Friday, July 23, 2021
Weekly Commentary
by Doug Noland
Following is my edited version
of a long and hard to read column
Ye Editor
GLOBAL STOCK INDEXES:
S&P500 gained 2.0% (up 17.5% y-t-d)
Dow increased 1.1% (up 14.6%)
Utilities declined 0.8% (up 4.5%)
Banks slipped 0.3% (up 23.7%)
Broker/Dealers added 0.9% (up 21.3%)
Transports rose 1.8% (up 18.0%)
S&P 400 Midcaps jumped 2.1% (up 15.9%)
Small cap Russell 2000 rallied 2.1% (up 11.9%)
Nasdaq100 advanced 2.9% (up 17.3%)
Semiconductors surged 4.3% (up 17.3%)
Biotechs recovered 1.6% (up 0.2%).
With gold bullion down $10,
the HUI gold stock index fell 2.3% (down 13.6%)
U.K.'s FTSE added 0.3% (up 8.8% y-t-d)
Japan's Nikkei fell 1.6% (up 0.4% y-t-d)
France's CAC40 rallied 1.7% (up 18.3%)
German DAX increased 0.8% (up 14.2%)
Spain's IBEX 35 jumped 2.5% (up 8.0%)
Italy's FTSE MIB rose 1.3% (up 13.0%)
Brazil's Bovespa declined 0.7% (up 5.1%)
Mexico's Bolsa added 0.2% (up 14.1%)
South Korea's Kospi fell 0.7% (up 13.3%)
India's Sensex dipped 0.3% (up 10.9%)
China's Shanghai increased 0.3% (up 2.2%)
Russia's MICEX fell 0.9% (up 13.5%).
US BONDS:
Federal Reserve Credit last week surged $97.5bn
to a record $8.174 TN. Over the past 97 weeks,
Fed Credit expanded $4.448 TN, or 119%.
US MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
sank 10 bps to a five-month low 2.78%
(down 23bps y-o-y).
Fifteen-year rates fell 10 bps to 2.12%
(down 42bps)
Five-year hybrid ARM rates
increased two bps to 2.49%
(down 60bps)
Jumbo mortgage 30-year fixed rates
slipping a basis point to 3.03%
(down 15bps).
COMMODITIES:
Bloomberg Commodities Index gained 1.3%
(up 22.6% y-t-d).
Spot Gold slipped 0.5% to $1,802 (down 5.1%).
Silver fell 1.9% to $25.18 (down 4.6%).
WTI crude recovered 26 cents to $72.07 (up 49%).
Gasoline jumped 1.7% (up 63%)
Natural Gas surged 10.5% (up 60%).
Copper rose 1.8% (up 25%).
Wheat declined 1.2% (up 7%).
Corn fell 1.6% (up 12%).
Bitcoin rallied $2,522 this week to $33,786
(up 16.2%).
NEWS FROM LAST WEEK:
Coronavirus Watch:
July 22
– CNBC
(Rich Mendez):
“The delta Covid variant is one of the most infectious respiratory diseases ever seen by scientists, the director of the Centers for Disease Control and Prevention said… The variant is highly contagious, largely because people infected with the delta strain can carry up to 1,000 times more virus in their nasal passages than those infected with the original strain, according to new data. ‘The delta variant is more aggressive and much more transmissible than previously circulating strains,’ CDC Director Dr. Rochelle Walensky told reporters… ‘It is one of the most infectious respiratory viruses we know of, and that I have seen in my 20-year career.’”
July 20
– CNN
(Madeline Holcombe and
Theresa Waldrop):
“The more contagious Delta variant of coronavirus now makes up 83% of sequenced samples in the United States, US Centers for Disease Control and Prevention (CDC) Director Dr. Rochelle Walensky said… ‘This is a dramatic increase, up from 50% for the week of July 3, Walensky said… Health experts have said the Delta variant is more transmissible than any other identified variant so far. ‘We should think about the Delta variant as the 2020 version of Covid-19 on steroids,’ Andy Slavitt, a former senior adviser to Joe Biden's Covid Response Team, told CNN… ‘It’s twice as infectious,’ Slavitt said. ‘Fortunately, unlike 2020, we actually have a tool that stops the Delta variant in its tracks: It's called vaccine.’”
July 21
– CNBC
(Saheli Roy Choudhury):
“The world is in the early stages of another wave of Covid-19 infections and death, World Health Organization Director-General Tedros Adhanom Ghebreyesus said… Tedros said the global failure to share vaccines, tests and treatments is fueling a ‘two-track pandemic.’ Countries that have adequate resources like vaccines are opening up, while others are locking down in a bid to slow the virus’ transmission. ‘This is not just a moral outrage, it’s also epidemiologically and economically self-defeating,’ Tedros said… ‘The pandemic is a test and the world is failing.’”
Market Mania Watch:
July 19
– CNBC
(Arjun Kharpal):
“The price of bitcoin dropped below $30,000 late Monday night for the first time since Jun. 22, dragging other digital coins lower with it… At one point early Tuesday, about $89 billion was wiped off the entire cryptocurrency market in a 24-hour period. Since bitcoin’s all-time high of nearly $65,000 in mid-April, its price has plunged over 50%.”
Inflation Watch:
July 21
– Bloomberg
(Ben Holland):
“Single-family home rental prices in the U.S. jumped 6.6% in May from a year earlier, according to CoreLogic Inc., signaling that the housing boom may add to inflationary pressures in the economy. The increase was the fastest since at least 2005… Single-family homes… have seen a surge in demand during the pandemic as Americans sought to move to less densely populated neighborhoods… The increase in single-family rents was steepest at the top end of the market, with freestanding homes climbing by 9.2% while attached properties -- like condos or townhouses -- rose 3.6%, CoreLogic said.”
July 20
– New York Times
(Eduardo Porter):
“McDonald’s is raising wages at its company-owned restaurants. It is also helping its franchisees hang on to workers with funding for backup child care, elder care and tuition assistance. Pay is up at Chipotle, too, and Papa John’s and many of its franchisees are offering hiring and referral bonuses. The reason? ‘In January, 8% of restaurant operators rated recruitment and retention of work force as their top challenge,’ Hudson Riehle, senior vice president for research at the National Restaurant Association, said… ‘By May, that number had risen to 72%.’”
July 21
– Associated Press
(Tom Krisher and
Mike Householder):
“For months, anyone who wandered onto a dealer lot to look for a used car could be forgiven for doing a double take — and then wandering right off the lot. Prices had rocketed more than 40% from their levels just before the viral pandemic struck, to an average of nearly $25,000. The supply of vehicles had shrunk. And any hope of negotiating on price? Good luck with that. But now, a sliver of hope has emerged. The seemingly endless streak of skyrocketing used-vehicle prices appears to be coming to a close. Not that anyone should expect bargains. Though average wholesale prices that dealers pay are gradually dropping, they’ll likely remain near record levels. So will the retail prices for consumers. Supply remains tight.”
July 22
– Bloomberg
(Josyana Joshua):
“Natural gas futures soared to $4 per million British thermal units in the U.S. for the first time since December 2018 as summer heat intensified concerns about tight supplies later this year.”
U.S. Bubble Watch:
July 22
– Associated Press
(Alex Veiga):
“Sales of previously occupied U.S. homes rose in June, snapping a four-month losing streak, while strong demand for higher-end properties and ultra-low mortgage rates helped push prices to new highs. Existing homes sales rose 1.4% last month from May to a seasonally-adjusted annual rate of 5.86 million units… While sales of homes under $150,000 fell in June from a year earlier, buyers who purchased properties that sold for $250,000 or above helped push the median U.S. home price 23.4% higher from a year earlier to an all-time high $363,300… At the end of June, there were 1.25 million unsold homes for sale, an increase of 3.3% from May, but down 18.8% from June 2020. At the current sales pace, that amounts to a 2.6 months’ supply, the NAR said.”
July 20
– Reuters
(Lucia Mutikani):
“U.S. homebuilding increased more than expected in June, but permits for future home construction fell to an eight-month low… Though lumber prices are coming down from record highs, builders are paying more for steel, concrete and lighting, and are grappling with shortages of appliances like refrigerators. ‘Reports of multi-month delays in the delivery of windows, heating units, refrigerators and other items have popped up across the country, delaying delivery of homes and forcing builders to cap activity, and many builders continue to point to a shortage of available workers as a separate challenge,’ said Matthew Speakman, an economist at Zillow.”
July 22
– Wall Street Journal
(Nicole Friedman):
“Continued strong demand pushed the median U.S. home price to a record high in June… Existing-home sales rose 1.4% in June from the prior month to a seasonally adjusted annual rate of 5.86 million, the National Association of Realtors said Thursday. June sales rose 22.9% from a year earlier. The median existing-home price rose to $363,300, in June, up 23.4% from a year earlier, setting a record high, NAR said, extending steady price increases amid limited inventory.”
July 22
– Wall Street Journal
(Julia Carpenter):
“For first-time buyers looking for starter homes in this year’s hot housing market, a decades long trend could further delay this long-awaited money milestone. The supply of entry-level housing, which Freddie Mac defines as homes up to 1,400 square feet, is near a five-decade low, and data on new construction from the National Association of Home Builders shows that single-family homes are significantly bigger than they were years ago. Homeowners from previous generations had access to smaller homes at the start of their financial lives. In the late 1970s, an average of 418,000 new units of entry-level housing were built each year… By the 2010s, that number had fallen to 55,000 new units a year. For 2020, an estimated 65,000 new entry-level homes were completed.”
July 22
– Bloomberg
(Oshrat Carmiel):
“Hamptons home prices reached a record high as New Yorkers stepped up their bidding for a dwindling supply of listings in the Long Island resort towns. The median price of homes that changed hands in the second quarter jumped 30% from a year earlier to $1.405 million, the highest in data going back to 2005, according to… Miller Samuel Inc. and Douglas Elliman Real Estate. Of the 675 deals in the period, 21% were for more than the asking price.”
China Watch:
July 20
– Bloomberg:
“China Evergrande Group bonds are suffering steep haircuts in a key onshore funding market, showing just how risky the bonds are perceived to be by mainland dealers. Holders of Evergrande’s 2023 yuan bond are being forced to accept a 53% discount to pledge the note as collateral in the repo market…, versus 28% in April. A markdown of around 57% of the bond’s face value was seen in the wake of the developer’s previous liquidity crisis in October, the data showed.”
July 22
– Bloomberg:
“Pressure is mounting on China Evergrande Group’s billionaire founder as fears of a default by the world’s most indebted developer drive away banks and send the company’s bonds tumbling. The latest blow to Hui Ka Yan’s property empire came on Wednesday, when at least four of Hong Kong’s largest lenders stopped providing mortgages to buyers of Evergrande’s unfinished apartments in the city. That followed a slew of reports in recent weeks about wary banks and overdue payments to suppliers. Evergrande’s dollar bonds sank to record lows on Thursday morning, before recovering on news that the company resolved a dispute with a Chinese bank over repayment of a 132 million yuan ($20 million) loan.”
July 22
– Reuters
(Cheng Leng,
Dominique Patton, Hallie Gu,
Muyu Xu and Yi-Mou Lee):
“The floods drenching central China and submerging swathes of a major economic and transport hub are threatening supply chains for goods ranging from cars and electronics to pigs, peanuts and coal. Power had been partly restored and some trains and flights were running on Thursday but analysts said disruption could last for several days, pushing up prices and slowing business across densely populated Henan and neighbouring provinces. Zhengzhou, Henan's capital of 12 million people, 650 km (400 miles) southwest of Beijing, is the junction for the major north-south and east-west high-speed rail lines, with connections to most major Chinese cities from one of Asia's largest stations. Transport of coal, which generates most of China's power, from top mining regions like Inner Mongolia and Shanxi via Zhengzhou to central and eastern China was ‘severely impacted’, the state planner said…, just as power plants scramble for fuel to meet peak summer demand.”
July 19
– Bloomberg:
“Key Chinese cities have warned that homes and factories face new power outages as historic demand and supply shortages strain energy grids. Populous centers including Beijing and Xi’an have alerted electricity users there will be scheduled disruptions as grid operators struggle to maintain overloaded networks. Eleven provinces including eastern manufacturing hubs and landlocked central China, which also suffered outages during last winter’s cold spell, reported record demand and peak-load surges last week…”
Global Bubble Watch:
July 23
– Bloomberg
(Elliot Smith):
“Global IPO activity had its hottest second quarter in two decades by volumes and proceeds, and momentum will continue for the rest of the year, according to… EY. Amid strong global stock market momentum and ample liquidity, traditional IPOs came back to the fore in the second quarter after the first was dominated by SPACs, the British professional services giant found. In the first half of 2021, EY counted 1,070 IPOs that raised $222 billion in proceeds, respective annual increases of 150% and 215%.”
July 21
– Bloomberg
(Kevin Orland and
Ari Altstedter):
“They’re the kind of exotic mortgages that one typically associates with the reckless, go-go housing market that gripped the U.S., circa 2005: Put down 5% cash and get 3% back; or, wilder yet, put down nothing at all. So when these products -- and others like them -- started popping up in the normally cautious Canadian financial industry, it raised alarm among policy makers in Ottawa. This is year twenty-five of the great Canadian housing bull market, a nearly uninterrupted straight line up that has few parallels in the world. At a time of soaring real-estate prices all over the globe, only one major economy -- New Zealand -- has a frothier housing market than Canada… And after all those years of price gains, including a 21% surge since the pandemic began, millions of middle-class Canadians have no chance of scrounging together the money needed to make a conventional down payment of 20%.”
Japan Watch:
July 20
– Reuters
(Tetsushi Kajimoto):
“Japan's exports rose 48.6% in June from a year earlier, Ministry of Finance data showed… The rise compared with a 46.2% increase expected by Economists…”
Geopolitical Watch:
July 19
– Financial Times
(Kiran Stacey, Helen Warrell
and Hannah Murphy):
“The White House and its western allies have accused the Chinese government of teaming up with criminal gangs to commit widespread cyber attacks, including one on Microsoft this year that affected tens of thousands of organisations. The accusation came as the US Justice department unsealed an indictment alleging that four Chinese nationals affiliated with the Ministry of State Security had overseen a separate campaign to infiltrate companies, universities and government bodies in the US and overseas between 2011 and 2018. Antony Blinken, US secretary of State, said China’s actions represented ‘a major threat to’ economic and national security. ‘Responsible states do not indiscriminately compromise global network security nor knowingly harbour cyber criminals — let alone sponsor or collaborate with them,’ he added.”
July 22
– Reuters
(Phil Stewart and
Idrees Ali):
“Reeling from a surge in battlefield losses, Afghanistan's military is overhauling its war strategy against the Taliban to concentrate forces around the most critical areas like Kabul and other cities, border crossings and vital infrastructure, Afghan and U.S. officials say. The politically perilous strategy will inevitably cede territory to Taliban insurgents. But officials say it appears to be a military necessity as over-stretched Afghan troops try to prevent the loss of provincial capitals, which could deeply fracture the country.”
July 19
– Bloomberg
(Peter Millard and
Jonathan Tirone):
“International monitors are watching Iran’s fast-expanding nuclear program with growing alarm, as Tehran refuses to extend an expired inspections pact and insists the experts must trust that it’s accurately documenting uranium-enrichment activities. Iran claims it’s still preserving data captured by International Atomic Energy Agency monitoring equipment, the agency’s director general, Rafael Mariano Grossi, said…”
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