Credit Bubble Bulletin
Weekly Commentary
by Doug Noland
My edited easy to read version follows
Ye Editor
“U.S. Inflation Hits 39-Year High of 7%,
Sets Stage for Fed Hike.”
There’s the long-established principle that central banks must move early to quash inflationary impulses - to ensure a central bank doesn’t fall “behind the curve.”
WTI crude oil surged $4.92 for the week to $83.82, quickly back within striking distance of October’s $85.40 high.
Gasoline jumped 5.2% this week,
with Natural Gas surging 8.8%.
For the Week Ending January 14, 2022:
S&P500 slipped 0.3% (down 2.2% y-t-d)
Dow 30 declined 0.9% (down 1.2%)
Utilities fell 1.5% (down 3.5%)
Banks gained 1.1% (up 11.3%)
Transports dropped 2.2% (down 3.5%)
S&P 400 Midcaps slipped 0.4% (down 2.1%)
Small cap Russell 2000 declined 0.8% (down 3.7%)
Nasdaq100 was little changed (down 4.3%)
Semiconductors rallied 2.7% (down 1.2%)
Biotechs recovered 1.0% (down 4.8%).
With bullion rallying $21,
the HUI gold stock index
jumped 3.4% (down 2.8%).
U.K.'s FTSE gained 0.8% (up 2.1% y-o-y).
Japan's Nikkei declined 1.2% (down 2.3% y-t-d).
France's CAC40 fell 1.1% (down 0.1%)
German DAX dipped 0.4% (unchanged).
Spain's IBEX 35 increased 0.6% (up 1.1%).
Italy's FTSE MIB slipped 0.3% (up 0.7%)
Brazil's Bovespa surged 4.1% (up 2.0%)
Mexico's Bolsa gained 1.0% (up 0.9%).
South Korea's Kospi fell 1.1% (down 1.9%).
India's Sensex jumped 2.5% (up 5.1%).
China's Shanghai slumped 1.6% (down 3.3%).
Turkey's Istanbul National 100 index
gained 1.9% (up 11.6%).
Russia's MICEX sank 4.6% (down 5.0%).
BONDS
Three-month Treasury bill rates
ended the week at 0.11%.
Two-year government yields
jumped 11 bps to 0.97% (up 24bps y-t-d).
Five-year T-note yields
rose six bps to 1.56% (up 30bps).
Ten-year Treasury yields
added two bps to 1.79% (up 28bps).
Long bond yields
increased a basis point to 2.12% (up 22bps)
Fannie Mae MBS yields
jumped 10 bps to a two-year high 2.51% (up 44bps).
Federal Reserve Credit last week
increased $16.9bn to $8.737 TN.
Over the past 122 weeks,
Fed Credit expanded $5.010 TN, or 134%.
MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
surged 23 bps to a 22-month high 3.45%
(up 66bps y-o-y).
Fifteen-year rates jumped 19 bps to 2.62%
(up 39bps).
Five-year hybrid ARM rates rose 16 bps to 2.57%
(down 558bps)
Jumbo mortgage 30-year fixed rates
up 15 bps to an 18-month high 3.51%
(up 56bps).
COMMODITIES:
Bloomberg Commodities Index
gained 2.2% (up 4.4% y-t-d).
Spot Gold rallied 1.2% to $1,818 (down 0.6%).
Silver recovered 2.7% to $22.96 (down 1.5%).
WTI crude surged $4.92 to $83.83 (up 11.4%).
Gasoline jumped 5.2% (up 9%)
Natural Gas surged 8.8% (up 14%).
Copper increased 0.2% (down 1%).
Wheat dropped 2.2% (down 4%)
Corn fell 1.7% (up 1%).
Bitcoin recovered $1,535, or 3.7%,
this week to $43,097 (down 7.1%).
NEWS FROM LAST WEEK
January 12 – CNBC:
“A record 15 million new Covid-19 infections were reported across the globe in a single week as omicron rapidly replaces delta as the dominant variant across the globe, and ‘we know this is an underestimate,’ World Health Organization Director-General Dr. Tedros Adhanom Ghebreyesus told reporters… ‘The sheer volume of cases is putting a burden on health-care systems,’ said Maria Van Kerkhove, WHO’s technical lead on Covid-19. ‘Even though omicron is less severe than delta, it is still putting people in the hospital. It is still putting people into ICU and needing advanced clinical care. It is still killing people.’”
January 11 – Bloomberg:
“European Union regulators warned that frequent Covid-19 booster shots could adversely affect the immune system and may not be feasible. Repeat booster doses every four months could eventually weaken the immune system and tire out people, according to the European Medicines Agency. Instead, countries should leave more time between booster programs and tie them to the onset of the cold season in each hemisphere, following the blueprint set out by influenza vaccination strategies…”
January 13 – CNN:
Disgruntled shoppers have unleashed their frustration on social media over the last several days, posting photos on Twitter of bare shelves at Trader Joe's locations, Giant Foods and Publix stores, among many others."
January 11 – Fox News:
“Empty shelves and thinning groceries and drug supplies are reminiscent of March 2020, Washington, D.C., shoppers told Fox News... ‘It's like a Soviet store during 1981. It's horrible,’ one man said. ‘Honestly, it looks like March of 2020, when everybody was stockpiling and the shelves were bare,’ another man, Dominic, told Fox News Digital.”
January 11 – Wall Street Journal:
“With Covid-19 flaring up across China, major manufacturers are shutting factories, ports are clogging up and workers are in short supply as officials impose city lockdowns and mass testing on a scale unseen in nearly two years. The prospect of continued disruptions in the world’s second-largest economy… is heightening fears that the disruptions will ripple through the global economy.”
January 11 – Bloomberg:
“Australia was already facing a record shortfall of workers before spiraling omicron infections triggered the widespread absenteeism that is causing the country more acute pain from the variant than its global peers. Official data… showed job vacancies climbed to a record, up 18.5% to almost 400,000 in the three months through November. With the virus now raging, a key industry body is warning that firms in food and logistics are reporting 10%-50% of their workers are sick or in isolation, leaving supermarket shelves empty.”
January 10 – CNBC:
“The price of bitcoin fell at one point Monday to its lowest level since September, as rising rates continued leading investors to shed positions in risky, growth-oriented assets. Bitcoin fell as much as 6% to touch a low of $39,771.91, according to Coin Metrics, reclaiming most of its losses… Ether, the second-largest cryptocurrency by market cap, also took back losses. It tumbled as low as $2,940 in the morning and last traded 3.4% lower at $3,090.67.”
January 13 – Bloomberg:
“Private equity firms have loaded more debt onto their acquisition targets than ever before, surpassing their pre-pandemic record -- and even the glory days of 2007 -- thanks to the availability of cheap credit and the billions of dollars they have amassed to pursue new deals. Last year, companies backed by private equity firms took on debt equal to an average of six times earnings, more than the record set in 2019 or in any of the past 20 years, according to… S&P Global Market Intelligence’s LCD. The wave of deals helped propel issuance of junk-rated loans for M&A to a record $331 billion last year, LCD data show, with $147 billion of that coming from companies rated six levels below investment grade by at least one of the three main credit-grading firms -- the most ever.”'
January 12 – Bloomberg:
“Non-fungible token (NFT) sales volume surged past the $4 billion mark in the last month, according to TradingPlatforms.com… The top marketplaces for NFTs included OpenSea, Magic Eden, Axie Infinity, and CryptoPunks, with transactions on OpenSea accounting for over $3 billion of the sales alone.”
January 12 – CNBC (Jeff Cox):
“Excluding food and energy prices, so-called core CPI increased 5.5% year over year and 0.6% from the previous month. That compared with estimates of 5.4% and 0.5%. For core inflation, it was the largest annual growth since February 1991. Shelter costs, which make up nearly one-third of the total rose 0.4% for the month and 4.1% for the year. That was the fastest pace since February 2007. Used vehicle prices… rose another 3.5% in December, bringing the increase from a year ago to 37.3%.”
January 12 – Bloomberg:
“Food costs, which account for about 14% of the consumer price index, jumped 6% in December from a year earlier, led by meats such as bacon -- up almost 19%. Last year’s surge in car prices was a byproduct of component shortages that hit automakers globally. New and old motor vehicles, with a weight of more than 8% in the CPI index, jumped a record 20.9% last month.”
January 14 – Bloomberg:
“Prices for pork hams spiked 54% on Thursday, the biggest one-day rise since October 2012… The sharp one-day rise in ham prices comes as the omicron variant keeps workers out of U.S. slaughterhouses, hitting meat production.”
January 11 – Financial Times:
“Inflation in the world’s rich economies has hit a 25-year high, fuelling concerns about the rising cost of living for households and increasing pressure on central banks to raise interest rates. The annual pace of consumer price growth in the OECD group of developed nations hit 5.8% in November…, up from just 1.2% in the same month the previous year and the highest rate since May 1996.”
January 11 – Financial Times:
“The price of batteries for electric vehicles looks set to rise in 2022 following a decade of sharp decline as supplies of lithium and other raw materials fail to keep up with ballooning demand. While mining companies scramble to increase production from existing facilities and develop new sources of supply, benchmark prices of lithium carbonate ended 2021 at record levels. In China, the biggest battery-producing country, the price was Rmb261,500 ($41,027) a tonne, more than five times higher than last January. Other commodities used in cathodes, the most expensive part of a battery, have also been rising. The price of cobalt has doubled since last January to $70,208 a tonne, while nickel jumped 15% to $20,045.”
January 13 – Bloomberg:
“There isn’t enough romaine lettuce for salads in the U.S. and it’s all due to the chaos created by the pandemic. Demand has been unpredictable with the Covid-19 virus changing consumer behavior and eating patterns, and produce farmers have sustained heavy financial losses since the pandemic started given the volatility. As a result, growers are purposely planting less so they’re not stuck with excess lettuce that’s getting more and more expensive to grow and ship… Romaine lettuce is up 61% from last year to $3.27 a pound, the highest… going back to 2006, while ground beef is up 17%.”
January 11 – CNBC:
“Over the past two years, median income fell 3% while the cost of living rose nearly 7%, due, in part, to rising housing and medical costs… The average U.S. household with debt now owes $155,622, or more than $15 trillion altogether, including debt from credit cards, mortgages, home equity lines of credit, auto loans, student loans and other household obligations — up 6.2% from a year ago.”
January 13 – Associated Press:
“Prices at the wholesale level surged by a record 9.7% for all of 2021, setting an annual record and providing further evidence that inflation is still present at all levels of the U.S. economy. The… producer price index, which measures inflation before it reaches consumers, did slow on a monthly basis, rising just 0.2% in December compared with November, when prices had shot up 1%.”
January 14 – Bloomberg:
“U.S. retail sales slumped in December by the most in 10 months, suggesting the fastest inflation in decades is taking a greater toll on consumers just as the nation confronts more coronavirus infections. The value of overall purchases decreased 1.9%, after a revised 0.2% gain a month earlier… The figures aren’t adjusted for inflation, suggesting price-adjusted receipts were even weaker than the headline number.”
January 13 – Yahoo Finance:
“Initial unemployment claims unexpectedly jumped to total 230,000 last week, but still remained low compared to their pandemic-era averages… And meanwhile, continuing claims tracking the total number of Americans claiming benefits on regular state programs fell to a multi-decade low in the latest weekly data. At 1.559 million, the number of continuing claims was at its lowest since 1973.”
January 13 – Bloomberg:
“Mortgage rates in the U.S. rose for a third straight week, reaching the highest point in almost two years. The average for a 30-year loan was 3.45%, up from 3.22% last week and the highest since March 2020, Freddie Mac said…”
Country Garden, China’s largest developer by sales,
saw its share price sink almost 10% this week,
while yields surged 460 bps to a record 12.77%.
Developer crisis dynamics have accelerated:
Sunac’s bond yields spiked 1,310 bps
to a record 38.44%
Longfor yields spiked 850 bps
to a record 18.19%
Seazen Group bond yields spiked
2,000 bps to 60.00%
Shimao yields above 100%.
Kaisa Group yields above 72%,
China Aoyuan Group 65%,
Yuzhou Group 66%
Agile Group 48%
January 10 – Bloomberg:
“Distress is mounting in China’s $870 billion offshore debt markets as more property firms miss debt payments and record refinancing costs effectively block them from rolling over borrowings, according to Bloomberg’s credit tracker.”
January 13 – Associated Press:
“Europe’s natural gas crisis isn’t letting up. Reserves are low. Prices are high. Utility customers are facing expensive bills. Major Russian supplier Gazprom isn’t selling gas like it used to. It all raises the question: How exactly is Europe, which imports most of its energy, going to make it through the winter without a gas disaster, especially if the season turns out to be colder or longer than usual?”
January 11 – Bloomberg:
“Inflation expectations for Japanese households jumped to the highest in 13 years, showing how costlier energy is influencing sentiment even as overall price gains remain far below the Bank of Japan’s target. Households see inflation of 5% by next year, the most expected since December 2008…”
January 13 – Reuters:
“Europe is nearer war than it has been in 30 years, Poland's foreign minister warned during the third round of diplomacy this week aimed at defusing tensions over Russia's demand that Ukraine never be allowed to join NATO. Addressing envoys from the 57 members of the Organization for Security and Cooperation in Europe (OSCE), Zbigniew Rau did not name Russia, but listed a string of conflicts in which Moscow's involvement has been alleged. ‘It seems that the risk of war in the OSCE area is now greater than ever before in the last 30 years,’ Rau said… ‘For several weeks we have been faced with the prospect of a major military escalation in Eastern Europe.’”
January 10 – Bloomberg:
“China doubled down on imports of Iranian and Venezuelan crude oil in 2021, taking the most from the U.S.-sanctioned regimes in three years, as refiners brushed off the risk of penalties to scoop up cheap oil.”
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