Financial Data and Economic News Summary of the Week ending August 19, 2022

 SOURCE:

Credit Bubble Bulletin : Weekly Commentary: Inaugural Squeeze

Credit Bubble Bulletin
by Doug Noland

My edited easy to read version follows
Ye Editor

For the Week Ending August 19, 2022

FINANCIAL  DATA:

S&P500 declined 1.2% (down 11.3% y-t-d)

Dow slipped 0.2% (down 7.2%).

Utilities added 1.1% (up 7.4%)

Banks dropped 2.4% (down 15.2%)

Broker/Dealers fell 2.3% (down 15.2%)

Transports lost 2.5% (down 10.4%)

S&P 400 Midcaps slumped 1.4% (down 9.3%)

Small cap Russell 2000 dropped 2.9% (down 12.8%)

Nasdaq100 stumbled 2.4% (down 18.9%)

Semiconductors dropped 3.7% (down 25.2%)

Biotechs fell 3.2% (down 11.4%). 

With gold bullion down $55, 

the HUI gold equities index sank 6.7% (down 22.8%)

 U.K.'s FTSE equities index added 0.7% (up 2.2% y-t-d).

Japan's Nikkei gained 1.3% (up 0.5% y-t-d). 

France's CAC40 declined 0.9% (down 9.2%)

German DAX dropped 1.8% (down 14.7%). 

Spain's IBEX 35 slipped 0.7% (down 4.3%). 

Italy's FTSE MIB fell 1.9% (down 17.3%)

Brazil's Bovespa declined 0.7% (up 6.4%)

Mexico's Bolsa slipped 0.8% (down 9.0%). 

South Korea's Kospi index fell 1.4% (down 16.3%). 

India's Sensex added 0.3% (up 2.4%). 

China's Shanghai declined 0.6% (down 10.5%). 

Turkey's Istanbul National 100 index jumped 5.4% (up 62.6%). 

Russia's MICEX gained 2.2% (down 42.0%).

Three-month Treasury bill rates ended the week at 2.5925%. 

Two-year government yields slipped a basis point to 3.24% 

(up 250bps y-t-d). 

Five-year T-note yields surged 14 bps to 3.09% (up 183bps). 

Ten-year Treasury yields rose 14 bps to 2.98% (up 146bps). 

Long bond yields gained 10 bps to 3.22% (up 131bps). 

Benchmark Fannie Mae MBS yields surged 32 bps to 4.36% (up 229bps).

Federal Reserve Credit last week declined $4.4bn to $8.837 TN. 

Fed Credit is down $63.8bn from the June 22nd peak. 

Over the past 153 weeks, Fed Credit expanded $5.110 TN, or 137%.

Freddie Mac 30-year fixed mortgage rates 

fell nine bps to 5.13% (up 227bps y-o-y). 

Fifteen-year rates 

dipped four bps to 4.55% (up 239bps). 

Five-year hybrid ARM rates 

declined four bps to 4.39% (up 196bps).

Jumbo mortgage  30-year fixed rates 

jumped 14 bps to 5.67% (up 264bps).

For the week, the U.S. Dollar Index

 jumped 2.4% to 108.17 (up 13.1% y-t-d). 

The Chinese (onshore) renminbi 

declined 1.10% versus the dollar (down 6.77% y-t-d).

The Bloomberg Commodities Index declined 0.7% 

  (up 23.3% y-t-d). 

Spot Gold dropped 3.1% to $1,747 (down 4.5%). 

Silver sank 8.5% to $19.05 (down 18.3%). 

WTI crude declined $1.32 to $90.77 (up 21%). 

Gasoline dipped 0.9% (up 35%)

Natural Gas jumped 6.5% to $9.34 (up 150%). 

Copper was little changed (down 18%). 

Wheat dropped 6.3% (unchanged)

Corn fell 3.0% (up 5%).

Bitcoin sank $2,880, or 11.9%, this week to $21,280 (down 54%).

DOUG  NOLAND'S  COMMENTARY  IS  HERE:

Credit Bubble Bulletin : Weekly Commentary: Inaugural Squeeze

ECONOMIC  NEWS  SUMMARY 

Market Instability Watch:

August 18 – Wall Street Journal (Akane Otani): “The Federal Reserve says it is going to keep raising interest rates. Wall Street thinks it’s bluffing. This could spell trouble for both of them. Markets pummeled by the Fed’s rate increases in the first half of the year are racing upward. The S&P 500 is up 17% from its mid-June low. The yield on the 10-year U.S. Treasury note… is down more than half a percentage point from its June peak. Even battered cryptocurrencies have jumped. For many investors, the rebound reflects a belief that inflation has peaked, and expectation that the Fed will shift from raising rates to lowering them sometime next year. A parade of Fed officials has tried to push back. ‘There’s a disconnect between me and the markets,’ Minneapolis Fed President Neel Kashkari said last week.”

August 13 – Bloomberg (Denitsa Tsekova): “Stock bears are suddenly getting crushed. Once-dependable momentum trades are misfiring. Inflation-lashed bonds are bouncing back. After another expectations-busting week on Wall Street, sharp market reversals are baffling real-money veterans, retail speculators and quants alike. Big data surprises, including a blockbuster jobs report and a softer-than-expected July consumer price reading, have caught a heavily hedged investor base off guard, as the S&P 500 Index enjoys a nearly 17% rally from the June bear-market low. Economic angst and speculation that price pressures are peaking have helped global bonds climb almost 4% from their mid-June nadir, while once-hot stock shorts are backfiring. Put another way, every investing trend that defined the wild first-half is staging a messy reversal in the latest twist of this exhausting year.”

August 15 – Financial Times (Ian Johnston and Eric Platt): “One of the riskiest corners of global financial markets has made an unprecedented recovery in the past month, with prices of junk bonds rebounding as investors bet that the Federal Reserve’s efforts to tame inflation will avoid triggering a deep recession. The amount of US bonds trading at levels signalling severe investor concern has dropped rapidly over the past five weeks… Just 6.2% of high-yield bonds are now trading at distressed levels, compared with 11.6% on July 5, according to analysis by Marty Fridson, chief investment officer of Lehmann Livian Fridson Advisors.”

August 17 – Financial Times (David Sheppard and Derek Brower): “The global energy crisis deepened on Wednesday as a further rise in natural gas prices in Europe and the US threatened to push some of the world’s largest economies into recession. Gas markets in Europe jumped 6% on Wednesday to €236 a megawatt hour, taking the week’s gains so far to 14%. The latest price was equivalent in energy terms to almost $400 a barrel of oil, as traders raced to secure supplies ahead of the winter. Prices have more than doubled from already extremely elevated levels since June.”

Inflation Watch:

August 19 – Wall Street Journal (Rina Torchinsky): “The cost of raising a child through high school has risen to more than $300,000 because of inflation that is running close to a four-decade high, according to a Brookings Institution estimate. It determined that a married, middle-income couple with two children would spend $310,605—or an average of $18,271 a year—to raise their younger child born in 2015 through age 17.”

August 17 – Bloomberg (Gerson Freitas Jr.): “Natural gas prices are flirting with levels not seen in the US in almost 15 years amid mounting concerns that robust domestic and overseas demand for the fuel will siphon off supplies that otherwise would be stowed for winter. So much North American gas is feeding power plants to run air conditioners that stockpiles relied upon during the coldest months to augment pipelined supplies are still more than 10% below normal levels. Add to that expectations that amassing reserves will get even more challenging when a key gas-export complex on the Texas coast resumes operations in October.”

August 16 – Wall Street Journal (Ryan Dezember): “Southwestern cotton growers are abandoning millions of parched acres that they planted in spring, prompting forecasts for the weakest U.S. harvest in more than a decade and sending prices sharply higher. U.S. agricultural forecasters expect drought-struck farmers to walk away from more than 40% of the 12.5 million acres they sowed with cotton and harvest the smallest area since Reconstruction. Back then, in 1868, yields per acre were less than a fifth of what they are today, but the market for cotton was vastly smaller too.”

August 16 – Bloomberg (Kim Chipman and Mark Chediak): “Arizona, which grows most of the lettuce eaten in the US each winter, will be losing about a fifth of the water it gets from the Colorado River as drought and climate change diminish the key water basin. The US will withhold 21% of Arizona’s annual water allocation from the Colorado River in 2023 as part of conservation efforts announced Tuesday by the Interior Department’s Bureau of Reclamation.”

U.S. Bubble Watch:

August 17 – CNBC (Jeff Cox): “Retail activity was flat in July as falling fuel prices held back gas station sales and consumers turned more heavily to online shopping… While advance retail sales were unchanged, total receipts excluding autos rose 0.4%. Economists… had been looking for a 0.1% increase in the top-line number and a flat total ex-autos. June’s gain was revised down to 0.8% from 1%. Retail and food sales excluding gasoline and autos rose 0.7% from a month ago… ‘People appear to have used some of the savings from lower gas prices to spend more on other items, both in nominal and — very likely — real terms,’ wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics.”

August 18 – CNBC (Diana Olick): “Sales of previously owned homes fell nearly 6% in July compared with June… The sales count declined to a seasonally adjusted annualized rate of 4.81 million units… It is the slowest sales pace since November 2015, with the exception of a brief plunge at the beginning of the Covid pandemic. Sales fell about 20% from the same month a year ago… Homebuyers are also still contending with tight supply. There were 1.31 million homes for sale at the end of July, unchanged from July 2021. At the current sales pace, that represents a 3.3-month supply… The median price of a home sold in July was $403,800, an increase of 10.8% year over year… First-time buyers represented just 29% of buyers in July. Historically they usually make up about 40% of sales, but they are clearly struggling the most with affordability. High rents are also making it harder for them to save for a down payment. Even as sales slow, this is still a fast-moving market. A typical home in July went under contract in just 14 days, which matches the fastest ever recorded in June.”

August 16 – Wall Street Journal (Lucia Mutikani): “U.S. homebuilding fell to the lowest level in nearly 1-1/2 years in July, weighed down by higher mortgage rates and prices for construction materials… Housing starts plunged 9.6% to a seasonally adjusted annual rate of 1.446 million units last month, the lowest level since February 2021. Data for June was revised slightly higher to a rate of 1.599 million units from the previously reported 1.559 million units. Economists… had forecast starts would decline to a rate of 1.540 million units.”

August 15 – Reuters (Lindsay Dunsmuir): “U.S. single-family homebuilders' confidence and New York state factory activity fell in August to their lowest levels since near the start of the COVID pandemic, a further sign the economy is softening as the Federal Reserve raises interest rates. The National Association of Home Builders/Wells Fargo Housing Market Index fell 6 points to 49 this month, the eighth consecutive monthly decline and the lowest reading outside of the pandemic era since 2014…”

August 16 – CNBC (Diana Olick): “Rising costs and falling confidence in the U.S. economy are fast becoming a toxic cocktail for the housing market. As a result, a growing number of buyers are backing out of deals they’ve made with homebuilders and sellers of existing homes. Homebuilder cancellation rates have more than doubled since April, according to surveys by John Burns Real Estate Consulting. In July, 17.6% of builder contracts fell through, compared with 8% in April and 7.5% in July 2021.”

August 17 – CNBC (Diana Olick): “Mortgage rates fell slightly last week, but not enough to fuel any kind of recovery in consumer demand for home loans… Applications for a mortgage to purchase a home dropped 1% for the week and were 18% lower than the same week one year ago. Potential homebuyers are not only grappling with higher interest rates but with inflation in the overall economy and concern that home values will start to fall.”

China Watch:

August 15 – Bloomberg: “Anna Luan is worried about the future. The Shanghai internet business where she works hasn’t paid her salary in full since April, when city authorities instituted a strict lockdown to contain the spread of Covid-19. Luckily the 30-year-old had built up savings through the pandemic… She’s also used some of that money to pay off 200,000 yuan ($29,530) in mortgage debt on the two homes she owns in her hometown of Changzhou. ‘So many companies are laying off people and cutting pay,’ Luan says. ‘Now I just want to save any spare cash I have and don’t even dare to spend.’ Recent surveys show Chinese households are more pessimistic about future income growth than they’ve ever been—even at the pandemic’s start in 2020 or after the global financial crisis.”

August 17 – New York Times (Daisuke Wakabayashi): “In a rare act of defiance, people across the country who bought property from indebted developers are refusing to repay loans on their unfinished apartments. For decades, buying property was considered a safe investment in China. Now, instead of building a foundation of wealth for the country’s middle class, real estate has become a source of discontent and anger. In more than 100 cities across China, hundreds of thousands of Chinese homeowners are banding together and refusing to repay loans on unfinished properties, one of the most widespread acts of public defiance in a country where even minor protests are quelled. The boycotts are part of the fallout from a worsening Chinese economy, slowed by Covid lockdowns, travel restrictions and wavering confidence in the government.”

August 14 – Bloomberg: “China’s home prices fell for an 11th month in July, underscoring how government relief efforts are failing to curb the country’s spiraling real estate crisis. New home prices in 70 cities, excluding state-subsidized housing, declined 0.11% from June, when they sank 0.1%... Existing-home prices fell 0.21%, the same as a month earlier.”

August 16 – Financial Times (Cheng Leng): “China Huarong Asset Management, the country’s largest distressed debt investor, has issued a profit warning on surging credit impairments and property market jitters less than a year after a $6.6bn state-led restructuring. Credit impairment losses ‘increased significantly’ in the first six months of the year, Huarong said…, as it warned of a net loss of Rmb18.9bn ($2.8bn) for the first half of 2022. The company attributed the loss to the ‘impact of volatility in the capital market and downturn in the real estate market’, adding that the recurrence of Covid-19 cases, geopolitical conflicts and pressure on the economy were also to blame. Huarong, one of China’s ‘Big Four’ asset management companies, needed a government-orchestrated bailout last year after delaying disclosure of a $16bn loss for months.”

August 16 – Associated Press: “Unusually high temperatures and a prolonged drought are affecting large swaths of China, reducing crop yields and drinking water supplies. The lack of rain has been especially marked in the southwestern megacity of Chongqing, which encompasses a large area of mountains and rivers. State media… reported fire trucks were delivering water to outlying villages for drinking and irrigating crops. Rainfall in Chongqing has been half of what is usually expected for the year and some smaller waterways have dried up entirely.”

August 17 – Reuters (David Stanway): “China is scrambling to alleviate power shortages and bring more water to the drought-hit basin of the Yangtze river as it battles a record-breaking heatwave by deploying relief funds, seeding clouds and developing new sources of supply. For more than two months, baking temperatures have disrupted crop growth, threatened livestock and forced industries in the hydropower-dependent regions of the southwest to shut down so as to ensure electricity supplies for homes. China has repeatedly warned that it faces a proliferation of extreme weather events in coming years as it tries to adapt to climate change and rises in temperature that are likely to be more severe than elsewhere.”

August 18 – Financial Times (Primrose Riordan and Gloria Li): “China will offer assistance to coal plants to maintain electricity supplies as demand for the fuel surges in the wake of extreme heat and droughts in the south-west of the country. A months-long heatwave and a lack of rain have starved dams of water in Sichuan, a province of 80mn which mostly relies on hydropower… China’s vice-premier Han Zheng said… Beijing would provide support for coal after the planning ministry said daily consumption of the fuel by the country’s power plants was up 15% in the first two weeks of August compared with the same period last year. ‘[We need to] guarantee safe electricity supply for the people . . . and key sectors,’ he said… The government will ‘enhance policy support [and] take multiple measures to help coal plants ease actual difficulties’, he added…”

August 17 – Bloomberg: “Toyota… and Contemporary Amperex Technology Co., the world’s top battery maker, are closing plants in China’s Sichuan province as a drought-induced power crisis worsens. Sichuan, one of China’s most populous provinces, is highly reliant on hydropower. That makes it particularly vulnerable to a heat wave and drought that’s pushing up air-conditioning demand and drying up reservoirs behind hydro dams. It’s a key manufacturing hub and is also important for the production of materials including polysilicon and lithium that are vital to the energy transition.”

August 19 – Associated Press (Mark Schiefelbein): “Ships crept down the middle of the Yangtze on Friday after China's driest summer in six decades left one of the mightiest rivers barely half its normal width and set off a scramble to contain the damage to a weak economy in a politically sensitive year. Factories in Sichuan province and the adjacent metropolis of Chongqing in the southwest were ordered to shut down after reservoirs that supply hydropower fell to half their normal levels and demand for air conditioning surged in scorching temperatures.”

August 17 – Bloomberg (Linda Lew and Jinshan Hong): “China’s Covid cases surged to a three-month high, driven by a worsening outbreak in the tropical Hainan province that has become the country’s biggest since Shanghai was shut down in the spring. The rising number of infections also caused alarm elsewhere, with hundreds of vehicles stuck on a state highway in Tibet after a neighboring province refused to allow more travelers from the hard-hit region to enter.”

Europe Watch:

August 16 – Wall Street Journal (Joe Wallace): “Natural-gas prices in Europe closed at a new record Tuesday, with hot summer weather boosting fuel demand and Russia throttling back supplies… Fearing President Vladimir Putin will order a full cutoff, the European Union has embarked on a plan to conserve gas now to burn it over the winter. In the U.S., where exports to Europe have helped keep domestic supplies lean, natural-gas futures climbed Tuesday to end at $9.329 per million British thermal units, the highest price in 14 years and 150% more than a year ago.”

August 19 – Reuters (Miranda Murray and Paul Carrel): “German producer prices jumped at the fastest pace on record in July, underscoring the gloomy outlook for Europe's largest economy… Producer prices… surged 37.2% on the year, the biggest rise since records began in 1949… The month-on-month rise, 5.3%, was also the highest on record.”

August 17 – CNN (Mark Thompson): “Inflation in the United Kingdom hit a new 40-year high last month, rising above 10% for the first time since 1982 and piling further pain on households already struggling to pay their bills. Annual consumer price inflation hit 10.1% in July…, up from 9.4% in June. Soaring food prices — up 12.7% since July 2021 — were the largest single contributor to the acceleration in inflation, the ONS said.”

August 13 – Guardian (John Henley): “In places, the Loire can now be crossed on foot; France’s longest river has never flowed so slowly. The Rhine is fast becoming impassable to barge traffic. In Italy, the Po is 2 metres lower than normal, crippling crops. Serbia is dredging the Danube. Across Europe, drought is reducing once-mighty rivers to trickles, with potentially dramatic consequences for industry, freight, energy and food production – just as supply shortages and price rises due to Russia’s invasion of Ukraine bite.”

Japan Watch:

August 18 – Reuters (Tetsushi Kajimoto and Leika Kihara): “Japan's core consumer inflation accelerated in July to its fastest in seven-and-a-half years, driven by fuel and raw material prices and adding to the costs of living for households yet to see significant wage gains… The core consumer price index (CPI)… rose 2.4% in July from a year earlier, matching a median market forecast… That followed a 2.2% gain in June and marked the fastest pace since December 2014…”

August 15 – Reuters (Leika Kihara and Tetsushi Kajimoto): “Japan's economy rebounded at a slower-than-expected pace in the second quarter from a COVID-induced slump… The world's third-largest economy expanded an annualised 2.2% in April-June, government data showed, marking the third straight quarter of increase but falling short of median market forecasts for a 2.5% gain.”

Environmental Instability Watch:

August 16 – Associated Press (Sam Metz, Suman Naishadham and Kathleen Ronayne): “For the second year in a row, Arizona and Nevada will face cuts in the amount of water they can draw from the Colorado River as the West endures more drought… Though the cuts will not result in any immediate new restrictions — like banning lawn watering or car washing — they signal that unpopular decisions about how to reduce consumption are on the horizon, including whether to prioritize growing cities or agricultural areas. Mexico will also face cuts. But those reductions represent just a fraction of the potential pain to come for the 40 million Americans in seven states that rely on the river. Because the states failed to meet a federal deadline to figure out how to cut their water use by at least 15%, they could see even deeper cuts…”

August 17 – Reuters (Brendan O'Brien and Scott Disavino): “California's grid operator urged the state's 40 million people to ratchet down the use of electricity in homes and businesses on Wednesday as a wave of extreme heat settled over much of the state, stretching power supplies to breaking point. Temperatures soared well above 100 Fahrenheit (38 Celsius) in many of the inland valleys, reaching 107 F (42 C) in parts of Northern California's Shasta and Tehama counties and 108 F (42 C) in Southern California's Imperial County on the Mexican border.”

August 12 – CNBC (Nathaniel Lee): “Blackouts are growing more frequent in the United States. The average American experienced just over eight hours of power outages in 2020, with overall duration of power interruptions in the U.S. more than doubling since 2015, according to the U.S. Department of Energy. ‘This is not because the grid has changed, but because there is so much greater threat from extreme weather,’ said Alison Silverstein, an independent consultant at the American Council for an Energy-Efficient Economy. ‘And the number of extreme weather events of every kind have increased significantly over the last decade, in particular.’”