Source:
Credit Bubble Bulletin
- Chronicling History's Greatest
Financial Bubble
Friday, September 17, 2021
by Doug Noland
My edited and easy to read version follows
Ye Editor
For the Week Ending
September 17, 2021:
S&P500 declined 0.6% (up 18.0% y-t-d)
Dow Industrials little changed (up 13.0%)
Utilities sank 3.3% (up 5.0%)
Banks rallied 1.0% (up 28.9%)
Broker/Dealers declined 0.8% (up 23.6%)
Transports fell 0.7% (up 14.1%)
S&P 400 Midcaps dipped 0.3% (up 16.1%)
Small cap Russell 2000 recovered 0.4% (up 13.3%)
Nasdaq100 lost 0.7% (up 19.0%)
Semiconductors were little changed (up 22.4%)
Biotechs rallied 1.2% (up 3.8%).
With gold bullion sinking $33,
the HUI gold stock index dropped 2.3% (down 20.7%)
U.K.'s FTSE declined 0.9% (up 7.8% y-t-d).
Japan's Nikkei added 0.4% (up 11.1% y-t-d).
France's CAC40 fell 1.4% (up 18.4%)
German DAX declined 0.8% (up 12.9%).
Spain's IBEX 35 rallied 0.8% (up 8.5%).
Italy's FTSE MIB was little changed (up 15.6%)
Brazil's Bovespa dropped 2.5% (down 6.4%),
Mexico's Bolsa slipped 0.4% (up 16.4%).
South Korea's Kospi recovered 0.5% (up 9.3%).
India's Sensex jumped 1.2% (up 23.6%).
China's Shanghai sank 2.4% (up 4.1%).
Russia's MICEX added 0.8% (up 22.7%).
US BONDS:
Three-month Treasury bill rates
ended the week at 0.03%.
Two-year government yields
added a basis point to 0.22% (up 10bps y-t-d).
Five-year T-note yields
jumped five bps to 0.86% (up 50bps).
Ten-year Treasury yields
gained two bps to 1.36% (up 45bps).
Long bond yields
fell three bps to 1.90% (up 26bps).
Benchmark Fannie Mae MBS yields
gained five bps to 1.85% (up 51bps).
Federal Reserve Credit last week
jumped $35.1bn to $8.352 TN.
Over the past 105 weeks,
Fed Credit expanded $4.625 TN, or 124%.
US MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
declined two bps to 2.86% (down 1bp y-o-y).
Fifteen-year rates fell seven bps to 2.12% (down 23bps).
Five-year hybrid ARM rates jumped nine bps
to a two-month high 2.51% (down 45bps).
Jumbo mortgage 30-year fixed rates
down two bps to 3.03% (down 1bp).
COMMODITIES:
September 13
– CNBC (Patti Domm):
“Natural gas prices have surged more than 35% in the past month, as worries grow there is not enough gas stored up for the winter should temperatures be especially cold in the northern hemisphere. The usually quiet market for the commodity has become hot in the last couple of weeks, as investors focus on the growth in demand around the world and supplies remain below normal. The biggest problem area is Europe, where supply is at a record low for this time of year.”
Bloomberg Commodities Index added 0.5% (up 25.0% y-t-d).
Spot Gold fell $33 to $1,754 (down 7.6%).
Silver sank 5.7% to $22.39 (down 15.2%).
WTI crude rallied $2.25 to $71.97 (up 48%).
Gasoline gained 0.8% (up 54%)
Natural Gas jumped 3.4% (up 101%).
Copper sank 4.6% (up 21%).
Wheat rose 2.9% (up 11%).
Corn advanced 1.9% (up 9%).
Bitcoin rallied $1,849 this week
to $47,281 (up 62.6%)
WEEKLY COMMENTARY:
CHINA:
Evergrande Moment
Evergrande owes over $300 billion – to banks and non-bank financial institutions, domestic and international bond holders, suppliers and apartment buyers. It has bank borrowings of $90 billion, including to Agricultural Bank of China, China Minsheng Banking Corp and China CITIC Bank Corp. (reports have 128 banks with exposure). Thousands of suppliers are on the hook for $100 billion.
It appears an Evergrande debt restructuring is inevitable. From a few decades of close observation, these types of situations generally prove worse than even the more bearish analysts fear. Assume ugly and messy. The presumption all along – by bankers, investors and apartment purchasers – was that Beijing would never allow a collapse of such a huge player. This fundamental market perception is in serious jeopardy.
Evergrande is the most indebted of a highly levered Chinese developer sector (top three in revenues). It “owns more than 1,300 projects in more than 280 cities.” Evergrande employs 200,000 – and “indirectly helps sustain more than 3.8 million jobs each year.”
It appears an Evergrande debt restructuring is inevitable. From a few decades of close observation, these types of situations generally prove worse than even the more bearish analysts fear. Assume ugly and messy. The presumption all along – by bankers, investors and apartment purchasers – was that Beijing would never allow a collapse of such a huge player. This fundamental market perception is in serious jeopardy.
Evergrande is the most indebted of a highly levered Chinese developer sector (top three in revenues). It “owns more than 1,300 projects in more than 280 cities.” Evergrande employs 200,000 – and “indirectly helps sustain more than 3.8 million jobs each year.”
NEWS FROM LAST WEEK:
Coronavirus Watch:
September 16 – CNBC (Berkeley Lovelace Jr.): “The fast-spreading delta variant is so contagious, it’s exposed weaknesses in vaccine protection and changed the outlook for ending the pandemic, Moderna President Stephen Hoge said… Delta is ‘just so good at infecting people and replicating that it raises the bar on how good vaccines have to be,’ he said... ‘It’s actually shown some of the weaknesses that [vaccines] have earlier than you might expect…’ ‘The breakthrough cases are not all delta’s fault,’ Hoge said. He said he suspects the Covid cases in vaccinated people are a result of both vaccine protection waning over time and the highly transmissible variant.’”
September 12 – Bloomberg (James Paton): “Variants that can eventually evade Covid vaccines are increasingly likely with vast parts of the world unprotected, and rich countries should hold back on booster doses until others catch up, according to a special envoy to the World Health Organization. ‘Variants that can beat the protection offered by vaccines are bound to emerge all over the world in the coming months and years,’ David Nabarro, the WHO envoy, said… ‘This is an ongoing battle, and we need to work together.’”
Market Instability Watch:
September 16 – Bloomberg: “Chinese high-yield dollar bonds were down as much as 4 cents on the dollar Thursday, according to credit traders, led by developers amid signs of growing contagion from Evergrande’s debt woes.”
Inflation Watch:
September 13 – Wall Street Journal (Michael S. Derby): “Americans’ expectations of future inflation hit a record high last month, according to… the Federal Reserve Bank of New York, potentially challenging the central bank’s confidence that inflation pressures will ebb over time. In its August Survey of Consumer Expectations, the bank said… respondents see inflation a year from now at 5.2%, up from expectations of 4.9% last month. Three years from now, it is expected to be at 4%, up from the 3.7% expected in July. Both readings mark record-high readings for data that goes back to 2013. The report also found projections of big increases in some of the most important costs Americans face on a regular basis. Food prices are seen rising by 7.9% a year from now, rent by 10% and medical-care costs by 9.7%.”
September 14 – USA Today (Paul Davidson): “After years of puny increases in their Social Security checks, older Americans will likely get the equivalent of a big raise next year. The 68 million people -- including retirees, disabled people and others – who rely on the benefits are likely to receive a 6% to 6.1% cost-of-living adjustment next year because of a COVID-19-related spike in inflation, according to the Senior Citizen League. Such a rise would far outpace 1.4% average bumps in Social Security payments since 2010 and amount to the largest increase since 1982… For the average retiree who got a monthly check of $1,559 this year, a 6% rise would increase that payment by $93.54, to $1,652.54, in 2022.”
September 15 – Wall Street Journal (Austen Hufford): “Manufacturers are facing the highest steel and aluminum prices in years, another hurdle for U.S. companies already struggling to make enough cars, cans and other products. Rapidly increasing metal costs are pushing manufacturers to take what steel they can get… The rising costs are flowing through to some producers of consumer goods: Campbell Soup Co. is paying more to get the cans it fills with tomato soup; Peloton… is seeing prices rise for parts that go into its stationary bikes; and Steelcase Inc. is paying more to make metal desks and filing cabinets. Car makers like Ford… and General Motors Co. are also dealing with rising metal prices. ‘It’s crazy for steel,’ said Brian Nelson, president of HCC Inc., which sells large metal accessories to tractor manufacturers. ‘I can’t even get material at times.’”
September 15 – CNBC (Lauren Thomas): “Prices of goods online have now risen for an unprecedented 15 consecutive months, following what was a historical period of declines, according to… Adobe Digital Insights. Inflation is hitting categories including pet products, nonprescription drugs, apparel, furniture and flower arrangements, the report said. The growth in digital sticker prices across the industry means e-commerce transactions are on pace to soon account for roughly $1 of every $5 spent by Americans, up from $1 of every $6 in 2017... Adobe Digital Insights’ economy index tracks more than 1 trillion visits to U.S. retail sites and over 100 million products across 18 categories. Last month, Adobe found online prices grew 3.1% year over year... From 2015 to 2019, online prices on average fell 3.9% annually.”
September 16 – Wall Street Journal (Thomas Gryta): “Transportation costs—typically a fraction of a finished product’s price—are emerging as another supply-chain hurdle, overwhelming some companies already paying more for raw materials and labor. The fabric and crafts retailer Jo-Ann Stores LLC said it has spent 10 times more than its historical cost in some cases to move products from one point to another. ‘Sometimes the ocean freight now is actually more expensive than the cost of the product,’ Chief Executive Officer Wade Miquelon said… The company hasn’t raised any base prices and is hoping the extra supply-chain expenses are temporary. ‘I think they probably are, but does transient mean six months or 24 months?’ he said.”
September 16 – Wall Street Journal (Alistair MacDonald and William Boston): “Soaring natural-gas prices in Britain have prompted U.S. fertilizer maker CF Industries Holdings Inc. to close two U.K. plants, in a sign that Europe’s energy crunch is affecting industry as the economy struggles with several other disruptions amid the recovery from the pandemic. Businesses across Britain are complaining about high energy costs, with some steelmakers forced to halt production for periods during the day as the price of electricity rises almost seven times higher than at the same point last year. Power markets have also jumped in France, the Netherlands and Germany, ahead of anticipated higher demand in the winter.”
September 11 – Bloomberg (Joe Deaux): “Supply-chain snags that have roiled commodity markets and helped push aluminum prices to a 13-year high this week are unlikely to ease any time soon. That’s the message coming from producers, consumers, traders and shippers at North America’s largest aluminum conference… Aluminum has jumped 48% this year on surging demand, shipping bottlenecks and production curbs in China, stoking inflation concerns and causing a major headache for consumer-goods producers facing worsening material shortages alongside the sharp rise in costs. Snarled supplies will continue to dog the industry through most of 2022…”
September 14 – Financial Times (Cheng Ting-Fang): “Prices of chips and of the electronic devices they power are on track to rise into 2022 as the world’s biggest contract chipmaker joins its rivals in ramping up production fees. Prices of semiconductors have been climbing since the last quarter of 2020 amid a global supply crunch. But news that Taiwan Semiconductor Manufacturing Co was preparing its biggest price rise in a decade still came as a shock to some, bringing home just how entrenched chip price inflation has become. TSMC controls over half the global foundry market, making chips for the likes of Apple, Nvidia and Qualcomm. Known for its cutting-edge tech and high quality, the Taiwanese company normally commands production fees around 20% higher than its rivals…”
September 14 – CNBC (Pippa Stevens): “The solar industry is among many sectors feeling the pinch of higher prices, according to a report… by the Solar Energy Industries Association and Wood Mackenzie. Prices rose quarter over quarter and year over year across every solar segment during the period. It’s the first time that residential, commercial and utility solar costs have risen in tandem since the energy consultancy began tracking prices in 2014… A separate report from Rystad Energy… said global solar panel prices have jumped 16% this year compared to 2020′s levels. Overall costs, which include soft costs like labor, are up 12% in 2021.”
Biden Administration Watch:
September 15 – Reuters (Jarrett Renshaw and David Lawder): “Democrats are crafting a massive spending package as big as $3.5 trillion that would transform the U.S. economy by investing in free community college, childcare and green energy, funded by tax hikes on the wealthy and larger companies. The bill’s authors must balance the Biden White House’s campaign pledges and the party’s progressives and moderates, all while catering to lawmakers empowered by Democrats’ razor-thin majorities in Congress to demand pet concessions. Facing unified Republican opposition, Democrats will need to pass the bill on strict party lines using a legislative tool called budget reconciliation. They cannot afford to lose even one vote in the Senate and more than three votes in the House of Representatives.”
September 12 – CNBC (Samantha Subin): “Sen. Joe Manchin… said he would not vote for the $3.5 trillion budget bill, adding that there’s ‘no way’ to meet the September 27 deadline set by Democrats… ‘There’s no way that we can get this done by the 27th if we do our job,’ the West Virginia Democrat said.”
September 16 – Bloomberg (Erik Wasson): “Senate Minority Leader Mitch McConnell rejected an appeal by Treasury Secretary Janet Yellen…, for Republicans to join with Democrats in raising the federal debt ceiling, leaving the two sides at odds with potentially weeks to go until the limit is breached. ‘The leader repeated to Secretary Yellen what he has said publicly since July: This is a unified Democrat government, engaging in a partisan reckless tax and spending spree,’ McConnell spokesman… said... ‘They will have to raise the debt ceiling on their own and they have the tools to do it.’”
September 12 – Wall Street Journal (Richard Rubin): “House Democrats expect to propose raising the corporate tax rate to 26.5% from 21% and imposing a 3-percentage-point surtax on individual income above $5 million, according to two House Democratic aides… The tax increases would be part of the House Ways and Means Committee’s plans to pay for the party’s priorities in a fast-moving budget bill. Those items include an expanded child tax credit, a national paid-leave program and renewable-energy tax breaks.”
U.S. Bubble Watch:
September 13 – Associated Press (Martin Crutsinger): “The U.S. budget deficit rose to $2.71 trillion through August, on track to be the second largest shortfall in history due to trillions of dollars in COVID relief… The Treasury Department said… the deficit for the first 11 months of this budget year is 9.9% less than the imbalance during the same period last year. For the entire budget year, which ends Sept. 30, the Congressional Budget Office is forecasting a deficit of $3 trillion, which would be just below the record deficit of $3.13 trillion set last year. Last year’s deficit was more than double the previous record of $1.4 trillion set in 2009…”
September 14 – Bloomberg (Olivia Rockeman): “Prices paid by U.S. consumers rose in August by less than forecast, snapping a string of hefty gains and suggesting that some of the upward pressure on inflation is beginning to wane. The consumer price index increased 0.3% from July, the smallest advance in seven months… Compared with a year ago, the CPI rose 5.3%. Excluding the volatile food and energy components, so-called core inflation climbed 0.1% from the prior month, the smallest gain since February and a reflection of declines in the prices of used cars, airfares and auto insurance. Economists… called for a 0.4% increase in the overall CPI from the prior month and a 5.3% gain from a year earlier…”
September 16 – Reuters (Rithika Krishna and Sanjana Shivdas): “Semiconductor shortages and the delayed packaging and testing of the chips will cause production of global light vehicles to drop by five million this year, data firm IHS Markit said on Thursday, marking the biggest cut to its outlook in nine months. Citing supply chain challenges, IHS said it was cutting its light vehicle production forecast by 6.2% for 2021 and 9.3% for 2022, to stand at 75.8 million units and 82.6 million units, respectively.”
September 16 – Bloomberg (Reade Pickert): “U.S. retail sales rose unexpectedly in August as a pickup in purchases across most categories more than offset weakness at auto dealers, showing resilient consumer demand for merchandise. The value of overall retail purchases climbed 0.7% last month following a downwardly revised 1.8% decrease in July… Excluding autos, sales advanced 1.8% in August, the largest gain in five months. The median estimate… called for a 0.7% decline in overall retail sales…”
September 13 – Reuters (Noor Zainab Hussain): “Insurers are bracing for claims of between $20 billion and $30 billion after assessing the damage from Hurricane Ida in many locations including New York and New Jersey, catastrophe risk modeling firm AIR Worldwide said... Included in the estimates are losses to onshore residential, commercial, industrial properties, and automobiles for their building, contents, and time element coverage, AIR said.”
September 14 – Wall Street Journal (John McCormick and Paul Overberg): “Americans last year saw their first significant decline in household income in nearly a decade… An annual assessment of the nation’s financial well-being, released… by the Census Bureau, offered insight into how households fared during the pandemic’s first year. It arrives as Washington debates how much more to spend to bolster the economy during the worst public-health crisis in a century. Median household income was about $67,500 in 2020, down 2.9% from the prior year, when it hit an inflation-adjusted historical high.”
China Watch:
September 15 – Reuters (Stella Qiu and Gabriel Crossley): “China's factory and retail sectors faltered in August with output and sales growth hitting one-year lows as fresh coronavirus outbreaks and supply disruptions threatened the country's impressive economic recovery. Industrial production rose 5.3% in August from a year earlier, narrowing from an increase of 6.4% in July and marking the weakest pace since July 2020… Output growth missed the 5.8% increase tipped by analysts. Consumer spending also took a big hit from rising local COVID-19 cases and floods with sales rising only 2.5% in August from a year ago, much lower than the forecast 7.0% rise and the slowest clip since August last year.”
September 14 – Bloomberg: “China’s economy took a knock in August from stringent virus controls and tight curbs on property, fueling concerns about the global recovery as countries battle to get delta outbreaks under control. Retail sales growth slowed to 2.5% from a year ago, much lower than the 7% estimate…, as consumers cut back on spending during the summer holiday break. Construction investment contracted 3.2% in the eight months of the year, a reflection of the government’s steady tightening of property restrictions as part of a campaign against financial risk.”
Global Bubble Watch:
September 14 – Reuters (Dhara Ranasinghe): “Global debt rose to a new record high of nearly $300 trillion in the second quarter, but the debt-to-GDP ratio declined for the first time since the start of the pandemic as economic growth rebounded, the Institute of International Finance (IIF) said… The rise in debt levels was the sharpest among emerging markets, with total debt rising $3.5 trillion in the second quarter from the preceding three months to reach almost $92 trillion… Debt as a share of gross domestic product fell to around 353% in the second quarter, from a record high of 362% in the first three months of this year… China has seen a steeper rise in its debt levels compared with other countries, while emerging-market debt excluding China rose to a fresh record high at $36 trillion in the second quarter, driven by a rise in government borrowing.”
September 12 – Financial Times (Jonathan Wheatley): “Global food prices have been climbing for a little over a year, heaping pressure on emerging markets where the poorest tend to spend a larger proportion of their income on staples. Prices have risen 40% over the past 15 months, according to… the UN’s Food and Agriculture Organization, the biggest gain since surging food prices spurred the unrest of the Arab Spring in 2010-11.”
September 13 – Financial Times (Valentina Romei): “Global house prices rose are rising at their fastest pace since 2005 as low interest rates, a shortage of housing and bountiful household savings continue to boost the housing market. The average annual price change across 55 countries rose to 9.2% in the 12 months to June, according to property consultancy Knight Frank. It is the fastest rise since the 12 months to March 2005, and is up from 4.3% over the same period last year as more countries’ property markets heat up. Overall, one in three countries registered double-digit price growth, including Russia and Germany. The US, Australia, New Zealand, Turkey and Canada registered nominal house price growth of more than 16%…”
September 15 – Bloomberg (Shelly Hagan): “Inflation in Canada accelerated to the fastest pace since 2003, a political headache for Prime Minister Justin Trudeau only five days before an election. The consumer price index rose 4.1% in August from a year earlier…, marking the fifth consecutive month of inflation readings above the Bank of Canada’s 3% cap.”
Europe Watch:
September 15 – Reuters (Andy Bruce): “British inflation hit a more than nine-year high last month after the biggest monthly jump in the annual rate in at least 24 years… Consumer prices rose by 3.2% in annual terms last month after a 2.0% rise in July, the highest rate since March 2012… The 1.2 percentage point rise in the annual rate of inflation in the space of a month marked the sharpest such increase since detailed records started in 1997.”
September 14 – Financial Times (David Sheppard): “Natural gas prices in the UK and continental Europe have soared to record highs because of tight supplies ahead of winter, raising fears of a severe economic hit to industry and weather-induced shortages. Day-ahead prices in the UK jumped 7% on Tuesday…, almost treble their level the start of the year and an increase of 70% since early August alone. That is also stoking record electricity prices, as gas is key for power generation… Concerns about tight supplies started with a prolonged cold winter that drained natural gas storage. Normally this would be refilled over the summer when demand for heating largely evaporates. But storage filling has not happened at the pace traders would have liked in 2021. Russia has been sending less gas to Europe, for reasons fiercely debated in the industry. These range from Russia’s need to refill its own storage to suspicions that it is trying to pressure European governments, including Germany, to approve the start-up of the highly controversial Nord Stream 2 gas pipeline.”
Geopolitical Watch:
September 16 – Bloomberg: “China slammed a move by the U.S. and U.K. to help Australia build nuclear submarines, saying the new partnership will stoke an ‘arms race’ as tensions heat up in Asia-Pacific waters. Prime Minister Scott Morrison joined with U.S. President Joe Biden and the U.K.’s Boris Johnson… to announce a new security partnership that will see Australia acquire nuclear-powered submarines. While it could take more than a decade for Australia to build one, the agreement shows the U.S. joining with key English-speaking allies to form a more cohesive defense arrangement to offset China’s rising military prowess. The partnership ‘greatly undermines regional peace and stability, aggravates the arms race and hurts the international non-proliferation efforts,’ Chinese Foreign Ministry spokesman Zhao Lijian told reporters… He also questioned Australia’s commitment to forgoing nuclear weapons, and said the U.S. and U.K. were ‘using nuclear exports as geopolitical gaming tool and applying double standards.’”
September 12 – Bloomberg (James Paton): “Variants that can eventually evade Covid vaccines are increasingly likely with vast parts of the world unprotected, and rich countries should hold back on booster doses until others catch up, according to a special envoy to the World Health Organization. ‘Variants that can beat the protection offered by vaccines are bound to emerge all over the world in the coming months and years,’ David Nabarro, the WHO envoy, said… ‘This is an ongoing battle, and we need to work together.’”
Market Instability Watch:
September 16 – Bloomberg: “Chinese high-yield dollar bonds were down as much as 4 cents on the dollar Thursday, according to credit traders, led by developers amid signs of growing contagion from Evergrande’s debt woes.”
Inflation Watch:
September 13 – Wall Street Journal (Michael S. Derby): “Americans’ expectations of future inflation hit a record high last month, according to… the Federal Reserve Bank of New York, potentially challenging the central bank’s confidence that inflation pressures will ebb over time. In its August Survey of Consumer Expectations, the bank said… respondents see inflation a year from now at 5.2%, up from expectations of 4.9% last month. Three years from now, it is expected to be at 4%, up from the 3.7% expected in July. Both readings mark record-high readings for data that goes back to 2013. The report also found projections of big increases in some of the most important costs Americans face on a regular basis. Food prices are seen rising by 7.9% a year from now, rent by 10% and medical-care costs by 9.7%.”
September 14 – USA Today (Paul Davidson): “After years of puny increases in their Social Security checks, older Americans will likely get the equivalent of a big raise next year. The 68 million people -- including retirees, disabled people and others – who rely on the benefits are likely to receive a 6% to 6.1% cost-of-living adjustment next year because of a COVID-19-related spike in inflation, according to the Senior Citizen League. Such a rise would far outpace 1.4% average bumps in Social Security payments since 2010 and amount to the largest increase since 1982… For the average retiree who got a monthly check of $1,559 this year, a 6% rise would increase that payment by $93.54, to $1,652.54, in 2022.”
September 15 – Wall Street Journal (Austen Hufford): “Manufacturers are facing the highest steel and aluminum prices in years, another hurdle for U.S. companies already struggling to make enough cars, cans and other products. Rapidly increasing metal costs are pushing manufacturers to take what steel they can get… The rising costs are flowing through to some producers of consumer goods: Campbell Soup Co. is paying more to get the cans it fills with tomato soup; Peloton… is seeing prices rise for parts that go into its stationary bikes; and Steelcase Inc. is paying more to make metal desks and filing cabinets. Car makers like Ford… and General Motors Co. are also dealing with rising metal prices. ‘It’s crazy for steel,’ said Brian Nelson, president of HCC Inc., which sells large metal accessories to tractor manufacturers. ‘I can’t even get material at times.’”
September 15 – CNBC (Lauren Thomas): “Prices of goods online have now risen for an unprecedented 15 consecutive months, following what was a historical period of declines, according to… Adobe Digital Insights. Inflation is hitting categories including pet products, nonprescription drugs, apparel, furniture and flower arrangements, the report said. The growth in digital sticker prices across the industry means e-commerce transactions are on pace to soon account for roughly $1 of every $5 spent by Americans, up from $1 of every $6 in 2017... Adobe Digital Insights’ economy index tracks more than 1 trillion visits to U.S. retail sites and over 100 million products across 18 categories. Last month, Adobe found online prices grew 3.1% year over year... From 2015 to 2019, online prices on average fell 3.9% annually.”
September 16 – Wall Street Journal (Thomas Gryta): “Transportation costs—typically a fraction of a finished product’s price—are emerging as another supply-chain hurdle, overwhelming some companies already paying more for raw materials and labor. The fabric and crafts retailer Jo-Ann Stores LLC said it has spent 10 times more than its historical cost in some cases to move products from one point to another. ‘Sometimes the ocean freight now is actually more expensive than the cost of the product,’ Chief Executive Officer Wade Miquelon said… The company hasn’t raised any base prices and is hoping the extra supply-chain expenses are temporary. ‘I think they probably are, but does transient mean six months or 24 months?’ he said.”
September 16 – Wall Street Journal (Alistair MacDonald and William Boston): “Soaring natural-gas prices in Britain have prompted U.S. fertilizer maker CF Industries Holdings Inc. to close two U.K. plants, in a sign that Europe’s energy crunch is affecting industry as the economy struggles with several other disruptions amid the recovery from the pandemic. Businesses across Britain are complaining about high energy costs, with some steelmakers forced to halt production for periods during the day as the price of electricity rises almost seven times higher than at the same point last year. Power markets have also jumped in France, the Netherlands and Germany, ahead of anticipated higher demand in the winter.”
September 11 – Bloomberg (Joe Deaux): “Supply-chain snags that have roiled commodity markets and helped push aluminum prices to a 13-year high this week are unlikely to ease any time soon. That’s the message coming from producers, consumers, traders and shippers at North America’s largest aluminum conference… Aluminum has jumped 48% this year on surging demand, shipping bottlenecks and production curbs in China, stoking inflation concerns and causing a major headache for consumer-goods producers facing worsening material shortages alongside the sharp rise in costs. Snarled supplies will continue to dog the industry through most of 2022…”
September 14 – Financial Times (Cheng Ting-Fang): “Prices of chips and of the electronic devices they power are on track to rise into 2022 as the world’s biggest contract chipmaker joins its rivals in ramping up production fees. Prices of semiconductors have been climbing since the last quarter of 2020 amid a global supply crunch. But news that Taiwan Semiconductor Manufacturing Co was preparing its biggest price rise in a decade still came as a shock to some, bringing home just how entrenched chip price inflation has become. TSMC controls over half the global foundry market, making chips for the likes of Apple, Nvidia and Qualcomm. Known for its cutting-edge tech and high quality, the Taiwanese company normally commands production fees around 20% higher than its rivals…”
September 14 – CNBC (Pippa Stevens): “The solar industry is among many sectors feeling the pinch of higher prices, according to a report… by the Solar Energy Industries Association and Wood Mackenzie. Prices rose quarter over quarter and year over year across every solar segment during the period. It’s the first time that residential, commercial and utility solar costs have risen in tandem since the energy consultancy began tracking prices in 2014… A separate report from Rystad Energy… said global solar panel prices have jumped 16% this year compared to 2020′s levels. Overall costs, which include soft costs like labor, are up 12% in 2021.”
Biden Administration Watch:
September 15 – Reuters (Jarrett Renshaw and David Lawder): “Democrats are crafting a massive spending package as big as $3.5 trillion that would transform the U.S. economy by investing in free community college, childcare and green energy, funded by tax hikes on the wealthy and larger companies. The bill’s authors must balance the Biden White House’s campaign pledges and the party’s progressives and moderates, all while catering to lawmakers empowered by Democrats’ razor-thin majorities in Congress to demand pet concessions. Facing unified Republican opposition, Democrats will need to pass the bill on strict party lines using a legislative tool called budget reconciliation. They cannot afford to lose even one vote in the Senate and more than three votes in the House of Representatives.”
September 12 – CNBC (Samantha Subin): “Sen. Joe Manchin… said he would not vote for the $3.5 trillion budget bill, adding that there’s ‘no way’ to meet the September 27 deadline set by Democrats… ‘There’s no way that we can get this done by the 27th if we do our job,’ the West Virginia Democrat said.”
September 16 – Bloomberg (Erik Wasson): “Senate Minority Leader Mitch McConnell rejected an appeal by Treasury Secretary Janet Yellen…, for Republicans to join with Democrats in raising the federal debt ceiling, leaving the two sides at odds with potentially weeks to go until the limit is breached. ‘The leader repeated to Secretary Yellen what he has said publicly since July: This is a unified Democrat government, engaging in a partisan reckless tax and spending spree,’ McConnell spokesman… said... ‘They will have to raise the debt ceiling on their own and they have the tools to do it.’”
September 12 – Wall Street Journal (Richard Rubin): “House Democrats expect to propose raising the corporate tax rate to 26.5% from 21% and imposing a 3-percentage-point surtax on individual income above $5 million, according to two House Democratic aides… The tax increases would be part of the House Ways and Means Committee’s plans to pay for the party’s priorities in a fast-moving budget bill. Those items include an expanded child tax credit, a national paid-leave program and renewable-energy tax breaks.”
U.S. Bubble Watch:
September 13 – Associated Press (Martin Crutsinger): “The U.S. budget deficit rose to $2.71 trillion through August, on track to be the second largest shortfall in history due to trillions of dollars in COVID relief… The Treasury Department said… the deficit for the first 11 months of this budget year is 9.9% less than the imbalance during the same period last year. For the entire budget year, which ends Sept. 30, the Congressional Budget Office is forecasting a deficit of $3 trillion, which would be just below the record deficit of $3.13 trillion set last year. Last year’s deficit was more than double the previous record of $1.4 trillion set in 2009…”
September 14 – Bloomberg (Olivia Rockeman): “Prices paid by U.S. consumers rose in August by less than forecast, snapping a string of hefty gains and suggesting that some of the upward pressure on inflation is beginning to wane. The consumer price index increased 0.3% from July, the smallest advance in seven months… Compared with a year ago, the CPI rose 5.3%. Excluding the volatile food and energy components, so-called core inflation climbed 0.1% from the prior month, the smallest gain since February and a reflection of declines in the prices of used cars, airfares and auto insurance. Economists… called for a 0.4% increase in the overall CPI from the prior month and a 5.3% gain from a year earlier…”
September 16 – Reuters (Rithika Krishna and Sanjana Shivdas): “Semiconductor shortages and the delayed packaging and testing of the chips will cause production of global light vehicles to drop by five million this year, data firm IHS Markit said on Thursday, marking the biggest cut to its outlook in nine months. Citing supply chain challenges, IHS said it was cutting its light vehicle production forecast by 6.2% for 2021 and 9.3% for 2022, to stand at 75.8 million units and 82.6 million units, respectively.”
September 16 – Bloomberg (Reade Pickert): “U.S. retail sales rose unexpectedly in August as a pickup in purchases across most categories more than offset weakness at auto dealers, showing resilient consumer demand for merchandise. The value of overall retail purchases climbed 0.7% last month following a downwardly revised 1.8% decrease in July… Excluding autos, sales advanced 1.8% in August, the largest gain in five months. The median estimate… called for a 0.7% decline in overall retail sales…”
September 13 – Reuters (Noor Zainab Hussain): “Insurers are bracing for claims of between $20 billion and $30 billion after assessing the damage from Hurricane Ida in many locations including New York and New Jersey, catastrophe risk modeling firm AIR Worldwide said... Included in the estimates are losses to onshore residential, commercial, industrial properties, and automobiles for their building, contents, and time element coverage, AIR said.”
September 14 – Wall Street Journal (John McCormick and Paul Overberg): “Americans last year saw their first significant decline in household income in nearly a decade… An annual assessment of the nation’s financial well-being, released… by the Census Bureau, offered insight into how households fared during the pandemic’s first year. It arrives as Washington debates how much more to spend to bolster the economy during the worst public-health crisis in a century. Median household income was about $67,500 in 2020, down 2.9% from the prior year, when it hit an inflation-adjusted historical high.”
China Watch:
September 15 – Reuters (Stella Qiu and Gabriel Crossley): “China's factory and retail sectors faltered in August with output and sales growth hitting one-year lows as fresh coronavirus outbreaks and supply disruptions threatened the country's impressive economic recovery. Industrial production rose 5.3% in August from a year earlier, narrowing from an increase of 6.4% in July and marking the weakest pace since July 2020… Output growth missed the 5.8% increase tipped by analysts. Consumer spending also took a big hit from rising local COVID-19 cases and floods with sales rising only 2.5% in August from a year ago, much lower than the forecast 7.0% rise and the slowest clip since August last year.”
September 14 – Bloomberg: “China’s economy took a knock in August from stringent virus controls and tight curbs on property, fueling concerns about the global recovery as countries battle to get delta outbreaks under control. Retail sales growth slowed to 2.5% from a year ago, much lower than the 7% estimate…, as consumers cut back on spending during the summer holiday break. Construction investment contracted 3.2% in the eight months of the year, a reflection of the government’s steady tightening of property restrictions as part of a campaign against financial risk.”
Global Bubble Watch:
September 14 – Reuters (Dhara Ranasinghe): “Global debt rose to a new record high of nearly $300 trillion in the second quarter, but the debt-to-GDP ratio declined for the first time since the start of the pandemic as economic growth rebounded, the Institute of International Finance (IIF) said… The rise in debt levels was the sharpest among emerging markets, with total debt rising $3.5 trillion in the second quarter from the preceding three months to reach almost $92 trillion… Debt as a share of gross domestic product fell to around 353% in the second quarter, from a record high of 362% in the first three months of this year… China has seen a steeper rise in its debt levels compared with other countries, while emerging-market debt excluding China rose to a fresh record high at $36 trillion in the second quarter, driven by a rise in government borrowing.”
September 12 – Financial Times (Jonathan Wheatley): “Global food prices have been climbing for a little over a year, heaping pressure on emerging markets where the poorest tend to spend a larger proportion of their income on staples. Prices have risen 40% over the past 15 months, according to… the UN’s Food and Agriculture Organization, the biggest gain since surging food prices spurred the unrest of the Arab Spring in 2010-11.”
September 13 – Financial Times (Valentina Romei): “Global house prices rose are rising at their fastest pace since 2005 as low interest rates, a shortage of housing and bountiful household savings continue to boost the housing market. The average annual price change across 55 countries rose to 9.2% in the 12 months to June, according to property consultancy Knight Frank. It is the fastest rise since the 12 months to March 2005, and is up from 4.3% over the same period last year as more countries’ property markets heat up. Overall, one in three countries registered double-digit price growth, including Russia and Germany. The US, Australia, New Zealand, Turkey and Canada registered nominal house price growth of more than 16%…”
September 15 – Bloomberg (Shelly Hagan): “Inflation in Canada accelerated to the fastest pace since 2003, a political headache for Prime Minister Justin Trudeau only five days before an election. The consumer price index rose 4.1% in August from a year earlier…, marking the fifth consecutive month of inflation readings above the Bank of Canada’s 3% cap.”
Europe Watch:
September 15 – Reuters (Andy Bruce): “British inflation hit a more than nine-year high last month after the biggest monthly jump in the annual rate in at least 24 years… Consumer prices rose by 3.2% in annual terms last month after a 2.0% rise in July, the highest rate since March 2012… The 1.2 percentage point rise in the annual rate of inflation in the space of a month marked the sharpest such increase since detailed records started in 1997.”
September 14 – Financial Times (David Sheppard): “Natural gas prices in the UK and continental Europe have soared to record highs because of tight supplies ahead of winter, raising fears of a severe economic hit to industry and weather-induced shortages. Day-ahead prices in the UK jumped 7% on Tuesday…, almost treble their level the start of the year and an increase of 70% since early August alone. That is also stoking record electricity prices, as gas is key for power generation… Concerns about tight supplies started with a prolonged cold winter that drained natural gas storage. Normally this would be refilled over the summer when demand for heating largely evaporates. But storage filling has not happened at the pace traders would have liked in 2021. Russia has been sending less gas to Europe, for reasons fiercely debated in the industry. These range from Russia’s need to refill its own storage to suspicions that it is trying to pressure European governments, including Germany, to approve the start-up of the highly controversial Nord Stream 2 gas pipeline.”
Geopolitical Watch:
September 16 – Bloomberg: “China slammed a move by the U.S. and U.K. to help Australia build nuclear submarines, saying the new partnership will stoke an ‘arms race’ as tensions heat up in Asia-Pacific waters. Prime Minister Scott Morrison joined with U.S. President Joe Biden and the U.K.’s Boris Johnson… to announce a new security partnership that will see Australia acquire nuclear-powered submarines. While it could take more than a decade for Australia to build one, the agreement shows the U.S. joining with key English-speaking allies to form a more cohesive defense arrangement to offset China’s rising military prowess. The partnership ‘greatly undermines regional peace and stability, aggravates the arms race and hurts the international non-proliferation efforts,’ Chinese Foreign Ministry spokesman Zhao Lijian told reporters… He also questioned Australia’s commitment to forgoing nuclear weapons, and said the U.S. and U.K. were ‘using nuclear exports as geopolitical gaming tool and applying double standards.’”
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