SOURCE:
Credit Bubble Bulletin : Weekly Commentary: Pondering Modern-Day Runs
Friday, July 1, 2022
Credit Bubble Bulletin
Weekly Commentary:
by Doug Noland
My edited easy to read version follows
Ye Editor
For the Week Ending July 1, 2022:
GLOBAL STOCK INDEXES:S&P500 fell 2.2% (down 19.7% y-t-d)
Dow industrials declined 1.3% (down 14.4%).
Utilities surged 4.2% (down 0.3%).
Banks lost 2.4% (down 22.4%),
Transports fell 1.9% (down 19.4%).
S&P 400 Midcaps declined 1.6% (down 19.2%)
Small cap Russell 2000 fell 2.2% (down 23.1%)
Nasdaq100 dropped 4.3% (down 29.0%)
Semiconductors sank 9.6% (down 37.7%)
Biotechs were little changed (down 14.0%).
With gold bullion down $20,
the HUI gold stock index fell 4.6% (down 12.3%).
U.K.'s FTSE slipped 0.6% (down 2.9% y-t-d).
Japan's Nikkei fell 2.1% (down 9.9% y-t-d).
Japan's Nikkei fell 2.1% (down 9.9% y-t-d).
France's CAC40 tumbled 2.2% (down 17.1%).
German DAX lost 2.3% (down 19.3%).
Spain's IBEX 35 dipped 0.8% (down 6.2%).
Italy's FTSE MIB dropped 3.5% (down 21.9%)
Brazil's Bovespa increased 0.3% (down 5.6%)
Mexico's Bolsa was little changed (down 10.3%).
South Korea's Kospi dropped 2.6% (down 22.6%).
India's Sensex increased 0.3% (down 9.2%).
China's Shanghai Exchange gained 1.1% (down 6.9%).
Turkey's Istanbul National 100 index slumped 4.3% (up 31.6%).
Russia's MICEX sank 7.7% (down 41.7%).
US BONDS:
US BONDS:
Three-month Treasury bill rates ended the week at 1.61%.
Two-year government yields dropped 23 bps to 2.84%
(up 210bps y-t-d).
Five-year T-note yields sank 31 bps to 2.88% (up 162bps).
Ten-year Treasury yields fell 25 bps to 2.88% (up 137bps).
Long bond yields declined 16 bps to 3.11% (up 120bps).
Benchmark Fannie Mae MBS yields dropped 26 bps to 4.25%
(up 218bps).
Federal Reserve Credit last week declined $11.2bn to $8.890 TN.
Federal Reserve Credit last week declined $11.2bn to $8.890 TN.
Over the past 146 weeks, Fed Credit expanded $5.163 TN, or 139%.
US MORTGAGE RATES:
Freddie Mac 30-year fixed mortgage rates
dropped 11 bps to 5.70% (up 272bps y-o-y).
Fifteen-year rates fell nine bps to 4.83% (up 257bps).
Five-year hybrid ARM rates rose nine bps to 4.50%
(up 18bps) - the high back to September 2009.
Jumbo mortgage 30-year fixed rates
down 11 bps to 5.78% (up 270bps).
Currency Watch:
For the week, the U.S. Dollar Index
Currency Watch:
For the week, the U.S. Dollar Index
increased 0.9% to 105.11 (up 9.9% y-t-d).
The Chinese (onshore) renminbi slipped 0.17%
versus the dollar (down 5.15% y-t-d).
Commodities Watch:
Bloomberg Commodities Index slumped 3.4% (up 18.1% y-t-d).
Commodities Watch:
Bloomberg Commodities Index slumped 3.4% (up 18.1% y-t-d).
Spot Gold declined 1.1% to $1,827 (down 1.2%).
Silver dropped 6.2% to $19.85 (down 14.8%).
WTI crude added 79 cents to $108.41 (up 44%).
Gasoline dropped 5.6% (up 65%)
Natural Gas sank 8.4% (up 53%).
Copper fell 3.4% (down 19%).
Wheat sank 10.2% (up 9%)
Corn dropped 9.9% (up 2%).
Bitcoin sank $1,700, or 8.0%,
this week to $19,570 (down 58%).
DOUG NOLAND COMMENTARY:
(highly edited)
“S&P 500 Closes the Book on its Steepest First-Half Slide Since 1970.” “Markets Post Worst First Half of a Year in Decades.” “Biggest Forex Rout Since ‘97 Puts Asia Central Banks in Bind.” “This was the Worst First Half for the Market in 50 Years and It’s All Because of One Thing — Inflation.”
Surging consumer inflation may have been the catalyst, but the unfolding crisis has been decades in the making.
Surging consumer inflation may have been the catalyst, but the unfolding crisis has been decades in the making.
I’ll take exception with just a snippet from the opening quote from Sergey Alifanov: “The fractional reserve system… continues to remain status quo.” In the late-nineties, I began referring to the “infinite multiplier effect.” Market-based Credit had started proliferating outside the banking system, completely free from reserve and capital requirement constraints. Subtly, key systemic risk was shifting from banking system impairment to Bubbles and inevitable runs on market-based instruments. This risk has been masked for years by central bank inflationism. ... What was to unfold over three decades was nothing short of history’s greatest period of Credit and speculative excess. Now the dreadful downside. Virtually everyone seems unaware of the extraordinary challenges ahead.
Commodities markets remain under heavy selling pressure.
Commodities markets remain under heavy selling pressure.
Copper is down 19% in four weeks, tin 24%, nickel 22%, zinc 14%,
lead 13%, and aluminum 12%.
The simple explanation has markets responding to heightened recession risk.
The simple explanation has markets responding to heightened recession risk.
The world is now in a serious de-risking/deleveraging episode,
without the prospect of timely central bank liquidity injections.
As I have repeatedly posited, contemporary finance does not function well in reverse. The confluence of rising market yields, widening spreads, and surging CDS/derivatives prices is problematic for highly levered global securities markets.
The Run on crypto assets is said not to pose general financial system risk. Perhaps that’s true, but it is likely a harbinger of what’s to come throughout the risk markets.
As I have repeatedly posited, contemporary finance does not function well in reverse. The confluence of rising market yields, widening spreads, and surging CDS/derivatives prices is problematic for highly levered global securities markets.
The Run on crypto assets is said not to pose general financial system risk. Perhaps that’s true, but it is likely a harbinger of what’s to come throughout the risk markets.
NEWS SUMMARY
Market Instability Watch:
June 27 – Bloomberg (Emily Nicolle and Olga Kharif): “
As Bitcoin slipped almost 70% from its record high, a panoply of altcoins also plummeted. The collapse of the Terra ecosystem — a much-hyped experiment in decentralized finance — began with its algorithmic stablecoin losing its peg to the US dollar, and ended with a bank run that made $40 billion of tokens virtually worthless. Crypto collateral that seemed valuable enough to support loans one day became deeply discounted or illiquid, putting the fates of a previously invincible hedge fund and several high-profile lenders in doubt.”
June 27 – Bloomberg (Swati Pandey): “The list of emerging-markets countries facing debt distress is quickly mounting as global interest rates rise, according to World Bank Group Chief Economist Carmen Reinhart. ‘With the low income countries, debt risks and debt crises are not hypothetical. We’re pretty much already there,’ Reinhart told Bloomberg... ‘Debt crises need to be resolved through meaningful debt reduction. If not, it’s a band-aid and it’s a band-aid that wears off very quickly.’”
Bursting Bubble/Mania Watch:
June 30 – Wall Street Journal (Akane Otani): “Global markets closed out their most bruising first half of a year in decades, leaving investors bracing for the prospect of further losses. Accelerating inflation and rising interest rates fueled a monthslong rout that left few markets unscathed. The S&P 500 fell 21% through Thursday, suffering its worst first half of a year since 1970… Investment-grade bonds, as measured by the iShares Core U.S. Aggregate Bond exchange-traded fund, lost 11%—posting their worst start to a year in history.”
June 27 – Wall Street Journal (Sam Goldfarb): “The collapse of a pandemic-era boom in bonds that can turn into stocks is punishing investors and pressuring some rapidly growing companies to start delivering profits. New sales of so-called convertible bonds have all but dried up, and the ICE BofA U.S. Convertible Index has slid about 18% this year… Issuance of convertible debt exploded during the pandemic because it allows young companies to raise money relatively cheaply without selling stock, which is unpopular with investors because it dilutes shareholders… Ultralow interest rates on benchmark government bonds, soaring valuations for growth stocks and heightened volatility all made convertible bonds especially attractive in recent years. The likes of Peloton Interactive Inc., Snap Inc. and Beyond Meat Inc. issued $190 billion of convertible bonds over 2020 and 2021, more than in the previous four years combined... An index of convertible bonds returned 46% in 2020… and returned another 6% last year. This year, though, has marked a complete reversal.”
Russia/Ukraine War Watch:
June 29 – Washington Examiner (Joel Gehrke): “Russian President Vladimir Putin has no interest in negotiations to end the war in Ukraine, trans-Atlantic officials say. Kremlin officials have accused Ukrainian President Volodymyr Zelensky of scuttling peace talks earlier this year, though Russian officials more recently demanded a total surrender by Ukrainian troops. A missile strike on a Ukrainian shopping mall, which coincided with the G-7 summit and eve of the NATO summit, sharpened the perception of Russian intransigence. ‘It’s a signal that on the other side, on Vladimir Putin’s mind, the idea of a dialogue, even of a ceasefire, is very, very far [away],’ Spanish Foreign Minister Jose Manuel Albares said…”
Economic War/Iron Curtain Watch:
July 1 – Reuters (Yuka Obayashi, Emily Chow and Ron Bousso): “President Vladimir Putin has raised the stakes in an economic war with the West and its allies with a decree that seizes full control of the Sakhalin-2 gas and oil project in Russia's far east, a move that could force out Shell and Japanese investors. The order… creates a new firm to take over all rights and obligations of Sakhalin Energy Investment Co, in which Shell and two Japanese trading companies Mitsui and Mitsubishi hold just under 50%.”
June 29 – Reuters: “Russia hinted… that it had not dropped the idea of seizing Western-owned assets and businesses in the country, as a top official sharply criticised governments that have hit Moscow with sanctions. In a combative media briefing, Foreign Ministry spokesperson Maria Zakharova warned that Russia was prepared to ‘act accordingly’ if the West decided to use Russia's frozen state assets - chief among them being around $300 billion of central bank foreign currency reserves.”
June 29 – Reuters (Sudarshan Varadhan, Aftab Ahmed and Nupur Anand): “India's biggest cement producer, UltraTech Cement, is importing a cargo of Russian coal and paying using Chinese yuan…, a rare payment method that traders say could become more common. UltraTech is bringing in 157,000 tonnes of coal from Russian producer SUEK that loaded on the bulk carrier MV Mangas from the Russian Far East port of Vanino…”
China/Russia/U.S. Watch:
June 27 – Reuters (Ronald Popeski and Lidia Kelly): “Any encroachment on the Crimea peninsula by a NATO member-state could amount to a declaration of war on Russia which could lead to ‘World War Three,’ Russia's former president, Dmitry Medvedev, was quoted as saying… ‘For us, Crimea is a part of Russia. And that means forever. Any attempt to encroach on Crimea is a declaration of war against our country,’ Medvedev told the news website Argumenty i Fakty.”
Inflation Watch:
June 27 – Reuters (Tom Polansek): “U.S. farmers have cut back on using common weedkillers, hunted for substitutes to popular fungicides and changed planting plans over persistent shortages of agricultural chemicals that threaten to trim harvests. Spraying smaller volumes of herbicides and turning to less-effective fungicides increase the risk for weeds and diseases to dent crop production at a time when global grain supplies are already tight… Interviews with more than a dozen chemical dealers, manufacturers, farmers and weed specialists showed shortages disrupted U.S. growers' production strategies and raised their costs. Shawn Inman, owner of distributor Spinner Ag…, said supplies are the tightest in his 24-year career. ‘This is off the charts,’ Inman said. ‘Everything was delayed, delayed, delayed.’ Shortages further reduce options for farmers battling weeds that developed resistance to glyphosate… after decades of overuse in the United States.”
U.S. Bubble Watch:
June 30 – Bloomberg (Reade Pickert): “US inflation-adjusted consumer spending fell in May for the first time this year as persistent price pressures strain household budgets. Purchases of goods and services, adjusted for changes in prices, decreased 0.4% in May after a downwardly revised 0.3% gain a month earlier… Spending on services advanced while outlays for goods declined. The personal consumption expenditures price index, which the Federal Reserve uses for its inflation target, rose 0.6% from a month earlier and was up 6.3% since May 2021. The core PCE price index increased 0.3%, less than expected. It was up 4.7% from a year ago, the smallest gain since November.”
June 27 – Reuters (Lucia Mutikani): “New orders for U.S.-made capital goods and shipments increased solidly in May, pointing to sustained strength in business spending on equipment in the second quarter, but rising interest rates and tighter financial conditions could slow momentum. The nearly broad rise in orders… occurred despite deteriorating business and consumer sentiment as well as heightened fears of a recession. The gains partly reflected higher prices… Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.5% last month. These so-called core capital goods orders gained 0.3% in April… Those orders were up 10.2% on a year-on-year basis in May. Last month's increase reflected a 1.1% rise in machinery orders.”
June 28 – CNBC (Diana Olick): “Home prices rose 20.4% nationally in April compared with the same month a year ago, according to the S&P CoreLogic Case-Shiller Index. In March, home prices grew 20.6%... The 10-city composite annual increase was 19.7%, up from 19.5% in March. The 20-city composite posted a 21.2% annual gain, up from 21.1% in the previous month.”
June 27 – Bloomberg (Alex Tanzi): “US cities that saw some of the biggest jumps in home prices during the pandemic now have the largest shares of price cuts, according to… Zillow... Overall, the proportion of active real estate listings with lower prices has increased in all 50 of the largest US metropolitan markets tracked by Zillow. In these cities, 11.5% of homes saw a price cut in May, on average, up from 8.2% a year earlier. The share of lower listing prices rose the fastest in real estate hotspots like Salt Lake City, Las Vegas and Sacramento, California… Among the 50 metros in Zillow’s data, 32 had more than 10% of listings with a price decline.”
June 30 – Bloomberg (Prashant Gopal): “With fewer buyers competing, the number of active US listings jumped 18.7% in June from a year earlier, the largest annual increase in data going back to 2017, Realtor.com said... And new sellers entered the market at an even faster rate than before the pandemic housing rally began… Active listings more than doubled from a year earlier in metro areas including Austin, Texas; Phoenix; and Raleigh, North Carolina, the data show. They climbed 86% in Nashville, Tennessee, and 72% in the Riverside, California, region.”
June 29 – New York Times (Conor Dougherty): “For the past two years, anyone who had a home to sell could get practically any asking price. Good shape or bad, in cities and in exurbs, seemingly everything on the market had a line of eager buyers. Now, in the span of a few weeks, real estate agents have gone from managing bidding wars to watching properties sit without offers, and once-hot markets like Austin, Texas, and Boise, Idaho, are poised for big declines.”
July 1 – Wall Street Journal (Mike Colias and Nora Eckert): “Supply-chain kinks continued to suppress vehicle inventory and sales in the first half of the year, exacerbating a seller’s market that has pushed new-car prices to record highs. Sales of new vehicles in the U.S. during the first six months of 2022 were expected to have fallen about 17% from a year earlier, according to Cox Automotive… It has been a frustrating market for car shoppers, who have faced scarce availability and prices that often exceed the window sticker.”
June 28 – Bloomberg (Augusta Saraiva): “On the ground, the US’s busiest port complex is still battling bottlenecks across the board. Responsible for 42% of all containerized trade with Asia, the US’s largest hubs of Los Angeles and Long Beach in Southern California are dealing with an influx of cargo as retailers stock up on back-to-school and holiday goods that’s coinciding with the easing of the lockdowns in China. All this is happening just as US railroads and warehouses remain clogged and thousands of dockworker contracts across the West Coast are set to expire this week.”
China Watch:
June 28 – Reuters (Evelyn Cheng): “Chinese businesses ranging from services to manufacturing reported a slowdown in the second quarter from the first, reflecting the prolonged impact of Covid controls. That’s according to the U.S.-based China Beige Book… ‘While most high-profile lockdowns were relaxed in May, June data do not show the powerhouse bounce-back most expected,’ according to a report… The analysis found few signs that government stimulus was having much of an effect yet… So far, there’s been little sign that stimulus has kicked in, especially in infrastructure, said [China Beige Book Managing Director Shehzad] Qaz. Transportation, construction companies aren’t telling you they’re getting new products,’ he said. ‘They’re telling you they’ve slowed investment, their new projects have actually slowed…’ ‘Weak domestic orders and expanding inventories indicate the presumed second-half improvement will be unpleasantly modest.’...”
June 28 – Financial Times (Sun Yu): “Chinese university graduates are struggling to find work in the country’s worst labour market in years — unless they have degrees in Marxism. Despite being China’s ruling ideology, Marxism has for decades been an obscure major for students. But it is enjoying a revival under President Xi Jinping, who has urged Chinese Communist party cadres to ‘remember the original mission’… According to Yingjiesheng, a leading job search website for university graduates, there has been a 20% increase in openings that require a Marxism degree in the second quarter… compared with the same period last year. Marxism experts are being sought by employers ranging from government departments to private conglomerates.”
Global Bubble and Instability Watch:
June 27 – Bloomberg (Theophilos Argitis): “Canadian consumer confidence levels have fallen to near crisis-era lows in an ominous sign for the nation’s economic outlook. The Bloomberg Nanos Canadian Confidence Index, a measure of sentiment based on weekly polling, declined for a ninth straight week to the lowest reading ever outside of the last two economic crises. The numbers suggest Canada’s households are beginning to buckle amid the weight of rising prices, higher interest rates and a housing correction…”
Europe Watch:
July 1 – Bloomberg (Andrew Langley): “Euro-area inflation surged to a fresh record, surpassing expectations and bolstering calls for the kind of aggressive interest-rate increases being deployed by central banks across the world. Driven once more by soaring food and energy costs, consumer prices jumped 8.6% from a year earlier in June -- up from 8.1% in May… The data reflect an escalating squeeze on households and firms across the 19-member currency bloc, where France, Italy and Spain reported new all-time highs this week.”
July 1 – Reuters: “A sharp fall in new orders weighed on German manufacturing activity in June, darkening the outlook for Europe's largest economy… S&P Global's final Purchasing Managers' Index (PMI) for manufacturing… fell to 52.0 in June from May's final reading of 54.8… An index on new orders came in a 43.3, falling from 47.0 in May to hit the lowest level since May 2020…”
Emerging Markets Bubble Watch:
June 28 – Bloomberg: “Emerging market equities are on track for their worst first-half performance in 24 years, as investors fret over high inflation and a potential hit to the global economy from monetary tightening. The MSCI Emerging Markets Index has fallen about 17% this year through Monday, the second-steepest plunge for the period in data stretching back to 1993. The benchmark slid more than 20% during first six months of 1998 when the Asian financial crisis upended markets. A few months later, Russia defaulted on its local debt.”
Environmental Instability Watch:
June 28 – Reuters (Karl Plume and Rod Nickel): “Eric Broten had planned to sow about 5,000 acres of corn this year on his farm in North Dakota, but persistent springtime rains limited him to just 3,500 in a state where a quarter or more of the planned corn could remain unsown... The difficulty planting corn… in the northern United States adds to a string of troubled crop harvests worldwide that point to multiple years of tight supplies and high food costs… Poor weather has also reduced grain harvests in China, India, South America and parts of Europe. Fertilizer shortages meanwhile are cutting yields of many crops around the globe. The world has perhaps never seen this level of simultaneous agricultural disruption, according to agriculture executives, industry analysts, farmers and economists interviewed by Reuters, meaning it may take years to return to global food security.”
June 29 – Reuters (Scott Disavino): “U.S. power companies are facing supply crunches that may hamper their ability to keep the lights on as the nation heads into the heat of summer and the peak hurricane season. Extreme weather events such as storms, wildfires and drought are becoming more common in the United States. Consumer power use is expected to hit all-time highs this summer, which could strain electric grids at a time when federal agencies are warning the weather could pose reliability issues. Utilities are warning of supply constraints for equipment, which could hamper efforts to restore power during outages. They are also having a tougher time rebuilding natural gas stockpiles for next winter as power generators burn record amounts of gas following the shutdown of dozens of coal plants in recent years and extreme drought cuts hydropower supplies in many Western states. ‘Increasingly frequent cold snaps, heat waves, drought and major storms continue to challenge the ability of our nation’s electric infrastructure to deliver reliable affordable energy to consumers,’ Richard Glick, chairman of the U.S. Federal Energy Regulatory Commission (FERC), said…”
Geopolitical Watch:
June 28 – Reuters (Humeyra Pamuk and Anne Kauranen): “NATO ally Turkey lifted its veto over Finland and Sweden's bid to join the Western alliance on Tuesday after the three nations agreed to protect each other's security, ending a weeks-long drama that tested allied unity against Russia's invasion of Ukraine. The breakthrough came after four hours of talks just before a NATO summit began in Madrid, averting an embarrassing impasse at the gathering of 30 leaders that aims to show resolve against Russia, now seen by the U.S.-led alliance as a direct security threat rather than a possible adversary.”
June 27 – Bloomberg (Swati Pandey): “The list of emerging-markets countries facing debt distress is quickly mounting as global interest rates rise, according to World Bank Group Chief Economist Carmen Reinhart. ‘With the low income countries, debt risks and debt crises are not hypothetical. We’re pretty much already there,’ Reinhart told Bloomberg... ‘Debt crises need to be resolved through meaningful debt reduction. If not, it’s a band-aid and it’s a band-aid that wears off very quickly.’”
Bursting Bubble/Mania Watch:
June 30 – Wall Street Journal (Akane Otani): “Global markets closed out their most bruising first half of a year in decades, leaving investors bracing for the prospect of further losses. Accelerating inflation and rising interest rates fueled a monthslong rout that left few markets unscathed. The S&P 500 fell 21% through Thursday, suffering its worst first half of a year since 1970… Investment-grade bonds, as measured by the iShares Core U.S. Aggregate Bond exchange-traded fund, lost 11%—posting their worst start to a year in history.”
June 27 – Wall Street Journal (Sam Goldfarb): “The collapse of a pandemic-era boom in bonds that can turn into stocks is punishing investors and pressuring some rapidly growing companies to start delivering profits. New sales of so-called convertible bonds have all but dried up, and the ICE BofA U.S. Convertible Index has slid about 18% this year… Issuance of convertible debt exploded during the pandemic because it allows young companies to raise money relatively cheaply without selling stock, which is unpopular with investors because it dilutes shareholders… Ultralow interest rates on benchmark government bonds, soaring valuations for growth stocks and heightened volatility all made convertible bonds especially attractive in recent years. The likes of Peloton Interactive Inc., Snap Inc. and Beyond Meat Inc. issued $190 billion of convertible bonds over 2020 and 2021, more than in the previous four years combined... An index of convertible bonds returned 46% in 2020… and returned another 6% last year. This year, though, has marked a complete reversal.”
Russia/Ukraine War Watch:
June 29 – Washington Examiner (Joel Gehrke): “Russian President Vladimir Putin has no interest in negotiations to end the war in Ukraine, trans-Atlantic officials say. Kremlin officials have accused Ukrainian President Volodymyr Zelensky of scuttling peace talks earlier this year, though Russian officials more recently demanded a total surrender by Ukrainian troops. A missile strike on a Ukrainian shopping mall, which coincided with the G-7 summit and eve of the NATO summit, sharpened the perception of Russian intransigence. ‘It’s a signal that on the other side, on Vladimir Putin’s mind, the idea of a dialogue, even of a ceasefire, is very, very far [away],’ Spanish Foreign Minister Jose Manuel Albares said…”
Economic War/Iron Curtain Watch:
July 1 – Reuters (Yuka Obayashi, Emily Chow and Ron Bousso): “President Vladimir Putin has raised the stakes in an economic war with the West and its allies with a decree that seizes full control of the Sakhalin-2 gas and oil project in Russia's far east, a move that could force out Shell and Japanese investors. The order… creates a new firm to take over all rights and obligations of Sakhalin Energy Investment Co, in which Shell and two Japanese trading companies Mitsui and Mitsubishi hold just under 50%.”
June 29 – Reuters: “Russia hinted… that it had not dropped the idea of seizing Western-owned assets and businesses in the country, as a top official sharply criticised governments that have hit Moscow with sanctions. In a combative media briefing, Foreign Ministry spokesperson Maria Zakharova warned that Russia was prepared to ‘act accordingly’ if the West decided to use Russia's frozen state assets - chief among them being around $300 billion of central bank foreign currency reserves.”
June 29 – Reuters (Sudarshan Varadhan, Aftab Ahmed and Nupur Anand): “India's biggest cement producer, UltraTech Cement, is importing a cargo of Russian coal and paying using Chinese yuan…, a rare payment method that traders say could become more common. UltraTech is bringing in 157,000 tonnes of coal from Russian producer SUEK that loaded on the bulk carrier MV Mangas from the Russian Far East port of Vanino…”
China/Russia/U.S. Watch:
June 27 – Reuters (Ronald Popeski and Lidia Kelly): “Any encroachment on the Crimea peninsula by a NATO member-state could amount to a declaration of war on Russia which could lead to ‘World War Three,’ Russia's former president, Dmitry Medvedev, was quoted as saying… ‘For us, Crimea is a part of Russia. And that means forever. Any attempt to encroach on Crimea is a declaration of war against our country,’ Medvedev told the news website Argumenty i Fakty.”
Inflation Watch:
June 27 – Reuters (Tom Polansek): “U.S. farmers have cut back on using common weedkillers, hunted for substitutes to popular fungicides and changed planting plans over persistent shortages of agricultural chemicals that threaten to trim harvests. Spraying smaller volumes of herbicides and turning to less-effective fungicides increase the risk for weeds and diseases to dent crop production at a time when global grain supplies are already tight… Interviews with more than a dozen chemical dealers, manufacturers, farmers and weed specialists showed shortages disrupted U.S. growers' production strategies and raised their costs. Shawn Inman, owner of distributor Spinner Ag…, said supplies are the tightest in his 24-year career. ‘This is off the charts,’ Inman said. ‘Everything was delayed, delayed, delayed.’ Shortages further reduce options for farmers battling weeds that developed resistance to glyphosate… after decades of overuse in the United States.”
U.S. Bubble Watch:
June 30 – Bloomberg (Reade Pickert): “US inflation-adjusted consumer spending fell in May for the first time this year as persistent price pressures strain household budgets. Purchases of goods and services, adjusted for changes in prices, decreased 0.4% in May after a downwardly revised 0.3% gain a month earlier… Spending on services advanced while outlays for goods declined. The personal consumption expenditures price index, which the Federal Reserve uses for its inflation target, rose 0.6% from a month earlier and was up 6.3% since May 2021. The core PCE price index increased 0.3%, less than expected. It was up 4.7% from a year ago, the smallest gain since November.”
June 27 – Reuters (Lucia Mutikani): “New orders for U.S.-made capital goods and shipments increased solidly in May, pointing to sustained strength in business spending on equipment in the second quarter, but rising interest rates and tighter financial conditions could slow momentum. The nearly broad rise in orders… occurred despite deteriorating business and consumer sentiment as well as heightened fears of a recession. The gains partly reflected higher prices… Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.5% last month. These so-called core capital goods orders gained 0.3% in April… Those orders were up 10.2% on a year-on-year basis in May. Last month's increase reflected a 1.1% rise in machinery orders.”
June 28 – CNBC (Diana Olick): “Home prices rose 20.4% nationally in April compared with the same month a year ago, according to the S&P CoreLogic Case-Shiller Index. In March, home prices grew 20.6%... The 10-city composite annual increase was 19.7%, up from 19.5% in March. The 20-city composite posted a 21.2% annual gain, up from 21.1% in the previous month.”
June 27 – Bloomberg (Alex Tanzi): “US cities that saw some of the biggest jumps in home prices during the pandemic now have the largest shares of price cuts, according to… Zillow... Overall, the proportion of active real estate listings with lower prices has increased in all 50 of the largest US metropolitan markets tracked by Zillow. In these cities, 11.5% of homes saw a price cut in May, on average, up from 8.2% a year earlier. The share of lower listing prices rose the fastest in real estate hotspots like Salt Lake City, Las Vegas and Sacramento, California… Among the 50 metros in Zillow’s data, 32 had more than 10% of listings with a price decline.”
June 30 – Bloomberg (Prashant Gopal): “With fewer buyers competing, the number of active US listings jumped 18.7% in June from a year earlier, the largest annual increase in data going back to 2017, Realtor.com said... And new sellers entered the market at an even faster rate than before the pandemic housing rally began… Active listings more than doubled from a year earlier in metro areas including Austin, Texas; Phoenix; and Raleigh, North Carolina, the data show. They climbed 86% in Nashville, Tennessee, and 72% in the Riverside, California, region.”
June 29 – New York Times (Conor Dougherty): “For the past two years, anyone who had a home to sell could get practically any asking price. Good shape or bad, in cities and in exurbs, seemingly everything on the market had a line of eager buyers. Now, in the span of a few weeks, real estate agents have gone from managing bidding wars to watching properties sit without offers, and once-hot markets like Austin, Texas, and Boise, Idaho, are poised for big declines.”
July 1 – Wall Street Journal (Mike Colias and Nora Eckert): “Supply-chain kinks continued to suppress vehicle inventory and sales in the first half of the year, exacerbating a seller’s market that has pushed new-car prices to record highs. Sales of new vehicles in the U.S. during the first six months of 2022 were expected to have fallen about 17% from a year earlier, according to Cox Automotive… It has been a frustrating market for car shoppers, who have faced scarce availability and prices that often exceed the window sticker.”
June 28 – Bloomberg (Augusta Saraiva): “On the ground, the US’s busiest port complex is still battling bottlenecks across the board. Responsible for 42% of all containerized trade with Asia, the US’s largest hubs of Los Angeles and Long Beach in Southern California are dealing with an influx of cargo as retailers stock up on back-to-school and holiday goods that’s coinciding with the easing of the lockdowns in China. All this is happening just as US railroads and warehouses remain clogged and thousands of dockworker contracts across the West Coast are set to expire this week.”
China Watch:
June 28 – Reuters (Evelyn Cheng): “Chinese businesses ranging from services to manufacturing reported a slowdown in the second quarter from the first, reflecting the prolonged impact of Covid controls. That’s according to the U.S.-based China Beige Book… ‘While most high-profile lockdowns were relaxed in May, June data do not show the powerhouse bounce-back most expected,’ according to a report… The analysis found few signs that government stimulus was having much of an effect yet… So far, there’s been little sign that stimulus has kicked in, especially in infrastructure, said [China Beige Book Managing Director Shehzad] Qaz. Transportation, construction companies aren’t telling you they’re getting new products,’ he said. ‘They’re telling you they’ve slowed investment, their new projects have actually slowed…’ ‘Weak domestic orders and expanding inventories indicate the presumed second-half improvement will be unpleasantly modest.’...”
June 28 – Financial Times (Sun Yu): “Chinese university graduates are struggling to find work in the country’s worst labour market in years — unless they have degrees in Marxism. Despite being China’s ruling ideology, Marxism has for decades been an obscure major for students. But it is enjoying a revival under President Xi Jinping, who has urged Chinese Communist party cadres to ‘remember the original mission’… According to Yingjiesheng, a leading job search website for university graduates, there has been a 20% increase in openings that require a Marxism degree in the second quarter… compared with the same period last year. Marxism experts are being sought by employers ranging from government departments to private conglomerates.”
Global Bubble and Instability Watch:
June 27 – Bloomberg (Theophilos Argitis): “Canadian consumer confidence levels have fallen to near crisis-era lows in an ominous sign for the nation’s economic outlook. The Bloomberg Nanos Canadian Confidence Index, a measure of sentiment based on weekly polling, declined for a ninth straight week to the lowest reading ever outside of the last two economic crises. The numbers suggest Canada’s households are beginning to buckle amid the weight of rising prices, higher interest rates and a housing correction…”
Europe Watch:
July 1 – Bloomberg (Andrew Langley): “Euro-area inflation surged to a fresh record, surpassing expectations and bolstering calls for the kind of aggressive interest-rate increases being deployed by central banks across the world. Driven once more by soaring food and energy costs, consumer prices jumped 8.6% from a year earlier in June -- up from 8.1% in May… The data reflect an escalating squeeze on households and firms across the 19-member currency bloc, where France, Italy and Spain reported new all-time highs this week.”
July 1 – Reuters: “A sharp fall in new orders weighed on German manufacturing activity in June, darkening the outlook for Europe's largest economy… S&P Global's final Purchasing Managers' Index (PMI) for manufacturing… fell to 52.0 in June from May's final reading of 54.8… An index on new orders came in a 43.3, falling from 47.0 in May to hit the lowest level since May 2020…”
Emerging Markets Bubble Watch:
June 28 – Bloomberg: “Emerging market equities are on track for their worst first-half performance in 24 years, as investors fret over high inflation and a potential hit to the global economy from monetary tightening. The MSCI Emerging Markets Index has fallen about 17% this year through Monday, the second-steepest plunge for the period in data stretching back to 1993. The benchmark slid more than 20% during first six months of 1998 when the Asian financial crisis upended markets. A few months later, Russia defaulted on its local debt.”
Environmental Instability Watch:
June 28 – Reuters (Karl Plume and Rod Nickel): “Eric Broten had planned to sow about 5,000 acres of corn this year on his farm in North Dakota, but persistent springtime rains limited him to just 3,500 in a state where a quarter or more of the planned corn could remain unsown... The difficulty planting corn… in the northern United States adds to a string of troubled crop harvests worldwide that point to multiple years of tight supplies and high food costs… Poor weather has also reduced grain harvests in China, India, South America and parts of Europe. Fertilizer shortages meanwhile are cutting yields of many crops around the globe. The world has perhaps never seen this level of simultaneous agricultural disruption, according to agriculture executives, industry analysts, farmers and economists interviewed by Reuters, meaning it may take years to return to global food security.”
June 29 – Reuters (Scott Disavino): “U.S. power companies are facing supply crunches that may hamper their ability to keep the lights on as the nation heads into the heat of summer and the peak hurricane season. Extreme weather events such as storms, wildfires and drought are becoming more common in the United States. Consumer power use is expected to hit all-time highs this summer, which could strain electric grids at a time when federal agencies are warning the weather could pose reliability issues. Utilities are warning of supply constraints for equipment, which could hamper efforts to restore power during outages. They are also having a tougher time rebuilding natural gas stockpiles for next winter as power generators burn record amounts of gas following the shutdown of dozens of coal plants in recent years and extreme drought cuts hydropower supplies in many Western states. ‘Increasingly frequent cold snaps, heat waves, drought and major storms continue to challenge the ability of our nation’s electric infrastructure to deliver reliable affordable energy to consumers,’ Richard Glick, chairman of the U.S. Federal Energy Regulatory Commission (FERC), said…”
Geopolitical Watch:
June 28 – Reuters (Humeyra Pamuk and Anne Kauranen): “NATO ally Turkey lifted its veto over Finland and Sweden's bid to join the Western alliance on Tuesday after the three nations agreed to protect each other's security, ending a weeks-long drama that tested allied unity against Russia's invasion of Ukraine. The breakthrough came after four hours of talks just before a NATO summit began in Madrid, averting an embarrassing impasse at the gathering of 30 leaders that aims to show resolve against Russia, now seen by the U.S.-led alliance as a direct security threat rather than a possible adversary.”
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