Credit Bubble Bulletin
Weekly Commentary:
Collision Course
by Doug Noland
April 29 2022
My edited easy to read version follows
Ye Editor
For the Week Ending April 29, 2022:
GLOBAL STOCK INDEXES:
S&P500 dropped 3.3% (down 13.3% y-t-d)
Dow Industrials fell 2.5% (down 9.2%)
Transports declined 1.3% (down 9.8%).
Utilities sank 4.0% (down 1.5%)
Banks slumped 5.2% (down 16.8%)
The S&P 400 Midcaps fell 3.2% (down 12.2%)
Small cap Russell 2000 dropped 3.9% (down 17.0%)
Nasdaq100 sank 3.8% (down 21.2%)
Semiconductors stumbled 2.3% (down 26.0%)
Biotechs dropped 5.3% (down 16.1%).
With gold bullion down $35,
the HUI gold stock index sank 5.9% (up 9.1%)
U.K.'s FTSE increased 0.3% (up 2.2% y-t-d).
France's CAC40 dipped 0.7% (down 8.7%)
German DAX slipped 0.3% (down 11.2%).
Spain's IBEX 35 declined 0.8% (down 1.5%).
Italy's FTSE MIB little changed (down 11.3%).
Brazil's Bovespa dropped 2.9% (up 2.9%)
Mexico's Bolsa fell 3.3% (down 3.5%).
South Korea's Kospi declined 0.4% (down 9.5%).
India's Sensex slipped 0.2% (down 2.0%).
Japan's Nikkei declined 0.9% (down 6.8% y-t-d).
China's Shanghai fell 1.3% (down 16.3%).
Turkey's Istanbul National 100 dropped 1.7% (up 30.8%).
Russia's MICEX surged 9.5% (down 35.4%).
US BONDS:
Three-month Treasury bill rates
ended the week at 0.81%.
Two-year government yields
rose five bps to 2.72% (up 198bps y-t-d).
Five-year T-note yields
added two bps to 2.96% (up 169bps).
Ten-year Treasury yields
rose three bps to 2.94% (up 143bps).
Long bond yields
gained five bps to 3.00% (up 110bps).
Benchmark Fannie Mae MBS yields
were unchanged at 4.15% (up 209bps).
Federal Reserve Credit last week
added $2.0bn to a record $8.918 TN.
Over the past 137 weeks,
Fed Credit expanded $5.192 TN, or 139%.
US MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
slipped a basis point to 5.% (up 212bps y-o-y).
Fifteen-year rates added two bps to 4.40%
- the high since April 2010 (up 209bps).
Five-year hybrid ARM rates
gained three bps to 3.78% (up 114bps).
Jumbo mortgage 30-year fixed rates
up another 15 bps to a more than
decade-high 5.38% (up 225bps)
CURRENCY WATCH:
April 28
– Bloomberg:
“When China’s tightly managed currency depreciates dramatically against the dollar, it can be hard to stop. More than six years after China’s shock 2015 devaluation roiled global markets and spurred an estimated $1 trillion in capital flight, the yuan is weakening at a similar pace. Onshore it’s lost nearly 4% in eight days, while the offshore rate is heading for its worst month relative to the greenback in history. Selling momentum is the strongest since the height of Donald Trump’s trade war in 2018.”
For the week, the U.S. Dollar Index
jumped 1.7% to 102.96 (up 7.6% y-t-d).
For the week on the downside,
yhe Chinese renminbi declined 1.62%
versus the dollar (down 3.82% y-t-d).
COMMODITIES:
April 28
– Bloomberg:
“Corn extended its rally to the highest since 2012 in Chicago as the war in Ukraine chokes supplies and adverse weather threatens crops in the Americas… In major grower and shipper Brazil, the center-west region has had a dry April, hampering corn in its final development stages before harvest. In the U.S., where crops are just being sown, wet and chilly soils has left the plantings pace at its slowest start since 2013.”
The Bloomberg Commodities Index
increased 0.4% (up 30.6% y-t-d).
Spot Gold fell 1.8% to $1,897 (up 3.7%).
Silver slumped 5.7% to $22.78 (down 2.3%)
Copper dropped 4.2% (down 1.2%).
WTI crude oil rallied $2.62 to $104.39 (up 39%)
Gasoline jumped 5.1% (up 56%)
Natural Gas surged another 10.9% (up 94%)
Wheat fell 1.8% (up 37%)
Corn jumped 3.1% (up 37%).
Bitcoin dropped $1,060, or 2.7%, this week
to $38,598 (down 16.8%).
DOUG NOLAND'S COMMENTARY:
(highly edited)
NASDAQ
Nasdaq Has Worst Month Since 2008.
The Nasdaq100 dropped 3.8% this week, boosting 2022 losses to 21.2%. Technology dynamics are alarmingly reminiscent of the 2000 bursting Bubble episode.
CHINA
China Bank Assets have surpassed $55 TN this year, having doubled in only seven years. Bank Assets have inflated five-fold since the 2008 crisis. One would have to be a wild optimist to assume satisfactory asset quality. At more than 300%, China dwarfs the U.S. Bank Assets ratio of just over 100% of GDP.
JAPAN
Thursday, the central Bank of Japan (BOJ) defended its efforts to keep the yield on 10-year government bonds near zero, and said it will buy a limitless amount of debt at fixed rates every business day to hold the line. The bank kept its guidance that rates will stay low or go south/
The yen declined another 0.9% this week, boosting April losses to 6.13% - and the 2022 drop to 11.22% - trading this week to the low versus the dollar back to 2002. Yen weakness places Chinese manufactures at a competitive disadvantage, only emboldening Beijing to play the currency devaluation card in an attempt to mitigate mounting economic woes.
The S&P CoreLogic 20-City Home Price Index had prices up a blistering 2.39% for February, boosting y-o-y housing inflation to 20.2%.
... the Fed is expected to soon commence its $95 billion monthly balance sheet reduction (“QT”, or monetary tightening, rather than easing, or QE).
NEWS SUMMARY OF LAST WEEK:
Russia / Ukraine Watch:
April 26
– Associated Press:
“Russia unleashed a string of attacks Monday against rail and fuel installations deep inside Ukraine, far from the front lines of Moscow’s new eastern offensive, as Russia’s top diplomat warned against provoking World War III and said the threat of a nuclear conflict ‘should not be underestimated.’ The U.S., meanwhile, moved to rush more weaponry to Ukraine and said the assistance from the Western allies is making a difference in the 2-month-old war… Russian Foreign Minister Sergei Lavrov said weapons supplied by Western countries ‘will be a legitimate target,’ adding that Russian forces had already targeted weapons warehouses in western Ukraine. ‘Everyone is reciting incantations that in no case can we allow World War III,’ Lavrov said… He accused Ukrainian leaders of provoking Russia by asking NATO to become involved in the conflict. By providing weapons, NATO forces are ‘pouring oil on the fire,’ he said…”
April 25
– Washington Examiner:
“Storage tanks at a major oil depot in the Russian city of Bryansk exploded early on Monday. Was Ukraine responsible? Before you answer, consider first that this is only the latest disaster to afflict Russian critical infrastructure near the Ukrainian border. Another oil depot on Belgorod was targeted by a Ukrainian helicopter strike in early April. Prior to that, Russian railway lines near the border were sabotaged. A Russian missile research center and a chemical plant also recently suffered explosions. These incidents all appear to fit well with Ukraine's military strategy.”
Economic War / Iron Curtain Watch:
April 27
– Financial Times:
“EU leaders accused Moscow of ‘blackmail’ over gas exports after Russia’s state-owned Gazprom suspended supplies to Poland and Bulgaria on Wednesday, sending prices as much as 20% higher. The two nations are the first EU states to have supplies from Russia cut since Moscow last month threatened to withhold gas exports unless it was paid in roubles… In Russia’s biggest move since the invasion to target the EU’s reliance on its fossil fuels, the interruption rippled into markets, with the euro falling to a five-year low against the dollar.”
April 28
– Bloomberg:
“Germany has started preparations for a potential halt in Russian gas deliveries as concerns intensify amid a dispute over payment terms. Chancellor Olaf Scholz said… preparations to limit Germany’s exposure to Russian energy imports were under way even before President Vladimir Putin ordered the invasion of Ukraine. While Russian coal is already being phased out, gas is more difficult, he said…”
April 28
– Bloomberg:
“Russia may be forced to ground between half and two-thirds of its commercial aircraft by 2025 in order to cannibalize them for spare parts, Kommersant newspaper reported, citing an unidentified person at the Transport Ministry. In the ministry’s base case, at least 70% of the country’s foreign-made planes will still be flying by the end of 2025…, citing an internal report on the airline industry to 2030. However, in a worst-case scenario, Russia could begin to face severe shortages starting in the second half of this year as sanctions prevent the airline industry from importing components, the report said.”
Bubble / Mania Watch:
April 25
– Financial Times:
“A senior European Central Bank official has launched a tirade against crypto-currencies, likening them to a ‘Ponzi scheme’ and calling for a regulatory clampdown to avoid a ‘lawless frenzy of risk-taking’. Fabio Panetta, the executive board member who oversees the ECB’s work on a digital euro, appealed for ‘co-ordinated efforts at the global level to bring crypto assets into the regulatory purview’ by increasing taxation, tightening rules against money laundering and improving disclosure in the fast-moving market.”
Inflation Watch:
April 28
– Wall Street Journal:
“Corn and soybeans prices have risen nearly to records, signaling higher food inflation to come. Global food prices had already reached records when Russia invaded Ukraine in late February and jeopardized big slices of the world’s grain and oilseed supplies. Poor harvests in South America, inclement planting weather in the U.S. and rising biofuel demand threaten to stretch inventories even thinner and push prices higher. The price of soybeans, which are fed to cows, chicken and salmon and crushed into oils, has gained 27% so far this year… Corn futures, up 37% this year, settled Wednesday at $8.15, about 24 cents shy of the all-time high.”
April 28
– Wall Street Journal:
“America’s most prolific oil field is running out of the workers, cash and equipment needed to produce more oil. In the Permian Basin, the sprawling oil-rich region in West Texas and southeastern New Mexico, drillers are facing long delays and steep competition for everything from roughnecks to steel to fracking pumps. The region is the only place where U.S. crude production is expected to grow significantly this year, and the Biden administration is hoping production there can help alleviate high prices at the pump. But mounting supply-chain crunches are putting a ceiling on how much more frackers can produce there…”
April 23
– Wall Street Journal;
“Enya Ramirez shelled out $400 to see My Chemical Romance and $500 to see Bad Bunny on recent tours. The 20-year-old Dallas resident has noticed the prices for bigger artists creeping up, but that isn’t stopping her… ‘It sucks for sure because I’ve had to miss out on other big concerts to go to these ones,’ she says, adding that she budgeted and paid in installments for the Bad Bunny ticket... Fans flooding back to see their favorite artists are finding yet another commodity whose price has gone up: concert tickets… Ticket prices increased 11% in 2021 relative to 2019, and 14% in North America, according to Live Nation Entertainment…”
Biden Administration Watch:
April 28
– Bloomberg:
“President Joe Biden asked Congress for $33 billion to support Ukraine - a dramatic escalation of U.S. funding for the war with Russia… The funding request includes over $20 billion for weapons, ammunition and other military assistance, as well as $8.5 billion in direct economic assistance to the Ukrainian government and $3 billion in humanitarian aid. It is intended to cover the war effort's needs through September…”
Federal Reserve Watch:
April 29
– CNBC:
“A measure that the Federal Reserve focuses on to gauge inflation rose in March, likely cementing the central bank’s intention to hike interest rates by half a percentage in May. The core personal consumption expenditures price index, which measures costs that consumers pay across a wide swath of items…, increased 5.2% from a year ago… However, that was slightly below the 5.3% reading in February, which was the highest since April 1983.”
U.S. Bubble Watch:
April 27
– Bloomberg:
“The U.S. merchandise-trade deficit widened unexpectedly to a new record in March as the value of imports dwarfed that of outbound shipments, reflecting a surge in inflation. The shortfall grew almost 18% to $125.3 billion last month."
April 29
– Wall Street Journal:
“Consumer spending picked up sharply in March, positioning American households to help propel the economy heading into the second quarter of the year. Personal consumption expenditures increased a seasonally adjusted 1.1% in March from the prior month… Consumers stepped up spending on services like travel and dining, as well as on goods like gasoline and food. Spending on durable goods declined for the second month in a row, led by lower spending on vehicles. Personal income… climbed 0.5% from the prior month.”
April 26
– CNBC:
“Home prices increased 19.8% in February year over year, according to the S&P CoreLogic Case-Shiller national home price index. That is up from the 19.1% annual increase in January and is the third-highest reading in the index’s 35-year history. The 10-city composite annual increase came in at 18.6%, up from 17.3% in the previous month. The 20-city composite was up 20.2%, rising from 18.9%. Sun Belt cities continued to see the highest gains. Phoenix, Tampa, Florida, and Miami saw annual home price gains of 32.9% 32.6% and 29.7%... For a median-priced home financed with a 30-year loan, the monthly payment is $550 higher than a year ago, an increase of 46%, according to calculations by Realtor.com…”
April 26
– Reuters:
“Sales of new U.S. single-family homes tumbled in March as soaring mortgage rates and prices reduced affordability, but the housing market remains supported by an acute shortage of previously owned properties. New home sales plunged 8.6% to a seasonally adjusted annual rate of 763,000 units last month… February's sales pace was revised higher to 835,000 units from the previously reported 772,000 units… The median new house price in March jumped 21.4% from a year ago to $436,700. Almost all the houses sold last month were above the $200,000 price level… There were 407,000 new homes on the market, up from 392,000 units in February. Houses under construction made up 65.5% of the inventory, with homes yet to be built accounting for about 25.8%.”
April 27
– Reuters:
“The average interest rate on the most popular U.S. home loan rose to its highest level since June 2009 last week and demand for mortgages ebbed as the impact of rising costs began to bite, Mortgage Bankers Association (MBA) data showed… The average contract rate on a 30-year fixed-rate mortgage increased to 5.37% in the week ended April 22 from 5.20% a week earlier, the MBA survey showed. It has risen 220 bps from 12 months ago…”
April 24
– Wall Street Journal:
“Job-switchers are often reaping double-digit pay increases, a new survey shows, a phenomenon that is demonstrating bargaining power for workers while threatening to keep inflation high. About 64% of job-switchers said their current job provides more pay than their previous job. Among these workers, nearly half received a raise of 11% or more, according to a ZipRecruiter survey... Nearly 9% are now making at least 50% more.”
Economic Dislocation Watch:
April 25
– Bloomberg:
“China’s stringent rules to curb Covid-19 are about to unleash another wave of summer chaos on supply chains between Asia, the U.S. and Europe. Beijing’s zero-tolerance approach amid an escalating virus outbreak brings the pandemic full circle, more than two years after its emergence in Wuhan upended the global economy. Shipping congestion at Chinese ports, combined with Russia’s war in Ukraine, risks a one-two punch that threatens to derail the recovery, already buffeted by inflation pressures and headwinds to growth. Even if the virus is reined in, the disruptions will ripple globally — and extend through the year — as bunched-up cargo vessels start sailing again.”
China Watch:
April 28
– Financial Times:
“The renminbi is set to close out its steepest monthly fall on record as China’s economy reels from severe Covid-19 lock downs and the US Federal Reserve prepares to raise interest rates, driving global investors to ditch Chinese assets. The Chinese currency has fallen 4.2% this month to about Rmb6.6 per dollar, the biggest drop since the end of its US dollar peg, which was in place from 1994 to 2005. The fall is greater than a one-off devaluation by the Chinese central bank in 2015 that rattled global markets and a tumble in 2018 during the US-China trade war under the Trump administration. The pace of selling intensified after Chinese president Xi Jinping announced an ‘all out’ infrastructure spending package intended to help mitigate the damage from lockdowns in Shanghai and other cities.”
April 25
– Reuters:
“Shanghai's COVID-19 lockdown misery dragged into a fourth week, as orders on Monday for mass testing in Beijing's biggest district sparked fears that the Chinese capital could be destined for a similar fate. In their battle to stamp out the virus, authorities in Shanghai said they would reserve the harshest restrictions for smaller areas around confirmed cases, raising hopes of some respite among the millions of people currently living in strictly quarantined neighbourhoods.”
Global Bubble and Instability Watch:
April 26
– Reuters:
“Australian consumer prices surged at the fastest annual pace in two decades last quarter as petrol, home building and food costs all climbed, fueling speculation interest rates could rise from record lows as soon as next week… Wednesday's data made for painful reading as the consumer price index (CPI) jumped 2.1% in the first quarter, topping market forecasts of a 1.7% increase. The annual pace picked up to 5.1%, from 3.5% the previous quarter and the highest since 2001.”
Europe Watch:
April 28
– Bloomberg:
“German inflation unexpectedly accelerated to the fastest since records began in the early 1990s as Russia’s war in Ukraine roiled energy markets and disrupted supply chains. Consumer prices jumped 7.8% from a year earlier in April -- higher than the 7.6% median estimate…”
April 29
– Associated Press:
“Inflation hit a record in April for the 19 countries that use the euro as skyrocketing fuel prices boosted by the war in Ukraine weigh on the region's economic recovery from the coronavirus pandemic. Annual inflation reached 7.5% for the month, topping the old record of 7.4% from March…The April figure was the sixth consecutive record reported for the eurozone. Eurostat said energy prices jumped 38%, an indication of how Russia's invasion of Ukraine is affecting the eurozone’s 343 million people.”
April 25
– Bloomberg:
“U.K. manufacturers raised prices at the fastest pace in more than four decades in a bid to cover soaring raw material and energy costs, and a further acceleration is expected, according to the Confederation of British Industry. In its first quarterly survey of the sector since Russia invaded Ukraine, the CBI found companies from food producers to auto makers under growing pressure in the three months through April. Costs jumped the most in almost half a century, and there is no immediate relief in sight, the business lobby group said.”
India Watch:
April 27
– Bloomberg:
“Metals producers in India are cutting activity and warning of potential closures as a worsening coal shortage threatens to escalate into a full-blown energy crisis for Asia’s third-largest economy. In the central state of Chhattisgarh, a hub for iron ore and steel-making, sponge iron makers are running at about 60% of usual levels and could be forced to shut down completely if they can’t get more coal, said Anil Nachrani, president of the Chhattisgarh Sponge Iron Manufacturers Association.”
Covid Watch:
April 28
– Bloomberg:
“New omicron sublineages, discovered by South African scientists this month, are likely able to evade vaccines and natural immunity from prior infections, the head of gene sequencing units that produced a study on the strains said. The BA.4 and BA.5 sublineages appear to be more infectious than the earlier BA.2 lineage, which itself was more infectious than the original omicron variant, Tulio de Oliveira, the head of the institutes, said. With almost all South Africans either having been vaccinated against the coronavirus or having had a prior infection the current surge in cases means that the strains are more likely to be capable of evading the body’s defenses rather than simply being more transmissible, de Oliveira said.”
April 28
– Axios:
“COVID cases are on the rise in all but six states and Washington, D.C., as the Omicron subvariant continues to spread across the U.S. The big picture: Case rates and hospitalizations are still well below pandemic highs, prompting NIAID director Anthony Fauci to say this week that the nation is out of a ‘full-blown explosive pandemic phase.’ By the numbers: There were roughly 51,000 new daily cases over the last week, up 51% from two weeks ago.”
April 26
– Reuters:
“Following the record surge in COVID-19 cases during the Omicron-driven wave, some 58% of the U.S. population overall and more than 75% of younger children have been infected with the coronavirus since the start of the pandemic, according to a U.S. nationwide blood survey…”
Environmental Watch:
April 26
– Guardian:
“Southern California officials declared a water shortage emergency Tuesday, and adopted new unprecedented restrictions on outdoor watering that will affect millions of people living in Los Angeles, Ventura and San Bernardino counties. Metropolitan water district of southern California’s resolution will limit outdoor watering to just one day per week for district residents supplied by a stressed system of canals, pipelines, reservoirs and hydroelectric power plants called the State Water Project, which supplies water… to 27 million Californians and 750,000 acres of farmland. The restrictions, which take effect in June, will severely limit how much water people can use to water their lawns or wash cars.”
April 28
– Bloomberg:
“Argentina’s crypto frenzy is putting the energy grid of a small province in Patagonia near a breaking point as miners take advantage of generous electricity subsidies to mint Bitcoin. Crypto mining is expected to consume close to a quarter of all electricity supply in the Tierra del Fuego province… in the next few months until October… Local officials warn that crypto mining, together with an already feeble energy infrastructure, is putting their energy grid at the risk of collapse.”
Geopolitical Watch:
April 26
– Reuters:
“North Korean leader Kim Jong Un has pledged to speed up development of his country's nuclear arsenal while overseeing a huge military parade that displayed intercontinental ballistic missiles (ICBMs)… The parade took place on Monday night during celebrations for the 90th anniversary of North Korea's armed forces… Pyongyang has recently stepped up weapons tests and displays of military power as denuclearisation talks with the United States have stalled and a new conservative administration takes power in South Korea.”
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