Credit Bubble Bulletin
Weekly Commentary
by Doug Noland
My edited easy to read version follows.
Ye Editor
For the Week Ending March 4, 2022:
GLOBAL STOCK INDEXES:
S&P500 declined 1.3% (down 9.2% y-t-d)
Dow Industrials fell 1.3% (down 7.5%)
Utilities surged 4.8% (down 2.2%)
Banks sank 7.7% (down 5.1%)
Transports rallied 1.2% (down 6.6%)
S&P 400 Midcaps fell 1.7% (down 8.0%)
Small cap Russell 2000 down 2.0% (down 10.9%)
Nasdaq100 slumped 2.5% (down 15.2%)
Semiconductors sank 5.6% (down 17.4%)
Biotechs lost 1.7% (down 11.3%).
With gold bullion spiking $81,
the HUI gold stock index
surged 8.6% (up 17.7%)
U.K.'s FTSE sank 6.7% (down 5.4% y-t-d).
Japan's Nikkei down 1.9% (down 9.7% y-t-d).
France's CAC40 sank 10.2% (down 15.3%).
German DAX fell 10.1% (down 17.6%).
Spain's IBEX 35 slumped 9.0% (down 11.4%)
Italy's FTSE MIB index sank 12.8% (down 17.9%)
Brazil's Bovespa index rose 1.2% (up 9.2%)
Mexico's Bolsa gained 1.5% (unchanged).
South Korea's Kospi rallied 1.4% (down 8.9%).
India's Sensex dropped 2.7% (down 6.7%).
China's Shanghai little changed (down 5.3%).
Turkey's Istanbul National 100 index
recovered 2.0% (up 7.2%).
Russia's MICEX did not trade (down 34.8%).
US BONDS:
Three-month Treasury bill rates
ended the week at 0.305%.
Two-year government yields
dropped nine bps to 1.48%
(up 75bps y-t-d).
Five-year T-note yields sank 23 bps to 1.64%
(up 38bps).
Ten-year Treasury yields
dropped 23 bps to 1.73%
(up 22bps).
Long bond yields fell 12 bps to 2.16%
(up 25bps).
Benchmark Fannie Mae MBS yields
fell 16 bps to 2.76% (up 69bps).
Federal Reserve Credit last week
declined $19.2bn to $8.866 TN.
Over the past 129 weeks,
Fed Credit expanded $5.140 TN, or 138%.
US MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
dropped 13 bps to 3.76%
(up 74bps y-o-y).
Fifteen-year rates fell 13 bps to 3.01%
(up 67bps).
Five-year hybrid ARM rates
declined seven bps to 2.91%
(up 18bps).
Jumbo mortgage 30-year fixed rates
down 16 bps to 4.09%
(up 89bps).
COMMODITIES:
March 3
– Bloomberg:
“China is scooping up U.S. corn and soybeans as part of efforts to mitigate the risks to commodity supplies from Russia’s war in Ukraine and slower harvests in South America. Chinese buyers recently booked about 20 cargoes of American soybeans and about 10 shipments of corn, according to traders…”
March 4
– Wall Street Journal:
“Nickel futures jumped sharply in London to trade above $30,000 a ton for the first time since 2008 as surging prices created a short squeeze in an already tight market. Nickel rose as much as 13% to $30,295 a ton... The metal surged 19% this week for the biggest weekly jump since 2009. ...
Bloomberg Commodities Index
jumped 13.0% (up 28.1% y-t-d).
Spot Gold rose 4.3% to $1,971 (up 7.7%).
Silver gained 5.9% to $25.70 (up 10.3%).
WTI crude jumped $24.09 to $115.68 (up 54%).
Gasoline surged 29.9% (up 59%)
Natural Gas rose 12.2% (up 35%).
Copper jumped 10.1% (up 11%).
Wheat spiked 40.6% (up 57%)
Corn jumped 15.0% (up 27%).
Bitcoin dipped $552, or 1.4%,
this week to $38,929
(down 16.0%)
DOUG NOLAND COMMENTARY:
(highly edited)
Bloomberg Commodities Index surged 13.0% to the high since 2014 - the “most stunning weekly surge in records
that go back to when Nikita Khrushchev
was in the Kremlin.”
WTI Crude jumped $24.09, or 26.3%,
to $115.58 (up 54% y-t-d).
Palladium jumped 27.1%,
Nickel 18.7%,
Iron Ore (DCE) 15.5%,
Aluminum 14.6%,
Zinc 11.9%,
Copper 10.1%,
Tin 6.9%,
Gold rose 4.3%,
Silver 5.9%, and
Platinum 6.5%.
March 4
– Bloomberg:
“This week will go down in wheat trading history. Chicago futures for the grain have soared 40% -- the most ever -- as Russia’s war in Ukraine upends global grain supplies. That puts prices at a 14-year high ...
Wheat (May contract) surged 40.6%,
increasing y-t-d gains to 57%.
Corn jumped 15% (up 27% y-t-d)
Soybeans rose 5.4% (up 26%).
WSJ: “China’s top 100 developers’ monthly contracted sales volume fell for the eighth straight month in February, plunging 47% from a year earlier…”
While China’s banks appeared to move cautiously this week, we can safely assume China will backstop Russia financially and economically.
NEWS FROM LAST WEEK
Europe / Russia Watch:
February 27
– Financial Times:
“In the space of 30 minutes, Olaf Scholz overturned decades of German foreign and defence policy. Speaking to the Bundestag in a special session on Sunday, the chancellor announced a massive €100bn fund to modernise the military. He also vowed that Germany would finally meet its Nato commitment to spend 2% of gross domestic product yearly on defence — up from the 1.5% currently spent that has long frustrated allies. The plans could mark a watershed moment for the way Europe’s largest economy engages with the world.”
Market Instability Watch:
March 1
– Wall Street Journal:
“Russia’s assault on Ukraine triggered a surge of calls for Western allies to completely sever Russia from the global financial system by disconnecting it from the Swift global financial messaging system. The European Union was set Tuesday to instruct the Swift financial network to delist seven banks, including Russia’s VTB Bank, Bank Rossiya and Bank Otkritie… The EU, U.S., U.K. and Canada had all agreed on Feb. 26 to block some Russian banks from the network, part of an enhanced package of measures that seeks to undermine Russia’s economy and finances.”
March 2
– Reuters:
“With much of Moscow's $640 billion reserves under lock and key in the West and sanctions crippling cross-border capital flows, investors fear Russia may be heading for its first ever default on sovereign hard currency debt. On Wednesday, foreign investors were effectively stuck with their holdings of rouble-denominated bonds -- known as OFZs -- after the central bank temporarily halted coupon payments and settlement system Euroclear stopped accepting Russian assets.”
March 2
– Financial Times:
“The Austrian unit of Sberbank has been pushed into failure by far-reaching sanctions on Russia, becoming the first banking victim of the measures after they caused a run on the bank and left its parent unable to help. Following the Austrian unit’s collapse… the state-owned lender said it was withdrawing entirely from Europe. The EU authority responsible for restructuring failing banks said the demise of the most troubled European units of Sberbank, Russia’s biggest lender, had come at ‘lightning speed’.”
March 2
– Bloomberg:
“The Russian stock market has been shut for days and officials are barring any cash going to foreign investors. Funds from London to New York have suspended trading. For now at least, any financial asset linked to Russia looks all but frozen. Even commodity shipments, the country’s economic lifeblood, are being disrupted and some buyers have refused Russian oil.”
Market Mania Watch:
March 1
– Bloomberg:
“New stock offerings in the U.S. slumped to the lowest in more than a decade last month… Initial and secondary public offerings collapsed 92% to $5.95 billion from the year earlier... That’s the least since September of 2011 as falling stock markets pushed a series of IPOs below their offering prices.”
U.S. Bubble Watch:
March 4
– CNBC:
“US Job growth accelerated in February, posting the biggest monthly gain since July as the employment picture got closer to its pre-pandemic self. Nonfarm payrolls for the month grew by 678,000 and the unemployment rate was 3.8%...”
March 2
– Yahoo Finance:
“U.S. private-sector employers brought back more jobs than expected in February… Private payrolls rose by 475,000 in February compared to January, ADP said... February's report also came alongside a sharp upward revision to January's payrolls. In January, private sector employment rose by 509,000… Previously, ADP reported January payrolls fell by 301,000…”
March 3
– CNBC:
“Initial claims for unemployment insurance totaled 215,000, the lowest tally since the beginning of the year and fewer than Wall Street estimates, the Labor Department said…”
March 3
– Bloomberg:
“Rapid wage growth in the U.S. likely isn’t retreating any time soon. The February jobs report on Friday is forecast to show average hourly earnings advanced another 0.5% last month, pushing the year-over-year gain to 5.8%. Excluding two pandemic-distorted prints in 2020, the annual increase would be the strongest in data back to 2007… Economists at Goldman Sachs Group Inc. estimate average hourly earnings to rise at a pace of 5% or more through the rest of the year.”
Economic Dislocation Watch:
March 3
– Bloomberg:
“For clues on how toxic Russian oil has become, look no further than the trade for tankers that export it. It now costs about $3.5 million to hire a tanker to deliver a million barrels to Italy from Russia’s Black Sea port of Novorossiysk -- a voyage that should take no longer than a week. That’s a more-than 300% gain from before the invasion of Ukraine began. It also assumes traders can find an owner willing to risk letting their ship enter a region where five merchant ships have been blown up in the week since the attack started, and where NATO has warned of an increasing risk of collateral damage to vessels.”
March 1
– Reuters:
“The world's three biggest container lines… temporarily suspended cargo shipments to and from Russia in response to Western sanctions on Moscow following its invasion of Ukraine, in a further blow to trade with the country…”
March 3
– Reuters:
“Russia has decided to stop supplying rocket engines to the United States in retaliation for its sanctions against Russia over Ukraine, Dmitry Rogozin, head of the state space agency Roscosmos, said… ‘In a situation like this we can't supply the United States with our world's best rocket engines. Let them fly on something else, their broomsticks, I don't know what,’ Rogozin said on state Russian television.”
China Watch:
March 3
– Wall Street Journal:
“After more than 10 dollar-debt defaults by property developers over the past year, many investors have come to the conclusion that trust is broken in the $200 billion market for high-yield bonds of Chinese companies. Since last summer, when the financial troubles of China Evergrande Group sparked a selloff in the giant property company’s bonds and those of its peers, the market has remained deeply distressed, with no end in sight to the malaise. A string of easing measures from Chinese authorities, local governments and banks to support the housing market and help developers access funding onshore have so far done little to change the mood in the market. China’s top 100 developers’ monthly contracted sales volume fell for the eighth straight month in February, plunging 47% from a year earlier…”
Central Banker Watch:
February 28
– Reuters:
“The Russian central bank raised its key interest rate to 20% from 9.5% on Monday in an emergency move, and authorities told export-focused companies to sell foreign currency as the rouble tumbled to record lows.”
Global Bubble Watch:
March 3
– Wall Street Journal:
“Companies that divest from their Russian holdings will have to book hefty write-downs and face complex accounting judgments, experts say. Businesses including BP PLC, Shell PLC and Apple Inc. have begun cutting ties with Russia as it continues its attacks on Ukraine. On Sunday, BP said it plans to exit its roughly 20% stake in oil company Rosneft Oil Co. , followed by Shell a day later saying it would pull back from its joint ventures with Gazprom… Commodities firm Glencore PLC said it was reviewing its business in Russia… Companies outside the oil-and-gas industry, such as Apple and Dell…, said they would retreat from Russia by halting product sales.”
Europe Watch:
March 2
– Bloomberg:
“European natural gas surged to a record as fears about supply during wartime were compounded by traders’ decisions to avoid dealing with a key Russian player in the market. Benchmark futures rose as much as 60%, before easing. Gas and power traders are backing away from new deals with Gazprom… There’s a further risk that previously agreed contracts start unwinding or clearing houses decide to stop doing business with the Russian company, liquidating their positions.”
March 3
– Bloomberg:
“Western European nations are scrambling for ways to live without Russian natural gas, bracing for the possibility that either the Kremlin switches off the taps or political pressure for tighter sanctions erupts into a full energy embargo. With Russian troops advancing into Ukraine, European Union governments are concerned that the source of 40% of the region’s gas could either be interrupted in the fighting or by economic measures to contain Russian President Vladimir Putin.”
March 1
– Bloomberg:
“German inflation resumed its ascent, bolstered by a surge in energy costs that’s in danger of intensifying due to Russia’s invasion of Ukraine. After snapping six straight months of acceleration in January, consumer prices jumped 5.5% from a year earlier… A national measure reached 5.1% -- the highest since 1992.”
March 2
– Bloomberg:
“Euro-zone inflation quickened to an all-time high, outstripping expectations as Russia’s invasion of Ukraine threatens to send energy costs soaring at an even faster pace. Consumer prices jumped 5.8% from a year ago in February, up from 5.1% the previous month and more than the 5.6% median economist estimate…”
Turkey Watch:
“Turkish prices rose at their fastest rate in 20 years in February as the lira tumbled and food and energy prices surged, stirring discontent about the state of the economy. The consumer price index rose 54.4% year on year in February… Food prices climbed 64.5% and transportation jumped 75.8% last month…”
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