Financial Data and Economic News for the weel ending June 25, 2022

 SOURCE:

Credit Bubble Bulletin : Weekly Commentary: Calm Before the Storm

Credit Bubble Bulletin
by Doug Noland

June 25, 2022

Following is my edited easy to read version
Ye Editor

For the Week Ending June 25, 2022:

STOCK INDEXES:

S&P500 rallied 6.4% (down 17.9% y-t-d)

Dow Industrials rose 5.4% (down 13.3%)

Utilities recovered 7.4% (down 4.3%)

Banks gained 4.5% (down 20.5%)

Transports advanced 5.3% (down 17.8%)

S&P 400 Midcaps rose 5.1% (down 17.9%)

Small cap Russell 2000 jumped 6.0% (down 21.4%). 

Nasdaq100 surged 7.5% (down 25.8%)

Semiconductors gained 5.4% (down 31.1%)

Biotechs jumped 8.7% (down 14.1%). 

With gold bullion down $13, the HUI gold stock index 

declined 1.5% (down 8.1%).

U.K.'s FTSE rallied 2.7% (down 2.4% y-t-d).

Japan's Nikkei gained 2.0% (down 8.0% y-t-d). 

France's CAC40 rose 3.2% (down 15.1%)

German DAX was little changed (down 17.4%). 

Spain's IBEX 35 increased 1.2% (down 5.4%). 

Italy's FTSE MIB rose 1.5% (down 19.1%). 

Brazil's Bovespa declined 1.2% (down 5.9%)

Mexico's Bolsa slipped 0.6% (down 10.4%). 

South Korea's Kospi dropped 3.0% (down 20.5%). 

India's Sensex rallied 2.7% (down 9.5%). 

China's Shanghai gained 1.0% (down 8.0%). 

Turkey's Istanbul National 100 up 0.8% (up 37.5%).

 Russia's MICEX rose 1.6% (down 36.9%).

US  BONDS:

Three-month Treasury bill rates ended the week at 1.6025%. 

Two-year government yields 
fell 12 bps to 3.07% (up 233bps y-t-d). 

Five-year T-note yields dropped 16 bps to 3.19% (up 192bps). 

Ten-year Treasury yields 
declined nine bps to 3.14% (up 162bps). 

Long bond yields slipped two bps to 3.26% (up 136bps). 

Benchmark Fannie Mae MBS yields 
sank 15 bps to 4.51% (up 244bps).

Federal Reserve Credit last week increased $7.976bn to $8.901 TN. Over the past 145 weeks, Fed Credit expanded $5.174 TN, or 139%. 

US  MORTGAGE  RATES:
Freddie Mac 30-year fixed mortgage rates added three bps to 5.81% (up 279bps y-o-y) - the high since November 2008. 

Fifteen-year rates jumped 11 bps to 4.92% (up 258bps) to the high since June 2009. 

Five-year hybrid ARM rates rose eight bps to 4.41% (up 188bps) - the high back to October 2009. 

Jumbo mortgage30-year fixed rates down 12 bps to 5.77% (up 263bps).

CURRENCY:

For the week, the U.S. Dollar Index declined 0.5% to 104.12 (up 8.8% y-t-d). 

The Chinese (onshore) renminbi increased 0.40% versus the dollar (down 4.99% y-t-d).

COMMODITIES:

Bloomberg Commodities Index fell 4.3% (up 22.3% y-t-d).

Spot Gold slipped 0.7% to $1,827 (unchanged). 

Silver declined 2.3% to $21.16 (down 9.2%). 

WTI crude fell $1.94 to $107.62 (up 43%). 

Gasoline rose 2.4% (up 74%)

Natural Gas sank 10.4% (up 67%). 

Copper slumped 7.1% (down 16%). 

Wheat sank 10.5% (up 22%)

Corn dropped 7.8% (up 14%). 

Bitcoin recovered $750, or 3.6%, 
this week to $21.277 (down 54%).

DOUG  NOLANDS  COMMENTARY:

(highly edited)

Is the market bottom in, or is this more a replay of the fleeting Q1 quarter-end bear market rally? 

Does the sharp commodities market reversal and some weaker data take pressure off the Fed and global central bank community? 

Jumping 6.4%, the S&P500 more than recovered the previous week’s big loss. The Nasdaq Biotech Index surged 14.0%, while the Nasdaq Industrials rose 9.0%. The Nasdaq100 rallied 7.5%, the Utilities 7.4%, and the Biotechs 8.7%.

The Bloomberg Commodities Index dropped another 4.3%, with a two-week loss of 10.4%. 

Natural Gas’s 10.4% drop boosted its two-week collapse to almost 30%. 

The Goldman Sachs Most Short Index surged 11.2% this week. Okta spiked 22.5%, Etsy 16.0%, Norwegian Cruise Lines 15.7%, Lucid Group 15.5%, Docusign 13.5%, and Moderna 12.7%. The S&P Retail ETF jumped 7.3%. The S&P500 Automobile Manufacturing Index surged 14.4%.

The ECB’s balance sheet was less than $3 TN when Draghi unleashed “whatever it takes” inflationism. Numerous QE-style programs later, and assets are approaching $8 TN. 

NEWS   SUMMARY:

Market Instability Watch:

June 21 – Bloomberg:

“Corporate distress in Europe’s biggest markets is near a two-year high as inflation and higher interest rates squeeze indebted firms. Companies in Germany, the UK, France, Spain and Italy are the most distressed since August 2020, according to the Weil European Distress Index. The study aggregates data from more than 3,750 listed European firms. ‘If this upward trajectory continues, we would expect to see increased pressure on liquidity and further tightening across the credit markets with some businesses struggling to access finance and ultimately facing defaults,’ said Neil Devaney…, co-head of Weil, Gotshal & Manges’s London restructuring practice.”

Bursting Bubble/Mania Watch:

June 23 – Wall Street Journal:

The S&P 500 index is close to notching its worst first half in decades, yet individual investors have still purchased a net $24 billion worth of U.S. stocks over the past month, in line with the average of the past two years, according to… VandaTrack. Even purchases of single equities, which are typically more susceptible to shifts in sentiment than those of exchange-traded funds, have remained robust, unlike during the Covid-19 selloff in February 2020 and the late-2021 rout.”

June 21 – Reuters: 

“Recent implosions in the cryptocurrency markets indicate that long-warned-about dangers of decentralised digital money are now materialising, the Bank for International Settlements has said. The BIS, the global umbrella body for central banks, sounded the warning in an upcoming annual report, in which it also urged more effort in developing appealing central bank digital currencies. BIS general manager Agustin Carstens pointed to recent collapses of the TerraUSD and luna 'stablecoins', and a 70% slump in bitcoin, the bellwether for the crypto market, as indicators that a structural problem exists.”

June 18 – Bloomberg:

“So far 2022 has been a year where just about everyone on Wall Street got it wrong. As did the Fed and a cadre of global central banks. Back in December, strategists at the world’s top investment firms like JPMorgan… predicted the S&P 500 would gain 5% in 2022. Economists saw the U.S. 10-year Treasury yield hitting 2% on average by the year’s end. And even Goldman Sachs… lent credibility to the claims Bitcoin was on track to hit $100,000. Yet six months later, an unprecedented confluence of shocks has ended one the most powerful equity bull markets and sent safe-haven government bonds and other assets spiraling. The S&P 500 is down 23%, 10-year rates stand at 3.23% and Bitcoin has shed more than half its value.”

Russia/Ukraine War Watch:

June 22 – Bloomberg:

“Infrastructure owned by two major agriculture traders was damaged in Russian attacks at one of the biggest crop-handling ports in Ukraine, adding to the mounting losses suffered by its farm sector. Rocket strikes on the Ukrainian port city of Mykolayiv on Wednesday damaged a terminal owned by agricultural trader Viterra, and the site is on fire, a company spokesperson said. Bunge Ltd. also said one of its facilities was hit and a city rescue brigade was at the site.”

Economic War/Iron Curtain Watch:

June 23 – Bloomberg: 

“Russia said international sanctions have created a ‘force-majeure’ situation that’s forced it to switch to servicing its eurobonds in rubles in a bid to avoid a default. Finance Minister Anton Siluanov likened the government’s predicament to a ‘farce,’ in which it has the money and the intention of paying, but its hard currency can’t pass through the international settlement system due to sanctions over the invasion of Ukraine. ‘Overseas counter-agents have refused to make payments in foreign currencies, which for us is a force-majeure situation,’ Siluanov said… ‘And it’s purely for this reason that we are switching to payments in rubles.’”

June 23 – Bloomberg:

“Germany warned that Russia’s moves to slash Europe’s natural gas supplies risked sparking a collapse in energy markets, drawing a parallel to the role of Lehman Brothers in triggering the financial crisis. With energy suppliers piling up losses by being forced to cover volumes at high prices, there’s a danger of a spillover effect for local utilities and their customers, including consumers and businesses, Economy Minister Robert Habeck said… after raising the country’s gas risk level to the second-highest ‘alarm’ phase. ‘If this minus gets so big that they can’t carry it anymore, the whole market is in danger of collapsing at some point,’ Habeck said… ‘So a Lehman effect in the energy system.’”

China/Russia/U.S. Watch:

June 19 – Reuters:

“China's crude oil imports from Russia soared 55% from a year earlier to a record level in May, displacing Saudi Arabia as the top supplier… Imports of Russian oil… totalled nearly 8.42 million tonnes, according to data from the Chinese General Administration of Customs.”

Europe/Russia/China Watch:

June 21 – Financial Times:

“Russia has threatened Lithuania with serious consequences if the Baltic country prevents it from exporting EU-sanctioned goods to the exclave of Kaliningrad by rail. Nikolai Patrushev, Russia’s security council secretary and one of President Vladimir Putin’s closest confidants, said during a trip to Kaliningrad… that Russia would ‘react to such hostile actions’ after Lithuania began enforcing the sanctions. Patrushev warned that ‘appropriate measures’ would be ‘taken in the near future’, adding that ‘their consequences will have serious negative influence on the population of Lithuania’… Russia accused the EU of starting a ‘blockade’ of Kaliningrad after Lithuania, which controls the only overland rail route linking the exclave to mainland Russia via Belarus, began restricting the transit of goods under EU sanctions over Russia’s war in Ukraine.”

Inflation Watch:

June 21 – Wall Street Journal:

“The relentless climb in U.S. home values continued in May, when median prices shot above $400,000 for the first time while sales activity slowed under pressure from higher mortgage costs. Rapidly rising interest rates are rippling through U.S. markets… But home-buying demand continues to exceed unusually low levels of supply and propel prices higher. The median existing-home price rose 14.8% in May from a year earlier to $407,600, a record high in data going back to 1999…”

June 18 – Bloomberg:

“A shortage of popular food items from popcorn to sriracha is hitting restaurants and grocery shelves this summer, a sign that the world’s immense supply chains are still under pressure. Over the past few months, many seemingly random foods have become wildly expensive or unusually hard to find. These include lettuce in Australia, onions and salami in Japan and even bottled beer in Germany, sending businesses scrambling to find alternatives to feed their customers.”

Federal Reserve Watch:

June 22 – Yahoo Finance:

“Policymakers at the Federal Reserve are beginning to entertain the possibility of recession, as high inflation pushes the central bank to raise interest rates at the fastest pace in decades. ‘It’s certainly a possibility,’ Fed Chairman Jerome Powell told the Senate Banking Committee… The change in tone underscores seeming concern within the Fed that the cost of lowering inflation may be a drop-off in economic growth and potential job losses. ‘We could have a couple of negative quarters’ of economic growth, Philadelphia Fed President Patrick Harker told Yahoo Finance…”

U.S. Bubble Watch:

June 23 – Bloomberg: 

“US business activity took a decisive step back in June as rapid inflation reduced demand for services and led to outright contractions in factory orders and production. The S&P Global flash June composite purchasing managers index slid 2.4 points to 51.2… While still above 50, and therefore indicating growth, the reading was the second weakest since July 2020… Businesses also downgraded their expectations about the economy’s prospects in the coming year against a backdrop of high inflation, rising interest rates, slower demand and lingering supply-chain concerns.”

June 23 – Bloomberg: 

“Mortgage rates in the US climbed again, hovering near a 14-year high. The average for a 30-year loan was 5.81%, up from 5.78% last week, Freddie Mac said…”

June 21 – CNBC: 

“Sales of existing homes in May dropped 3.4% to a seasonally adjusted annualized rate of 5.41 million units… Sales were 8.6% lower than in May 2021. April’s sales were revised slightly lower as well. This is the weakest reading since June 2020…There were 1.16 million homes for sale at the end of May, an increase of 12.6% month to month but still down 4.1% from May 2021. At the current sales pace, that represents a 2.6-month supply. Low supply continued to push home prices higher. The median price of a house sold in May was $407,600, an increase of 14.8% from May 2021. That is the highest price on record since the Realtors began tracking it in the late 1980s.”

June 20 – Bloomberg:

“Former Treasury Secretary Lawrence Summers said the US jobless rate would need to rise above 5% for a sustained period in order to curb inflation that’s running at the hottest pace in four decades. ‘We need five years of unemployment above 5% to contain inflation -- in other words, we need two years of 7.5% unemployment or five years of 6% unemployment or one year of 10% unemployment,’ said Summers said... ‘There are numbers that are remarkably discouraging relative to the Fed Reserve view.’”

China Watch:

June 22 – Bloomberg: 

“While global attention is focused on the economic impact of coronavirus lockdowns in Shanghai and Beijing, the slump in China’s housing market is likely to have even more profound implications. An official index that tracks apartment and house sales has posted year-on-year declines for 11 months straight—a record since China created a private property market in the 1990s. With demand for services and commodities generated by housing construction and sales accounting for about 20% of gross domestic product, that represents a big drag on growth... ‘This is the worst property downturn on record,’ says Lu Ting, chief China economist at Nomura... The length of the drop exceeds those in 2008 and 2014 that reverberated through global commodity markets by curbing Chinese demand for imported steel and copper.”

June 23 – Reuters: 

“Heatwaves in northern and central China drove up electricity demand to record levels as millions switched on air conditioners to escape the sweltering conditions, while floodwaters in the south submerged villages and trapped city residents. On Wednesday, China's meteorological administration issued orange alert warnings for high temperatures in regions across the provinces of Shandong, Henan and Hebei. Several cities in Shandong, China's second-most populous province, have issued ‘red alert’ high temperature warnings… Temperatures in the regions were expected to hit above 40 Celsius (104 Fahrenheit) this week, according to the state weather forecaster.”

Global Bubble and Instability Watch:

June 22 – Reuters: 

“Canadian consumer prices increased in May at rates not seen since January 1983…, upping pressure on the central bank to follow the U.S. Federal Reserve with a supersized rate hike. Canada's annual inflation rate accelerated to 7.7% in May, galloping past April's 6.8% and analyst forecasts of 7.4%... Inflation is far above Bank of Canada's April forecast that it would average 5.8% this quarter.”

Europe Watch:

June 23 – Bloomberg: 

“Euro-area economic expansion slowed sharply as surging prices curbed the rebound from pandemic restrictions and factories continued to suffer from supply snarls. An indicator for economic activity by S&P Global fell to a 16-month low in June… While the overall gauge still signals modest expansion, manufacturing output declined for the first time in two years. ‘Economic growth is showing signs of faltering as the tailwind of pent-up demand from the pandemic is already fading, having been offset by the cost-of-living shock and slumping business and consumer confidence,’ S&P Global economist Chris Williamson said…”

June 23 – Reuters:

“Germany triggered the ‘alarm stage’ of its emergency gas plan… in response to falling Russian supplies but stopped short of allowing utilities to pass on soaring energy costs to customers in Europe's largest economy… We must not fool ourselves: ‘The cut in gas supplies is an economic attack on us by… Putin,’ Economy Minister Robert Habeck said... Gas rationing would hopefully be avoided but cannot be ruled out, Habeck said and warned: ‘From now on, gas is a scarce commodity in Germany ... We are therefore now obliged to reduce gas consumption, now already in summer.’”

Covid Watch:

June 22 – Reuters: 

“Nearly 1 in 5 American adults who reported having COVID-19 in the past are still having symptoms of long COVID, according to survey data collected in the first two weeks of June, U.S. health officials said… Overall, 1 in 13 adults in the United States have long COVID symptoms lasting for three months or more after first contracting the disease, and which they did not have before the infection…”

Geopolitical Watch:

June 20 – Reuters: 

“Iran is escalating its uranium enrichment further by preparing to use advanced IR-6 centrifuges at its underground Fordow site that can more easily switch between enrichment levels, a United Nations nuclear watchdog report… showed. The move is the latest of several steps Iran had long threatened to take but held off carrying out until 30 of the 35 countries on the International Atomic Energy Agency's Board of Governors backed a resolution this month criticizing it for failing to explain uranium traces found at undeclared sites.”