Financial Data and Economic News for the week ending July 30, 2021

 Source:
http://creditbubblebulletin.blogspot.com/2021/07/weekly-commentary-king-of-carry-trades.html

Credit Bubble Bulletin
Saturday, July 31, 2021
Weekly Commentary
by Doug Noland

My edited and easy to read version follows
Ye Editor

For the week ending July 30, 2021:

GLOBAL  STOCK   INDEXES:
S&P500 declined 0.4% (up 17.0% y-t-d)

Dow Industrial slipped 0.4% (up 14.1%)

Utilities added 0.4% (up 4.9%)

Banks gained 0.8% (up 24.7%)

Broker/Dealers rose 1.0% (up 22.5%)

Transports dropped 2.0% (up 15.6%)

S&P 400 Midcaps jumped 1.2% (up 17.2%)

Small cap Russell 2000 gained 0.8% (up 12.8%)

Nasdaq100 fell 1.0% (up 16.1%)

Semiconductors rose 2.3% (up 20.1%)

Biotechs were little changed (up 0.1%).

With GOLD bullion gaining $12,
the HUI gold stock index rallied 5.7% 

     (down 8.7%).

U.K.'s FTSE little changed (up 8.9% y-t-d).

Japan's Nikkei fell 1.0% (down 0.6% y-t-d).

France's CAC40 added 0.7% (up 19.1%)

German DAX fell 0.8% (up 13.3%).

Spain's IBEX 35 dipped 0.5% (up 7.5%).

Italy's FTSE MIB gained 0.9% (up 14.1%)

Brazil's Bovespa dropped 2.6% (up 2.3%)

Mexico's Bolsa gained 1.2% (up 15.4%)

South Korea's Kospi lost 1.6% (up 11.4%).

India's Sensex dipped 0.7% (up 10.1%).

China's Shanghai sank 4.3% (down 2.2%)

 Russia's MICEX rallied 1.0% (up 14.7%).

US  BONDS:
Three-month Treasury bill rates
ended the week at 0.04%.

Two-year government yields
slipped a basis point to 0.19% (up 6bps y-t-d).

Five-year T-note yields
dipped two bps to 0.69% (up 33bps).

Ten-year Treasury yields
fell five bps to 1.22% (up 31bps).

Long bond yields
declined two bps to 1.89% (up 25bps).

Benchmark Fannie Mae MBS yields
dropped five bps to 1.68% (up 33bps).

Federal Reserve Credit last week
expanded $25.2bn to a record $8.199 TN.
Over the past 98 weeks, Fed Credit
expanded $4.473 TN, or 120%.

US  MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
increased two bps to 2.80%
   (down 19bps y-o-y).

Fifteen-year rates
dipped two bps to 2.10%
   (down 41bps).

Five-year hybrid ARM rates
fell four bps to 2.45%
   (down 49bps).

Jumbo mortgage 30-year fixed rates
down a basis point to 3.02%
   (down 10bps).

COMMODITIES:
July 29
– Bloomberg
 (Kim Chipman):
“Sun-baked U.S. spring wheat fields have been so badly hurt by drought this year that some farmers are expecting to harvest what they’re dubbing a ‘half a crop…’ All told, the harsh conditions will send yields for spring wheat in the state plunging to 29.1 bushels an acre this year, according to… estimates following the Wheat Quality Council’s crop tour. While that’s slightly higher than the most-recent estimate from the U.S. Department of Agriculture, it would still mean a drop of 41% from last year’s harvest.”

Bloomberg Commodities Index added 0.6%
   (up 23.3% y-t-d).

Spot Gold rose 0.7% to $1,814
   (down 4.4%).

Silver recovered 1.9% to $25.49
   (down 3.5%).

WTI crude oil rallied $1.88 to $73.95
   (up 52%).

Gasoline rose 1.9%
   (up 66%)

Natural Gas dropped 3.6%
   (up 54%).

Copper gained 1.9%
   (up 27%).

Wheat jumped 2.9%
   (up 10%).

Corn added 0.4%
   (up 13%).

Bitcoin rallied $7,799 this week
to $41,584 (up 43%).

 

NEWS  FROM  LAST  WEEK:

Coronavirus Watch:
July 26 – Bloomberg (Julie Steenhuysen, Alistair Smout and Ari Rabinovitch): “The Delta variant is the fastest, fittest and most formidable version of the coronavirus that causes COVID-19 the world has encountered, and it is upending assumptions about the disease even as nations loosen restrictions and open their economies, according to virologists and epidemiologists. Vaccine protection remains very strong against severe disease and hospitalizations caused by any version of the coronavirus, and those most at risk are still the unvaccinated, according to interviews with 10 leading COVID-19 experts. But evidence is mounting that the Delta variant, first identified in India, is capable of infecting fully vaccinated people at a greater rate than previous versions, and concerns have been raised that they may even spread the virus, these experts said.”

July 26 – Reuters: “Antibodies triggered by Sinovac Biotech's COVID-19 vaccine declined below a key threshold from around six months after a second dose for most recipients, but a third shot had a strong booster effect, a lab study showed. Chinese researchers reported the findings from a study of blood samples from healthy adults aged between 18-59 in a paper… Among participants who received two doses… only 16.9% and 35.2% respectively still had neutralising antibodies above what researchers regard as a detectable threshold level six months after the second shot…”

July 28 – Wall Street Journal (Sumathi Reddy): “The Delta variant of the virus that causes Covid-19 is often described as highly transmissible. So, what does that actually mean? Scientists studying Covid-19 say that Delta’s increased contagiousness means we need to update our thinking about exposure risks. Because people infected with Delta carry higher levels of virus than with earlier strains, the old rules of thumb no longer apply, they say—including the conventional wisdom that it takes 15 minutes of close contact with someone to get infected. Delta has already changed public-health advice about masking. The Centers for Disease Control and Prevention on Tuesday recommended that vaccinated people resume masking indoors in certain parts of the country. And local officials have begun to reinstate mask mandates, including in Los Angeles County and St. Louis County.”

July 28 - Bloomberg (Anna Edney): “The beginning of the school year is imminent, and superintendents around the country aren’t sweating bus schedules and bell times but Covid-19 vaccination rates and mask rules as the pandemic threatens to disrupt K-12 education for the third year running. School leaders face complex pressures with millions of students preparing to return. The spreading delta strain of the coronavirus is highly contagious, though it still appears that children typically fare better with the virus than their elders do. But they may bring deadly infections home.”

July 26 – Wall Street Journal (Joseph Walker): “Nearly a year and a half into the pandemic, researchers are still struggling to find effective, easy-to-use drugs to treat Covid-19. Ten drugs have been cleared or recommended in the U.S. for use. Two of those later had their authorizations rescinded after they failed to work. The government recently paused shipments of a third because it wasn’t effective against new variants. The best medicines for early treatment are cumbersome to administer, and drugs for those in the hospital can only do so much for patients who are already severely ill. ‘We’re really limited, to be honest,’ says Daniel Griffin, chief of infectious disease at healthcare provider network ProHealth New York. ‘We do not have any dramatic treatments.’”

Market Instability Watch:

July 26 – Bloomberg (James Hirai and William Shaw): “The real yield on 10-year Treasuries fell to a record low as concerns mounted over the outlook for economic growth even as investor flows fueled appetite for inflation-linked debt. The real rate, which strips out the expected impact of inflation over the next decade, fell as much as six bps to minus 1.13%.”

Inflation Watch:

July 27 – Reuters (Alwyn Scott): “Global commercial insurance prices rose 15% in the second quarter of 2021, but marked their third consecutive quarter of slower increases, insurance broker Marsh & McLennan Companies Inc said… The 15% increase in the quarter through June 30 follows an 18% rise in the first quarter of 2021, and a 22% rise in the fourth quarter of 2020, Marsh said. Prices have been rising since late 2017.”

July 28 - Bloomberg (Mark Burton and Jack Farchy): “Aluminum is heading for a seismic shift as a long-running supply glut starts to fade, setting the stage for shortages and a price rally that could run for years. Demand is set to surge on the back of climate-change investment, and mega-producer China -- which accounts for more than half of global output -- is cracking down on smelting to reduce pollution and meet green targets. Those combined forces mean the oversupply that’s dominated the market for more than a decade is on the way out, leaving buyers bracing for a new era of scarcity and higher costs.”

U.S. Bubble Watch:

July 28 - Reuters (Lucia Mutikani): “The U.S. trade deficit in goods increased in June as imports continued to rise amid strong economic activity, suggesting trade likely remained a drag on growth in the second quarter. The U.S. economy has rebounded more quickly from the pandemic compared to its global rivals, thanks to massive fiscal stimulus, low interest rates and vaccinations against COVID-19… ‘The widening in the advance nominal goods deficit in June is further evidence that net exports will be a drag on second- quarter GDP,’ said Ryan Sweet, a senior economist at Moody's Analytics… The goods trade deficit increased 3.5% to $91.2 billion last month... Imports of goods advanced 1.5% to $236.7 billion.”

July 30 – CNBC (Jeff Cox): “An inflation indicator that the Federal Reserve uses as its key guide rose 3.5% in June, a sharp acceleration that was nonetheless right around Wall Street expectations… The personal consumption expenditures price index, which excludes food and energy, was expected to increase 3.6% at a time when the U.S. economy has seen its highest inflation pressures in more than a decade. That gain was slightly ahead of the 3.4% May increase and represents the biggest move since July 1991.”

July 25 – Financial Times (Joshua Franklin and Imani Moise): “The lending businesses of large US banks are doubling down on wealthier customers, as well-to-do Americans borrow to buy second homes, invest in the stock market and potentially lighten their tax bills. The combined value of loans made by the wealth management arms of JPMorgan…, Bank of America, Citigroup and Morgan Stanley surpassed $600bn in the second quarter, up 17.5% from a year earlier. This represented 22.5% of the banks’ total loan books, up from 16.3% in mid-2017. Banks are comfortable making these loans because they have a record of very low losses… Market turmoil during the early stages of the Covid-19 pandemic last year prompted wealth managers to ask customers to pledge extra collateral.”

July 27 – CNBC (Diana Olick): “Home prices continue to break records, as strong demand slams up against weak supply. Nationally, home prices were 16.6% higher than in May 2020, the highest reading in the S&P CoreLogic Case-Shiller report’s 30-plus years… The 10-city composite annual increase was 16.4% in May versus 14.5% in April. The 20-city composite gained 17% year over year… All 20 cities reported higher price increases in the year ending May 2021 versus the year ending April 2021. Phoenix, San Diego and Seattle reported the highest year-over-year gains among the 20 cities in May. Phoenix led the way with a 25.9% year-over-year price increase, followed by San Diego with a 24.7% increase and Seattle with a 23.4% increase.”

July 27 – Wall Street Journal (Nicole Friedman): “Home-price growth climbed to a new record in May… The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 16.6% in the year that ended in May, up from a 14.8% annual rate the prior month. May marked the highest annual rate of price growth since the index began in 1987.”

July 26 – Reuters (Lucia Mutikani): “Sales of new U.S. single-family homes tumbled to a 14-month low in June and sales in the prior month were weaker than initially estimated, the latest signs that expensive lumber and shortages of other building materials were hurting the housing market… Higher production costs are forcing builders to scale back, keeping supply tight and boosting home prices to the detriment of first-time buyers. ‘Home builders continue to hold back on contracts for new homes given input cost and availability uncertainties, with significant uncertainty about what it will cost to build a house and when it can be delivered,’ said David Berson, chief economist at Nationwide... ‘Until builder costs and supply-chain problems become less of an impediment, it is hard to see new sales picking up significantly in the near term.’”

July 28 - CNBC (Diana Olick): “The popular 30-year fixed mortgage rate fell back to the lowest level since February last week, and the 15-year fixed set a record low. That sent borrowers to their lenders, looking to save money on their monthly payments. Applications to refinance a home loan jumped 9% last week from the previous week… The refinance share of mortgage activity increased to 67.2% of total applications from 64.9% the previous week.”

China Watch:

July 27 - Bloomberg (Ailing Tan): “Defaults in China’s local corporate bond market have exceeded last year’s total as the country doubles down on efforts to reduce risk and curb moral hazard in its financial markets. Missed payments on the securities have climbed to 140.5 billion yuan ($21.7bn) this year, surpassing last year’s full-year total.”

July 26 – Bloomberg: “China announced a broad set of reforms for private education companies, seeking to decrease workloads for students and overhaul a sector it says has been ‘hijacked by capital.’ The new regulations… ban companies that teach school curriculums from making profits, raising capital or going public. They can no longer offer tutoring related to the school syllabus on weekends or during vacations. They also can’t give online or academic classes to children under the age of six, a segment of the population that had increasingly been pushed to start studying early.”

Japan Watch:

July 25 – Reuters (Daniel Leussink): “Japan's factory activity expanded at the slowest pace in five months in July…, underscoring the world's third-largest economy's struggle to stage a convincing recovery from the coronavirus pandemic.”

Environmental Instability Watch:

July 28 - Bloomberg (Brian Eckhouse and Brian K. Sullivan): “California’s grid operator asked consumers to conserve power, the latest such request to ease soaring electricity demand amid hot weather. The California Independent System Operator called for voluntary conservation Wednesday from 4 p.m. to 9 p.m., citing high energy demand… Dangerous heat has repeatedly strained the Golden State’s grid this year, prompting repeated pleas from officials asking for reduced electricity use to avoid blackouts. It’s increasingly becoming California’s new normal.”

Geopolitical Watch:

July 29 – Reuters (Polina Ivanova): “Russia and China will conduct joint military exercises involving 10,000 troops in mid-August, the Interfax news agency cited the Russian defence ministry as saying… Moscow has sought to boost relations with China since 2014, when its political ties with the West sank to post Cold-War lows over the annexation of Crimea from Ukraine.”

July 27 - Reuters (David Brunnstrom): “The Pentagon and Republican congressmen… aired fresh concerns about China's build-up of its nuclear forces after a new report saying Beijing was building 110 more missile silos. An American Federation of Scientists (AFS) report… said satellite images showed China was building a new field of silos near Hami in the eastern part of its Xinjiang region. The report came weeks after another on the construction of about 120 missile silos in Yumen, a desert area about 240 miles (380 km) to the southeast. ‘This is the second time in two months the public has discovered what we have been saying all along about the growing threat the world faces and the veil of secrecy that surrounds it,’ the U.S. Strategic Command said…”

July 25 – CNBC (Stephanie Landsman): “Economist Stephen Roach warns Beijing’s crackdown against U.S.-listed China stocks will have widespread market implications. Roach, who is considered one of the world’s leading experts on Asia, believes the actions are signaling the early stages of a cold war. ‘I am a congenital optimist when it comes to China. But I find these actions really quite disturbing,’ the former Morgan Stanley Asia chairman told CNBC’s ‘Trading Nation’... ‘China is going after the core of its new entrepreneurial driven economy, and it’s going after their business models.’ According to Roach, the tensions between the world’s two largest economies could get to levels not seen since the early 1970s.”