Credit Bubble Bullietin
Transitioning to a New Cycle
by Doug Noland
My edited easy to read version follows
Ye Editor
For the week ending April 15, 2022
GLOBAL STOCK MARKET INDEXES:
S&P500 fell 2.1% (down 7.8% y-t-d)
Dow Industrials declined 0.8% (down 5.2%).
Utilities slipped 1.3% (up 5.3%).
Banks sank 2.6% (down 11.7%)
Transports rallied 2.6% (down 9.9%).
S&P 400 Midcaps increased 0.4% (down 7.5%),
Small cap Russell 2000 gained 0.5% (down 10.7%).
Nasdaq100 slumped 3.0% (down 14.9%).
Semiconductors dropped 2.9% (down 23.3%).
Biotechs fell 1.5% (down 5.3%).
U.K.'s FTSE declined 0.7% (up 3.1% y-t-d).
Japan's Nikkei increased 0.4% (down 5.9%).
France's CAC40 gained 0.6% (down 7.9%).
The German DAX declined 0.8% (down 10.8%).
Spain's IBEX 35 rallied 1.1% (down 0.2%).
Italy's FTSE MIB increased 0.2% (down 9.1%)
Brazil's Bovespa dropped 1.8% (up 10.8%)
Mexico's Bolsa declined 0.9% (up 1.7%).
South Korea's Kospi slipped 0.2% (down 9.5%).
India's Sensex fell 1.9% (up 0.1%).
China's Shanghai lost 1.2% (down 11.8%).
Turkey's Istanbul National 100 up 4.2% (up 34.3%).
Russia's MICEX sank 6.5% (down 36.0%).
US BONDS:
Three-month Treasury bill rates
ended the week at 0.7375%.
Two-year government yields
declined six bps to 2.46%
(up 172bps y-t-d).
Five-year T-note yields
added three bps to 2.79%
(up 152bps).
Ten-year Treasury yields
jumped 12 bps to 2.83%
(up 132bps).
Long bond yields
surged 20 bps to 2.92%
(up 101bps).
Benchmark Fannie Mae MBS yields
gained eight bps to 3.98% (up 191bps).
Federal Reserve Credit last week
increased $6.7bn to $8.906 TN.
Over the past 135 weeks,
Fed Credit expanded $5.180 TN, or 139%.
US MORTGAGE RATES:
Freddie Mac 30-year fixed mortgage rates
surged 28 bps to 5.00%, back to 5%
for the first time since February 2011
(up 196bps y-o-y).
Fifteen-year rates jumped 26 bps
to a more than three-year high 4.24%
(up 182bps).
Five-year hybrid ARM rates
gained 13 bps to 3.69%
(up 89bps).
Jumbo mortgage 30-year fixed rates
up 18 bps to a decade-high 5.01%
(up 195bps).
COMMODITIES:
Bloomberg Commodities Index
jumped 4.8% (up 33.5% y-t-d).
Spot Gold rose 1.6% to $1,978 (up 8.1%).
Silver gained 3.1% to $25.55 (up 9.6%).
Copper added 0.3% (up 6%).
WTI crude surged $8.69 to $106.95 (up 42%).
Gasoline jumped 8.0% (up 52%)
Natural Gas surged 16.3% (up 96%).
Wheat jumped 4.4% (up 43%)
Corn rose 3.0% (up 32%).
Bitcoin dropped $1,915, or 4.5%,
this week to $40,525 (down 12.6%).
DOUG NOLAND'S COMMENTARY:
(heavily edited)
this week (2-wk gain 48bps)
Thirty-year mortgage borrowing rates jumped 28 bps this week to 5% for the first time since February 2011, having jumped 189 bps so far this year.
Nickel is up 60%,
cotton 26%,
soybeans 27%,
rubber 28% and
zinc 25%.
Meanwhile, March Consumer Prices
were reported up 8.5% y-o-y,
the strongest inflation since 1981.
While Treasury yields are up sharply,
it’s worth noting that the last time
the U.S. experienced 8.5% y-o-y CPI
10-year yields were at 14%.
Even the diehard FOMC doves have found religion,
apparently coming to the realization that inflation
hurts most those that can least afford it.
by a record $41.8 billion.
A revamped Fed policy, with less predictable and generous central bank market support, will require an adjustment in securities ... pricing. Financial assets become riskier, implying lower valuations ... when Federal Reserve policy focus is not directed at sustaining booming asset markets.
NEWS SUMMARY OF LAST WEEK:
Russia / Ukraine Watch:
April 15
– Reuters:
“Russia said its lead warship in the Black Sea sank on Thursday after an explosion and fire that Ukraine claimed was caused by a missile strike, dealing a blow to Moscow as it readied for new attacks that were likely to determine the conflict's outcome. The Moskva, Russia's flagship in its Black Sea fleet, sank as it was being towed to port in stormy weather, Russian news agencies quoted the defence ministry as saying. Russia said earlier that over 500 crew aboard the Soviet-era missile cruiser were evacuated after ammunition on board exploded. Ukraine said it hit the warship with a Ukrainian-made Neptune anti-ship missile.”
April 10
– Reuters:
“Ramzan Kadyrov, the powerful head of Russia's republic of Chechnya, said… that there will be an offensive by Russian forces not only on the besieged port of Mariupol, but also on Kyiv and other Ukrainian cities. ‘There will be an offensive ... not only on Mariupol, but also on other places, cities and villages,’ Kadyrov said... ‘Luhansk and Donetsk - we will fully liberate in the first place ... and then take Kyiv and all other cities.’”
Economic War / Iron Curtain Watch:
April 15
– Reuters:
“Moody's said Russia may be in default because it tried to service its dollar bonds in roubles, which would be one of the starkest consequences to date of Moscow's exclusion from the Western financial system since President Vladimir Putin's invasion of Ukraine. If Moscow is declared in default, it would mark Russia's first major default on foreign bonds since the years following the 1917 Bolshevik revolution…”
April 14
– Wall Street Journal:
“Western leaders seeking to build a global coalition to isolate Russia over its war on Ukraine are facing pushback from the world’s largest developing nations, including the democracies of India, Brazil and South Africa. The resistance, much of it from economic self-interest, limits the pressure on President Vladimir Putin and spotlights factions in the global community that recall the Cold War, when many countries tried to steer clear of the rivalry between the U.S. and Soviet Union.”
U.S. / Russia Watch:
April 13
– Reuters:
“Russia will view U.S. and NATO vehicles transporting weapons on Ukrainian territory as legitimate military targets, Deputy Foreign Minister Sergei Ryabkov told the TASS news agency... Any attempts by the West to inflict significant damage on Russia's military or its separatist allies in Ukraine will be ‘harshly suppressed,’ he added. ‘We are warning that US-NATO weapons transports across Ukrainian territory will be considered by us as legal military targets,’ TASS quoted Ryabkov…”
April 13
– Reuters:
“China's top offshore oil and gas producer CNOOC Ltd. is preparing to exit its operations in Britain, Canada and the United States, because of concerns in Beijing the assets could become subject to Western sanctions, industry sources said. Ties between China and the West have long been strained by trade and human rights issues and the tension has grown following Russia's invasion of Ukraine, which China has refused to condemn. The United States said last week China could face consequences if it helped Russia to evade Western sanctions that have included financial measures that restrict Russia's access to foreign currency and make it complicated to process international payments.”
China / Russia / U.S. Watch
April 10
– Associated Press:
“Russian ally Serbia took the delivery of a sophisticated Chinese anti-aircraft system in a veiled operation this weekend, amid Western concerns that an arms buildup in the Balkans at the time of the war in Ukraine could threaten the fragile peace in the region. Media and military experts said Sunday that six Chinese Air Force Y-20 transport planes landed at Belgrade’s civilian airport early Saturday, reportedly carrying HQ-22 surface-to-air missile systems for the Serbian military.”
Europe / Russia / China Watch:
April 14
– Reuters:
“One of Russian President Vladimir Putin's closest allies warned NATO on Thursday that if Sweden and Finland joined the U.S.-led military alliance then Russia would deploy nuclear weapons and hypersonic missiles in a European exclave. Finland, which shares a 810-mile border with Russia, and Sweden are considering joining the NATO alliance. Finland will decide in the next few weeks, Prime Minister Sanna Marin said… Dmitry Medvedev, deputy chairman of Russia's Security Council, said that should Sweden and Finland join NATO then Russia would have to strengthen its land, naval and air forces in the Baltic Sea. Medvedev also explicitly raised the nuclear threat by saying that there could be no more talk of a ‘nuclear free’ Baltic…”
Mania Watch:
April 13
– Bloomberg:
“The nonfungible token of Jack Dorsey’s first tweet, which sold for $2.9 million last year to Sina Estavi, failed to garner much in the way of interest when it was recently put up for resale, Coindesk reports. The auction for the NFT closed with only seven offers ranging from just 0.0019 Ether to 0.09 ETH, or about $6 to about $280. A far cry from the $48 million sought by the owner.”
April 14
– Bloomberg:
“As top firms shell out millions in the battle for Wall Street’s best and brightest, even interns are seeing their compensation soar. Top global investment banks boosted intern pay by 37.2% for the current internship season from a year earlier, while other large banks are paying 36.9% more, according to… Wall Street Oasis.”
Inflation Watch:
April 12
– Bloomberg:
“U.S. consumer prices rose in March by the most since late 1981… The consumer price index increased 8.5% from a year earlier following a 7.9% annual gain in February… The widely followed inflation gauge rose 1.2% from a month earlier, the biggest gain since 2005.”
April 13
– CNBC:
“The prices that goods and services producers receive rose in March at the fastest pace since records have been kept… The producer price index… increased 11.2% from a year ago, the most in a data series going back to November 2010. On a monthly basis, the gauge climbed 1.4%, above the 1.1% Dow Jones estimate and also a record.”
April 9
– Bloomberg:
“Harvests of some of Ukraine’s most important crops could be cut in half this year, threatening its position as a major exporter and exacerbating already tight global supplies. Russia’s invasion is happening at a crucial time for crops. Ukrainian farmers have just started planting corn and sunflowers, progress of which is being hobbled by field mines and a lack of fuel and fertilizers. For wheat that was sown months before the war, a chunk of the area is occupied by troops.”
April 12
– Associated Press:
“Higher fertilizer prices are making the world’s food supply more expensive and less abundant, as farmers skimp on nutrients for their crops and get lower yields. While the ripples will be felt by grocery shoppers in wealthy countries, the squeeze on food supplies will land hardest on families in poorer countries. It could hardly come at a worse time: The U.N. Food and Agriculture Organization said last week that its world food-price index in March reached the highest level since it started in 1990.”
April 15
– Wall Street Journal:
“Jet fuel, a kerosene-based product akin to diesel fuel, has roughly doubled in price since last April across the U.S…, while gasoline has risen about 45%... Rising jet-fuel costs threaten to strain airlines’ profitability just as resurgent travel demand promised relief from the pandemic’s toll on the industry. They are also frustrating passengers who face eye-watering ticket prices as airlines pass on high fuel prices to their customers.”
April 9
– Bloomberg:
“Highly pathogenic avian influenza has been found in a non-commercial backyard poultry flock in Colorado, the USDA confirmed in a statement on Saturday, amid the worst U.S. outbreak of the virus in seven years.”
April 14
– Bloomberg:
“The prices for processed eggs, which go into everything from salad dressings to cake mix, are soaring to record highs due to bird flu outbreaks in the mid-western U.S. Avian influenza is spreading in flocks around the country at a pace that could make it the worst outbreak in U.S. history. The virus has already taken out 20 million birds and it’s hitting the market for breaker eggs, mostly produced in states like Iowa.”
Biden Administration Watch:
April 13
– Reuters:
“U.S. President Joe Biden announced an additional $800 million in military assistance to Ukraine on Wednesday, expanding the scope of the systems provided to include heavy artillery ahead of a wider Russian assault expected in eastern Ukraine. The package, which brings the total military aid since Russian forces invaded in February to more than $2.5 billion, includes artillery systems, artillery rounds, armored personnel carriers and unmanned coastal defense boats, Biden said…”
U.S. Bubble Watch:
April 12
– Bloomberg:
“Sentiment among U.S. small businesses slid for a third month in March to the one of the lowest levels of the pandemic as soaring cost pressures induced the worst economic outlook on record. The National Federation of Independent Business optimism index declined to 93.2, the lowest since April 2020, from 95.6... The net share of owners expecting better business conditions in the next six months plunged to minus 49%, the lowest in monthly data back to 1986. Some 31% of respondents reported that inflation was their biggest operating challenge in March, up from 26% a month earlier and also the largest share since the mid-1980s. The report showed more firms are having greater success raising selling prices -- 72% in March after 68% in the prior month.”
April 14
– MarketWatch:
“Consumer sentiment in the U.S. unexpectedly rose at the beginning of April as expectations for the economy and personal finances improved, but it remained at decade-low levels. The preliminary estimate… by the University of Michigan stood at 65.7 in April, up from 59.4 in March and beating the 59.0 consensus forecast… Americans' inflation expectations were unchanged in April compared with March. For the year-ahead, consumers expect prices to rise 5.4%...”
April 14
– Wall Street Journal:
“The interest rate on America’s most popular mortgage hit 5% for the first time in more than a decade, extending a sharp rise that has yet to significantly slow the red-hot housing market. Interest on the average 30-year fixed-rate mortgage climbed from 4.72% a week ago to its highest level since early 2011… Fifteen months ago, mortgage rates were at all-time lows… Rates’ fastest three-month increase since 1987 has made the housing market ground zero for the Federal Reserve’s efforts to tame inflation.”
April 13
– Wall Street Journal:
“Global businesses are tallying up tens of billions in losses from their Russian operations as they grapple with the impact of asset sales, shutdowns and sanctions, according to public statements and securities filings. The cost to shareholders of Western companies’ exodus from Russia will become clearer in coming weeks, as companies make their first earnings announcements since the invasion of Ukraine. More than 6oo Western companies have said they would exit or cut back operations in Russia, according to researchers at Yale University.”
Economic Dislocation Watch:
April 14
– Bloomberg:
“Mexican semi-truck exports to the U.S. have slumped 80% in a matter of days as a border blockade to protest Texas Governor Greg Abbott’s stepped-up vehicle inspections drags on. U.S.-bound cargoes are backed up for almost 9 miles at some border crossings, strangling shipments of the tractor units that power 18-wheelers, said Miguel Elizalde, head of the Association of Heavy Vehicle Producers.”
April 14
– Bloomberg:
“China’s network of delivering everything from electronic parts to raw materials to the nation’s factories has nearly ground to a halt as Covid-19 restrictions leave hundreds of thousands of truck drivers caught in a web of quarantine controls. The country relies on its 17.3 million truckers to keep store shelves full while also connecting the nation’s ports with its manufacturing hubs. The logjam is preventing crucial deliveries from reaching companies, stalling production in key industrial regions, with the impact likely to continue rippling across the economy even as cities move to loosen lockdowns.”
China Watch:
April 11
– Wall Street Journal:
“China’s strict Covid-19 lockdowns in Shanghai and other industrial hubs are beginning to weigh on its economy… Car sales in China dropped 10.5% year-over-year in March to 1.58 million vehicles as measures to contain the coronavirus outbreaks halted auto factories, slowed down car shipments and kept consumers from visiting car dealerships, the China Passenger Car Association said…”
April 13
– New York Times:
“Long before the ‘zero Covid’ policy, China had a ‘zero sparrow’ policy. In the spring of 1958, the Chinese government mobilized the entire nation to exterminate sparrows, which Mao declared pests that destroyed crops. All over China, people banged on pots and pans, lit firecrackers and waved flags to prevent the birds from landing so they would fall and die from exhaustion. By one estimation, nearly two billion sparrows were killed nationwide within months. The near extinction of sparrows led to insect infestations, which ruined crops and contributed to the Great Famine, which starved tens of millions of Chinese to death in the next three years. The fear in China now is that the ‘zero Covid’ policy has become another Mao-style political campaign that is based on the will of one person, the country’s top leader, Xi Jinping — and that it could end up hurting everyone.”
April 10
– South China Morning Post:
“Stockpiling has become a hot topic on Chinese social media as news spreads of the plight of Shanghai residents who are struggling to secure food supplies under lock down. Over the past week multiple survivors’ guides have been published by media outlets and bloggers. These include a well-known medical site called Doctor Clove, which published a list of what items people will need if they are suddenly quarantined and advice on storing food for the long term.”
Central Banker Watch:
April 12
– Bloomberg:
“New Zealand’s central bank delivered its biggest interest-rate increase in 22 years, signaling that policy makers around the world may need to step up efforts to get inflation under control. The Reserve Bank’s Monetary Policy Committee lifted the official cash rate by half a percentage point to 1.5%...”
Global Bubble and Instability Watch:
April 13
– Reuters:
“Poor countries face economic ruin from simultaneous crises of food, energy and finance due to supply disruptions caused by Russia's invasion of Ukraine, U.N. Secretary-General Antonio Guterres said… Russia is the world's top exporter of combined oil and gas, and Russia and Ukraine are both major producers of grain, together accounting for around a third of global exports. World commodity prices have hit records, hurting countries that rely on imports. ‘The war is supercharging a three-dimensional crisis - food, energy and finance - that is pummeling some of the world's most vulnerable people, countries and economies,’ Guterres told reporters…”
Europe Watch:
April 13
– Reuters:
“British consumer price inflation leapt to its highest level in three decades last month, intensifying the pressure on embattled Prime Minister Boris Johnson and his finance minister Rishi Sunak… The annual inflation rate climbed to 7.0% in March from 6.2% in February, its highest since March 1992 and by more than expected by most economists…”
Covid Watch:
April 13
– The Hill:
“Nearly 90% of new COVID-19 cases in the United States are now a more transmissible subvariant of omicron known as BA.2… The data… shows that 86% of cases were the BA.2 variant, showing how the variant has risen in the United States to now make up almost all new cases. The BA.2 variant is estimated to be about 30% more transmissible than the original omicron variant, which already spread more easily than earlier variants.”
Environmental Watch:
April 13
– Associated Press:
“A Federal officials say it may be necessary to reduce water deliveries to users on the Colorado River to prevent the shutdown of a huge dam that supplies hydropower to some 5 million customers across the U.S. West. Officials had hoped snowmelt would buoy Lake Powell on the Arizona-Utah border to ensure its dam could continue to supply power. But snow is already melting, and hotter-than-normal temperatures and prolonged drought are further shrinking the lake.”
Geopolitical Watch:
April 15
– Financial Times:
“Two months before its armies invaded Ukraine, Russia published a set of security demands that aimed at a drastic revision of Europe’s post-cold war order. Above all, the Kremlin wanted far-reaching restrictions on Nato’s presence in central and eastern Europe, a region where 14 countries joined the US-led alliance between 1999 and 2020. Two months after its invasion, Russia is learning the historical lesson that wars of choice often bring unexpected and undesirable consequences... Far from crippling Nato, Moscow’s truculent diplomacy and military aggression are making it increasingly plausible that the alliance’s membership will expand from 30 to 32 countries with the admission of Finland and Sweden.”
April 12
– Reuters:
“The USS Abraham Lincoln strike group is operating in waters off the Korean peninsula, the U.S. Navy said…, amid tensions over North Korea's missile launches and concerns that it could soon resume testing nuclear weapons… This is the first time since 2017 that a carrier group has deployed to the waters between South Korea and Japan, and comes as U.S. officials are increasingly concerned that North Korea could carry out an underground nuclear test in the coming days.”
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