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Credit Bubble Bulletin : Weekly Commentary: Putin & The Vigilantes
France's CAC40 sank 4.8% (down 19.1%)
Two-year government yields jumped 34 bps to 4.206% (up 347bps y-t-d).
Five-year T-note yields surged 35 bps to 3.98% (up 272bps).
Ten-year Treasury yields rose 24 bps to 3.69% (up 218bps).
Long bond yields increased nine bps to 3.61% (up 170bps).
Benchmark Fannie Mae MBS yields spiked 42 bps to 5.49% (up 342bps).
Federal Reserve Credit declined $5.0bn last week at $8.784 TN. Fed Credit is down $117bn from the June 22nd peak. Over the past 158 weeks, Fed Credit expanded $5.057 TN, or 136%.
Freddie Mac 30-year fixed mortgage rates surged 27 bps to 6.29% (up 341bps y-o-y) - the high since October 2008.
Fifteen-year rates jumped 23 bps to an almost 14-year high 5.44% (up 329bps).
Five-year hybrid ARM rates added four bps to 4.97% (up 254bps) - the high since June 2009.
Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates surging 37 bps to 6.55% (up 350bps) - the high since June 2009.
For the week, the U.S. Dollar Index surged 3.1% to 113.19 (up 18.3% y-t-d).
The Chinese (onshore) renminbi declined 2.0% versus the dollar (down 10.83% y-t-d).
The Bloomberg Commodities Index dropped 3.7% (up 13.3% y-t-d).
Spot Gold declined 1.9% to $1,644 (down 10.1%).
Silver slumped 3.7% to $18.87 (down 19.0%).
WTI crude sank $6.37 to $78.74 (up 5%).
Gasoline slipped 1.4% (up 7%)
Natural Gas sank 12.1% to $6.83 (up 83%).
Copper dropped 4.9% (down 25%).
Wheat gained 2.4% (up 14%)
Corn was little changed (up 14%).
to $19,000 (down 59%).
ECONOMIC NEWS SUMMARY
September 18 – Financial Times (Nicholas Megaw): “The stock market downturn since the start of the year has caused the longest drought in US technology listings this century… Wednesday will mark 238 days without a tech IPO worth more than $50mn, surpassing the previous records set in the aftermath of the 2008 financial crisis and the early 2000s dotcom crash, according to research by Morgan Stanley… ‘There’s a tremendous amount of uncertainty in the market right now, and uncertainty is the enemy of the IPO market,’ said Matt Walsh, head of tech equity capital markets at SVB Securities.”
September 22 – Wall Street Journal (Katherine Clarke): “A new report by real-estate brokerage Redfin shows that in the three months ending Aug. 31, sales of luxury U.S. homes dropped 28.1%, from the same period last year. That marks the biggest decline since at least 2012, when Redfin’s records began, and eclipses even the 23.2% decrease recorded during the onslaught of the pandemic in 2020... Sales of nonluxury homes also fell during the same period, but that drop—19.5%– was smaller than the decline in the luxury market, which is defined as the top 5% of homes based on estimated market value...”
September 19 – Wall Street Journal (Collin Eaton and Benoît Morenne): “Dozens of small drillers helped fuel a resurgence in the busiest U.S. oil patch over the past two years. But they tapped many of their best drilling spots, and will have to ease their rapid pace of drilling as their inventory shrinks, analysts and executives say. Private oil companies in the Permian Basin of West Texas and New Mexico emerged from the pandemic-induced oil downturn last year as a growth engine for U.S. shale, now running almost half of the working drilling rigs there… Their publicly traded rivals are restrained by shareholders pushing for conservative spending and using leftover cash to pay investors and reduce debt. After growing rapidly, most smaller producers now have, on average, around six years of drilling locations that could generate returns at low prices… Energy executives say those limitations will likely lead them to slow their drilling.
September 20 – Wall Street Journal (David Harrison): “Rents and other shelter costs are emerging as a major driver of overall consumer inflation, keeping it high at a time when many other sources are starting to ease. Economists expect housing inflation to strengthen further before cooling off in the coming months, but are unsure of when relief will appear. This creates another challenge for the Federal Reserve as it raises interest rates to reduce price pressures… Not only are shelter costs rising, they are climbing at an accelerating pace, accounting for a growing share of the overall inflation rate—about 25% of August’s rate, up from about 20% in February.”
September 20 – CNBC (Diana Olick): “Rents for single-family homes were 12.6% higher in July compared with the year-earlier month, but the gains continue to shrink from the record high seen in April, according to… CoreLogic. Most major metropolitan areas are seeing the same cooling, even in the Sun Belt which saw rents soar the most during the first years of the pandemic. Miami continues to see the biggest gain, with rents up nearly 31% from the year before, but that’s actually down from 41% growth seen in March. Phoenix rents were up 12.2% in July, but down from an 18% gain in March.”
September 18 – Wall Street Journal (Katherine Blunt and Jennifer Hiller): “U.S. utility customers, faced with some of their largest bills in years, are set to pay even more this winter as natural-gas prices continue to climb. Natural-gas prices have more than doubled this year because of a global supply shortage made worse by the war in Ukraine… The supply crunch has made it substantially more expensive for utilities to purchase or produce power, and those costs are being passed on to customers. From New Hampshire to Louisiana, customers’ electricity rates are increasing. The Energy Information Administration anticipates the residential price of electricity will average 14.8 cents per kilowatt-hour in 2022, up 7.5% from 2021. The agency forecasts record gas consumption this year amid surging prices, in part because power producers are limited in their ability to burn coal instead due to supply constraints and plant retirements.”
September 20 – Wall Street Journal (Patrick Thomas): “A lackluster U.S. harvest this year is setting back efforts to relieve a global food supply that has been constrained by Russia’s war in Ukraine, agriculture-industry executives said. Senior executives from companies such as Bayer AG, Corteva Inc., Archer Daniels Midland Co. and Bunge Ltd. said worldwide crop supplies remain tight, and some said at least two more years of good harvests in North and South America are needed to ease the pressure. Persistent drought conditions in the U.S. and agricultural countries in South America, along with uncertainty over crop production in Ukraine, are making that harder, they said. ‘When it comes to the global food-supply situation, I think things are going to continue to be tight for the time being,’ said Werner Baumann, Bayer’s chief executive.”
September 21 – Wall Street Journal (Joe Wallace and Hardika Singh): “Surging prices for lithium are intensifying a race between auto makers to lock up supplies and raising concerns that a shortage of the battery metal could slow the adoption of electric vehicles. Lithium carbonate prices in China, the benchmark in the fast-growing market, stand at about $71,000 a metric ton… That is almost four times as high as a year ago and just below the record set this March in yuan terms.”
September 21 – Reuters (Andrea Shalal): “A top adviser to U.S. Treasury Secretary Janet Yellen warned… China's foot-dragging on debt relief could burden dozens of low- and middle-income countries with years of debt servicing problems, lower growth and underinvestment. Yellen's counselor Brent Neiman criticized China's ‘unconventional’ debt practices and its failure to move forward with debt relief at an event at the Peterson Institute for International Economics. ‘China’s enormous scale as a lender means its participation is essential,’ Neiman said…, citing estimates that China has $500 billion to $1 trillion in outstanding official loans, mainly to low and middle-income countries. Many of those countries are facing debt distress…”
September 21 – Reuters (Lindsay Dunsmuir): “The average interest rate on the most popular U.S. home loan climbed to its highest level since October 2008, Mortgage Bankers Association (MBA) data showed… The average contract rate on a 30-year fixed-rate mortgage rose by 24 basis points to 6.25% for the week ended Sept. 16, a level not seen since towards the end of the financial crisis and the Great Recession.”
September 19 – CNBC (Diana Olick): “More builders are lowering prices for homes as their confidence in the market continues to tumble. Homebuilder sentiment in September fell 3 points to 46 in the National Association of Home Builders/Wells Fargo Housing Market Index. Anything below 50 is considered negative. That is the ninth straight month of declines and the lowest level since May of 2014, with the exception of a short-lived drop at the start of the coronavirus pandemic in 2020. Sentiment was at 83 in January of this year… Nearly a quarter of homebuilders also reported lowering home prices, up from 19% in August, Konter added. Of the index’s three components, current sales conditions dropped 3 points to 54, sales expectations in the next six months fell 1 point to 46 and buyer traffic declined 1 point to 31.”
September 16 – Washington Post (Abha Bhattarai): “The U.S. economy came within hours of shutting down because of a standoff between unions and railroad carriers over sick pay and scheduling, highlighting just how dramatically staffing shortages have reshaped American workplaces and driven exhausted workers to push back. With more than 11 million job openings and only 6 million unemployed workers, employers have struggled for more than a year to hire enough people to fill their ranks. That mismatch has left employees frustrated and burnt out, and is fueling a new round of power struggles on the job… Some 15,000 nurses walked out of the job in Minnesota this week, and health-care workers in Michigan and Oregon have recently authorized strikes. Seattle teachers called off a week-long strike, delaying the start of the school year. At the center of each of these challenges are widespread labor shortages that have caused deteriorating working conditions.”
September 22 – Wall Street Journal (Nicole Friedman): “Homeowners with low mortgage rates are balking at the prospect of selling their homes to borrow at much higher rates for their next homes, a development that could limit the supply of houses for sale for years to come. Housing inventory has risen from record lows earlier this year as more homes sit on the market longer. But the number of newly listed homes in the four weeks ended Sept. 11 fell 19% year-over-year, according to… Redfin Corp. That is an indication that sellers who don’t need to sell are staying on the sidelines, economists say.”
September 18 – Bloomberg (Alexandre Tanzi): “More US consumers are saddled with credit-card debts for longer periods of time, according to a survey, struggling to pay down amid high inflation and rising interest rates. Sixty percent of credit-card debtors say they have been in credit-card debt for at least a year, up from 50% a year ago, CreditCards.com said… The share of those who have been in debt for over two years also increased, to 40% from 32%... With inflation exceeding wage gains, more households have relied on revolving debt. Consumers in their 20s and 30s, and those in the lowest income brackets are more likely to carry a balance to cover daily expenses such as groceries, child care or utilities than older generations, the report shows.”
September 21 – Reuters (Rose Horowitch): “The cost of renting a home in the United States is surging and young workers have felt the sharpest pain, many of them taking on additional jobs or roommates to afford housing costs. Household rents in 2021 jumped 10% from pre-pandemic levels, according to Census Bureau estimates... The figures came as rising healthcare and rental costs pushed U.S. consumer prices up unexpectedly last month. The data from the bureau’s annual American Community Survey put median U.S. rent at $1,037 in 2021, up from $941 in 2019.”
September 21 – Reuters (Mehnaz Yasmin): “Three major U.S. banks said… they will hike their prime lending rates by 75 bps, bringing the rates to their highest since the global financial crisis of 2008. JPMorgan…, Citigroup Inc and Wells Fargo & Co said the new rates would take effect on Thursday.”
September 20 – Reuters (Rachel More and Rene Wagner): “German producer prices rose in August at their strongest rate since records began both in annual and monthly terms, driven mainly by soaring energy prices, raising the chances that headline inflation will surge even higher. Producer prices of industrial products increased by 45.8% on the same month last year... Compared to July 2022, prices rose 7.9%, it added… Energy prices in August on average were over double the same period last year, up 139%, and 20.4% higher than the previous month…”
September 21 – Bloomberg (Ewa Krukowska and Todd Gillespie): “The bill for Europe’s energy crisis is nearing 500 billion euros ($496bn) as governments rush to soften the blow of soaring prices, according to the Bruegel think-tank. The European Union’s 27 member states have so far earmarked 314 billion euros to cushion the impact of the energy crunch on consumers and businesses, while the U.K. has allocated 178 billion euros, Bruegel’s updated estimates showed… The growing fiscal burden… comes as European nations grapple with accelerating inflation and a bleak economic outlook. EU ministers are negotiating an emergency plan that will transfer windfall energy company profits to vulnerable households and firms.”
September 21 – New York Times (Melissa Eddy): “In its latest outlay to secure energy for Europe’s largest economy, the German government… announced the nationalization of Uniper, a company responsible for providing more than a third of Germany’s natural gas. Germany will spend 8 billion euros ($7.9bn) to acquire shares in Uniper it does not already own, raising its stake to 99 percent, and inject an additional €8 billion in fresh capital into the company, the economy minister, Robert Habeck, said. ‘The state will do everything necessary, that is evident, to stabilize companies and keep them operating on the market,’ Mr. Habeck said. Uniper, once Germany’s largest importer of Russian gas, is the second energy provider within a week that the German government has had to save by intervening to ensure supply, and the third company linked to fuel imports from Russia that has required government intervention since Russia invaded Ukraine.”
September 21 – Wall Street Journal (Rochelle Toplensky): “Germany’s nationalization of gas giant Uniper… lays bare the seismic ructions in the once-sleepy world of European utilities triggered by the new Cold War with Russia. Investing in the sector will change dramatically. Berlin said it would inject €8 billion… It will also buy Finnish utility company Fortum’s majority stake in Uniper at the same rate. The deal ups the ante after the state’s first attempted bailout, announced just two months ago, proved insufficient… There are echoes of the 2008 financial crisis. Even if Lehman Brothers was the bank that didn’t get bailed out, Uniper is similarly too big to fail and German government officials are warning of further bailouts.”
September 19 – Reuters (Miranda Murray, Rachel More and Sergio Goncalves): “Germany was pressing on Monday to secure liquefied natural gas contracts with Gulf producers and other European states outlined measures to conserve energy, with Russian flows running at severely reduced levels as winter approaches. Berlin said it aimed to sign LNG contracts in the United Arab Emirates to supply terminals it is building, now that the vital Nord Stream 1 gas pipeline from Russia is shut, while Spain, France others outlined contingency planning to try to avoid power cuts.”
September 19 – Reuters (Leika Kihara and Takahiko Wada): “Japan's core consumer inflation quickened to 2.8% in August, hitting its fastest annual pace in nearly eight years and exceeding the central bank's 2% target for a fifth straight month as price pressure from raw materials and yen weakness broadened. The strength of August inflation reinforced growing suspicions among economists that price pressure will last longer than the Bank of Japan (BOJ) has been expecting…”
DOUG NOLAND'S COMMENTARY:
Credit Bubble Bulletin : Weekly Commentary: Putin & The Vigilantes
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