Source:
http://creditbubblebulletin.blogspot.com/2021/10/weekly-commentary-contagion.html
Weekly Commentary
by Doug Noland
http://creditbubblebulletin.blogspot.com/2021/10/weekly-commentary-contagion.html
Weekly Commentary
by Doug Noland
My edited easy to read version follows.
Ye Editor
If global supply-chains weren’t already a huge mess…
October 7
– Bloomberg
(Jeff Sutherland and
Tom Hancock):
“The hit from China’s energy crunch is starting to ripple throughout the globe, hurting everyone from Toyota Motor Corp. to Australian sheep farmers and makers of cardboard boxes. Not only is the extreme electricity shortage in the world’s largest exporter set to hurt its own growth, the knock-on impact to supply chains could crimp a global economy struggling to emerge from the pandemic. The timing couldn’t be worse, with the shipping industry already facing congested supply lines that are delaying deliveries of clothes and toys for the year-end holidays. It also comes just as China starts its harvest season, raising concerns over sharply higher grocery bills.”
For the Week Ending October 8, 2021:
GLOBAL STOCK INDEXES:
If global supply-chains weren’t already a huge mess…
October 7
– Bloomberg
(Jeff Sutherland and
Tom Hancock):
“The hit from China’s energy crunch is starting to ripple throughout the globe, hurting everyone from Toyota Motor Corp. to Australian sheep farmers and makers of cardboard boxes. Not only is the extreme electricity shortage in the world’s largest exporter set to hurt its own growth, the knock-on impact to supply chains could crimp a global economy struggling to emerge from the pandemic. The timing couldn’t be worse, with the shipping industry already facing congested supply lines that are delaying deliveries of clothes and toys for the year-end holidays. It also comes just as China starts its harvest season, raising concerns over sharply higher grocery bills.”
For the Week Ending October 8, 2021:
GLOBAL STOCK INDEXES:
S&P500 recovered 0.8% (up 16.9% y-t-d)
Dow Industrials rose 1.2% (up 13.5%)
Utilities jumped 1.6% (up 3.4%)
Transports advanced 2.7% (up 17.1%)
S&P 400 Midcaps added 0.2% (up 16.6%)
Small cap Russell 2000 slipped 0.4% (up 13.1%)
Nasdaq100 increased 0.2% (up 15.0%)
Semiconductors declined 0.5% (up 16.1%)
Biotechs lost 1.2% (up %).
With GOLD bullion gaining $4,
the HUI gold stock index rallied 5.4%
(down 19.7%).
U.K.'s FTSE gained 1.0% (up 9.8% y-t-d).
Japan's Nikkei dropped 2.5% (up 2.2% y-t-d).
France's CAC40 added 0.6% (up 18.2%)
German DAX increased 0.3% (up 10.8%).
Spain's IBEX 35 rallied 1.8% (up 10.9%).
Italy's FTSE MIB recovered 1.7% (up 17.2%)
Brazil's Bovespa little changed (down 5.2%)
Mexico's Bolsa about unchanged (up 16.0%).
South Korea's Kospi dropped 2.1% (up 2.9%).
India's Sensex jumped 2.2% (up 25.8%).
China's Shanghai rallied 0.7% (up 3.4%).
Russia's MICEX surged 3.9% (up 28.9%).
US BONDS:
Three-month Treasury bill rates
ended the week at 0.045%.
Two-year government yields
jumped six bps to 0.32% (up 20bps y-t-d).
Five-year T-note yields
rose 13 bps to 1.06% (up 72bps).
Ten-year Treasury yields
surged 15 bps to 1.61% (up 70bps).
Long bond yields jumped 14 bps to 2.17%
(up 52bps).
Benchmark Fannie Mae MBS yields
rose 14 bps to 2.05% (up 71bps).
Federal Reserve Credit last week
declined $9.3bn to $8.416 TN.
Over the past 108 weeks,
Fed Credit expanded $4.689 TN, or 126%.
US MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
slipped two bps to 2.99% (up 12bps y-o-y).
Fifteen-year rates
fell five bps to 2.23% (down 14bps).
Five-year hybrid ARM rates
rose four bps to 2.52% (down 37bps).
Jumbo mortgage 30-year fixed rates
down five bps to 3.15% (up 7bps).
Dow Industrials rose 1.2% (up 13.5%)
Utilities jumped 1.6% (up 3.4%)
Transports advanced 2.7% (up 17.1%)
S&P 400 Midcaps added 0.2% (up 16.6%)
Small cap Russell 2000 slipped 0.4% (up 13.1%)
Nasdaq100 increased 0.2% (up 15.0%)
Semiconductors declined 0.5% (up 16.1%)
Biotechs lost 1.2% (up %).
With GOLD bullion gaining $4,
the HUI gold stock index rallied 5.4%
(down 19.7%).
U.K.'s FTSE gained 1.0% (up 9.8% y-t-d).
Japan's Nikkei dropped 2.5% (up 2.2% y-t-d).
France's CAC40 added 0.6% (up 18.2%)
German DAX increased 0.3% (up 10.8%).
Spain's IBEX 35 rallied 1.8% (up 10.9%).
Italy's FTSE MIB recovered 1.7% (up 17.2%)
Brazil's Bovespa little changed (down 5.2%)
Mexico's Bolsa about unchanged (up 16.0%).
South Korea's Kospi dropped 2.1% (up 2.9%).
India's Sensex jumped 2.2% (up 25.8%).
China's Shanghai rallied 0.7% (up 3.4%).
Russia's MICEX surged 3.9% (up 28.9%).
US BONDS:
Three-month Treasury bill rates
ended the week at 0.045%.
Two-year government yields
jumped six bps to 0.32% (up 20bps y-t-d).
Five-year T-note yields
rose 13 bps to 1.06% (up 72bps).
Ten-year Treasury yields
surged 15 bps to 1.61% (up 70bps).
Long bond yields jumped 14 bps to 2.17%
(up 52bps).
Benchmark Fannie Mae MBS yields
rose 14 bps to 2.05% (up 71bps).
Federal Reserve Credit last week
declined $9.3bn to $8.416 TN.
Over the past 108 weeks,
Fed Credit expanded $4.689 TN, or 126%.
US MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
slipped two bps to 2.99% (up 12bps y-o-y).
Fifteen-year rates
fell five bps to 2.23% (down 14bps).
Five-year hybrid ARM rates
rose four bps to 2.52% (down 37bps).
Jumbo mortgage 30-year fixed rates
down five bps to 3.15% (up 7bps).
COMMODITIES:
Bloomberg Commodities Index
gained 1.7% (up 31.5% y-t-d).
Spot Gold slipped $4 to $1,757 (down 7.5%).
Silver recovered 0.6% to $22.68 (down 14.1%).
WTI crude surged $3.47 to $79.35 (up 64%).
Gasoline jumped 5.2% (up 68%)
Natural Gas slipped 1.0% (up 119%).
Copper gained 2.1% (up 22%).
Wheat dropped 2.8% (up 15%).
Corn fell 2.0% (up 10%).
Bitcoin gained $5,705, or 11.8%,
this week to $54,106 (up 86%).
NEWS FROM LAST WEEK:
Market Mania Watch:
October 5
– Financial Times
(Kaye Wiggins):
“Private equity firms are offering the highest premiums for listed companies in more than two decades, paying almost 70% above the prior share price in some cases, in a sign of the widening gap between cash-rich buyout groups and public market investors. Buyout groups paid an average premium of 45% for European companies in 2021, the highest since the data company Refinitiv’s records began in 1980. In the US, the premiums hit 42% this year, the highest since 1999.”
October 8
– Bloomberg
(John Gittelsohn):
“The median price for a home in California is set to jump north of $800,000 next year, adding to a long-simmering affordability crisis in the state. The state, which has grappled for years with a shortage of affordable housing, will see prices rise 5.2% to a median of $834,000 in 2022, according to a forecast by the California Association of Realtors… That comes after a surge of roughly 20% this year…”
Inflation Watch:
October 4
– Bloomberg
(Gerson Freitas Jr.):
“A gauge of commodities soared to an all-time high as a resurgence in demand for raw materials collides with supply constraints, working to fan fears of inflation around the world. The Bloomberg Commodity Spot Index, which tracks 23 energy, metals and crop futures contracts, rose 1.1% on Monday, topping a 2011 record. The index has surged more than 90% since reaching a four-year low in March of last year.”
October 4
– New York Times
(Clifford Krauss and
Peter Eavis):
“Americans are spending a dollar more for a gallon of gasoline than they were a year ago. Natural gas prices have shot up more than 150% over the same time, threatening to raise prices of food, chemicals, plastic goods and heat this winter. The energy system is suddenly in crisis around the world as the cost of oil, natural gas and coal has climbed rapidly in recent months. In China, Britain and elsewhere, fuel shortages and panic buying have led to blackouts and long lines at filling stations. The situation in the United States is not quite as dire, but oil and gasoline prices are high enough that President Biden has been calling on foreign producers to crank up supply.”
October 3
– Financial Times
(Derek Brower and
David Sheppard):
“US oil producers are not able to increase supply to tame soaring crude prices that remain ‘under Opec control’, according to the shale patch’s biggest operator… Scott Sheffield, chief executive of Texas-based Pioneer Natural Resources, said America’s once-prolific shale producers would keep using their burgeoning cash piles to pay shareholders, not fund new drilling. ‘Everybody’s going to be disciplined, regardless whether it’s $75 Brent, $80 Brent, or $100 Brent,’ Sheffield said. ‘All the shareholders that I’ve talked to said that if anybody goes back to growth, they will punish those companies.’ ‘I don’t think the world can rely much on US shale,’ he said. ‘It’s really under Opec control.’”
October 6
– Wall Street Journal
(Chuin-Wei Yap, Kejal Vyas
and Chieko Tsuneoka):
“Coal supply shortages are pushing prices for the fuel to record highs and laying bare the challenges to weaning the global economy off one of its most important—and polluting—energy sources. The crunch has many causes—from the post-pandemic boom to supply-chain strains and ambitious targets for reducing carbon emissions. And it is expected to last at least through the winter, raising fears in many countries of fuel shortfalls in the months ahead. Australia’s Newcastle thermal coal, a global benchmark, is trading at $202 a metric ton, three times higher than at the end of 2019. Global production of coal, which generates around 40% of the world’s electricity, is about 5% below pre-pandemic levels.”
October 8
– Reuters
(Jessica Jaganathan):
“Asia liquefied natural gas (LNG) prices soared this week, as the world's top buyer China faced an ongoing power crunch and low inventory in Europe drove up competition for the super-chilled fuel. The average LNG price for November delivery into Northeast Asia was estimated at about $37 per metric million British thermal units (mmBtu), up nearly 16% from the previous week…”
U.S. Bubble Watch:
October 8
– Bloomberg
(Olivia Rockeman and
Reade Pickert):
“U.S. job growth in September was the slowest this year, signaling a tempering of the labor market recovery and complicating a potential decision by the Federal Reserve to begin scaling back monetary support before year end. Nonfarm payrolls increased 194,000 last month after an upwardly revised 366,000 gain in August… The unemployment rate fell to 4.8%, partly reflecting a decline in labor force participation among women. Meantime, average hourly earnings jumped.”
October 5
– Wall Street Journal
(Yuka Hayashi):
“The U.S. trade deficit widened to a record in August as American consumers continued to show a strong appetite for imported goods such as pharmaceutical products, toys and clothing. The… trade gap in goods and services expanded to $73.3 billion in August from $70.3 billion in July as the Delta variant of Covid-19 and supply constraints weighed on global trade.”
October 7
– CNBC
(Jeff Cox):
“The total of Americans submitting jobless claims fell sharply last week as enhanced federal unemployment benefits wound down… Initial filings for unemployment benefits totaled a seasonally adjusted 326,000 for the week ended Oct. 2, below the 345,000 Dow Jones estimate and a drop from the previous week’s 364,000… The weekly total was the lowest level since Sept. 4 and reverses a trend of rising claims over the past three weeks.”
October 3
– Wall Street Journal
(Orla McCaffrey):
“House prices are rising at a record pace but incomes aren’t keeping up, which is making home ownership less and less affordable. The median American household would need 32.1% of its income to cover mortgage payments on a median-priced home… That is the most since November 2008, when the same outlays would eat up 34.2% of income. Supercharged home prices in markets across the country are canceling out the impact of modestly higher incomes and historically low interest rates…”
October 4
– Yahoo Finance
(Aarthi Swaminathan):
“Supply chain bottlenecks are squeezing businesses big and small. One expert explains why it’s so hard to iron out the major kinks affecting global trade. ‘There really is a perfect storm going on,’ Adam Compain, senior vice president at project44, a supply chain technology provider, told Yahoo Finance... Compain laid out three major reasons why ports are so backed up and there’s red-hot demand for truckers. ‘First and foremost is customer expectations have risen only in one direction — and that's up,’ explained Compain. ‘Second to that is a capacity constraint. There are limitations to the supply chain network in terms of the quantity of drivers that are available to ship things within the United States and abroad.’ Third, ‘things are complex in the supply chain,’ Compain said. In his view, the process of turning raw materials into a finished good and bringing it to a consumer's home across the globe relies on ‘a whole bunch of interdependencies,’ and ‘logistics has reached a point that the existing software data and tools to make that job a reality are really strained.’”
Fixed-Income Bubble Watch:
October 3
– Wall Street Journal
(Sebastian Pellejero):
“U.S. companies have sold a record amount of junk-rated loans to raise money for dividends this year… Nonfinancial companies… have issued more than $72 billion worth of speculative-grade loans to pay dividends in 2021, according to S&P Global Market Intelligence’s LCD. That is already a full-year record in data going back to 2000, topping 2013’s previous high of $54.4 billion.”
China Watch:
October 5
– Bloomberg
(Saket Sundria and
Elizabeth Low):
“Asian buyers are paying top dollar for a variety of fuels that can be fed into steam boilers or power turbines as they seek alternatives to increasingly pricey natural gas. The electricity crisis is roiling energy markets from Europe to Asia, with fuels that can be used for heating or power generation such as propane, diesel and fuel oil in high demand. Goldman Sachs… predicts the crunch will drive greater consumption of crude later this year, while China has ordered state-owned firms to secure energy supplies for winter at all costs. In Asia, prices of propane -- an oil product that’s typically used for cooking or making plastics -- have surged to the highest since at least 2016, while fuel oil recently almost doubled from a year earlier.”
October 7
– Reuters
(Marc Jones):
“Investment bank JPMorgan has estimated that troubled Chinese property giant Evergrande and many of its major rivals have billions of dollars worth of off-balance sheet debt that, once added on, ramp up their leverage ratios. JPMorgan's China and Hong Kong property analysts said the tactic is likely to have been used to help firms look like they were conforming with new borrowing cap rules introduced last year, but Evergrande's case looks the most extreme. ‘Instead of true deleveraging, we think Evergrande has shifted some of the interest-bearing debt to off-balance sheet debt,’ JPMorgan's analysts said. ‘Commercial papers, wealth management products and perpetual capital securities, etc, which are not officially counted as debt.’ They estimated Evergrande's ‘net gearing,’ as debt as a ratio of a firm's equity is known, was at least 177% at the end of the first half of the year, instead of the 100% its accounts reported.”
October 4
– Wall Street Journal
(Yoko Kubota and Liyan Qi):
“Rows of residential towers, some 26 stories high, stand unfinished in this provincial city about 350 miles west of Shanghai, their plastic tarps flapping in the wind. Elsewhere in Lu’an, golden Pegasus statues guard an uncompleted $9 billion theme park that was supposed to be bigger than Disneyland. A planned $4 billion electric-vehicle plant, central to local leaders’ economic dreams, remains a steel frame with overgrown vegetation spilling into the road. The structures are monuments to the once-grand ambitions of China Evergrande Group, now among the world’s most indebted property companies, and a case study in how China’s dependence on real estate as an economic engine helped feed those ambitions.”
October 4
– Bloomberg
(Claire Boston and Alice Huang):
“Another Chinese developer fell into crisis on Monday after failing to repay a maturing bond, adding to the strains of the nation’s heavily leveraged property firms following industry giant China Evergrande Group’s debt woes. Fantasia Holdings Group Co. didn’t repay a $205.7 million bond that was due Monday… Signs of stress in China’s property sector are spreading, as lower-rated developers face a surge in bond yields to a decade high.”
October 6
– Bloomberg
(Stephen Stapczynski):
“China is urging its liquefied natural gas importers to procure more supply to fix its energy crisis, while providing little financial support for firms paying record-high rates for the super-chilled fuel. The government isn’t providing enough subsidies for recent purchases, making it difficult for the nation’s smaller gas distributors to meet the request to secure enough fuel before winter, according to traders with knowledge of the matter. While some firms are avoiding buying for now, they may ultimately have to bow to Beijing’s wishes. North Asian LNG spot prices surged to a record high this week as importers from China to the U.K. intensify competition for a shrinking pool of available winter supply.”
Global Bubble Watch:
October 6
– Financial Times
(Cheng Ting-Fang
and Lauly Li):
“Manufacturers are warning that further disruptions to energy supplies in China would create havoc in the tech supply chain at a time when the industry is gearing up for peak production season, including that of the latest iPhones. Several companies including key Apple suppliers have already said they have had to halt or reduce operations at facilities in Jiangsu province, China’s industrial tech heartland, after local governments restricted the supply of electricity for industrial use until the end of the month. Cities in Jiangsu either told enterprises to stop using electricity entirely for the last week of September or set targets for manufacturers to reduce their energy use in the period by 10 to 30% from usual levels, several tech industry executives told Nikkei Asia.”
October 3
– CNBC
(Ian Thomas):
“The semiconductor chip shortage that is hamstringing the production of products ranging from cars and computers to appliances and toothbrushes will extend into 2022 and potentially beyond that, the CEO of semiconductor company Marvell Technology said. ‘Right now, every single end market for semiconductors is up simultaneously; I’ve been in this industry 27 years, I’ve never seen that happen,’ said Marvell CEO Matt Murphy… ‘If it stays business as usual, and everything’s up and to the right, this is going to be a very painful period, including in 2022 for the duration of the year.’”
October 8
– Reuters
(Sudarshan Varadhan):
“North Indian states have suffered electricity cuts and face further outages because of a lack of coal, an analysis of government data and interviews with residents found, contradicting government assurances there is enough power. The shortages in India - the world's largest coal consumer after China - follow widespread outages in neighbouring China, which has shut factories and schools to manage the crisis. Over half of India's 135 coal-fired power plants, which in total supply around 70% of India's electricity, have fuel stocks of less than three days…”
October 3
– Bloomberg
(Lars Paulsson,
Jesper Starn
and Lars Erik Taraldsen):
“As the frontier of Europe’s energy crisis moves north, the Nordic region faces a worsening power crisis with dwindling water reservoirs hampering the generation of hydroelectric power. Nordic power prices were five times higher in September than a year ago. That’s hitting everyone from power-hungry factories and miners, to students struggling with their bills. Inflation is rocketing. Europe’s northern corner can’t hide from the global shortage of natural gas and coal, with falling water reserves curbing the region’s most important source of electricity.”
Emerging Markets Watch:
October 3
– Financial Times
(Amy Kazmin):
“India is the latest country to face a severe power crisis that threatens to undermine its recovery from the pandemic, with authorities warning that power plants have run perilously low on coal. According to India’s power ministry, the 135 thermal power plants of Asia’s third-largest economy had an average of just four days of coal stocks as of Friday, down from 13 days of supplies in early August. Of the plants monitored daily, more than half have less than three days of stocks.”
Europe Watch:
October 6
– Associated Press:
“Factory orders in Germany plummeted 7.7% in August compared with the previous month, led by much lower demand from countries outside the eurozone… The drop in orders, a leading indicator for Europe’s biggest economy, followed month-on-month gains of 4.6% in June and 4.9% in July. The Economy Ministry said that orders from inside Germany were down 5.2%, while those from non-eurozone countries were off 15.2%.”
Geopolitical Watch:
October 6
– Associated Press
(Huizhong Wu and
David Rising):
“With record numbers of military flights near Taiwan over the last week, China has been showing a new intensity and military sophistication as it steps up its harassment of the island it claims as its own and asserts its territorial ambitions in the region. China’s People’s Liberation Army flew 56 planes off the southwest coast of Taiwan on Monday, setting a new record and capping four days of sustained pressure involving 149 flights. All were in international airspace, but prompted Taiwanese defense forces to scramble in response and raised fears that any misstep could provoke an unintended escalation.”
October 5
– Financial Times
(Kathrin Hille and
Demetri Sevastopulo):
“Taiwan’s defence minister has warned that China will be fully capable of invading the island by 2025, in the government’s first clear message to the public that the country faces a threat of war. Chiu Kuo-cheng issued the warning after almost 150 Chinese warplanes operated in international airspace near Taiwan between Friday and Monday. The current situation is really the most dangerous I have seen in my more than 40 years in the military,’ Chiu said in a question-and-answer session with lawmakers about a NT$240bn ($8.6bn) special defence budget for anti-ship missiles and warships. ‘If they want to attack now, they are already capable. But they have to calculate at what cost it would come and what results it would have,’ Chiu said. ‘From 2025, they will already have lowered the cost and the losses to the lowest possible level, so . . . they will have the complete capability.’”
Bloomberg Commodities Index
gained 1.7% (up 31.5% y-t-d).
Spot Gold slipped $4 to $1,757 (down 7.5%).
Silver recovered 0.6% to $22.68 (down 14.1%).
WTI crude surged $3.47 to $79.35 (up 64%).
Gasoline jumped 5.2% (up 68%)
Natural Gas slipped 1.0% (up 119%).
Copper gained 2.1% (up 22%).
Wheat dropped 2.8% (up 15%).
Corn fell 2.0% (up 10%).
Bitcoin gained $5,705, or 11.8%,
this week to $54,106 (up 86%).
NEWS FROM LAST WEEK:
Market Mania Watch:
October 5
– Financial Times
(Kaye Wiggins):
“Private equity firms are offering the highest premiums for listed companies in more than two decades, paying almost 70% above the prior share price in some cases, in a sign of the widening gap between cash-rich buyout groups and public market investors. Buyout groups paid an average premium of 45% for European companies in 2021, the highest since the data company Refinitiv’s records began in 1980. In the US, the premiums hit 42% this year, the highest since 1999.”
October 8
– Bloomberg
(John Gittelsohn):
“The median price for a home in California is set to jump north of $800,000 next year, adding to a long-simmering affordability crisis in the state. The state, which has grappled for years with a shortage of affordable housing, will see prices rise 5.2% to a median of $834,000 in 2022, according to a forecast by the California Association of Realtors… That comes after a surge of roughly 20% this year…”
Inflation Watch:
October 4
– Bloomberg
(Gerson Freitas Jr.):
“A gauge of commodities soared to an all-time high as a resurgence in demand for raw materials collides with supply constraints, working to fan fears of inflation around the world. The Bloomberg Commodity Spot Index, which tracks 23 energy, metals and crop futures contracts, rose 1.1% on Monday, topping a 2011 record. The index has surged more than 90% since reaching a four-year low in March of last year.”
October 4
– New York Times
(Clifford Krauss and
Peter Eavis):
“Americans are spending a dollar more for a gallon of gasoline than they were a year ago. Natural gas prices have shot up more than 150% over the same time, threatening to raise prices of food, chemicals, plastic goods and heat this winter. The energy system is suddenly in crisis around the world as the cost of oil, natural gas and coal has climbed rapidly in recent months. In China, Britain and elsewhere, fuel shortages and panic buying have led to blackouts and long lines at filling stations. The situation in the United States is not quite as dire, but oil and gasoline prices are high enough that President Biden has been calling on foreign producers to crank up supply.”
October 3
– Financial Times
(Derek Brower and
David Sheppard):
“US oil producers are not able to increase supply to tame soaring crude prices that remain ‘under Opec control’, according to the shale patch’s biggest operator… Scott Sheffield, chief executive of Texas-based Pioneer Natural Resources, said America’s once-prolific shale producers would keep using their burgeoning cash piles to pay shareholders, not fund new drilling. ‘Everybody’s going to be disciplined, regardless whether it’s $75 Brent, $80 Brent, or $100 Brent,’ Sheffield said. ‘All the shareholders that I’ve talked to said that if anybody goes back to growth, they will punish those companies.’ ‘I don’t think the world can rely much on US shale,’ he said. ‘It’s really under Opec control.’”
October 6
– Wall Street Journal
(Chuin-Wei Yap, Kejal Vyas
and Chieko Tsuneoka):
“Coal supply shortages are pushing prices for the fuel to record highs and laying bare the challenges to weaning the global economy off one of its most important—and polluting—energy sources. The crunch has many causes—from the post-pandemic boom to supply-chain strains and ambitious targets for reducing carbon emissions. And it is expected to last at least through the winter, raising fears in many countries of fuel shortfalls in the months ahead. Australia’s Newcastle thermal coal, a global benchmark, is trading at $202 a metric ton, three times higher than at the end of 2019. Global production of coal, which generates around 40% of the world’s electricity, is about 5% below pre-pandemic levels.”
October 8
– Reuters
(Jessica Jaganathan):
“Asia liquefied natural gas (LNG) prices soared this week, as the world's top buyer China faced an ongoing power crunch and low inventory in Europe drove up competition for the super-chilled fuel. The average LNG price for November delivery into Northeast Asia was estimated at about $37 per metric million British thermal units (mmBtu), up nearly 16% from the previous week…”
U.S. Bubble Watch:
October 8
– Bloomberg
(Olivia Rockeman and
Reade Pickert):
“U.S. job growth in September was the slowest this year, signaling a tempering of the labor market recovery and complicating a potential decision by the Federal Reserve to begin scaling back monetary support before year end. Nonfarm payrolls increased 194,000 last month after an upwardly revised 366,000 gain in August… The unemployment rate fell to 4.8%, partly reflecting a decline in labor force participation among women. Meantime, average hourly earnings jumped.”
October 5
– Wall Street Journal
(Yuka Hayashi):
“The U.S. trade deficit widened to a record in August as American consumers continued to show a strong appetite for imported goods such as pharmaceutical products, toys and clothing. The… trade gap in goods and services expanded to $73.3 billion in August from $70.3 billion in July as the Delta variant of Covid-19 and supply constraints weighed on global trade.”
October 7
– CNBC
(Jeff Cox):
“The total of Americans submitting jobless claims fell sharply last week as enhanced federal unemployment benefits wound down… Initial filings for unemployment benefits totaled a seasonally adjusted 326,000 for the week ended Oct. 2, below the 345,000 Dow Jones estimate and a drop from the previous week’s 364,000… The weekly total was the lowest level since Sept. 4 and reverses a trend of rising claims over the past three weeks.”
October 3
– Wall Street Journal
(Orla McCaffrey):
“House prices are rising at a record pace but incomes aren’t keeping up, which is making home ownership less and less affordable. The median American household would need 32.1% of its income to cover mortgage payments on a median-priced home… That is the most since November 2008, when the same outlays would eat up 34.2% of income. Supercharged home prices in markets across the country are canceling out the impact of modestly higher incomes and historically low interest rates…”
October 4
– Yahoo Finance
(Aarthi Swaminathan):
“Supply chain bottlenecks are squeezing businesses big and small. One expert explains why it’s so hard to iron out the major kinks affecting global trade. ‘There really is a perfect storm going on,’ Adam Compain, senior vice president at project44, a supply chain technology provider, told Yahoo Finance... Compain laid out three major reasons why ports are so backed up and there’s red-hot demand for truckers. ‘First and foremost is customer expectations have risen only in one direction — and that's up,’ explained Compain. ‘Second to that is a capacity constraint. There are limitations to the supply chain network in terms of the quantity of drivers that are available to ship things within the United States and abroad.’ Third, ‘things are complex in the supply chain,’ Compain said. In his view, the process of turning raw materials into a finished good and bringing it to a consumer's home across the globe relies on ‘a whole bunch of interdependencies,’ and ‘logistics has reached a point that the existing software data and tools to make that job a reality are really strained.’”
Fixed-Income Bubble Watch:
October 3
– Wall Street Journal
(Sebastian Pellejero):
“U.S. companies have sold a record amount of junk-rated loans to raise money for dividends this year… Nonfinancial companies… have issued more than $72 billion worth of speculative-grade loans to pay dividends in 2021, according to S&P Global Market Intelligence’s LCD. That is already a full-year record in data going back to 2000, topping 2013’s previous high of $54.4 billion.”
China Watch:
October 5
– Bloomberg
(Saket Sundria and
Elizabeth Low):
“Asian buyers are paying top dollar for a variety of fuels that can be fed into steam boilers or power turbines as they seek alternatives to increasingly pricey natural gas. The electricity crisis is roiling energy markets from Europe to Asia, with fuels that can be used for heating or power generation such as propane, diesel and fuel oil in high demand. Goldman Sachs… predicts the crunch will drive greater consumption of crude later this year, while China has ordered state-owned firms to secure energy supplies for winter at all costs. In Asia, prices of propane -- an oil product that’s typically used for cooking or making plastics -- have surged to the highest since at least 2016, while fuel oil recently almost doubled from a year earlier.”
October 7
– Reuters
(Marc Jones):
“Investment bank JPMorgan has estimated that troubled Chinese property giant Evergrande and many of its major rivals have billions of dollars worth of off-balance sheet debt that, once added on, ramp up their leverage ratios. JPMorgan's China and Hong Kong property analysts said the tactic is likely to have been used to help firms look like they were conforming with new borrowing cap rules introduced last year, but Evergrande's case looks the most extreme. ‘Instead of true deleveraging, we think Evergrande has shifted some of the interest-bearing debt to off-balance sheet debt,’ JPMorgan's analysts said. ‘Commercial papers, wealth management products and perpetual capital securities, etc, which are not officially counted as debt.’ They estimated Evergrande's ‘net gearing,’ as debt as a ratio of a firm's equity is known, was at least 177% at the end of the first half of the year, instead of the 100% its accounts reported.”
October 4
– Wall Street Journal
(Yoko Kubota and Liyan Qi):
“Rows of residential towers, some 26 stories high, stand unfinished in this provincial city about 350 miles west of Shanghai, their plastic tarps flapping in the wind. Elsewhere in Lu’an, golden Pegasus statues guard an uncompleted $9 billion theme park that was supposed to be bigger than Disneyland. A planned $4 billion electric-vehicle plant, central to local leaders’ economic dreams, remains a steel frame with overgrown vegetation spilling into the road. The structures are monuments to the once-grand ambitions of China Evergrande Group, now among the world’s most indebted property companies, and a case study in how China’s dependence on real estate as an economic engine helped feed those ambitions.”
October 4
– Bloomberg
(Claire Boston and Alice Huang):
“Another Chinese developer fell into crisis on Monday after failing to repay a maturing bond, adding to the strains of the nation’s heavily leveraged property firms following industry giant China Evergrande Group’s debt woes. Fantasia Holdings Group Co. didn’t repay a $205.7 million bond that was due Monday… Signs of stress in China’s property sector are spreading, as lower-rated developers face a surge in bond yields to a decade high.”
October 6
– Bloomberg
(Stephen Stapczynski):
“China is urging its liquefied natural gas importers to procure more supply to fix its energy crisis, while providing little financial support for firms paying record-high rates for the super-chilled fuel. The government isn’t providing enough subsidies for recent purchases, making it difficult for the nation’s smaller gas distributors to meet the request to secure enough fuel before winter, according to traders with knowledge of the matter. While some firms are avoiding buying for now, they may ultimately have to bow to Beijing’s wishes. North Asian LNG spot prices surged to a record high this week as importers from China to the U.K. intensify competition for a shrinking pool of available winter supply.”
Global Bubble Watch:
October 6
– Financial Times
(Cheng Ting-Fang
and Lauly Li):
“Manufacturers are warning that further disruptions to energy supplies in China would create havoc in the tech supply chain at a time when the industry is gearing up for peak production season, including that of the latest iPhones. Several companies including key Apple suppliers have already said they have had to halt or reduce operations at facilities in Jiangsu province, China’s industrial tech heartland, after local governments restricted the supply of electricity for industrial use until the end of the month. Cities in Jiangsu either told enterprises to stop using electricity entirely for the last week of September or set targets for manufacturers to reduce their energy use in the period by 10 to 30% from usual levels, several tech industry executives told Nikkei Asia.”
October 3
– CNBC
(Ian Thomas):
“The semiconductor chip shortage that is hamstringing the production of products ranging from cars and computers to appliances and toothbrushes will extend into 2022 and potentially beyond that, the CEO of semiconductor company Marvell Technology said. ‘Right now, every single end market for semiconductors is up simultaneously; I’ve been in this industry 27 years, I’ve never seen that happen,’ said Marvell CEO Matt Murphy… ‘If it stays business as usual, and everything’s up and to the right, this is going to be a very painful period, including in 2022 for the duration of the year.’”
October 8
– Reuters
(Sudarshan Varadhan):
“North Indian states have suffered electricity cuts and face further outages because of a lack of coal, an analysis of government data and interviews with residents found, contradicting government assurances there is enough power. The shortages in India - the world's largest coal consumer after China - follow widespread outages in neighbouring China, which has shut factories and schools to manage the crisis. Over half of India's 135 coal-fired power plants, which in total supply around 70% of India's electricity, have fuel stocks of less than three days…”
October 3
– Bloomberg
(Lars Paulsson,
Jesper Starn
and Lars Erik Taraldsen):
“As the frontier of Europe’s energy crisis moves north, the Nordic region faces a worsening power crisis with dwindling water reservoirs hampering the generation of hydroelectric power. Nordic power prices were five times higher in September than a year ago. That’s hitting everyone from power-hungry factories and miners, to students struggling with their bills. Inflation is rocketing. Europe’s northern corner can’t hide from the global shortage of natural gas and coal, with falling water reserves curbing the region’s most important source of electricity.”
Emerging Markets Watch:
October 3
– Financial Times
(Amy Kazmin):
“India is the latest country to face a severe power crisis that threatens to undermine its recovery from the pandemic, with authorities warning that power plants have run perilously low on coal. According to India’s power ministry, the 135 thermal power plants of Asia’s third-largest economy had an average of just four days of coal stocks as of Friday, down from 13 days of supplies in early August. Of the plants monitored daily, more than half have less than three days of stocks.”
Europe Watch:
October 6
– Associated Press:
“Factory orders in Germany plummeted 7.7% in August compared with the previous month, led by much lower demand from countries outside the eurozone… The drop in orders, a leading indicator for Europe’s biggest economy, followed month-on-month gains of 4.6% in June and 4.9% in July. The Economy Ministry said that orders from inside Germany were down 5.2%, while those from non-eurozone countries were off 15.2%.”
Geopolitical Watch:
October 6
– Associated Press
(Huizhong Wu and
David Rising):
“With record numbers of military flights near Taiwan over the last week, China has been showing a new intensity and military sophistication as it steps up its harassment of the island it claims as its own and asserts its territorial ambitions in the region. China’s People’s Liberation Army flew 56 planes off the southwest coast of Taiwan on Monday, setting a new record and capping four days of sustained pressure involving 149 flights. All were in international airspace, but prompted Taiwanese defense forces to scramble in response and raised fears that any misstep could provoke an unintended escalation.”
October 5
– Financial Times
(Kathrin Hille and
Demetri Sevastopulo):
“Taiwan’s defence minister has warned that China will be fully capable of invading the island by 2025, in the government’s first clear message to the public that the country faces a threat of war. Chiu Kuo-cheng issued the warning after almost 150 Chinese warplanes operated in international airspace near Taiwan between Friday and Monday. The current situation is really the most dangerous I have seen in my more than 40 years in the military,’ Chiu said in a question-and-answer session with lawmakers about a NT$240bn ($8.6bn) special defence budget for anti-ship missiles and warships. ‘If they want to attack now, they are already capable. But they have to calculate at what cost it would come and what results it would have,’ Chiu said. ‘From 2025, they will already have lowered the cost and the losses to the lowest possible level, so . . . they will have the complete capability.’”
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