Financial Data and News Summary of the week ending April 22, 2022

SOURCE:

http://creditbubblebulletin.blogspot.com/2022/04/weekly-commentary-losing-capacity-to.html

Credit Bubble Bulletin
Weekly Commentary:
Losing Capacity to Stabilize
by Doug Noland

My edited easy to read version follows
Ye Editor

For the Week Ending April 22, 2022:

GLOBAL  STOCK  INDEXES:
S&P500 dropped 2.8% (down 10.4% y-t-d)
Dow Industrial fell 1.9% (down 7.0%)

Utilities slumped 2.7% (up 2.5%).
Transports rallied 1.5% (down 8.6%).
Banks dipped 0.6% (down 12.2%)

S&P 400 Midcaps fell 1.7% (down 9.1%)
Small cap Russell 2000 dropped 3.2% (down 13.6%)
Nasdaq100 sank 3.9% (down 18.2%).

Semiconductors declined 1.3% (down 24.2%)
Biotechs were hammered 6.4% (down 11.4%).

With GOLD bullion dropping $47,
the HUI gold stock index sank 9.3% (up 15.9%)

U.K.'s FTSE declined 1.2% (up 1.9% y-t-d).
France's CAC40 unchanged (down 8.0%)
German DAX slipped 0.2% (down 11.0%).
Spain's IBEX 35 declined 0.5% (down 0.7%).
Italy's FTSE MIB dropped 2.3% (down 11.2%).

Brazil's Bovespa index sank 4.4% (up 6.0%)
Mexico's Bolsa index fell 1.8% (down 0.2%).
Japan's Nikkei little changed (down 5.9% y-t-d).

South Korea's Kospi increased 0.3% (down 9.2%).
India's Sensex dropped 2.0% (down 1.8%).
China's Shanghai sank 3.9% (down 15.2%).

Turkey's Istanbul National 100 down 0.9% (up 33.1%).
Russia's MICEX sank 7.9% (down 41.1%).

US  BONDS:
Three-month Treasury bill rates
ended the week at 0.755%.

Two-year government yields
surged 21 bps to 2.67%
   (up 194bps y-t-d).

Five-year T-note yields
rose 15 bps to 2.93%
   (up 167bps).

Ten-year Treasury yields
gained seven bps to 2.90%
   (up 139bps).

Long bond yields
increased three bps to 2.95%
   (up 104bps)

Fannie Mae MBS yields
surged 18 bps to 4.16%
   (up 209bps).

Federal Reserve Credit last week
expanded $10.1bn to a record $8.916 TN.
Over the past 136 weeks, Fed Credit
expanded $5.190 TN, or 139%.

US  MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
rose another 11 bps to 5.11%,
the high back since December 2009
   (up 214bps y-o-y).

Fifteen-year rates
surged 21 bps to 4.38%
- the high since April 2010
   (up 209bps).

Five-year hybrid ARM rates
gained six bps to 3.75%
   (up 92bps)

Jumbo mortgage 30-year fixed rates
 up 22 bps to a more than decade-high 5.23%
   (up 216bps).

Currency Watch:

April 19
– Bloomberg:
“The yen extended its longest losing streak in at least half a century as traders ignored government warnings about the speed of the currency’s decline, focusing instead on the widening gap between Japanese and U.S. interest rates. Japan’s currency slid for a 13th day against the dollar, the longest run of losses in Bloomberg data starting in 1971…”

COMMODITIES:

April 18
– Bloomberg:
“U.S. natural gas surged to a 13-year high, briefly breaking above $8 for the first time since 2008, as robust demand tests drillers’ ability to expand supplies. Front-month futures closed 7% higher… Monday. The last time prices were this high was August 2008, when hurricanes menaced offshore gas platforms in the Gulf of Mexico and searing summer weather stoked demand for power to run air conditioners.”

April 19
– Bloomberg:
“Corn futures in Chicago exceeded $8 a bushel for the first time in almost a decade, approaching a record high as war threatens global supplies, boosting demand for U.S. grain… Futures are nearing an all-time high of $8.49 a bushel reached in 2012 after devastating drought and heat damaged crops in the U.S. Midwest. Wheat contracts surged as cold and snow slowed planting.”

The Bloomberg Commodities Index
dropped 2.6% (up 30.1% y-t-d).

Spot Gold fell 2.4% to $1,932 (up 5.6%).
Silver sank 5.5% to $24.14 (up 3.6%).
Copper fell 2.9% (up 3%).

WTI crude dropped $4.88 to $102.07 (up 36%).
Gasoline declined 2.3% (up 48%)
Natural Gas sank 10.5% (up 75%).

Wheat declined 2.6% (up 40%)
Corn added 0.7% (up 33%).

Bitcoin lost $878, or 2.1%, this week
to $39,658 (down 14.5%).

DOUG  NOLAND  COMMENTARY:
(highly edited)

It appears the war in Ukraine may take a further turn for the worse. There has been discussion of Russia regrouping for a blitzkrieg in the eastern Donbas region, providing for a swift land grab and claims of triumph in time for Russia’s May 9th “Victory Day” celebration. It appears, however, that Putin has not given up on his designs for a major chunk of Ukrainian territory.

April 22
– Bloomberg:
“A Russian general said the Kremlin’s war in Ukraine aims to secure control of the entire south of the country as well as the eastern Donbas region, according to state news services, as he also suggested the campaign could extend into neighboring Moldova. The push in southeastern Ukraine aims ‘to establish full control over Donbas and southern Ukraine,’ Major General Rustam Minnekayev, acting commander of Russia’s Central Military District, said Friday at a defense industry meeting in Ekaterinburg… ‘This will allow us to ensure a land bridge to Crimea as well as influence key aspects of the Ukrainian economy, Black Sea ports through which agricultural and metallurgical exports go to other countries,’ he said.”

Despite the Kremlin’s warnings, the West will continue to dramatically expand the scope of military support for Kyiv. It appears tanks, artillery, sophisticated drones and advanced weaponry, air defense systems, helicopters, and even fighter aircraft are now flooding into Ukraine. And the longer the conflict rages, the further it will materialize into a proxy war between bitter adversaries the U.S. and Russia. The world fundamentally changed on February 24th - and there’s no turning back.

I’ll assume that a protracted war scenario boosts prospects for overt economic and financial support from Russia’s partner China.

China has its “Covid zero” fiasco. For Japan, it’s BOJ Governor Haruhiko Kuroda’s “JGB zero.” He’s apparently determined to just print as much “money” as necessary to keep Japanese government bond yields near (25bps) zero – while global inflation and bond yields spike ever higher.

The Japanese currency is now down 6%
over the past month and 10.4% year-to-date
– to a 20-year low.

Here in the U.S., conventional 30-year mortgage rates
are already 214 bps higher in 2022 to the high (5.11%)
since December 2009.

 The cover of the new Economist magazine:
“Why the Federal Reserve Has Made
a Historic Mistake on Inflation.”
... my thoughts return to pivotal year 1994
– the last real tightening cycle.

At its core, a belief galvanized that the Fed was willing and able to do whatever was necessary to ensure Credit system stability – regardless of the quantity or quality of Credit creation. It has been my view – especially after the reckless $5 TN pandemic response – that desperate policymakers were precariously exacerbating unwieldy Bubbles. They were losing control.

NEWS  SUMMARY  OF  LAST  WEEK:

Bubble/Mania Watch:

April 21
– Bloomberg:
“If insider stock sales are anything to go by, the heads of some of the largest U.S. oil and gas companies may be signaling that this year’s boom in energy shares is limited. Hess Corp.’s Chief Executive Officer John Hess offloaded $85 million worth of stock in the first quarter… Meanwhile, Marathon Oil Corp. CEO Lee Tillman sold $34.3 million. All told for the period, more U.S. energy executives sold rather than bought stock in their companies than at any time since 2012…”

Inflation Watch:

April 18
– Bloomberg:
“Verizon Communications Inc. is the latest wireless carrier to raise its minimum wage to $20 an hour, reflecting the tighter job market and a push by labor organizers to unionize retail and customer service employees.”

Federal Reserve Watch:

April 21
– Financial Times:
“Jay Powell sent his strongest signal so far that the Federal Reserve is prepared to raise interest rates by half a percentage point at its meeting next month as it steps up efforts to fight soaring inflation. ‘It is appropriate in my view to be moving a little more quickly,’ the chair of the US central bank said at a panel hosted by the IMF. ‘We make these decisions at the meeting and we’ll make them meeting by meeting, but I would say that 50 bps will be on the table for… May.’ Powell’s comments underscore a shift in tone from several Fed officials, who have recently embraced the need for the central bank to take more forceful action to tame the highest inflation in 40 years.”

U.S. Bubble Watch:

April 16
– Wall Street Journal:
“Pessimism about the economy has been on the rise due to surging inflation and falling household income since pandemic-related stimulus programs expired. But the latest round of bank earnings shows that apprehension hasn’t kept Americans from reaching for their credit cards. First-quarter spending was up 23% on Citigroup Inc. credit cards, compared with a year ago. Spending rose 29% on JPMorgan… cards and 33% on Wells Fargo & Co. cards.”

April 19
– Bloomberg:
“New U.S. home construction rose unexpectedly in March to the highest level since 2006, boosted by multifamily projects as builders seek to replenish housing inventory. Residential starts climbed 0.3% last month to a 1.79 million annualized rate from an upwardly revised February figure… Applications to build, a proxy for future construction, climbed to an annualized 1.87 million units. The increase in starts reflected the strongest pace of multifamily home construction since January 2020.”

April 18
– Bloomberg:
“Median pay for top U.S. CEOs rose 31% last year to a record $20 million, a new study found, surging after a slight decline during the COVID-19 pandemic, as companies showered leaders with stock awards and cash bonuses… Equilar director of content Amit Batish said companies looked to reward leaders who steered them through challenges like supply shortages… ‘A lot of these companies did well during the pandemic, that was definitely driving the increases in pay,’ he said.”

April 20
– Reuters:
"The average contract rate on a 30-year fixed-rate mortgage increased to 5.20% in the week ended April 15 from 5.13% a week earlier... It has risen 2 percentage points from one year ago.”

April 17
– Bloomberg:
“History suggests that the Federal Reserve will face a difficult task in tightening monetary policy enough to cool inflation without causing a U.S. recession, with the odds of a contraction at about 35% over the next two years, according to Goldman Sachs… The Fed’s main challenge is to reduce the gap between jobs and workers, and to slow wage growth to a pace consistent with its 2% inflation goal by tightening financial conditions enough to reduce job openings without sharply raising unemployment, Chief Economist Jan Hatzius wrote…”

China Watch:

April 22
– Bloomberg:
“Lockdowns in Shanghai and other cities are taking a heavy toll on activity, high-frequency indicators show. Restrictions are helping contain the virus, but at a steep cost. Mobility and consumption continue to drop, and job worry remains elevated. Subway travel was 43% below the pre-pandemic level in 11 large cities, worsening by 6.5 percentage points from a week earlier. Home sales in major cities were less than half year-earlier levels for a third straight week. Car sales dropped for a second consecutive week by more than 50% versus pre-pandemic numbers… The number of provinces with at-risk areas fell to 14 from 17. Affected provinces now account for about 59% of GDP, down from 73%.”

April 21
– Bloomberg:
“China’s economic activity took a dramatic hit in April, according to a survey of sales managers that offered an early indication of how badly expansive Covid lockdowns weighed on industry... The Sales Managers Index fell to 49.2, a 22-month low, from 51.8 in March, World Economics Ltd. Said... The SMI surveys sales managers across both manufacturing and services sectors… ‘All areas of economic activity appear to have been impacted,’ the… data provider said…, adding that some 49% of survey companies claimed to have been affected by the lockdowns. Business confidence in April ‘all but evaporated,’ with an index measuring all sectors plunging to 50.6 from March’s 53.5, the lowest since February 2020…”

April 19
– Bloomberg:
“China’s property sector contracted for a third straight quarter, a sign that real estate was still dragging on the economy, even before the recent Covid outbreaks and lockdowns began to escalate. Output in the real-estate industry, a key economic contributor, contracted 2% in the first quarter from a year ago, China’s National Bureau of Statistics said... It was the steepest drop among all sectors…”

April 21
– Reuters:
“Shanghai authorities said on Thursday tough restrictions would remain in place for now even in districts which managed to cut COVID-19 transmission to zero, as the number of cases outside quarantined areas across the city rose again. That sober assessment came after health officials earlier in the week had fuelled hopes of some return to normal by saying that trends in recent days showed Shanghai had ‘effectively curbed transmissions’.”

April 22
– Reuters:
“Stiffening resolve after three weeks of strict lockdown, authorities warned Shanghai's 25 million frazzled residents on Friday that their purgatory would go on until the COVID-19 virus was eradicated neighbourhood by neighbourhood. ‘I have no idea whether I will ever be allowed to go out again in my lifetime, I'm falling into depression,’ one user commented on China's Twitter-like Weibo beneath a report by state news agency Xinhua on the latest measures announced in Shanghai…”

Global Bubble and Instability Watch:

April 16
– Financial Times:
“This year’s hawkish change in tack from central banks is close to ending the era of negative-yielding debt, shrinking the global tally of bonds with sub-zero yields by $11tn. Bond prices have tumbled this year as central banks move to end large-scale asset purchases and raise interest rates in their battle with soaring inflation… As a result, bonds worth $2.7tn currently trade at a yield of less than zero, the lowest figure since 2015, and a sharp plunge from more than $14tn in mid-December…”

April 19
– Bloomberg:
“Canadian home sales posted their biggest decline since June as rising interest rates begin to cool the country’s red-hot real estate market. National home sales fell 5.4% in March from the previous month, with new listings also declining by about the same amount, according to… the Canadian Real Estate Association. Despite the decline in activity, benchmark prices still rose 1% on the month and are up 27% from a year ago.”

Europe Watch:

April 20
– Financial Times:
“German producer prices surged at their fastest pace in at least 73 years, raising concerns that the eurozone’s largest economy is at risk of a serious bout of stagflation. Producer prices for industrial products were 30.9% higher in March than they were the same month last year, the sharpest increase since the data series began in 1949. The figures follow downgrades by economists of forecasts for German growth.”

April 20
– Financial Times:
“Rosenthal, one of Germany’s oldest porcelain manufacturers, has seen plenty of disruption in its 140-year history. But nothing has prepared it for this: the threat of a cut-off of natural gas that would bring production of its bone china plates, bowls and vases to an abrupt halt. ‘We can’t live without gas,’ says Mads Ryder, Rosenthal’s chief executive. ‘We don’t have an alternative energy source.’ The war in Ukraine is reordering the global energy landscape. Shocked by the devastation visited on Ukrainian cities by Russian bombs, the EU has imposed sanctions on Russian hydrocarbons. Coal is banned; oil could be next. Gas may also be on the agenda. But talk of a full-scale embargo on Russian energy is spreading panic in Germany, which until the war received 55% of its imported gas from Russia. The fear is that any sudden gas shut-off could paralyse large parts of the country’s industry. Martin Brudermüller, chief executive of the chemicals group BASF, says it would plunge German business into its ‘worst crisis since the second world war’.”

April 21
– Bloomberg:
“U.K. consumer confidence plunged to the lowest since the 2008 recession, with the outlook for their personal finances and the general economy worse than during the depths of the financial crisis.”

Covid  Watch:

April 16
– Wall Street Journal:
“Several million workers who dropped out of the U.S. workforce during the Covid-19 pandemic plan to stay out indefinitely because of persistent illness fears or physical impairments… About three million workforce dropouts say they don’t plan to return to pre-Covid activities—whether that includes going to work, shopping in person or dining out—even after the pandemic ends, according to a monthly survey conducted over the past year… The workforce dropouts tend to be women, lack a college degree and have worked in low-paying fields. The research team has named this phenomenon ‘long social distancing’ and believes it will be one of the lasting scars of the Covid-19 pandemic.”

April 19
– Reuters:
“The BA.2 sub-variant of Omicron and its sublineage BA.2.12.1 is estimated to make up more than 90% of the coronavirus variants in the United States as of April 16, the U.S. Centers for Disease Control and Prevention (CDC) said… Overall cases have dropped sharply nationally since hitting record levels in January, but COVID-19 infections have been on the rise during the last few weeks, particularly in Northeast states like New York, and Connecticut.”

Environmental Instability Watch:

April 18
– Bloomberg:
“Soaring fertilizer costs have rice farmers across Asia scaling back their use, a move that threatens harvests of a staple that feeds half of humanity and could lead to a full-blown food crisis if prices aren’t curbed. From India to Vietnam and the Philippines, prices of crop nutrients crucial to boosting food production have doubled or tripled in the past year alone. Lower fertilizer use may mean a smaller crop. The International Rice Research Institute predicts that yields could drop 10% in the next season, translating to a loss of 36 million tons of rice, or the equivalent of feeding 500 million people.”