Weekly Commentary
by Doug Noland
Friday, June 18, 2021
For the Week Ending June 18, 2021:
GLOBAL STOCK INDEXES:
S&P500 fell 1.9% (up 10.9% y-t-d)
Dow dropped 3.4% (up 8.8%)
Utilities lost 3.1% (up 0.9%)
Banks sank 7.8% (up 21.7%)
Broker/Dealers dropped 4.2% (up 20.5%)
Transports sank 4.6% (up 16.9%)
S&P 400 Midcaps dropped 4.1% (up 13.2%)
Small cap Russell 2000 fell 4.2% (up 13.2%)
Nasdaq100 added 0.4% (up 9.0%)
Semiconductors fell 1.8% (up 12.8%)
Biotechs declined 1.2% (up 3.0%).
With GOLD bullion down $113,
the HUI gold stock index sank 11.8% (down 9.5%)
U.K.'s FTSE fell 1.6% (up 8.6% y-t-d).
Japan's Nikkei little changed (up 5.5% y-t-d).
France's CAC40 dipped 0.5% (up 18.3%)
German DAX lost 1.6% (up 12.6%).
Spain's IBEX 35 dropped 1.9% (up 11.9%).
Italy's FTSE MIB fell 1.9% (up 13.4%)
Brazil's Bovespa index dipped 0.8% (up 7.9%)
Mexico's Bolsa lost 1.9% (up 14.2%).
South Korea's Kospi added 0.6% (up 13.7%).
India's Sensex slipped 0.2% (up 9.6%).
China's Shanghai dropped 1.8% (up 1.5%).
Turkey's Istanbul National 100 sank 4.8% (down 5.8%).
Russia's MICEX declined 1.0% (up 15.6%).
US BONDS:
Federal Reserve Credit last week surged $59.3bn
to a record $7.965 TN. Over the past 92 weeks,
Fed Credit expanded $4.238 TN, or 114%.
US MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
declined three bps to 2.93% (down 20bps y-o-y).
Fifteen-year rates
added a basis point to 2.24% (down 34bps).
Five-year hybrid ARM rates
slipped three bps to 2.52% (down 57bps).
Jumbo mortgage 30-year fixed rates
up ten bps to 3.19% (down 30bps).
COMMODITIES:
June 15
– Wall Street Journal
(Ryan Dezember):
“Lumber prices are falling back to Earth.
Futures for July delivery ended Tuesday at $1,009.90 per thousand board feet, down 41% from the record of $1,711.20 reached in early May. Futures have declined 14 of the past 16 trading days. Cash lumber prices are also crashing.”
Spot Gold fell 6.0% to $1,764 (down 7.1%).
Silver sank 7.6% to $25.79 (down 2.3%).
WTI crude added 73 cents to $71.64 (up 48%).
Gasoline declined 0.8% (up 54%)
Natural Gas dropped 2.5% (up 27%).
Copper sank 8.2% (up 18%).
Wheat fell 2.9% (up 4%).
Corn lost 7.1% (up 17%).
Bitcoin dropped $1,738, or 4.7%,
this week to $35,544 (up 22%).
DOUG NOLAND COMMENTARY
(highly edited -- highlights only)
Let’s take a glance at the equities market week:
By S&P sector,
the Materials Index sank 6.3% this week,
Energy 5.2% and the
Industrials 3.8%.
NYSE Arca Gold BUGS Index sank 11.8%.
Philadelphia Oil Services Index fell 6.3%.
The high-flying commodities market was pummeled.
Lumber collapsed 15.2%
- and is now down almost 50% from May 10th highs
(up only 3% y-t-d).
Copper was slammed 8.2%,
Zinc down 7.3%,
Nickel 5.9% and
Tin 5.4%.
Silver was wacked 7.6%,
with Platinum down 9.3%,
Palladium 10.9%, and
Gold 6.0%.
The soft commodities were not spared.
Soybeans were down 7.5%,
Sugar 6.3%, Corn 7.1%, and
Wheat 2.9%.
The U.S. economy is booming,
inflationary pressures are mounting,
and labor markets are rapidly tightening.
It was past time for our central bank to blink.
It’s worth remembering that we’re now 92 weeks (and $4.23 TN!) into the latest bout of QE, liquidity injections that commenced in the pre-pandemic backdrop of near record stock prices and a multi-decade low unemployment rate.
The world changed this week: Markets can no longer fixate singularly on the salve of massive Federal Reserve stimulus.
Coronavirus News Watch:
Market Mania Watch:
June 15
– Reuters
(Anirban Sen and Krystal Hu):
“With more than six months until the year ends, U.S. initial public offerings have already totaled $171 billion, eclipsing the 2020 record of $168 billion, according… Dealogic. Driving the IPO rush are sky-high corporate valuations in the stock market, inflated by the Federal Reserve's low-interest rates and monetary stimulus in the wake of the COVID-19 pandemic. This has fueled a wave of speculative frenzy that benefit not just traditional companies going public, but also special purpose acquisition companies (SPACs) formed strictly to raise money through IPOs. The IPO gold rush is set to reach new heights in the second half of 2021, as a number of high-profile startups… prepare to launch multi-billion dollar share sales.”
June 14
– Bloomberg
(Alex Wittenberg):
“U.S. junk-bond yields fell to a record low Monday as an accelerating economic recovery and the Federal Reserve’s low interest rate policy lead investors to double down on risk. Speculative-grade corporate bond yields dropped four bps to close at 3.84%, breaching the previous low set in May, according to Bloomberg Barclays index data. Investors have made a beeline to new bond offerings this year while low funding costs and a rally in oil prices have also encouraged companies to seek debt financing. Junk-rated borrowers of all stripes sold a record amount of notes in May, and even first-time issuers have met highly receptive buyers…”
June 15
– CNBC
(MacKenzie Sigalos):
“China has long been home to more than half the world’s bitcoin miners, but now, Beijing wants them out ASAP. In May, the government called for a severe crackdown on bitcoin mining and trading, setting off what’s being dubbed in crypto circles as ‘the great mining migration.’ This exodus is underway now, and it could be a game changer for Texas… Despite a lack of reserves that caused dayslong blackouts last winter, Texas often has some of the world’s lowest energy prices…”
Inflation Watch:
June 16
– CNBC
(Alicia Adamczyk):
“The typical U.S. home price hit $287,148 in May 2020, a 13.2% increase from May 2020, according to… Zillow. That’s a record rise since the company started collecting the housing price data in 1996. The cities experiencing the biggest price hikes include Austin, Texas, which saw a 30.5% increase over 2020; Phoenix, which was up 23.5%; and Salt Lake City, with prices climbing 20.6% in the same time frame. Collectively, typical prices grew 10% or more in 46 of the U.S.’s 50 largest metros. House buyers can expect prices to keep climbing in the year to come: Zillow economists are forecasting increases of 14.9% by May 2022.”
June 15
– CNBC
(Jeff Cox):
“Producer prices rose at their fastest annual clip in nearly 11 years in May as inflation continued to build in the U.S. economy… The 6.6% surge was the biggest 12-month rise in the final demand index since the Bureau of Labor Statistics began tracking the data in November 2010. On a monthly basis, the producer price index for final demand rose 0.8%, ahead of the Dow Jones estimate of 0.5%.”
June 14
– Bloomberg
(Matthew Boesler and
Alex Tanzi):
“U.S. consumers’ expectations for inflation over the medium term rose to an eight-year high in May, according to a Federal Reserve Bank of New York survey. The median survey respondent anticipated an inflation rate of 3.6% in three years, up from 3.1% in April… The reading marked the highest level since August 2013, while short-term expectations, over one year, reached a record.”
U.S. Bubble Watch:
June 17
– Associated Press
(Paul Wiseman):
“The number of Americans applying for unemployment benefits rose last week for the first time since April despite widespread evidence that the economy and the job market are rebounding steadily from the pandemic recession… Jobless claims rose 37,000 from the week before to 412,000. As the job market has strengthened, the number of weekly applications for unemployment aid has fallen for most of the year.”
June 13
– Wall Street Journal
(Lauren Weber):
“More U.S. workers are quitting their jobs than at any time in at least two decades, signaling optimism among many professionals while also adding to the struggle companies face trying to keep up with the economic recovery. The wave of resignations marks a sharp turn from the darkest days of the pandemic… In April, the share of U.S. workers leaving jobs was 2.7%, according to the Labor Department, a jump from 1.6% a year earlier to the highest level since at least 2000. The shift by workers into new jobs and careers is prompting employers to raise wages and offer promotions to keep hold of talent.”
June 15
– CNBC
(Diana Olick):
“Even as the coronavirus pandemic ebbs and Americans get back to work and play, they still want more space at home. But with home prices hitting record highs, demand for single-family rental homes is soaring – and so are the rents. Single-family rents were up 5.3% year over year in April, rising from a 2.4% increase in April 2020, according to CoreLogic. That is the largest gain in nearly 15 years. Rents for single-family detached homes (not townhomes), were up an even stronger 7.9% compared with a year ago…”
June 16
– Wall Street Journal
(Nicole Friedman):
“Construction of new housing in the past 20 years fell 5.5 million units short of long-term historical levels, according to a new National Association of Realtors report, which is calling for a ‘once-in-a-generation’ policy response. The industry lobbying group said it hopes the report…, persuades lawmakers to include housing investments in any infrastructure package. U.S. builders added 1.225 million new housing units, on average, each year from 2001 to 2020… That figure is down from an annual average of 1.5 million new units from 1968 to 2000.”
Fixed-Income Bubble Watch:
June 18
– Financial Times
(Joe Rennison in London
and Eric Platt):
“The premium between corporate debt and US Treasuries has dropped to its lowest level in more than a decade in a sign that investors are growing confident recent rises in inflation will not hinder the economic recovery. The collapse in the difference between investment yields — known as the spread — means buyers are demanding a much lower premium than previously for owning corporate debt, which is more risky than super-safe US Treasuries. The spreads between US Treasury and corporate bond yields have tightened markedly this year, as investors gained confidence and clamoured to own even marginally higher yielding assets in a low return world.”
China Watch:
June 14
– Bloomberg
(Finbarr Flynn):
“The size and type of defaults that have occurred in China in recent times indicate that the notion of ‘too big to fail’ may no longer apply to the nation’s borrowers, according to Goldman Sachs… There has been a noticeable up-tick in defaults by Chinese state-owned enterprises since late 2019 and some of the borrowers that have failed to repay debt recently… have had large amounts of outstanding bonds, analysts including Kenneth Ho wrote… ‘Even for large corporates or for state-related entities, policy makers are much less willing to extend support,’ Goldman Sachs analysts wrote. ‘Policy makers are now less likely to conduct full bailouts than compared with the past.’”
Global Bubble Watch:
June 15
– Bloomberg
(Enda Curran):
“Real estate prices around the world are flashing the kind of bubble warnings that haven’t been seen since the run up to the 2008 financial crisis, according to Bloomberg Economics. New Zealand, Canada and Sweden rank as the world’s frothiest housing markets, based on the key indicators used in the Bloomberg Economics dashboard. The U.K. and the U.S. are also near the top of the risk rankings. ‘A cocktail of ingredients is sending house prices to unprecedented levels worldwide,’ economist Niraj Shah wrote… ‘Record low interest rates, unparalleled fiscal stimulus, lockdown savings ready to be used as deposits, limited housing stock, and expectations of a robust recovery in the global economy are all contributing.’”
Japan Watch:
June 15
– Reuters
(Tetsushi Kajimoto and
Daniel Leussink):
“Japan’s exports rose at the fastest pace since 1980 in May and a key gauge of capital spending grew… The jump in exports largely reflected a rebound in shipments from last year’s pandemic-driven plunge, but was a welcome sign as the economy struggles to rebound from the first quarter's doldrums amid a prolonged coronavirus state of emergency.”
Environmental News Watch:
https://elonionbloggle.blogspot.com/2021/06/hysterical-us-drought-and-weather-news.html
Geopolitical Watch:
June 14
– Reuters
(Ben Blanchard):
“Taiwan will be a ‘force for good’ and continue to seek even greater international support, the presidential office said, after the Chinese-claimed island won unprecedented backing from the Group of Seven of major democracies. The G7 leaders… scolded China over human rights in Xinjiang, called for Hong Kong to keep a high degree of autonomy and underscored the importance of peace and stability across the Taiwan Strait. Taiwan presidential office spokesman Xavier Chang said this was the first time the G7 leaders' communique has stressed the importance of peace and stability in the strait and first time since its founding there was ‘content friendly to Taiwan’, expressing deep thanks for the support. Taiwan and G7 member countries share basic values such as democracy, freedom, and human rights, he added.”
June 14
– Reuters
(Ben Blanchard):
“A U.S. aircraft carrier group led by the USS Ronald Reagan has entered the South China Sea as part of a routine mission, the U.S. Navy said…, at a time of rising tensions between Washington and Beijing, which claims most the disputed waterway. China frequently objects to U.S. military missions in the South China Sea saying they do not help promote peace or stability, and the announcement follows China blasting the Group of Seven nations for a statement scolding Beijing over a range of issues.”
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