For the Week Ending June 10, 2022:
GLOBAL STOCK INDEXES:
S&P500 sank 5.1% (down 18.2% y-t-d)
Dow Industrial fell 4.6% (down 13.6%)
Utilities dropped 4.1% (down 2.0%)
Banks sank 7.8% (down 20.3%)
Transports slumped 7.4% (down 18.9%)
S&P 400 Midcaps fell 4.7% (down 15.4%)
Small cap Russell 2000 stumbled 4.4% (down 19.8%)
Nasdaq100 fell 5.7% (down 27.5%)
Semiconductors sank 7.5% (down 28.2%)
Biotechs dropped 5.3% (down 20.9%).
While gold bullion jumped $20,
the HUI gold index slipped 0.2% (up 1.1%)
U.K.'s FTSE dropped 2.9% (down 0.9% y-t-d).
France's CAC40 sank 4.6% (down 13.5%)
German DAX fell 4.8% (down 13.4%)
Spain's IBEX 35 slumped 3.8% (down 3.7%).
Italy's FTSE MIB sank 6.7% (down 17.5%)
Brazil's Bovespa index dropped 5.1% (up 0.6%)
Mexico's Bolsa fell 4.4% (down 9.0%).
Japan's Nikkei increased 0.2% (down 3.4% y-t-d).
South Korea's Kospi fell 2.8% (down 12.8%).
India's Sensex lost 2.6% (down 6.8%).
China's Shanghai rose 2.8% (down 9.8%).
Turkey's Istanbul National 100 slumped 2.2% (up 36.9%).
Russia's MICEX declined 1.0% (down 39.7%).
US BONDS:
Three-month Treasury bill rates
ended the week at 1.28%.
Two-year government yields
surged 41 bps to 3.065% (up 233bps y-t-d).
Five-year T-note yields
rose 32 bps to 3.26% (up 200bps).
Ten-year Treasury yields
jumped 22 bps to 3.16% (up 165bps).
Long bond yields
rose 11 bps to 3.20% (up 129bps).
Benchmark Fannie Mae MBS yields
surged 38 bps to 4.46% (up 239bps).
Federal Reserve Credit last week
added $1.5bn to $8.881 TN.
Over the past 143 weeks,
Fed Credit expanded $5.154 TN, or 138%.
US MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
jumped 20 bps to 5.23% (up 227bps y-o-y).
Fifteen-year rates
gained six bps to 4.38% (up 215bps).
Five-year hybrid ARM rates
rose eight bps to 4.12% (up 157bps).
Jumbo mortgage 30-year fixed rates
up 20 bps to 5.57% (up 248bps).
CURRENCY:
For the week, the U.S. Dollar Index
jumped 2.0% to 104.15 (up 8.9% y-t-d).
The Chinese (onshore) renminbi declined 0.73%
versus the dollar (down 5.26% y-t-d).
COMMODITIES:
Bloomberg Commodities Index gained 1.2%
(up 36.6% y-t-d).
Spot Gold rose 1.1% to $1,872 (up 2.3%).
Silver slipped 0.2% to $21.89 (down 6.1%).
Copper dropped 4.0% (down 3.8%).
WTI crude oil gained $1.80 to $120.67 (up 60.4%).
Gasoline declined 1.9% (up 87%)
Natural Gas rallied 3.8% (up 137%).
Wheat rose 3.0% (up 39%)
Corn slipped 0.9% (up 21%).
Bitcoin fell $525, or 1.8%,
this week to $29,155 (down 37%).
DOUG NOLAND'S COMMENTARY:
(highly edited)
Eurozone annual CPI reached a record 8.1% in May.
We’ve witnessed this recurring cycle: boom, bust and central bank resuscitation. Repeat. My thesis holds that this is the End of the Line. Resuscitating periphery Bubbles would now require monumental liquidity injections. This liquidity, however, would these days gravitate away from deflating bonds and financial assets – instead disposed to energy, agriculture and other commodity markets - in the process only stoking New Cycle Inflationary Dynamics.
To help us better conceptualize how consumer price inflation could possibly reach a 41-year high of 8.6% last month, look no further than this week’s Federal Reserve Q1 2022 Z.1 “flow of funds” Credit report.
Non-Financial Debt (NFD) expanded at a 10.2% rate during the quarter. Excluding 2020’s extraordinary first-half Covid stimulus period, there has been only one quarter (Q2 2003’s 10.7%) of double-digit NFD growth since 1986.
Total Household Borrowings expanded at an 8.32% rate, the strongest growth since peak housing boom Q2 2007. Household Mortgage borrowings expanded at an 8.62% rate, the high since Q3 ’06. Non-mortgage Consumer Credit grew at an 8.73% pace - strongest in over two decades (Q4 2001).
Over 11 quarters, Fed Assets inflated $4.623 TN, or 115%.
There’s a reality that can’t be denied:
The Fed’s aggressive accommodation of Washington’s historic $9.965 TN 33-month borrowing binge is directly responsible for epic monetary disorder - including historic speculative manias and 40-year-high consumer price inflation.
NEWS SUMMARY:
Bursting Bubble / Mania Watch:
June 6 – Bloomberg:
“From Seattle to Silicon Valley to Austin, a grim new reality is setting in across the tech landscape: a heady, decades-long era of rapid sales gains, boundless jobs growth and ever-soaring stock prices is coming to an end. What’s emerging in its place is an age of diminished expectations marked by job cuts and hiring slowdowns, slashed growth projections and shelved expansion plans. The malaise is damaging employee morale, affecting the industry’s ability to attract talent, and has wide-ranging implications for US economic growth and innovation.”
June 10 – Wall Street Journal:
“Two years ago, Austin real-estate agent Amy Deane, of Moreland Properties, was working with so many wealthy out-of-state buyers that she showed one $15 million house five times in 30 days. Now, she might get one call every other week for showings in that price range. ‘That big buyer pool has slowed down,’ she said. ‘The first movers committed and moved.’ After an epic two-year run—not just in Austin but in major cities around the country—the luxury real-estate market is finally cooling. Real-estate agents in places like New York, Los Angeles, and the Hamptons say the frenzied deal making and record-setting prices that characterized the past few years has eased, thanks to a growing disconnect between what sellers want and what buyers will pay.”
Russia / Ukraine War Watch:
June 7 – Reuters:
“Russian shelling destroyed the warehouses of one of Ukraine's largest agricultural commodities terminals in the Black Sea port of Mykolaiv over the weekend, authorities and the facility's owner and authorities said… The attack came at a time Turkey is trying to develop a U.N.-backed plan to start grain exports from Ukraine's ports, and ahead of meetings… by the foreign ministers of Russian and Turkey to discuss safe shipping.”
June 3 – Newsweek:
“As Russian forces push for territorial gains in eastern Ukraine, they're turning to a military capability they've largely forgone during the war but is expected to give them an edge: electronic warfare. After earlier failing to topple Ukraine's government, Russia's military has focused its offensive on the country's eastern Donbas region… New reporting shows Russian forces are increasingly intercepting the Ukrainian military's communications while jamming navigation and guidance systems. ‘They are jamming everything their systems can reach,’ an official with the Aerorozvidka, a Ukrainian agency that develops unmanned aerial vehicles and other military capabilities, told the Associated Press…”
Economic War / Iron Curtain Watch:
June 8 – Reuters (Tommy Reggiori Wilkes):
“Russia's economy will shrink 15% this year and 3% in 2023 as the hit from Western sanctions, an exodus of companies, a Russian ‘brain-drain’ and collapse in exports wipe out 15 years of economic gains, a global banking industry lobby group said. In its report on the Russian economy…, the Institute of International Finance (IIF) said it did not expect a ceasefire in the war and that it was likely sanctions would be expanded and tightened in the coming months.”
June 7 – Reuters:
“The U.S. Treasury Department has banned U.S. money managers from buying any Russian debt or stocks in secondary markets, on top of its existing ban on new-issue purchases, in its latest sanctions on Moscow over its invasion of Ukraine. Despite Washington's sweeping sanctions in recent months, Americans were still allowed to trade hundreds of billions of dollars worth of assets already in circulation on secondary markets. The Treasury said in guidance… that the ban extends to all Russian debt and that all Russian firms' shares are affected, not just those of ones specifically named in sanctions.”
Europe / Russia / China Watch:
June 8 – Bloomberg:
“Turkey backed Russia’s call for relief from sanctions limiting its exports of fertilizer and farm products but the two nations showed no sign of progress on a deal to unblock shipments of Ukrainian grain that have contributed to global food-supply fears… The Kremlin’s invasion has cut off shipments of grain and other farm products from Ukraine, threatening millions of people… Moscow has denied responsibility for the disruption, blaming Ukraine for refusing to remove mines protecting its harbors from possible Russian attack.”
Inflation Watch:
June 9 – Bloomberg:
“Economists like to strip food and energy out of their inflation calculations. They’re too volatile to be meaningful, they say. But for everyday Americans coping with exploding prices, those items are pretty much all they care about right now. For two straight months, the primary consumer expenses — fuel, power, and grocery-store food — have all been rising at double-digit annual rates for the first time since 1981.”
June 6 – CNBC:
“Social Security beneficiaries saw the biggest cost-of-living adjustment in about 40 years in 2022, when they received a 5.9% boost to their monthly checks. Next year, that annual adjustment may even go as high as 8%, according to early estimates… An 8% COLA would be the highest increase in years, according to Social Security Administration data. The last time the federal agency announced a bigger annual bump was in 1981, when there was an 11.2% increase.”
June 8 – Wall Street Journal:
“Lawn care isn’t only a lot more expensive this season, it’s also harder to find someone to cut your grass. For many landscapers, the three biggest costs to running their business—fuel, labor and equipment—are all surging in price. This means many are now increasing prices for the vast services they offer. The price of lawn-mowing services is up 22.4%, exterior pressure-washing prices rose 20%, and tree trimming increased 9.1% year-over-year as of May, according to… Angi Inc.”
U.S. Bubble Watch:
June 10 – Bloomberg:
“US inflation accelerated to a fresh 40-year high in May, a sign that price pressures are becoming entrenched in the economy… The consumer price index increased 8.6% from a year earlier in a broad-based advance... The widely followed inflation gauge rose 1% from a month earlier, topping all estimates. Shelter, food and gas were the largest contributors. The so-called core CPI… rose 0.6% from the prior month and 6% from a year ago, also above forecasts. The figures dash any hope that inflation had already peaked and was starting to ebb.”
June 10 – Yahoo Finance:
“Consumer sentiment sank to its worst level on record in early June as the rising cost of food, gas, and other essentials weighed on American consumers. The University of Michigan's closely watched Surveys of Consumers consumer sentiment index slumped to 50.2 in the preliminary June survey, marking the lowest level recorded by the survey, which dates back to the mid-'70s… The University of Michigan's data showed consumers anticipate inflation will rise 5.4% over the next year, matching March and April's readings and marking the highest levels since 1981.”
June 8 – MarketWatch:
“The double whammy of surging mortgage rates and skyrocketing home prices has led to ‘collapsed’ housing affordability in America, according to Chris Flanagan's team at Bank of America... The situation has gotten so bad that it now compares to the ‘historically low affordability readings’ in the fourth quarter of 1987 and the first quarter of 2005, according to the B. of A. team. Notably, those years coincide with the ‘Black Monday’ stock market crash of 1987, when the Dow Jones Industrial Average tumbled about 22.6% in a single trading session, and the start of the subprime mortgage crisis as home prices roared higher from 2000 to 2005, and hit a multiyear high in 2006.”
June 6 – CNBC:
“Homeowners are in the money, and it just keeps coming. Two years of rapidly rising home prices have pushed the nation’s collective home equity to new highs. The amount of money mortgage holders could pull out of their homes while still keeping a 20% equity cushion rose by an unprecedented $1.2 trillion in the first quarter of this year, according to… Black Knight, a mortgage software and analytics firm. That is the largest quarterly increase since the company began tracking the figure in 2005. Mortgage holders’ so-called tappable equity was up 34%, or by $2.8 trillion, in April compared with a year ago. Total tappable equity stood at $11 trillion, or two times the previous peak in 2006. That works out to an average of about $207,000 per homeowner.”
June 8 – CNBC:
“Mortgage rates are back on the upswing, after a brief decline in May, and the housing market is still suffering from a lack of listings. As a result, mortgage demand continues to drop. Total mortgage application volume fell 6.5% last week compared with the previous week… Demand hit the lowest level in 22 years… Applications for a mortgage to purchase a home fell 7% for the week and were 21% lower than the same week one year ago. ‘The purchase market has suffered from persistently low housing inventory and the jump in mortgage rates over the past two months. These worsening affordability challenges have been particularly hard on prospective first-time buyers,’ Kan said.”
Economic Disruption Watch:
June 6 – Yahoo Finance:
“Shortages of semiconductors, car parts, and other key items that flow through supply chains are likely to remain for the foreseeable future, Citi warned... ‘Bottom line, we find that supply chain pressures have proved to be more persistent, and apparently deep rooted, than we had expected even a few months ago,’ strategists led by… Nathan Sheets wrote… ‘And the Russia-Ukraine conflict seems to be further amplifying the stresses. Given these realities, any hopes of near-term improvement in supply chain conditions have been shattered. The challenges in the months ahead look to be as acute as at any time over the past two years.’ Inflation, labor shortages, and increased household savings are some of the ongoing headwinds facing supply chains, according to Citi…”
China Watch:
June 6 – Reuters:
“China's services activity contracted for a third straight month in May, pointing to a slow recovery ahead despite the easing of some COVID lockdowns in Shanghai and neighbouring cities, a private business survey showed… The Caixin services purchasing managers' index (PMI) rose to 41.4 in May from 36.2 in April, edging up slightly as authorities began to roll back some of the strict restrictions that have paralysed the financial city of Shanghai and roiled global supply chains… The Caixin survey showed new business, including new export orders, fell for the fourth straight month in May as restrictions on mobility kept customers at home and disrupted operations. That led services firms to reduce their payrolls at a sharper rate…”
June 7 – Bloomberg:
“After two years of record exports, Chinese manufacturers are turning downbeat as consumers in their biggest markets curb spending and Covid lockdowns drive customers to competitors in the region. With most of the world now living with the coronavirus and travel and other leisure activities resuming, consumers are cutting back on spending on Chinese-made laptops, phones and other work-from-home goods that propelled the nation’s exports… On top of that, soaring inflation in the US and Europe means households are tightening their belts… After surging 30% in 2021, exports are likely to grow just 1.6% this year, according to Nomura Holdings Inc. Exports accounted for more than a third of China’s growth last year and 20% in 2020, the bank estimates.”
June 9 – Financial Times:
“Having seemingly successfully beaten back Covid — cases were below 100 last week, in a country of 1.4bn — China announced that it was open for business again. Can it last? Already, the signs are ominous. Shanghai officials this week increased testing capacity and unveiled new lockdown measures, because they found just seven new Covid infections outside of government-mandated quarantine sites. Beijing officials have stated that the threshold for unwinding curbs is zero new community cases for seven consecutive days.”
Global Bubble and Instability Watch:
June 8 – Bloomberg:
“Follow-on share sales in Asia have plunged to their lowest level since the global financial crisis as volatile markets and depressed equities have kept both companies and shareholders on the sidelines. Just $31 billion has been raised by stock offerings in listed companies in Asia this year, the least for any similar period since 2008…”
Japan Watch:
June 6 – Bloomberg:
“Senior Japanese government officials said they were closely watching currency markets with a sense of urgency Tuesday as they returned to a heightened state of alert following a renewed slide in the yen to fresh two-decade lows. ‘It’s important that exchange rates remain stable, and reflect economic fundamentals,’ said Finance Minister Shunichi Suzuki… after the yen breached the 132 mark against the dollar... ‘The government is watching foreign exchange market moves and their impact on the Japanese economy with a sense of urgency.’”
Social and Environmental Instability Watch:
June 6 – Wall Street Journal:
“Americans are deeply pessimistic about the U.S. economy and view the nation as sharply divided over its most important values, according to a new Wall Street Journal-NORC Poll… The survey found Americans in a sour mood and registering some of the highest levels of economic dissatisfaction in years. The pessimism extended beyond the current economy to include doubts about the nation’s political system, its role as a global leader and its ability to help most people achieve the American dream. Some 83% of respondents described the state of the economy as poor or not so good. More than one-third, or 35%, said they aren’t satisfied at all with their financial situation. That was the highest level of dissatisfaction since NORC began asking the question every few years starting in 1972…”
June 6 – Associated Press:
“Two U.N. food agencies issued stark warnings… about multiple, looming food crises on the planet, driven by climate ‘shocks’ like drought and worsened by the impacts of the COVID-19 pandemic and the war in Ukraine… The glum assessment came in a report by two… food agencies: the World Food Program (WFP) and the Food and Agriculture Organization (FAO). WFP Executive Director David Beasley said besides hurting ‘the poorest of the poor’ the global food crises threaten to overwhelm millions of families who are just getting by. ‘Conditions now are much worse than during the Arab Spring in 2011 and 2007-2008 food price crisis, when 48 countries were rocked by political unrest, riots and protests,’ Beasley said… He cited as ‘just the tip of the iceberg’ food crises now in Indonesia, Pakistan, Peru and Sri Lanka.”
June 3 – UPI:
“Crews with a Southern California water district have started installing devices to limit water flow at homes that use too much water. The Las Virgenes Municipal Water District, which serves communities in western Los Angeles County including Calabasas and Agoura Hills, has installed four water flow restrictors since Wednesday, KABC reported.”
Geopolitical Watch:
June 9 – Reuters:
“Iran on Thursday dealt a near-fatal blow to chances of reviving the 2015 Iran nuclear deal as it began removing essentially all the International Atomic Energy Agency monitoring equipment installed under the deal, IAEA chief Rafael Grossi said. Iran had warned of retaliation if the IAEA's 35-nation Board of Governors passed a resolution drafted by the United States, France, Britain and Germany criticising Tehran for its continued failure to explain uranium traces found at undeclared sites. The resolution was passed by a crushing majority late on Wednesday.”
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