Credit Bubble Bulletin
Weekly Commentary
Januart 28, 2022
by Doug Noland
My edited easy to read version follows
Ye Editor
For the Week Ending January 28, 2022:
GLOBAL STOCK INDEXES:
S&P500 increased 0.8% (down 7.0% y-t-d)
Dow Industrial rallied 1.3% (down 4.4%)
Utilities fell 1.8% (down 5.9%)
Banks recovered 1.6% (up 1.7%)
Transports fell 1.3% (down 8.7%)
S&P 400 Midcaps dipped 0.6% (down 9.3%)
Small cap Russell 2000 declined 1.0% (down 12.3%)
Nasdaq100 was little changed (down 11.4%)
Semiconductors dropped 3.8% (down 16.3%)
Biotechs rallied 0.9% (down 10.3%).
With gold bullion down $44,
the HUI gold stock index sank 6.3%
(down 7.2%).
U.K.'s FTSE declined 0.4% (up 1.1% y-t-d).
Japan's Nikkei fell 2.9% (down 7.2% y-t-d).
France's CAC40 lost 1.5% (down 2.6%)
German DAX 1.8% (down 3.6%).
Spain's IBEX 35 declined 1.0% (down 1.2%).
Italy's FTSE MIB slumped 1.8% (down 2.9%).
Brazil's Bovespa jumped 2.7% (up 6.8%)
Mexico's Bolsa fell 1.8% (down 4.9%).
South Korea's Kospi sank 6.0% (down 10.6%).
India's Sensex dropped 3.1% (down 1.8%).
China's Shanghai dropped 4.6% (down 7.6%).
Turkey's Borsa Istanbul National 100
fell 1.4% (up 6.8%).
Russia's MICEX recovered 1.4% (down 7.9%).
US BONDS:
Three-month Treasury bill rates ended the week at 0.1725%.
Two-year government yields surged 16 bps to 1.16% (up 43bps y-t-d).
Five-year T-note yields increased five bps to 1.61% (up 35bps).
Ten-year Treasury yields added a basis point to 1.77% (up 26bps).
Long bond yields were little changed at 2.08% (up 17bps).
Benchmark Fannie Mae MBS yields increased two bps
to a two-year high 2.55% (up 48bps).
Federal Reserve Credit last week
expanded $12.9bn to a record $8.839 TN.
Over the past 124 weeks,
Fed Credit expanded $5.112 TN, or 137%.
US MORTGAGE RATES:
Freddie Mac 30-year fixed mortgage rates slipped a basis point to 3.55% (up 82bps y-o-y).
Fifteen-year rates added a basis point to 2.80% (up 60bps).
Five-year hybrid ARM rates rose 10 bps to 2.70% (down 10bps).
Jumbo mortgage 30-year fixed rates surge 19 bps to a 21-month high 3.78% (up 89bps).
COMMODITIES:
Bloomberg Commodities Index rose 1.7% (up 8.0% y-t-d).
Spot Gold dropped 2.4% to $1,792 (down 2.1%).
Silver sank 7.5% to $22.47 (down 3.6%).
WTI crude gained $1.68 to $86.82 (up 15%).
Gasoline jumped 4.1% (up 14%)
Natural Gas surged 16.0% (up 24%).
Copper sank 4.7% (down 3%).
Wheat gained 0.8% (up 2%)
Corn jumped 3.2% (up 7%).
Bitcoin rallied $1,409, or 3.9%,
this week to $37,801 (down 18.5%).
WEEKLY COMMENTARY (a brief summary)
... asset prices themselves represent a significant threat to financial stability. Households have never been so exposed to securities market bubbles. Corporate credit is extraordinarily vulnerable to a tightening of financial conditions. The banking system is heavily exposed to potential asset market instability
January 25
– Financial Times:
“Investors are racing to protect their portfolios from damage as volatility sweeps across Wall Street… Put options contracts, which can shield against losses from declines in share prices, were in heavy demand at the start of the week, when the S&P 500 benchmark index of US stocks registered a 10% drop from recent highs. Traders bought 31.3m equity put options contracts that day…, just shy of the all-time high set on Friday, when 32.3m of the contracts were bought. Both days far surpassed the previous record of 26.7m contracts set in February 2020 when the coronavirus pandemic began to rattle US financial markets.”
January 28
– Bloomberg:
“the S&P 500 saw three of the biggest intraday reversals of the decade, Microsoft Corp. swung 15% in 15 hours, and stock volatility doubled"
NEWS FROM LAST WEEK:
Covid Disruption Watch:
January 24
– New York Times:
"More than 8.7 million Americans weren’t working in late December and early January because they had Covid-19 or were caring for someone who did… Another 5.3 million were taking care of children who were home from school or day care. The cumulative impact is larger than at any other point in the pandemic.”
January 23
– Wall Street Journal:
"In Arizona, one in 10 processing plant and distribution workers at a major produce company were recently out sick. In Massachusetts, employee illnesses have slowed the flow of fish to supermarkets and restaurants. A grocery chain in the U.S. Southeast had to hire temporary workers after roughly one-third of employees at its distribution centers fell ill. Food-industry executives and analysts warn that the situation could persist for weeks or months… Recent virus-related absences among workers have added to continuing supply and transportation disruptions, keeping some foods scarce.”
January 24
– CNBC:
“Ahead of the extended Lunar New Year holiday in China, air freight rates have spiked and some shipping firms have suspended services, putting the spotlight on overwhelmed supply chains again. It comes as China pushes ahead with its zero-Covid strategy — which means a recent spike in infections has resulted in lockdowns and curbs in the largest port hubs and major cities across the country.”
Market Mania Watch:
January 24
– Bloomberg:
Crypto is in freefall, with the price of Bitcoin falling to a six-month low below the $34,000 mark — a 50% crash from its record high in November. Tokens like Ether and Solana are faring worse, and the mood has turned nightmarish for some retail investors who bought into the hype.”
January 25
– Wall Street Journal:
“Overall, commercial-property sales totaled a record $809 billion in 2021, according to data firm Real Capital Analytics. That was nearly double 2020’s total, and it exceeded the previous record of about $600 billion in 2019.”
January 27
– Bloomberg:
“The opulent seaside retreats of New York’s Hamptons have lured buyers from across the globe at a time when work-from-anywhere has gone mainstream. Their deals are stripping the market clean… The 54 luxury homes that changed hands in the quarter sold for a median of $8.05 million, near the record high and up 34% from a year earlier. An unprecedented 24% of those deals saw bidding wars.”
Market Instability Watch:
January 24
– Bloomberg:
"Goldman Sachs economists led by Jan Hatzius said in a weekend report to clients that they currently expect rates to be increased in March, June, September and December and for the central bank to announce the start of a balance sheet reduction in July. But they said inflation pressures mean that the ‘risks are tilted somewhat to the upside of our baseline.’”
January 28
– Bloomberg:
“Fears of rising rates have slowed junk bond issuance to three-year lows, spelling trouble for companies needing to refinance debt and bankers waiting to sell billions to fund major acquisition deals. Sales of high-yield bonds are down by more than 50% so far in 2022, the worst start to a year since 2019… The majority of bonds that managed to get issued have almost immediately lost value as traders bet on looming interest-rate hikes, leaving investors cautiously guarding their cash.”
January 27
– Bloomberg:
"Goldman Sachs… President John Waldron said the independence of the Fed has been damaged in recent years and that it’s lost credibility in markets… What’s gone on in the past couple of years has brought ‘into question the independence of the Fed,’ Waldron said… He questioned the Fed’s strength to act as an ‘independent, monetary policy engine that is doing what it thinks is right and not what’s expedient.’ ‘They have a chance here to do that, but I am a little worried about whether they’ll stand up and do it,’ Waldron said…”
Inflation Watch:
January 28
– CNBC :
“A gauge the Federal Reserve prefers to measure inflation rose 4.9% from a year ago, the biggest gain going back to September 1983"
January 25
– Financial Times:
“According to a survey of roughly 150 companies worldwide, manufacturers’ median chip inventory plunged from 40 days supply in 2019 to about five days late last year. US commerce secretary Gina Raimondo… warned US companies remain vulnerable to the weakened supply chain, adding that some could be forced to temporarily close and furlough workers in the event of even minor disruptions.”
Biden Administration Watch:
January 24
– Washington Post:
“President Biden and Russian President Vladimir Putin traded provocations Tuesday, with the Kremlin broadcasting a new round of military exercises within striking distance of Ukraine and Washington rushing a fresh shipment of weapons to Kyiv ... This would be the largest … invasion since World War II,’ the president told reporters... ‘It would change the world.’”
January 23
– Associated Press:
“The State Department on Sunday ordered the families of all American personnel at the U.S. Embassy in Ukraine to leave the country amid heightened fears of a Russian invasion… It also said that non-essential embassy staff could leave Ukraine at government expense.”
January 25
– Associated Press:
“At stake, beyond the future of Ukraine, is the credibility of a NATO alliance that is central to U.S. defense strategy but that Putin views as a Cold War relic and a threat to Russian security. For Biden, the crisis represents a major test of his ability to forge a united allied stance against Putin.”
January 24
– CBS:
“The Biden administration is considering controlling exports related to semiconductors to harm Russian industries, should Russia invade Ukraine, a senior administration official confirmed... The move could be done in a way to keep new smartphones and other technology from Russian citizens.”
January 24
– Bloomberg:
“The landmark trade deal signed in 2020 between the world’s two largest economies failed to reduce the bilateral trade deficit, adding pressure on the Biden administration to deal with the unresolved economic problems with China. In the two years since former President Donald Trump signed the deal in January 2020, China bought about $237 billion of U.S. agricultural, manufactured, and energy goods, 63% of the goods it promised to buy…”
U.S. Bubble Watch:
January 26
– The Hill:
“The U.S. trade deficit for goods surpassed $1 trillion for the first time in 2021… The trade gap in goods increased to $1.08 trillion in 2021…, which was up from $893.5 billion the year before. The international trade deficit rose 3% in December…, increasing from $98 billion in November to $101 billion in December. That jump was the largest monthly growth on record.., and the first time the statistic has surpassed $100 billion…”
January 24
– Dow Jones:
"The U.S. IHS Markit flash composite purchasing managers index, which gauges activity in both the manufacturing and services sectors, decreased to 50.8 in January from 57.0 in December, signaling the slowest growth since July 2020… ‘Soaring virus cases have brought the U.S. economy to a near standstill at the start of the year, with businesses disrupted by worsening supply-chain delays and staff shortages, with new restrictions to control the spread of Omicron adding to firms' headwinds,’ said Chris Williamson, chief business economist at IHS Markit.”
January 26
– Associated Press:
“The nation’s gross domestic product expanded 5.7% in 2021 after declining -3.4% in 2020. The economy ended the year by growing at an unexpectedly brisk 6.9% annual pace from October through December ... but rising inventories, in fact, accounted for 71% of the fourth-quarter growth.”
January 28
– Financial times:
“Total pay for civilian workers during the fourth quarter increased 1%, just shy of the record-setting 1.3% jump seen between July and the end of September… That translated to a 4% jump for the 12-month period ending last month. Wages shot up 4.5% during that window, nearly double the pace during the same time last year. Benefits rose 2.8%.”
January 25
– CNBC:
“Home prices rose 18.8% year over year on the S&P CoreLogic Case-Shiller National Home Price Index … November’s 18.8% gain was the sixth-highest reading in the 34 years covered by our data (the top five were the months immediately preceding November)”
January 26
– Bloomberg:
“Sales of new U.S. homes rose in December to a nine-month high, indicating firmer demand at the end of 2021 despite high prices and still-limited inventory. Purchases rose 11.9% from a month earlier to an 811,000 annualized pace… Of the homes sold last month, construction on 231,000 had yet to be started, the most since May.”
January 27
– Bloomberg:
“Strong demand and limited supply led to a historic jump in the value of the U.S. housing stock, which surged to $43.4 trillion last year. The aggregate value of homes has now doubled since a decade ago, when the market was recovering from the Great Recession, according to Zillow... Cities that have attracted people during the pandemic saw the biggest percentage gains last year, with Austin and Raleigh, North Carolina, topping the Zillow data. New York City, which many fled in the past two years, had the smallest increase among 50 metro areas, at 10.9%.”
Fixed-Income Bubble Watch:
January 25
– Bloomberg:
“The $4 trillion muni market, often a haven when other markets tumble, is suffering through its worst January on record as investors grow skittish about the prospect of Federal Reserve interest rate hikes. The Bloomberg U.S. municipal bond index has fallen 1.46% this month through Monday, and is on track for its worst January performance in records dating back to 1980.”
China Watch:
January 25
– Reuters:
“China has launched a month-long campaign to clean up online content during next week’s lunar new year festival, in its latest effort to reshape behaviour on the internet. The Cyberspace Administration of China, the country’s top internet regulator, has instructed officials to sweep away ‘illegal content and information’ and target celebrity fan groups, online abuse, money worship, child influencers and the home pages of media sites. The campaign will apply the tradition of cleaning house before the new year, the most important holiday in China, to the internet, envisioning a ‘purification’ of the online world.”
January 26
– Bloomberg:
“The world’s most expensive office market has more empty floorspace than ever. Vacant office stock in Hong Kong climbed to a record high in December to 9.1 million square feet… - equivalent to nearly 158 football fields, according to… CBRE Group Inc. In Central, the city’s prized financial center, the supply is set to increase further. Li Ka-shing and Lee Shau Kee, Hong Kong’s richest property tycoons, are building new office blocks that are slated to open next year.”
Global Bubble Watch:
January 28
– Bloomberg:
“The cost of insuring European junk bonds climbed to its highest level since November 2020 as investors turn away from risky assets at the end of a volatile week for markets. An index of credit default swaps for non-investment grade corporates in Europe rose as high as 295 bps on Friday, exceeding a recent peak in November 2021, according to Markit data.”
January 26
– Bloomberg:
“New Zealand’s inflation accelerated to the fastest pace in more than 31 years, reinforcing bets that the nation’s central bank will remain one of the leaders of the global tightening cycle. Annual inflation surged to 5.9% in the final three months of 2021 from 4.9% in the prior period…”
Emerging Markets Watch:
January 22
– Bloomberg:
“Turkish Finance Minister Nureddin Nebati told economists he expects the inflation rate to peak at about 40% in the months ahead and not to surpass 50% this year, according to people who attended.”
Europe Watch:
January 24
– Bloomberg:
“The European Union has a lot more to lose than the U.S. from conflict with Russia, one reason why the western allies are having difficulty agreeing on a tough stance in the standoff over Ukraine. Russia ranks as the EU’s fifth-biggest trade partner -- as well as its top energy supplier -- while for the U.S. it barely makes the top 30. ... They’re worried a war could choke off natural gas supplies in the middle of winter when they’re needed most.”
Geopolitical Watch:
January 27
– Washington Post:
“More than 100,000 Russian troops are massed near Ukraine amid a flurry of diplomatic efforts to defuse the prospect of conflict. Should peace not prevail, western-gazing Ukrainians would pay the highest price. But in a worst-case scenario, the cost of a major Russian invasion of Ukraine — one of the world’s largest grain exporters — could ripple across the globe, driving up already surging food prices and increasing the risk of social unrest well beyond Eastern Europe.”
January 24
– Reuters:
“Taiwan… reported the largest incursion since October by China’s air force in its air defence zone, with the island’s defence ministry saying Taiwanese fighters scrambled to warn away 39 aircraft in the latest uptick in tensions. Taiwan… has complained for more than a year of repeated missions by China's air force near the democratically governed island, often in the southwestern part of its air defence identification zone, or ADIZ, close to the Taiwan-controlled Pratas Islands.”
January 26
– Reuters:
“The U.S. government ‘condemns’ North Korea's launch of two ballistic missiles, a State Department spokesperson said…, calling the tests a violation of multiple United Nations Security Council resolutions.”
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