Friday, September 3, 2021
Weekly Commentary
by Doug Noland
My edited, easy to read, short version follows
Ye Editor
Beijing has been bustling with activity.
Communist leadership has clearly turned against Capitalism, though it’s difficult to fault their effort to curb the “disorderly expansion of capital.” Untethered finance has so corrupted today's Capitalism. Under the guise of “market reform,” Beijing is in the process of wresting ever-tighter control over the markets, the economy and society at large.
For the week ending September 3, 2021:
The S&P500 added 0.6% (up 20.7% y-t-d)
The Dow slipped 0.2% (up %)
Utilities gained 1.4% (up 10.2%).
Banks sank 3.8% (up 29.4%)
Transports declined 1.0% (up 17.9%)
S&P 400 Midcaps slipped 0.2% (up 19.7%)
Small cap Russell 2000 gained 0.7% (up 16.1%)
Nasdaq100 advanced 1.4% (up 21.5%)
Semiconductors dipped 0.2% (up 22.7%)
Biotechs rose 1.0% (up 4.5%).
U.K.'s FTSE little changed (up 10.5% y-t-d).
Japan's Nikkei surged 5.4% (up 6.1% y-t-d)
France's CAC40 was about unchanged (up 20.5%).
The German DAX declined 0.4% (up 15.0%).
Spain's IBEX 35 declined 0.7% (up 9.8%).
Italy's FTSE MIB added 0.2% (up 17.2%)
Brazil's Bovespa dropped 3.1% (down 1.8%)
Mexico's Bolsa fell 1.1% (up 17.6%).
South Korea's Kospi advanced 2.1% (up 11.4%).
India's Sensex surged 3.6% (up 21.7%).
China's Shanghai gained 1.7% (up 3.1%).
Russia's MICEX jumped 2.9% (up 21.7%).
US BONDS:
Three-month Treasury bill rates ended the week at 0.0325%.
Two-year government yields slipped a basis point to 0.21% (up 9bps y-t-d).
Five-year T-note yields declined two bps to 0.78% (up 42bps).
Ten-year Treasury yields gained two bps to 1.32% (up 41bps).
Long bond yields rose two bps to 1.94% (up 30bps).
Benchmark Fannie Mae MBS yields increased two bps to 1.79% (up 45bps).
Federal Reserve Credit last week declined $16.9bn to $8.307 TN. Over the past 103 weeks, Fed Credit expanded $4.580 TN, or 123%.
US MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
were unchanged at 2.87% (down 6bps y-o-y).
Fifteen-year rates rose four bps to 2.18%
(down 24bps).
Five-year hybrid ARM rates
added a basis point to 2.43%
(down 50bps).
Jumbo mortgage 30-year fixed rates
down four bps to 3.04% (down 8bps).
COMMODITIES:
Bloomberg Commodities Index
increased 0.8% (up 24.4% y-t-d).
Spot Gold gained $10 to $1,828 (down 3.7%).
Silver jumped 2.9% to $24.72 (down 6.4%).
WTI crude added 55 cents to $69.29 (up 43%).
Gasoline dropped 5.3% (up 53%)
Natural Gas jumped 7.4% (up 86%).
Copper was unchanged (up 23%).
Wheat declined 0.9% (up 13.4%).
Corn sank 5.4% (up 8%).
Bitcoin rose $886 this week to $49,824 (up 71%).
NEWS FROM LAST WEEK:
Coronavirus Watch:
August 30 – Bloomberg (Antony Sguazzin):
“South African scientists said they identified a new coronavirus variant that has a concerning number of mutations. The so-called C.1.2. variant was first identified in May in the South African provinces of Mpumalanga and Gauteng… The mutations on the virus ‘are associated with increased transmissibility’ and an increased ability to evade antibodies, the scientists said. ‘It is important to highlight this lineage given its concerning constellation of mutations.’”
Market Instability Watch:
August 30 – Bloomberg (Abhishek Vishnoi and Ranjeetha Pakiam): “Veteran investor Mark Mobius said investors should have 10% of a portfolio in gold as currencies will be devalued following the unprecedented stimulus rolled out to fight the coronavirus pandemic.”
Inflation Watch:
August 31 – CNBC (Jeff Cox):
“…The Conference Board reported that consumer inflation expectations ticked higher again, with respondents to the survey now seeing the metric running at 6.8% 12 months from now. That’s up a full percentage point from a year ago, or 17.2% on a relative basis.”
August 31 – Wall Street Journal (Will Parker):
“Would-be home buyers priced out of the sales market are finding little consolation when they turn instead to the single-family rental market. Prices are soaring there as well. Asking rents for houses rose nearly 13% for the year to date through July, the highest annual increase in the past five years as tracked by… Yardi Matrix, which analyzed professionally managed properties… Apartment asking rents also have risen, but at a slower pace: 8.3% for the year to date through July, Yardi Matrix said. The difference partly reflects weaker demand in downtowns that lost population…”
August 27 – Wall Street Journal (Kate Davidson):
“The White House more than doubled its forecast for annual inflation in new projections…, as supply-chain disruptions stemming from the Covid-19 pandemic continue to put upward pressure on prices. The Office of Management and Budget said it expected consumer prices would rise 4.8% in the fourth quarter from a year earlier, up sharply from the 2% rise that the Biden administration forecast in May.”
September 2 – Bloomberg (Jonathan Roeder):
“Walmart Inc. said it will raise wages for a swath of its U.S. workforce, bringing its average hourly wage to $16.40 as the big-box retailer competes for employees amid a labor shortage. The raise of at least $1 per hour will start on Sept. 25 and cover more than 565,000 workers, Walmart U.S. Chief Executive Officer John Furner said… Furner said it’s the third pay rise for store workers over the past year.”
August 30 – Wall Street Journal (Joe Wallace and Hardika Singh): “Aluminum prices are reaching 10-year highs, as buyers far from storage centers in Asia compete to line up shipments for use in beverage cans, airplanes and construction. Aluminum forwards on the London Metal Exchange have climbed by a third this year to about $2,650 a metric ton. Prices are around 80% higher than at their low point in May 2020…”
September 3 – Wall Street Journal (Joe Wallace):
“Sugar prices shot to four-year highs after a frost in Brazil cut the size of the cane crop in the world’s biggest producer, and hedge funds are adding to the market’s momentum. Prices for raw sugar futures have jumped 10% over the past month to trade at about 20 cents a pound in New York. Sugar prices haven’t been that high since early 2017 and have climbed more than 60% over the past year.”
Biden Administration Watch:
September 2 – Associated Press (Lisa Mascaro):
“Centrist Sen. Joe Manchin said… Congress should take a ‘strategic pause’ on more spending, warning that he does not support President Joe Biden’s plans for a sweeping $3.5 trillion effort to rebuild and reshape the economy. The West Virginia Democrat’s pointed opposition was stronger than his past statements and taps into a grab-bag of arguments over inflation, national security and other concerns to deny Biden and his party a crucial vote on the emerging package. The timing of his comments comes as lawmakers are laboring behind the scenes to draft the legislation ahead of this month’s deadlines. ‘Instead of rushing to spend trillions on new government programs and additional stimulus funding, Congress should hit a strategic pause on the budget-reconciliation legislation,’ Manchin wrote…”
U.S. Bubble Watch:
September 3 – Bloomberg (Reade Pickert and Olivia Rockeman):
“U.S. hiring downshifted abruptly in August with the smallest jobs gain in seven months, complicating a potential decision by the Federal Reserve to begin scaling back monetary support by year end. Nonfarm payrolls increased 235,000 last month, trailing all forecasts, after an upwardly revised 1.05 million gain in July… Employment in leisure and hospitality, which has posted strong gains recently, was flat amid the spreading delta variant and persistent hiring challenges. The unemployment rate fell to 5.2% from 5.4%.”
August 31 – Associated Press (Christopher Rugaber):
“U.S. home prices jumped by a record amount in June as homebuyers competed for a limited supply of available houses, the latest evidence that the housing market remains red-hot. The S&P CoreLogic Case-Shiller 20-city home price index soared 19.1% in June compared with a year earlier, the largest increase on records dating back to 2000. The annual price gains in June were higher in all 20 cities than they were in May. Prices are now at record highs in 19 of the 20 cities, with the exception of Chicago. ‘The last several months have been extraordinary not only in the level of price gains, but in the consistency of gains across the country,’ said Craig Lazzara, managing director of index investment strategy at S&P DJI.”
September 2 – Bloomberg (Vince Golle):
“A record share of U.S. small-business owners said they had vacant positions in August, and an unprecedented number boosted wages to lure workers, the National Federation of Independent Business said… Fifty percent of firms had job openings they could not fill last month, up 1 percentage point from July and the largest share in monthly data back to 1986… A record 41% of small-business owners said they raised compensation. ‘Owners are raising compensation in an attempt to attract workers and these costs are being passed on to consumers through price hikes for goods and services, creating inflation pressures,’ Bill Dunkelberg, NFIB’s chief economist, said… A record 32% of small businesses said they intend to add to payrolls in the next few months, while the number planning to raise worker pay remained near a series high. Job skills remain problematic for companies, with 91% of those hiring or trying to hire indicating there were few or no qualified applicants for open positions…”
September 2 – Bloomberg (Mary Schlangenstein):
“Missing workers are turning out to be as big a headache for airlines as missing luggage. U.S. carriers hoping to build out flight schedules face headwinds from unfilled jobs and, in the case of Southwest Airlines Co., a surprising spike in staffing no-shows. The industry is hiring thousands pilots and flight attendants more than a year after trimming jobs as travel collapsed with the coronavirus pandemic. Reservation agents also are high in demand. But the need -- and the challenge – is greatest for entry-level jobs like baggage handlers, ticket counter and gate agents, cabin cleaners, aircraft fuelers and folks who restock galleys.”
China Watch:
August 31 – Reuters (Gabriel Crossley):
“China's factory activity slipped into contraction in August for the first time in nearly 1-1/2 years as COVID-19 containment measures, supply bottlenecks and high raw material prices weighed on output in a blow to the economy. The slowdown in the manufacturing sector underscores the fragility of the ongoing economic recovery and the impact of strict coronavirus curbs in the country, backing expectations Beijing will roll out more support measures to revitalise growth. Two separate official surveys released on Tuesday showed China's factory activity grew at a slower pace, while the services sector slumped into contraction. The Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) fell to 49.2 last month, from 50.3 in July, breaching the 50-mark that separates growth from contraction.”
September 2 – Reuters (Gabriel Crossley):
“Activity in China's services sector slumped into sharp contraction in August, a private survey showed on Friday… The Caixin/Markit services Purchasing Managers' Index (PMI) fell to 46.7 in August from 54.9 in July, plunging to the lowest level since the pandemic's first wave in April 2020. The 50-point mark separates growth from contraction on a monthly basis.”
August 31 – Reuters (Yingzhi Yang and Brenda Goh):
“Young Chinese gamers took to social media to express their outrage at new rules that limit their gaming time to just three hours per week, while investors fretted about the long-term impact on the industry. Authorities argue the restrictions are necessary to stop growing gaming addiction and the People's Daily… said the government had to be ‘ruthless’ as online games impair normal study life and the physical and mental health of teens. The curbs are part of Beijing's efforts to promote the primacy of socialism and strengthen controls over society it now views as having become too lax after years of laissez-faire growth for the tech sector and other industries.”
Global Bubble Watch:
August 31 – Reuters (Jonathan Cable and Leika Kihara):
“Global factory activity lost momentum in August as the ongoing coronavirus pandemic-disrupted supply chains, raising concerns faltering manufacturing would add to economic woes caused by slumping consumption, surveys showed… Many firms reported logistical troubles, product shortages and a labour crunch which have made it a sellers’ market of the goods factories need, driving up prices. While factory activity remained strong in the euro zone, IHS Markit’s final manufacturing Purchasing Managers’ Index (PMI) fell to 61.4 in August from July’s 62.8, below an initial 61.5 ‘flash’ estimate. ‘Despite the strong PMI figures, we think that lingering supply-side issues and related producer price pressures might take longer to resolve than previously expected, increasing the downside risk to our forecast,’ said Mateusz Urban at Oxford Economics. In Britain, where factories also faced disruptions, manufacturing output grew in August at the weakest rate for six months.”
Europe Watch:
August 30 – Bloomberg (Jana Randow):
“German inflation jumped to its highest level since 2008… Consumer prices rose 3.4% in August, significantly faster than the 2% the European Central Bank aims to achieve sustainably for the euro area. Earlier on Monday, Spain reported a rate of 3.3%. So far, policy makers have argued that the current inflation surge is temporary and largely reflects one-off effects. Yet an aggravating supply squeeze is prompting more and more firms to raise charges, a trend that could produce more permanent price pressures.”
August 31 – Reuters (Balazs Koranyi):
“Euro zone inflation surged to a 10-year-high in August with further rises likely, challenging the European Central Bank's benign view on price growth and its commitment to look past what it deems a temporary increase. Consumer inflation in the 19 countries sharing the single currency accelerated to 3% this month from 2.2% in July, far above expectations for 2.7% and moving well clear of the ECB's 2% target.”
Japan Watch:
September 3 – Bloomberg (Isabel Reynolds):
“Japanese Prime Minister Yoshihide Suga announced plans to resign after failing to control the country’s coronavirus surge, with two former foreign ministers seen as leading the pack to take over, weeks before a general election. In a surprise announcement, Suga told reporters Friday he couldn’t campaign for re-election as leader of the Liberal Democratic Party this month while battling the virus, ending his premiership almost exactly a year after it started. Whoever becomes the next LDP leader is virtually assured of becoming prime minister due to the party’s dominance in parliament.”
Environmental Watch:
September 1 – Bloomberg (Sergio Chapa and Will Wade):
“Hurricane Ida has passed by, but New Orleans remains mostly powerless. Electricity went out across the city Sunday, and while one neighborhood flickered back early Wednesday, there’s no word about when the rest of the lights will be back. Gasoline is scarce, most grocery stores are closed, tap water is iffy and officials are telling people who fled not to come home. It’s a challenge just to care for those who are there: More than half the population rode out the storm, and about 200,000 are enduring the smothering August heat and trying to put food on the table without electricity.”
September 2 – Reuters (Barbara Goldberg and Maria Caspani):
“Flooding killed at least 14 people, swept away cars, submerged subway lines and temporarily grounded flights in New York and New Jersey as the remnants of Hurricane Ida brought torrential rains to the area. New York City Mayor Bill de Blasio told a… news conference there were nine confirmed fatalities in New York caused by what he had described as a ‘historic weather event.’ Countless rescues were made overnight of motorists and subway riders who became stranded in the flood waters, de Blasio said. ‘So many lives were saved because of the fast, courageous, response of our first responders,’ he said.”
September 1 – Bloomberg (Amanda Little):
“As drought continues to punish food producers throughout the American West, Hurricane Ida has reminded us that the very opposite problem — raging storms and floods — not only imperils crop production but can devastate global food distribution networks. Centralized shipping networks are vulnerable to disruption — one storm in Louisiana can paralyze 60% of U.S. grain exports to the rest of the world. It’s the same lesson we learned from the devastating impacts of Covid-19 and cyberattacks on major meat processing facilities, which showed that consolidation has made the U.S. meat industry unacceptably fragile.”
August 30 – Associated Press (Same Metz and Janie Har):
“A popular vacation haven normally filled with tens of thousands of summer tourists was clogged with fleeing vehicles Monday after the entire resort city of South Lake Tahoe was ordered to leave as a ferocious wildfire raced toward Lake Tahoe, a sparkling gem on the California-Nevada state line.”
Geopolitical Watch:
September 1 – Reuters (Yimou Lee):
“China's armed forces can ‘paralyse’ Taiwan's defences and are able to fully monitor its deployments, the island's defence ministry said, offering a stark assessment of the rising threat posed by its giant neighbour. Beijing is stepping up military activities around the island… It has never renounced the use of force to bring democratic Taiwan under its control. In its annual report to parliament on China's military…, Taiwan's Defence Ministry presented a far graver view than it did last year, when the report said China still lacked the capability to launch a full assault on Taiwan. This year's report said that China can launch what it termed ‘soft and hard electronic attacks’, including blocking communications across the western part of the first island chain, the string of islands that run from the Japanese archipelago, through Taiwan and down to the Philippines.”
August 30 – Reuters (Francois Murphy and Josh Smith):
“North Korea appears to have restarted a nuclear reactor that is widely believed to have produced plutonium for nuclear weapons, the U.N. atomic watchdog said…, highlighting the isolated nation's efforts to expand its arsenal.”
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