrocketing, bidding wars are the norm and supply is scarcer than ever. Now the market is too hot even for homebuilders. Demand is so fevered -- and construction costs are climbing so quickly -- that overwhelmed builders are suppressing orders and shifting away from fixed prices. Companies including D.R. Horton Inc. and Lennar Corp. are experimenting with blind auctions in areas such as Texas, Florida and southern California. Some smaller firms have stopped signing contracts altogether. ‘We’ve shut off sales until homes are nearly completed,’ said Greg Yakim, a partner at CastleRock Communities… ‘We have huge waiting lists.’ In a global economy roiled by supply shortages, the U.S. housing market is struggling with a collision of pandemic-related forces that’s holding back new inventory just when it’s needed most.”

May 19 – Bloomberg (Joe Weisenthal): “We know that demand for housing is red hot, and yet yesterday’s housing starts number came in surprisingly weak. For the month of April we saw a decline of 9.5% from the previous month versus expectations of just a 2% decline. Of course there are lots of bottlenecks and other supply-side factors that everybody knows about. The lumber shortage is a big one. Lack of labor is another. But the sheer lack of land is an important and overlooked issue… Of course, there’s empty land out there that can eventually turn into vacant lots available for development. But this takes time: Buying the land, getting it approved and so forth. And so once again we have this situation where there’s a boom right now that nobody was anticipating a year ago, and so therefore the pipeline of new vacant lots just wasn’t in place. That can be addressed, but it will take awhile.”


May 18 – Wall Street Journal (Konrad Putzier): “More than a year into the pandemic, high-rise office buildings are largely empty. About one of every two hotel rooms is unoccupied. Malls are struggling to attract shoppers. And yet by most measures, the U.S. commercial real-estate market is in remarkably solid shape. Prices fell far less than after the 2008 financial crisis and are already rising again. The number of foreclosures barely increased. Pension funds and private-equity firms are once again spending record sums on buildings. The market’s resilience shows how the federal government’s aggressive efforts to support the economy kept landlords from suffering steep losses.”

Fixed Income Watch:

 

May 17 – Bloomberg (Michael Gambale): “Premiums on BBB rated corporate bonds have fallen to a level last seen before the financial crisis... The average spread to Treasuries for the asset class fell to +107 basis points as of Friday’s close. That’s the lowest level since early 2007…”

May 18 – Bloomberg (Jack Pitcher): “A growing chorus of analysts is warning that high-quality company debt may have nowhere to go but down as investment-grade spreads approach levels last seen in the lead-up to the dot-com bubble. ‘The best days are behind’ for corporate credit, Morgan Stanley strategists led by Srikanth Sankaran wrote… ‘The combination of extended valuations, less favorable technicals and a slower pace of balance sheet repair suggests that credit markets have progressed to a mid-cycle environment.’ Spreads on BBB rated bonds, which account for more than half of the high-grade universe, narrowed to an average of 106 bps over Treasuries on Monday… Should spreads breach 100 bps, it would be the first time since the dot-com era of the late 1990s.”

China Watch:

May 19 – Financial Times (Brooke Masters): “Irreverent overseas analysts have dubbed it ‘Hua-wrong’. But the problems besetting China Huarong Asset Management, the country’s largest distressed debt investor, are deadly serious. Its former chair Lai Xiaomin was executed for corruption in January, it has been unable to file its financial statements since March, its Hong Kong-listed shares are suspended and some of its perpetual bonds are trading below 65 cents on the dollar… Lai’s 2018 arrest called into question the underlying worth of Huarong’s assets, and no one knows whether the central government is still willing to stand behind it. After all, Beijing has spent five years trying to damp down corporate leverage and allowed a string of state-owned enterprises to default on their debt. But few are as large or as systemic as Huarong, with assets worth Rmb 1.7tn ($260bn). ‘It is the test case par excellence about Beijing’s willingness to impose market discipline on the financial sector,’ says Curtis Milhaupt, a Stanford Law School professor who studies Chinese corporate governance. ‘I don’t think they can let Huarong go down . . . but maybe they will impose haircuts on the bondholders and the equity.’”

Global Bubble Watch:

May 20 – Reuters (Ritvik Carvalho and Tommy Wilkes): “After a year of record-breaking cash injections, the world’s big central banks are starting to ease off the stimulus pedal, forcing economies and financial markets to practise walking on their own again… Since March 2020, central banks and governments have flooded markets with some $27 trillion - a third of global gross domestic product, consultancy CrossBorder Capital estimates.”

May 19 – Bloomberg (Ian King and Debby Wu): “Shortages in the semiconductor industry, which have already slammed automakers and consumer electronics companies, are getting even worse, complicating the global economy’s recovery from the coronavirus pandemic. Chip lead times, the gap between ordering a chip and taking delivery, increased to 17 weeks in April, indicating users are getting more desperate to secure supply, according to… Susquehanna Financial Group. That is the longest wait since the firm began tracking the data in 2017, in what it describes as the ‘danger zone.’ ‘All major product categories up considerably,’ Susquehanna analyst Chris Rolland wrote…, citing power management and analog chip lead times among others. ‘These were some of the largest increases since we started tracking the data.’ Chip shortages are rippling through industry after industry, preventing companies from shipping products from cars to game consoles and refrigerators.”

Europe Watch:

May 20 – Reuters: “German producer prices rose by 5.2% year-on-year in April, the biggest increase in nearly a decade…, in a further sign that supply bottlenecks are leading to increased inflation pressure in Europe’s largest economy. The rise in producer prices followed a 3.7% year-on-year increase in March and compared with a Reuters poll forecast of 5.1%. Compared to the previous month, producer prices were up 0.8% in April…”

Emerging Markets Watch:

May 16 – Bloomberg (Shikhar Balwani): “Taiwan stocks slumped, extending their biggest rout in more than a year, as the government tightened restrictions on people and businesses to control its worst outbreak of the coronavirus. The Taiwan Stock Exchange Weighted Index closed the Monday session 3% lower… The benchmark gauge sank 8.4% last week on concern about the impact on growth, the most since March 2020, turning Taiwan stocks into the world’s worst performers so far this month.”

Social Issues Watch:

May 15 – Wall Street Journal (Ben Chapman): 

“Police departments in New York City and other large metro areas across the U.S. are bulking up patrols and implementing new tactics to prepare for what they say could be a violent summer. States lifting Covid-19 restrictions and more people out in public spaces in warmer weather increase the likelihood of more shootings, as well as less-serious crimes, officials say… Shootings and homicides in big U.S. cities are up this year again after rising last year. In the last three months of 2020, homicides rose 32.2% in cities with a population of at least one million, according to the Federal Bureau of Investigation’s Quarterly Uniform Crime Report.”

Geopolitical Watch:

May 19 – Reuters (Nidal Al-mughrabi, Stephen Farrell and Jeffrey Heller): 

“Israel bombarded Gaza with air strikes and Palestinian militants resumed cross-border rocket fire on Tuesday after a brief overnight lull during which the U.N. sent a small fuel convoy into the enclave, where it says 52,000 people are now displaced. Israeli leaders said they were pressing on with an offensive to destroy the capabilities of the armed factions Hamas and Islamic Jihad, amid calls by the United States and other world powers for an end to the conflict.”