Carefully Selected Quotes
by Ye Editor
Credit Bubble Bulletin
Weekly Commentary
by Doug Noland
For the Week Ending April 7, 2022:
GLOBAL STOCK INDEXES:
S&P500 fell 1.3% (down 5.8% y-t-d)
Dow Industrial slipped 0.3% (down 4.5%)
Utilities jumped 2.1% (up 6.7%)
Banks dropped 2.3% (down 9.4%)
Transports slumped 6.7% (down 12.2%)
S&P 400 Midcaps dropped 3.4% (down 7.9%)
Small cap Russell 2000 fell 4.6% (down 11.2%)
Nasdaq100 fell 3.6% (down 12.2%)
Semiconductors sank 7.3% (down 20.9%)
Biotechs gained 1.4% (down 3.9%).
With gold bullion rallying $22,
the HUI gold stock index added 0.4% (up 24.6%).
U.K.'s FTSE jumped 1.7% (up 3.9% y-t-d).
Japan's Nikkei dropped 2.5% (down 6.3% y-t-d)
France's CAC40 fell 2.0% (down 8.5%)
German DAX declined 1.1% (down 10.1%).
Spain's IBEX 35 rose 1.2% (down 1.2%).
Italy's FTSE MIB declined 1.4% (down 9.2%)
Brazil's Bovespa dropped 2.7% (up 12.9%)
Mexico's Bolsa fell 3.4% (up 2.6%).
South Korea's Kospi lost 1.4% (down 9.3%).
India's Sensex added 0.3% (up 2.0%).
China's Shanghai declined 0.9% (down 10.7%).
Turkey's Istanbul National 100 index surged 6.3%
(up 28.8%).
Russia's MICEX sank 6.0% (down 31.5%).
US BONDS:
Three-month Treasury bill rates
ended the week at 0.67%.
Two-year government yields
increased six bps to 2.52% (up 178bps y-t-d).
Five-year T-note yields
rose 20 bps to 2.76% (up 149bps).
Ten-year Treasury yields
surged 32 bps to 2.71% (up 119bps).
Long bond yields
jumped 29 bps to 2.72% (up 82bps).
Benchmark Fannie Mae MBS yields
surged 32 bps to 3.90% (up 183bps).
Federal Reserve Credit last week
dipped $3.4bn to $8.899 TN.
Over the past 134 weeks,
Fed Credit expanded $5.173 TN, or 139%.
US MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
rose five bps to 4.72%,
the high since December 2018
(up 159bps y-o-y).
Fifteen-year rates gained eight bps
to a three-year high 3.91% (up 149bps).
Five-year hybrid ARM rates
increased six bps to 3.56% (up 64bps).
Jumbo mortgage 30-year fixed rates
down eight bps to 4.83% (up 165bps).
COMMODITIES:
Bloomberg Commodities Index rallied 2.0%
(up 27.5% y-t-d).
Spot Gold recovered 1.1% to $1,948 (up 6.5%).
Silver added 0.6% to $24.77 (up 6.3%)
Copper added 0.8% (up 6%).
WTI crude declined $1.01 to $99.28 (up 31%).
Gasoline dipped 0.7% (up 41%)
Natural Gas surged 9.8% (up 68%).
Wheat surged 7.5% (up 37%)
Corn rose 3.5% (up 28%)
Bitcoin sank $3,850, or 8.3%,
this week to $42,335 (down 8.5%).
Doug Noland's Commentary
(highly edited)
Ten-year Treasury bond yields were at 1.73% on March 4th, with yields only 113 bps above the three-month T-bill rate (25bps over 2-yr Treasuries).
Ten-year Treasury yields surged 32 bps this week to a three-year high 2.71%, with the spread versus three-month T-bills up to 182 bps.
Markets have generally been okay with even the prospect of an aggressive rate hike cycle. But when talk shifts to the Fed’s balance sheet, things instantly turn dicey.
... global bond yields are in the throes of a sharp upward adjustment. German bund yields jumped 15 bps this week to a more than four-year high 0.70%, with two-year German yields up 11 bps to the high (0.05%) all the way back to June 2014.
With a big election Sunday, French yields spiked 24 bps to highs (1.25%) since July 2015 (spread to bunds widest since March 2020). Italian yields surged 30 bps to an almost three-year high 2.40%.
With inflation breathing down their necks, the Fed has commenced what markets now anticipate will be the most aggressive tightening cycle since 1994. Additional context is helpful. From my analytical perspective, if Fed hikes meet current market expectations, it would be the FIRST actual tightening cycle since 1994.
... Consumer price inflation has returned with a vengeance to become a critical problem. And it’s amazing to witness the transformation of the Fed “doves”: Inflation actually hurts the least fortunate the most. ... Still, markets believe the Fed has their backs. The Fed has no choice, unless they are willing to risk seeing everything come crashing down.
... I remain skeptical of this tightening cycle’s staying power. It’s also worth noting the unity around the concept of a “neutral rate” – “the rate that neither restricts nor spurs economic growth.” While an interesting theoretical concept, the “neutral rate” does not exist in reality, and thus is a dead end as a guide for policy making. The thought that the Fed can raise rates to the right level to orchestrate a coveted “soft landing” is no more than wishful thinking.
... Beijing has a real mess on its hands. “Zero tolerance” has failed to contain highly transmissible Omicron. Major financial and trade hub Shanghai, with its 25 million citizens, suffers 20,000 new daily cases and is locked down indefinitely. China’s Omicron wave will pass. ... China’s economy was faltering prior to Omicron. Meanwhile, risk to already strained global supply chains appears significant. Covid’s timing continues to utterly amaze. Beijing’s Covid management gloating is coming back to slap them right across in the face.
... The ruble was up 6.3% this week, with Russia’s currency having now recovered the entire huge loss suffered at the start of the war. I couldn’t help but ponder China’s possible stabilizing role. China a few weeks back called the West’s sanctions “outrageous.”
NEWS SUMMARY OF LAST WEEK
Russia / Ukraine Watch:
April 7
– Reuters:
“The United Nations General Assembly on Thursday suspended Russia from the U.N. Human Rights Council over reports of ‘gross and systematic violations and abuses of human rights’ by invading Russian troops in Ukraine. The U.S.-led push garnered 93 votes in favor, while 24 countries voted no and 58 countries abstained.”
Economic War / Iron Curtain Watch:
April 7
– Reuters:
“Russia is facing its most difficult situation in three decades due to unprecedented Western sanctions, but foreign attempts to isolate it from the global economy will fail, Prime Minister Mikhail Mishustin said… Western countries are progressively broadening an array of economic sanctions imposed to try to force Russia to end its military operation in Ukraine and withdraw its forces.”
April 6
– Bloomberg:
“Russian inflation remained high in the last week of March, with prices on foods and household products like soap and toilet paper jumping even as consumer demand was hit by sanctions imposed over the invasion of Ukraine. Consumer prices overall rose 0.99% in the seven days ending April 1, down slightly from 1.16% a week earlier… Prices for sugar rose 5.1% on average in the week, while those for onions jumped by 8%.”
April 5
– Financial Times:
“The US Treasury said it would halt Russia’s ability to make debt payments in dollars through American banks, bringing Moscow a step closer to a possible default on its obligations to international investors. The move by US authorities threatens to bring an end to a period since the invasion of Ukraine nearly six weeks ago in which Moscow has kept up payments on its dollar bonds, confounding many investors’ expectations that western sanctions and Russian currency controls would drive the country into its first sovereign default since 1998. ‘The US Treasury will not permit any dollar debt payments to be made from Russian government accounts at US financial institutions. Russia must choose between draining remaining valuable dollar reserves or new revenue coming in, or default,’ a US Treasury spokesperson said…”
April 6
– Financial Times:
“The US has imposed its most severe level of sanctions on Sberbank, Russia’s largest financial institution, and Alfa-Bank, the country’s biggest private bank, escalating its economic punishment of Moscow in response to atrocities committed by Russian forces in Ukraine. The announcement… of ‘full blocking sanctions’, which prevent the lenders from transacting with any US institutions or individuals, came after top officials including President Joe Biden warned this week that they were planning to impose harsher restrictions... ‘There’s nothing less happening than major war crimes,’ Biden said…”
April 3
– Reuters:
“President Vladimir Putin's rouble payment scheme for natural gas is the prototype that the world's largest country will extend to other major exports because the West has sealed the decline of the U.S. dollar by freezing Russian assets, the Kremlin said. Russia's economy is facing the gravest crisis since the 1991 collapse of the Soviet Union… Putin's main economic response so far was an order on March 23 for Russian gas exports to be paid in roubles… ‘It is the prototype of the system,’ Kremlin spokesman Dmitry Peskov told Russia's Channel One state television... ‘I have no doubt that it will be extended to new groups of goods,’ Peskov said.”
April 5
– Bloomberg:
“Across Ukraine’s farm belt, silos are bursting with 15 million tons of corn from the autumn harvest, most of which should have been hitting world markets. The stockpiles — about half the corn Ukraine had been expected to export for the season — have become increasingly difficult to get to buyers, providing a glimpse into the turmoil Russia’s war has wrought in the approximately $120 billion global grains trade. Already gummed up by supply-chain bottlenecks, skyrocketing freight rates and weather events, markets are bracing for more upheavals as deliveries from Ukraine and Russia — which together account for about a quarter of the world’s grains trade — turn increasingly complicated and raise the specter of food shortages.”
April 6
– Financial Times:
“The value of global trade fell 2.8% between February and March as Russia’s invasion of Ukraine led to a sharp drop in container ship traffic from the two countries, according to the Kiel Institute for the World Economy. The data from the German research body are the first to indicate how much the conflict in Ukraine and extensive sanctions imposed on Russia by the west have hit global trade since the invasion... The biggest impact was on trade with Russia, as the value of imports into the country fell 9.7% in March from the previous month, while exports fell 5%...”
China / Russia / U.S. Watch:
April 4
– Bloomberg:
“China’s top liquefied natural gas importers are cautiously looking to purchase additional Russian shipments that have been shunned by the market in a bid to take advantage of cheap prices. State-owned companies including Sinopec and PetroChina are in discussions with suppliers to buy spot cargoes from Russia at a deep discount, according to people with knowledge of the matter. Some importers are considering using Russian firms to participate in LNG purchase tenders on their behalf to hide their procurement plans from overseas governments, the people said.”
Europe / Russia / China Watch:
April 8
– Bloomberg:
“Ukraine’s natural gas grid warned that transit flows to Europe could be affected as Russia and illegal armed groups are disrupting operations at a key compressor station. Occupiers are interfering with operations at the Novopskov gas compressor station in the Luhansk region, Gas Transmission System Operator of Ukraine said… The infrastructure is key for about a third of Russian gas that Ukraine transits to Europe. The grid warned it will be forced to stop operations at the facility in case it loses control of operations.”
Market Instability Watch:
April 6
– Bloomberg:
“The cost of insuring Russia’s government debt surged to signal a record 99% chance of default within the year after its Finance Ministry paid some of its dollar bonds with rubles. Credit-default swaps insuring $10 million of the country’s notes for one year were quoted at about $7.3 million upfront and $100,000 annually on Wednesday, according to ICE Data Services’ prices...
Inflation Watch:
April 8
– Associated Press:
“Prices for food commodities like grains and vegetable oils reached their highest levels ever last month largely because of Russia’s war in Ukraine and the ‘massive supply disruptions’ it is causing, threatening millions of people in Africa, the Middle East and elsewhere with hunger and malnourishment, the United Nations said… The U.N. Food and Agriculture Organization said its Food Price Index, which tracks monthly changes in international prices for a basket of commodities, averaged 159.3 points last month, up 12.6% from February. As it is, the February index was the highest level since its inception in 1990. FAO said the war in Ukraine was largely responsible for the 17.1% rise in the price of grains, including wheat and others like oats, barley and corn.”
April 4
– Bloomberg:
“U.S. coal prices topped $100 a ton for the first time in 13 years as Russia’s war in Ukraine upends international energy markets and an economic rebound from the pandemic drives up demand for fossil fuels. Prices for coal from Central Appalachia surged 9% to $106.15 a ton last week, the highest since late 2008… Prices in the Illinois Basin rose to $109.55, topping $100 for the first time in records dating to 2005.”
Biden Administration Watch:
April 6
– Politico:
“The U.S. will deploy tougher sanctions against Russia’s largest financial institution and cut off all American investment into the country, in the latest bid to crush Vladimir Putin’s economy over the invasion of Ukraine. The move announced Wednesday freezes all the assets of Sberbank that touch U.S. banks and will prevent Americans from doing business with the institution, which holds nearly one-third of all the assets in Russian banks. The bank is at the center of Russia’s financial system, and efforts to damage it are likely to send tremors through the nation’s economy.”
U.S. Bubble Watch:
April 7
– Bloomberg:
“U.S. consumer borrowing surged in February by the most on record, reflecting out sized increases in both credit-card balances and non-revolving loans. Total credit jumped $41.8 billion from the prior month after a revised $8.9 billion gain in January… The increase exceeded all estimates... On an annualized basis, borrowing rose 11.3%. Revolving credit outstanding, which includes credit cards, rose $18 billion. Non-revolving credit, which includes auto and school loans, increased $23.8 billion. Both advances were among the biggest on record.”
April 7
– Wall Street Journal:
“In a bid to keep its supply chain running smoothly, Walmart Inc. is raising wages for in-house truck drivers and expanding a program that trains its existing workers to become drivers. Walmart is raising starting salaries for its truck drivers to between $95,000 and $110,000 a year, up from an average starting salary of $87,000…”
April 7
– CNBC:
“The labor market tightened further last week, with initial jobless claims falling to their lowest level in more than 53 years… Initial filings for unemployment dropped to 166,000, well below the Dow Jones estimate of 200,000 and 5,000 under the previous week’s total, which was revised sharply lower.”
Economic Dislocation Watch:
April 6
– Bloomberg:
“Congestion at ports in China and elsewhere around the world is grid locking about 10% of the global container-ship fleet, according to shipping line Ocean Network Express. Ships are ‘locked up waiting in congested areas’ and are burning lots of fuel, Jeremy Nixon, the chief executive officer of ONE, said… ‘If we can release that bottleneck, we can get services back on schedule again.’ The world’s fleet consisted of 5,587 ships carrying 24.7 million TEUs of containers last year… That would mean more than 500 ships are being held up in queues at ports…”
China Watch:
April 6
– Financial Times:
“China’s strict Covid lockdowns are exacerbating serious shortages of fertiliser, labour and seeds, just as many of the country’s biggest agricultural provinces prepare for their crucial spring planting season. According to official data, as many as a third of farmers in northeastern Jilin, Liaoning and Heilongjiang provinces have insufficient agricultural inputs after authorities sealed off villages to fight the pandemic. The three provinces account for more than 20% of China’s grain production. A drop in output of Chinese spring-planted grains, such as rice or corn, could undermine Beijing’s decades-long effort to achieve self-sufficiency in staple foods, forcing it to increase imports and potentially adding to global food price inflation.”
Europe Watch:
April 4
– Reuters:
“Investor morale in the euro zone fell to its lowest level in nearly two years in April, a survey showed…, pointing to the beginning of a recession in the second quarter of 2022… A current conditions index fell to -5.5 from 7.8, its lowest level since April last year, while an expectations index fell to -29.8 from -20.8, its lowest level since December 2011.”
Emerging Markets Bubble Watch:
April 4
– Bloomberg:
“Turkish inflation soared to a fresh two-decade high in March, leaving the lira increasingly vulnerable by depriving the currency of a buffer against market selloffs. Consumer prices rose an annual 61.1% last month… up from 54.4% in February. Annual producer inflation was in triple digits for a second month and the core index of prices, which excludes food and energy items, increased more than forecast to over 48% from a year earlier.”
Japan Watch:
April 6
– Bloomberg:
“A weaker yen has long been considered a boon for Japan’s economy, helping blue-chip exporters such as Toyota Motor Corp. But that narrative is increasingly in question as the yen’s recent plunge aggravates the impact of surging commodity prices, hitting some businesses and consumers much harder than before. ‘The negative effects, or the risks from the weaker yen we’re now seeing, are unprecedented,’ said Eiji Hashimoto, chairman of the Japan Iron and Steel Federation.”
April 7
– Bloomberg:
“In most of the world, exchange-traded funds are simply tools that allow investors to track a certain set of stocks. In Japan, they’ve been saddled with everything from propping up the market and boosting inflation, to accelerating economic growth, improving corporate governance and even encouraging gender equality. Such wide-ranging goals have led the Japanese central bank to amass a whopping 80% of the country’s ETFs—equivalent to about 7% of its $6 trillion stock market—in less than a decade… The Bank of Japan has also outpaced peers with its $3.7 trillion in net bond purchases.”
Social Instability Watch:
April 6 – Bloomberg:
“Major crime in New York City rose by 36.5% in March from a year ago despite Mayor Eric Adams’s efforts to reduce a spike of incidents that have persisted since the pandemic began. Citywide shooting incidents increased by 16.2%... The number of homicides fell 15.8% from a year ago, robberies rose by 48.4% and burglaries jumped by 40%...”
Leveraged Speculation Watch:
April 4
– Financial Times:
"‘Chase’ Coleman’s flagship hedge fund at Tiger Global, the biggest and most successful of Julian Robertson’s protégés, lost a thumping 34% in the first three months of 2022. Given that Tiger lost 7% in 2021, this means Coleman’s entire 48% gain in 2020 — which personally netted Coleman an estimated $2.5bn — has evaporated, and then some.”
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