Financial data and economic news for the week ending July 15, 2022

 SOURCE:

Credit Bubble Bulletin : Weekly Commentary: Global Crisis Dynamics Update

Friday, July 15, 2022

Weekly Commentary

Credit Bubble Bulletin

by Doug Noland

My edited easy to read version follows

Ye Editor

For the Week Ending July 15, 2022:

GLOBAL  STOCK  INDEXES:

S&P500 declined 0.9% (down 18.9% y-t-d)

Dow Industrials slipped 0.2% (down 13.9%)

Utilities dipped 0.3% (down 3.3%)

Banks gained 1.0% (down 21.3%)

Transports fell 1.4% (down 19.8%)

S&P 400 Midcaps down 0.7% (down 18.9%)

Small cap Russell 2000 fell 1.4% (down 22.3%)

Nasdaq100 lost 1.2% (down 26.6%)

Semiconductors jumped 2.9% (down 31.7%)

Biotechs fell 2.6% (down 13.4%). 

With gold bullion falling $34, 

the HUI gold stock index sank 6.1% (down 21.4%).

U.K.'s FTSE slipped 0.5% (down 3.1% y-t-d). 

Japan's Nikkei rallied 1.0% (down 7.0% y-t-d). 

France's CAC40 was unchanged (down 15.6%)

German DAX fell 1.2% (down 19.0%). 

Spain's IBEX 35 lost 1.9% (down 8.8%). 

Italy's FTSE MIB sank 3.9% (down 23.5%)

Brazil's Bovespa sank 3.7% (down 7.9%)

Mexico's Bolsa declined 1.1% (down 11.6%). 

South Korea's Kospi dipped 0.8% (down 21.7%). 

India's Sensex fell 1.3% (down 7.7%). 

China's Shanghai Index sank 3.8% (down 11.3%). 

Turkey's Istanbul National 100 fell 2.1% (up 28.3%). 

Russia's MICEX dropped 5.1% (down 44.3%).

US  BONDS

Three-month Treasury bill rates ended the week at 2.245%. 

Two-year government yields added two bps to 3.13% (up 239bps y-t-d). 

Five-year T-note yields fell nine bps to 3.04% (up 177bps). 

Ten-year Treasury yields dropped 16 bps to 2.92% (up 141bps). 

Long bond yields dropped 17 bps to 3.08% (up 118bps). 

Benchmark Fannie Mae MBS yields fell 12 bps to 4.39% (up 232bps).

Federal Reserve Credit last week added $3.6bn to $8.859 TN. Fed Credit is down $42bn from the June 22nd peak. Over the past 148 weeks, Fed Credit expanded $5.132 TN, or 138%. 

US  MORTGAGES
Freddie Mac 30-year fixed mortgage rates jumped 21 bps to 5.51% 

(up 240bps y-o-y). 

Fifteen-year rates rose 22 bps to 4.67% (up 234bps). 

Five-year hybrid ARM rates gained 16 bps to 4.35% (up 194bps)

Jumbo mortgage 30-year fixed rates up eight bps to 5.77% (up 254bps).

Currency Watch:

For the week, the U.S. Dollar Index gained 1.0% to 108.06 (up 13.0% y-t-d). 

The Chinese (onshore) renminbi declined 0.93% versus the dollar (down 5.94% y-t-d).

COMMODITIES:

Bloomberg Commodities Index declined 2.1% (up 14.4% y-t-d). 

Spot Gold dropped 2.0% to $1,708 (down 6.6%). 

Silver fell 3.1% to $18.71 (down 19.7%). 

WTI crude sank $7.20 to $97.59 (up 30%). 

Gasoline slumped 6.8% (up 44%)

Natural Gas surged 16.3% to $7.02 (up 88%).

Copper sank 8.2% (down 28.8%). 

Wheat lost 12.9% (up 1%)

Corn dropped 3.2% (up 2%). 

Bitcoin fell $1,023, or 4.7%, 

this week to $20,860 (down 55%).

DOUG  NOLAND  COMMENTARY

(highly edited)

CPI was up 9.1% y-o-y in June, the highest rate, as we all know, since 1981. Up 11.3% y-o-y, Producer Prices were also significantly above estimates. Retail Sales were stronger-than-expected, and there was even a decent pop in the Current Conditions component of the early-July confidence reading from the University of Michigan survey. ...

July 14 – Bloomberg (Shuli Ren): 

“It is spreading like wildfire. Homebuyers in China are refusing to pay the mortgage on properties they’ve bought but that their financially strapped developers can’t finish. Some say that they will only resume payments when construction restarts… The frustrated buyers accuse the developers of misusing sales proceeds and the banks of failing to safeguard their loans. China has never seen anything like this. As in the US — until the 2007 subprime crisis — the possibility of troubles in the mortgage market was vanishingly small.” ...

China’s households, developers, banks, regulators and Beijing officials are breaking ground on their introductory housing/mortgage finance bust. It’s worth noting that Consumer (mostly mortgage) borrowings almost doubled over the past five years (up 400% in 10yrs) to $10.85 TN. Chinese Bank Assets (up a record $1.945 TN during Q1!) surged 50% over the past five years (200% in 10 years) to an incredible $53.0 TN. Reports have mortgage Credit at $6.8 TN.
It was a historic, reckless bubble, and, as we’re witnessing, the bursting will be no less spectacular.

The Bloomberg China Real Estate Developers Index sank 10% this week. Number one developer Country Garden’s stock collapsed 27% (down 52% y-t-d). Vanke’s stock was down 18.9%, Longfor 20%, China Jinmao 13.7%, Agile Group 15.2%, China Overseas Land & Investment 10.8%, and China Resources 9.7%. ...

China’s CSI 300 Bank Index sank 7.7% this week (largest weekly loss since 2018) to near March 2020 lows. ...

The European Central Bamk (ECB) is expected to raise rates next week for the first time in 11 years. 

ECONOMIC  NEWS  SUMMARY

Market Instability Watch:

July 13 – Financial Times (Naomi Rovnick and Nicholas Megaw): 

“A closely watched signal of recession risk in Treasury markets… hit its most extreme level in more than 20 years, as hotter than expected inflation data fuelled investor bets that the Federal Reserve will aggressively raise interest rates. The yield on the two-year Treasury note, which is particularly sensitive to short-term rate expectations, rose 0.09 percentage points to 3.13% after data showed the annual rate of US consumer price inflation hit 9.1% last month.”

July 15 – Reuters (Marc Jones): 

“Traditional debt crisis signs of crashing currencies, 1,000 bps bond spreads and burned FX reserves point to a record number of developing nations now in trouble. Lebanon, Sri Lanka, Russia, Suriname and Zambia are already in default, Belarus is on the brink and at least another dozen are in the danger zone as rising borrowing costs, inflation and debt all stoke fears of economic collapse. Totting up the cost is eyewatering. Using 1,000 bps bond spreads as a pain threshold, analysts calculate $400 billion of debt is in play. Argentina has by far the most at over $150 billion, while the next in line are Ecuador and Egypt with $40 billion-$45 billion.”

Bursting Bubble/Mania Watch:

July 14 – CNBC (Arjun Kharpal and Ryan Browne): 

"Cryptocurrencies have suffered a brutal comedown this year, losing $2 trillion in value since the height of a massive rally in 2021. Bitcoin, the world’s biggest digital coin, is off 70% from a November all-time high of nearly $69,000. That’s resulted in many experts warning of a prolonged bear market known as ‘crypto winter.’”

July 14 – Reuters (Hannah Lang): 

“Celsius Network listed a $1.19 billion deficit on its balance sheet in a bankruptcy court filing on Thursday, a day after the cryptocurrency lender filed for Chapter 11. New Jersey-based Celsius froze withdrawals last month, citing ‘extreme’ market conditions, cutting off access to savings for individual investors and sending tremors through the crypto market.”

Economic War/Iron Curtain Watch:

July 14 – Reuters: 

“Saudi Arabia, the world's largest oil exporter, more than doubled the amount of Russian fuel oil it imported in the second quarter to feed power stations to meet summer cooling demand and free up the kingdom’s own crude for export... Russia has been selling fuel at discounted prices after international sanctions over its invasion of Ukraine left it with fewer buyers.”

July 12 – Reuters (Michelle Nichols): 

“Brazil is looking to buy as much diesel as it can from Russia and some of the deals were being closed ‘as recently as yesterday,’ Brazilian Foreign Minister Carlos Franca said… ‘We have to make sure that we have enough diesel to the Brazilian agribusiness and, of course, for Brazilian drivers,’ Franca told reporter... ‘So that's why we were looking for safe and very reliable suppliers of diesel - Russia is one of them.”

Inflation Watch:

July 13 – Associated Press (Christopher Rugaber): 

“U.S. inflation surged to a new four-decade high in June because of rising prices for gas, food and rent, squeezing household budgets and pressuring the Federal Reserve to raise interest rates aggressively -- trends that raise the risk of a recession. The government’s consumer price index soared 9.1% over the past year, the biggest yearly increase since 1981, with nearly half of the increase due to higher energy costs… The biggest shock has been energy prices, which soared 7.5% just from May to June. Gas prices have skyrocketed nearly 60% compared with a year ago.”

July 14 – Associated Press (Paul Wiseman): 

“Inflation at the wholesale level climbed 11.3% in June compared with a year earlier, the latest painful reminder that inflation is running hot through the American economy. The… producer price index — which measures inflation before it hits consumers — rose at the fastest pace since hitting a record 11.6% in March. Last month’s jump in wholesale inflation was led by energy prices, which soared 54% from a year earlier. But even excluding food and energy prices, which can swing wildly from month to month, producer prices in June jumped 8.2% from June 2021. On a month-to-month basis, wholesale inflation rose 1.1% from May to June, also the biggest jump since March.”

July 14 – Bloomberg (Matthew Boesler and Prashant Gopal): 

“Rents rose in the US last month at the fastest pace since 1986, helping to propel overall inflation to a fresh four-decade high. An index measuring rent of a primary residence was 0.8% higher in June than the month before, an acceleration from the 0.6% increase recorded in May… In the 12 months through June, rents were up 5.8%. Those costs are soaring across the country as would-be homebuyers get priced out by the fastest-rising mortgage rates in decades and slide back into the overcrowded rental market.”

U.S. Bubble Watch:

July 14 – Reuters (Lucia Mutikani): 

“The number of Americans filing new claims for unemployment benefits increased to an eight-month high last week, suggesting some cooling in the labor market… Initial claims for state unemployment benefits rose 9,000 to a seasonally adjusted 244,000 for the week ended July 9, the highest since mid-November 2021.”

July 13 – Bloomberg (Matthew Boesler and Prashant Gopal): 

“Higher tax revenues and the phasing out of pandemic-relief spending chopped the US federal government’s budget deficit by a record $1.7 trillion in the first nine months of the fiscal year. The $515 billion gap for the October-to-June period compares with $2.24 trillion in the same period a year ago… Receipts rose about 26% in the nine-month period, to $3.84 trillion, with more than half of that coming from individual income taxes, while spending dropped about 18%, to $4.35 trillion. One area not helping the deficit is an increase in federal borrowing costs thanks to inflation and Federal Reserve interest-rate hikes. Interest payments on public debt have climbed $102 billion so far in the fiscal year.”

July 15 – Bloomberg (Olivia Rockeman): 

“US retail sales were stronger than expected in June, but after several economists adjusted the data for inflation, they still point to a leveling off in spending. The value of overall retail purchases increased 1%, after an upwardly revised 0.1% decline in May… ‘Padded by high savings and rising wages, American households are spending nearly as much money as they did earlier, but largely to keep up with higher prices, not to actually buy more stuff,’ Sal Guatieri, senior economist at BMO Capital Markets, said…”

July 13 – Reuters: 

“U.S. small-business confidence dropped to the lowest level in nearly 9-1/2 years in June amid concerns about inflation, but demand for labor remained solid…, a survey showed… The National Federation of Independent Business (NFIB) said its Small Business Optimism Index fell 3.6 points last month to 89.5, the lowest level since January 2013. Thirty-four percent of owners said that inflation was their biggest single problem in running their business, an increase of six points from May and the highest level since the fourth quarter of 1980… The NFIB survey showed 50% of owners reported job openings they could not fill in June, down a point from May's reading, which tied the previous record high.”

July 11 – CNBC (Diana Olick): 

“Americans are canceling deals to buy homes at the highest rate since the start of the Covid pandemic. The share of sale agreements on existing homes canceled in June was just under 15% of all homes that went under contract, according to… Redfin. That is the highest share since early 2020, when homebuying paused immediately, albeit briefly. Cancelations were at about 11% one year ago. Higher mortgage rates and surging inflation are causing many potential homebuyers to reconsider their purchases.”

July 9 – Wall Street Journal (AnnaMaria Andriotis): 

“Consumers have never paid more to finance their cars. Monthly payments on loans given out in June to buy a new car averaged an all-time high of $686, according to… Edmunds... That is up 4% from January and 13% above a year ago. A growing share of people are paying much more. A record 12.7% of new-car buyers who signed up for a loan in June have a monthly payment of at least $1,000, according to Edmunds. That share is up from roughly 7% a year earlier, 5% in June 2019 and 2% in June 2010.”

China Watch:

July 15 – Bloomberg: 

“China’s economy grew at the slowest pace since the country was first hit by the coronavirus outbreak two years ago… The 0.4% expansion in gross domestic product reported for the three months to June, when dozens of cities including Shanghai and Changchun imposed lockdowns, was the second weakest ever recorded. Goldman Sachs… promptly cut its full-year growth forecast to 3.3%, saying the figures suggest Covid lockdowns last quarter took a heavier-than-expected toll on the economy. The slowdown means Beijing will miss its GDP target of about 5.5% by a wide margin this year, the first time that’s likely to happen.”

July 15 – Bloomberg (Linda Lew): 

“China reported its highest daily Covid-19 case tally in seven weeks as a new cluster emerged in the southern province of Guangxi, underscoring the difficulty of achieving the country’s Covid Zero strategy in the face of more infectious strains of the virus. The country reported 432 infections for Thursday, up from 292 on Wednesday and the most since May 25. More than a third, or 165 cases, were found in Guangxi province, centered around Beihai, a coastal city of 1.83 million people.”

July 11 – Bloomberg (Zixu Wang and Austin Ramzy): 

“After a rare mass demonstration, bank depositors demanding their money back were beaten, kicked to the ground and dragged away in the city of Zhengzhou… A financial scandal in central China has touched depositors across the country, some of whom placed their life savings in four rural banks offering high rates of return, then found their funds frozen as investigators examined allegations of widespread fraud. When the bank customers began showing up in person to demand their money, the authorities in the city of Zhengzhou tried to use health code apps meant to prevent the spread of Covid-19 to prevent them from traveling. The city retreated after a backlash, and several officials were punished. But the depositors kept coming, with as many as a thousand gathering on Sunday.”

July 12 – Bloomberg: 

“A blistering heatwave sweeping across southern China is threatening crops and adding strain to the local power grids, as the Asian nation becomes the latest region around the globe battling searing temperatures… Hot weather in China is coming at a crucial time for the nation’s early rice to fill and harvest. The heat may hurt rice yields and is negative for cotton growth as well, the country’s meteorological department said.”

July 13 – Bloomberg: 

“Scorching temperatures across China have turned deadly, with hospitals reporting patients dying of heat stroke, as officials begin curtailing power to factories to ensure sufficient supply for air-conditioners. The heatwave that’s affected 900 million people over the past month is intensifying, with 76 weather stations reporting record high temperatures on Wednesday that exceeded 42 degrees Celsius (108 Fahrenheit) in some places. Polyester and textile factories in Zhejiang province began receiving power rationing notices this week, according to the South China Morning Post.”

Emerging Markets Crisis Watch:

July 13 – Associated Press (Krishan Francis and Krutika Pathi): 

“The president of Sri Lanka fled the country early Wednesday, slipping away in the middle of the night only hours before he was to step down amid a devastating economic crisis that has triggered severe shortages of food and fuel. President Gotabaya Rajapaksa, his wife and two bodyguards left aboard a Sri Lankan Air Force plane bound for the city of Male, the capital of the Maldives…”

July 14 – Bloomberg (Khine Lin Kyaw): 

“The Central Bank of Myanmar ordered companies and individual borrowers to suspend repayment of foreign loans, the latest in a series of steps to defend the nation’s dwindling foreign exchange reserves… Companies in Myanmar have at least $1.2 billion in outstanding dollar-denominated loans…”

Environmental Watch:

July 13 – Reuters (Arpan Varghese and Scott Disavino): 

"Texas's power grid operator on Wednesday took emergency measures to avoid rolling blackouts as soaring electricity demand threatened to outpace available supplies amid a stifling heatwave. The Electric Reliability Council of Texas (ERCOT), which operates the grid that serves more than 26 million customers, initiated a rarely used emergency program that is triggered when supplies fall below a critical safety margin.”

July 14 – Bloomberg (Michael Hirtzer): 

“Ranchers in top cattle state Texas can’t sell their herds fast enough with 100-degree Fahrenheit temperatures making it too expensive to sustain animals. Costs for feed, fertilizer and fuel have been soaring. There’s also a lack of water in the state, and little hay. That’s resulting in a firehouse of cattle getting auctioned at Texas sale barns. Emory Livestock Auction Inc… is seeing nearly quadruple normal rates with ranchers in ‘panic mode,’ said Jack Robinson, an 83-year-old auctioneer. ‘It’s dry and there’s no hay around,’ said Scott Frazier, a crop and livestock farmer in coastal Nueces County... ‘It’s hard to justify keeping them.’”