Financial Data and Economic News Summary for the week ending August 27, 2022

 SOURCE:

Credit Bubble Bulletin : Weekly Commentary: New Cycle Monetary Management

The Credit Bubble Bulletin
Weekly Commentary: 
New Cycle Monetary Management

by Doug Noland

Doug Noland Commentary is here:

Credit Bubble Bulletin : Weekly Commentary: New Cycle Monetary Management

My easy to read edited version of the rest of the Noland post follows:  Ye Editor

For the Week Ending August 26, 2022:

S&P500 sank 4.0% (down 14.9% y-t-d)

Dow Industrials fell 4.2% (down 11.2%)

Utilities declined 2.6% (up 4.6%)

Banks slumped 4.0% (down 18.6%)

Broker/Dealers lost 1.8% (down 8.0%)

Transports dropped 2.7% (down 12.7%)

S&P 400 Midcaps fell 3.0% (down 12.0%)

Small cap Russell 2000 dropped 2.9% (down 15.4%)

Nasdaq100 sank 4.8% (down 22.8%)

Semiconductors were hammered 5.2% (down 29.1%)

Biotechs fell 3.3% (down 14.3%). 

With gold bullion down $9,

the HUI gold stock equities index 

declined 1.2% (down 23.7%)

U.K.'s FTSE declined 1.6% (up 0.6% y-t-d).

Japan's Nikkei declined 1.0% (down 0.5% y-t-d).  

France's CAC40 dropped 3.4% (down 12.3%)

German DAX sank 4.2% (down 18.3%). 

Spain's IBEX 35 fell 3.3% (down 7.5%).
Italy's FTSE MIB lost 2.8% (down 19.9%). 

Brazil's Bovespa added 0.7% (up 7.1%)

Mexico's Bolsa sank 2.5% (down 11.5%). 

South Korea's Kospi declined 0.5% (down 16.7%). 

India's Sensex declined 1.4% (up 1.0%). 

China's Shanghai slipped 0.7% (down 11.1%). 

Turkey's Istanbul National 100 up 4.2% (up 69.4%). 

Russia's MICEX rose 3.4% (down 40.1%).

Three-month Treasury bill rates 

ended the week at 2.76%. 

Two-year government yields

 jumped 17 bps to 3.40% (up 267bps y-t-d). 

Five-year T-note yields

 rose 11 bps to 3.21% (up 194bps). 

Ten-year Treasury yields 

gained seven bps to 3.04% (up 153bps). 

Long bond yields 

declined two bps to 3.19% (up 129bps). 

Benchmark Fannie Mae MBS yields 

jumped 13 bps to 4.49% (up 242bps).

Federal Reserve Credit last week 

dropped $18.5bn to $8.819 TN. 

Fed Credit is down $71.1bn 

from the June 22nd peak. 

Over the past 154 weeks, 

Fed Credit expanded $5.092 TN, or 137%. 

Freddie Mac 30-year fixed mortgage rates 

surged 42 bps to 5.55% (up 268bps y-o-y). 

Fifteen-year rates 

jumped 30 bps to 4.85% (up 271bps). 

Five-year hybrid ARM rates 

slipped three bps to 4.36% (up 194bps). 

Jumbo mortgage 30-year fixed rates 

up 20 bps to 5.87% (up 279bps).

For the week, the U.S. Dollar Index 

added 0.6% to 108.80 (up 13.7% y-t-d). 

 The Chinese (onshore) renminbi 

declined 0.79% versus the dollar 

   (down 7.50% y-t-d).

Bloomberg Commodities Index gained 1.9% 

    (up 25.6% y-t-d). 

Spot Gold slipped 0.5% to $1,738 (down 5.0%). 

Silver declined 0.8% to $18.90 (down 18.9%). 

WTI crude rallied $2.29 to $93.06 (up 23.7%). 

Gasoline sank 5.5% (up 28%)

Natural Gas slipped 0.4% to $9.30 (up 149%). 

Copper increased 0.7% (down 17%). 

Wheat recovered 4.4% (up 5%)

Corn surged 6.6% (up 12%). 

Bitcoin fell $620, or 2.9%, 

this week to $20,658 (down 55%).

ECONOMIC  NEWS  SUMMARY

August 22 – Wall Street Journal (By Corrie Driebusch): “The IPO market is on pace for its worst year in decades, leaving fledgling companies with few options but to burn through cash while they wait for the stock market to calm. Late last year, hundreds of companies were in the final stages of preparing to go public, encouraged by the best 18 months ever for U.S. initial public offerings. Then a combination of factors—sky-high inflation, rising interest rates and Russia’s invasion of Ukraine—sent shock waves through the stock market. The IPO pipeline froze. So far this year, traditional IPOs have raised only $5.1 billion all told, Dealogic data show. Typically at this point in the year, traditional IPOs have raised around $33 billion… Last year at this point, these offerings raised more than $100 billion.”

August 25 – Bloomberg (Patrick Clark and Dawn Lim): “Home Partners of America, the single-family landlord owned by Blackstone Inc., will stop buying homes in 38 US cities, becoming the latest institutional investor to back away from an overheated housing market. The company, acquired by Blackstone in June 2021 for $6 billion, told customers that as of Sept. 1, it is pausing applications and property submissions in Boise, Idaho; Fresno, California; Memphis, Tennessee, and 25 other areas. It will go on hiatus in 10 additional cities on Oct. 1.”

August 21 – Bloomberg (Ailing Tan): “China continues to expand its reliance on Russian energy, with purchases of crude, oil products, gas and coal rising to $35 billion since the war in Ukraine began, from about $20 billion a year earlier… The increase comes as other countries shun Russian goods as punishment for the invasion. Imports in July included a record haul of Russian coal, which rose 14% on year to 7.4 million tons, with coking coal for the steel industry hitting 2 million tons, an increase of 63%. Russia is now China’s top supplier of the fuel…”

August 24 – Reuters (Priyamvada C): “U.S. new vehicle prices are expected to hit a record high in August on the back of strong demand despite rising interest rates… Average transaction prices are set to reach a record $46,259, an 11.5% increase from a year earlier, according to… J.D. Power and LMC Automotive. However, an inventory shortage continues to shackle new vehicle sales. Retail sales of new vehicles are expected to reach 980,400 units in August, a 2.6% decrease from a year earlier…”

August 22 – Bloomberg (Annie Lee): “Prices of lithium in China are close to a record high as a power crisis in the nation’s major hub for the vital electric-vehicle battery ingredient threatens an already-tight market. Sichuan, home to more than a fifth of China’s lithium production, extended industrial power cuts this week amid the most intense heat wave in more than a half century. The supply disruptions in the province are set to add fuel to the battery metal’s stunning rally in the past year, with lithium carbonate prices on Monday reaching the highest level since April at 484,500 yuan ($70,610) a ton.”

August 20 – Bloomberg (Tarso Veloso Ribeiro, Tatiana Freitas, and Marvin G Perez): “Extreme weather is wreaking havoc upon virtually all of the world’s largest cotton suppliers. In India, the top-producing country, heavy rains and pests have cut into cotton crops so much that the nation is importing supplies. A heat wave in China is raising concerns about the upcoming harvest there. In the US, the largest exporter of the commodity, a worsening drought is ravaging farms and is set to drag production to the lowest level in more than a decade. And now Brazil, the second-largest exporter, is battling extreme heat and drought that have already cut yields by nearly 30%. This confluence of extreme weather events ... has sent cotton prices soaring by as much as 30%.”

August 23 – Bloomberg (Will Wade and Mark Chediak): “Adrienne Nice woke up early on the morning of July 25 to news she’d been dreading. The power company, Xcel Energy Inc., had shut off the electricity to the small Minneapolis apartment she shares with her teenage son, just as a heat wave was bearing down on the city. Nice had been struggling financially ever since the pandemic hit, racking up more than $3,000 in past-due utility bills. The warnings she’d gotten on her monthly statement—“FINAL NOTICE” scrawled in big, bold letters—had prepared her to some degree, but it was still jarring to find the fridge dark and the air conditioner silent… The Nice household is one of some 20 million across the country—about 1 in 6 American homes—that have fallen behind on their utility bills. It is, according to the National Energy Assistance Directors Association (Neada), the worst crisis the group has ever documented. Underpinning those numbers is a blistering surge in electricity prices, propelled by the soaring cost of natural gas.”

August 23 – Reuters (Lucia Mutikani): “Sales of new U.S. single-family homes plunged to a 6-1/2-year low in July as persistently high mortgage rates and house prices further eroded affordability. The report… added to a stream of weak housing data, and suggested that the Federal Reserve's aggressive monetary policy tightening campaign to slow the economy in order to tame inflation was achieving some desired results in the housing market. But with house prices remaining elevated amid a critical shortage of previously owned properties, a total housing market collapse is unlikely… New home sales tumbled 12.6% to a seasonally adjusted annual rate of 511,000 units last month, the lowest level since January 2016. June's sales pace was revised down to 585,000 units from the previously reported 590,000 units.”

August 24 – Reuters (Lucia Mutikani): “New orders for U.S.-manufactured capital goods increased in July, but the pace slowed from the prior month, suggesting a moderate rebound in business spending this quarter… While part of the rise was because businesses are spending more due to higher prices, the data was another sign that the economy continues to grow at a slow pace and was not in recession. ‘The absence of a sustained decline in orders suggests that businesses are still investing despite tighter financial market conditions, a drop in sentiment and worries about a recession,’ said Ryan Sweet, a senior economist at Moody's Analytics... Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.4% last month. Data for June was revised higher…”

August 23 – Reuters (Dan Burns): “U.S. private-sector business activity contracted for a second straight month in August to its weakest in 27 months with particular softness registered in the services sector as demand weakened in the face of inflation and tighter financial conditions. The S&P Global flash composite purchasing managers index (PMI) for August dropped to 45 this month - the lowest since May 2020 - from a final reading of 47.7 in July.”

August 25 – Dow Jones (Jeffry Bartash): “Many companies still hiring even as economy slows. The numbers: The number of people who applied for unemployment benefits last week fell to a one-month low of 243,000, indicating layoffs remain near record lows and that a tight labor market is keeping the economy moving forward. Initial jobless claims fell by 2,000 from a revised 245,000 in the prior week.”

August 21 – Financial Times (Andrew Edgecliffe-Johnson): “Walmart’s top executives had to laugh as they prepared to discuss their latest earnings with analysts, admitted chief executive Doug McMillon. The conflicting anecdotes the US retailer was about to share about consumer demand — back to school backpacks flying off the shelves even as it had to slash prices to clear excess stock and its poorest customers traded down from beef to beans — seemed like a Rorschach test of economic interpretations. But if the company that sells more goods to more Americans than any other is struggling to interpret the consumer mood, spare a thought for those parsing such snippets for clues as to whether or not inflation is tipping the US into a recession. Consumer confidence surveys, usually a reliable source of advance warning on which way spending is heading, could not paint a much more dire picture of the outlook as the Federal Reserve scrambles to tame rising prices… Yet this pessimism is not showing up in the sales story being told by Walmart and its rivals.”

August 24 – CNBC (Diana Olick): “Mortgage demand continues to weaken, still right around a 22-year low, but there was a sign in the weekly numbers that first-time buyers may be slowly returning. Mortgage applications to purchase a home fell 1% last week compared with the previous week… Volume was 21% lower than the same week one year ago. There was, however, a jump in demand for loans offering lower down payments… ‘Last week’s purchase results varied, with conventional applications declining 2% and government applications increasing 4%, which is potentially a sign of more first-time homebuyer activity,’ said Joel Kan, an MBA economist.”

August 24 – CNBC (Diana Olick): “Home prices declined 0.77% from June to July, the first monthly fall in nearly three years, according to Black Knight… While the drop may seem small, it is the largest single-month decline in prices since January 2011. It is also the second-worst July performance dating back to 1991, behind the 0.9% decline in July 2010... The sharp and fast rise in mortgage rates this year caused an already pricey housing market to become even less affordable. Home prices rose sharply during the first years of the Covid pandemic because demand was incredibly strong, supply historically weak and mortgage rates set more than a dozen record lows.”

August 24 – Reuters (David Stanway): “Extreme heat in China played havoc on Wednesday despite lower temperatures in some regions, with authorities across the Yangtze river basin scrambling to limit the damage from climate change on power, crops and livestock. China's heatwave, stretching past 70 days, is its longest and most widespread on record, with around 30% of the 600 weather stations along the Yangtze recording their highest temperatures ever by last Friday.”

August 24 – Bloomberg: “Wan Jinjun, a 62-year-old retiree who has swum the Yangtze River almost every day for the past decade in Wuhan, said he’s never seen a drought like this before. An extreme summer has taken a toll on Asia’s longest river, which flows about 3,900 miles through China and feeds farms that provide much of the country’s food and massive hydroelectric stations, including the Three Gorges Dam — the world’s biggest power plant. A year ago, water lapped almost as high as the riverbank where Wan swims. Now, the level is at the lowest for this time of year since records began in 1865, exposing swathes of sand, rock and oozing brown mud that reeks of rotting fish.”

August 23 – Financial Times (Hudson Lockett, Cheng Leng and Thomas Hale): “Investors are pricing in almost $130bn in losses on Chinese property developers’ dollar debt on mounting worries the country's housing market will face a protracted crisis unless Beijing steps in with a large-scale bailout. Two-thirds of the more than 500 outstanding dollar bonds issued by Chinese developers are now priced below 70 cents on the dollar, a common threshold for distressed status… The rising pressure on the market comes a year after Evergrande, the world’s most indebted developer, began spiralling into default, unleashing tumult throughout a sector responsible for roughly 30% of the country’s annual economic output.”

August 23 – Bloomberg (Alexander Weber, Enda Curran and Reade Pickert): “Economic activity weakened from the US to Europe and Asia, reinforcing concerns that soaring prices and the war in Ukraine will tip the world into a recession. US business activity contracted for a second-straight month in August, falling to the weakest level since May 2020, S&P Global data showed... Activity in Asia slumped, and output in the 19-nation euro zone also fell as record energy and food inflation saps demand and more sectors succumb to the darkening outlook. The US figures pointed to weaker demand at both manufacturers and service providers as rising interest rates and high inflation weighed on consumers. New orders shrank for the second time in three months, and employers scaled back hiring.”

August 23 – Bloomberg (Kevin Whitelaw): “Europe is currently in the throes of a drought that appears to be the worst in at least 500 years, according to a preliminary analysis by experts from the European Union’s Joint Research Center. Some 64% of the EU is under a drought warning or alert, according to a new report from the European Drought Observatory. The bloc’s experts said they expect the warm and dry conditions, which are fueling wildfires and reducing crop outputs, to continue in parts of the region until November.”

August 22 – Reuters (David Milliken): “Britain recorded its biggest fall in output in more than 300 years in 2020 when it faced the brunt of the COVID-19 pandemic, as well as a larger decline than any other major economy, updated official figures showed… Gross domestic product fell by 11.0% in 2020… This was a bigger drop than any of the ONS's previous estimates and the largest fall since 1709…”

August 24 – Bloomberg (Alexander Weber, Naomi Tajitsu and Jana Randow): “The euro is languishing below parity with the dollar after its latest selloff, and there’s little hope that even a hefty hike in interest rates would rescue it. Rather than monetary policy, it’s the interlinked threats of a recession and a Russian energy cutoff that are weighing down the common currency, according to analysts. Despite traders now bracing for one percentage points of rate hikes by October, such dynamics are hard for the European Central Bank to counter -- even if it deploys the kind of outsized moves in borrowing costs enacted recently by the Federal Reserve.”

August 22 – Reuters (Daniel Leussink): “Japan's factory activity growth slowed to a 19-month low in August as output and new order declines deepened, amid growing pressure from persistent rises in raw material and energy costs and weakening global demand. Activity in the services sector contracted for the first time in five months… The au Jibun Bank Flash Japan Manufacturing Purchasing Managers' Index (PMI) fell to a seasonally adjusted 51.0 in August from a 52.1 final in July, marking the slowest expansion since January last year.”

August 21 – Wall Street Journal (Matthew Dalton, Jim Carlton and Sha Hua): “Severe droughts across the Northern Hemisphere—stretching from the farms of California to waterways in Europe and China—are further snarling supply chains and driving up the prices of food and energy, adding pressure to a global trade system already under stress. Parts of China are experiencing their longest sustained heat wave since record-keeping began in 1961, according to China’s National Climate Center, leading to manufacturing shutdowns owing to lack of hydropower. The drought affecting Spain, Portugal, France and Italy is on track to be the worst in 500 years, according to Andrea Toreti, a climate scientist at the European Commission’s Joint Research Center.”

August 24 – Wall Street Journal (Sumathi Reddy): “Between two million and four million Americans aren’t working due to the long-term effects of Covid-19, according to a new Brookings Institution report… The inability to work translates to roughly $170 billion a year in lost wages, the report estimates. It follows a January Brookings Institution report that estimated long Covid was potentially causing 15% of the country’s labor shortage. The report estimates that roughly 16 million Americans of working age—between 18 and 65—have long Covid, which most groups and doctors define as wide-ranging symptoms that persist for months following an infection and can include shortness of breath, extreme fatigue and neurocognitive issues.”

August 22 – Bloomberg (Marvin G Perez): “The outlook for cotton production in Texas, the nation’s largest producer, took a turn for the worse in a fresh blow to global supplies of the fiber. Only 11% of Texas crops were rated good-to-excellent in the week to Aug. 21, down from 14% a week earlier, matching the lowest since 2011… The portion of plants in poor-to-very poor conditions increased to 59% from 50% a week earlier.”

August 21 – Reuters: “Turkey doubled its imports of Russian oil this year, Refinitiv Eikon data showed…, as the two countries are set for broader cooperation in business and especially energy trade in the face of western sanctions against Moscow. Trade between Turkey and Russia has been booming since spring as Turkish companies not banned from dealing with Russian counterparts stepped in to fill the void created by EU businesses leaving Russia after its invasion of Ukraine earlier this year.”