FULL COLUMN HERE:
Credit Bubble Bulletin : Weekly Commentary: A Threatening Turn
Federal Reserve Credit declined $10.8bn last week at $8.773 TN. Fed Credit is down $128bn from the June 22nd peak. Over the past 159 weeks, Fed Credit expanded $5.046 TN, or 135%.
Freddie Mac 30-year fixed mortgage rates
to a 15-year high 5.96% (up 368bps).
(up 282bps) - the high since January 2009.
had 30-year fixed rates up 27 bps to 6.82% (up 362bps) -
the high since March 2009
declined 0.9% to 112.17 (up 17.2% y-t-d).
The Chinese (onshore) renminbi
gained 0.17% versus the dollar (down 10.68% y-t-d).
Commodities:
(up 12.4% y-t-d).
Spot Gold rallied 1.0% to $1,661 (down 9.2%).
Silver recovered 0.8% to $19.028 (down 18.4%).
WTI crude increased 75 cents to $79.49 (up 6%).
Gasoline surged 3.8% (up 11%)
Natural Gas declined 0.9% to $6.766 (up 81%).
Copper rallied 2.1% (down 24%).
Wheat surged 4.7% (up 20%)
Corn was little changed (up 14%).
this week to $19,400 (down 58%).
ECONOMIC NEWS:
September 28 – Bloomberg (David Goodman and Philip Aldrick): “The Bank of England staged a dramatic intervention to stave off an imminent crash in the gilt market by pledging unlimited purchases of long-dated bonds. With the fallout from Prime Minister Liz Truss’s tax cuts still ripping through UK asset prices, the central bank had been warned that collateral calls on Wednesday afternoon could force investors to dump government bonds, according to a person familiar with its decision making. The plan to buy securities maturing in 20 years or more in daily tranches of up to £5 billion ($5.3bn) had an immediate impact on the gilt market, putting yields on 30-year debt on track for the biggest drop on record. They earlier climbed to the highest since 1998.
September 24 – Reuters (Michael MacKenzie and Liz Capo McCormick): “Week by week, the bond-market crash just keeps getting worse and there’s no clear end in sight. With central banks worldwide aggressively ratcheting up interest rates in the face of stubbornly high inflation, prices are tumbling as traders race to catch up. And with that has come a grim parade of superlatives on how bad it has become. On Friday, the UK’s five-year bonds tumbled by the most since at least 1992 after the government rolled out a massive tax-cut plan that may only strengthen the Bank of England’s hand. Two-year US Treasuries are in the middle of the the longest losing streak since at least 1976, dropping for 12 straight days. Worldwide, Bank of America Corp. strategists said government bond markets are on course for the worst year since 1949, when Europe was rebuilding from the ruins of World War Two.”
September 25 – Wall Street Journal (Gunjan Banerji): “It is the worst year for buying the stock-market dip since the 1930s. Instead of rebounding after a tumble, stocks have continued to fall, burning investors who stepped in to buy shares on sale. The S&P 500 has dropped 1.2% on average this year in the week after a one-day loss of at least 1%... That is the biggest such decline since 1931. The extended downturn is putting a dent in the popular buy-the-dip trade, a strategy in which many investors found great success after the last financial crisis and particularly during the lightning-fast pandemic recovery. Major stock indexes hit dozens of continuous records, convincing many investors that any downturn would be short-lived—and an attractive opportunity to buy. Retail, or nonprofessional, investors have been enthusiastic dip buyers, piling in even when institutional investors are coming out.”
September 25 – Bloomberg (Natalie Wong, John Gittelsohn and Noah Buhayar): “In the heart of midtown Manhattan lies a multibillion-dollar problem for building owners, the city and thousands of workers. Blocks of decades-old office towers sit partially empty, in an awkward position: too outdated to attract tenants seeking the latest amenities, too new to be demolished or converted for another purpose. It’s a situation playing out around the globe as employers adapt to flexible work after the Covid-19 pandemic and rethink how much space they need. Even as people are increasingly called back to offices for at least some of the week, vacancy rates have soared in cities from Hong Kong to London and Toronto. ‘There’s no part of the world that is untouched by the growth of hybrid working,’ said Richard Barkham, global chief economist for commercial real estate firm CBRE Group Inc.”
September 28 – Bloomberg (Sidhartha Shukla): “Trading volumes in nonfungible tokens -- digital art and collectibles recorded on blockchains -- have tumbled 97% from a record high in January this year. They slid to just $466 million in September from $17 billion at the start of 2022, according to… Dune Analytics. The fading NFT mania is part of a wider, $2 trillion wipeout in the crypto sector as rapidly tightening monetary policy starves speculative assets of investment flows.”
September 28 – Reuters (Gabriela Baczynska, Sabine Siebold and Marine Strauss): “The European Union executive proposed… an eighth round of sanctions against Russia over its invasion of Ukraine, including tighter trade restrictions, more individual blacklistings and an oil price cap for third countries. The proposal will now go to the bloc's 27 member countries, which will need to overcome their differences to implement the new sanctions on top of seven sets of punitive measures imposed on Russia since its forces swept into Ukraine on Feb. 24.”
September 27 – Bloomberg (Craig Stirling and Elena Mazneva): “The economic damage from the shutdown of Russian gas flows is piling up fast in Europe and risks eventually eclipsing the impact of the global financial crisis. With a continent-wide recession now seemingly inevitable, a harsh winter is coming for chemical producers, steel plants and car manufacturers starved of essential raw materials who’ve joined households in sounding the alarm over rocketing energy bills. The suspected sabotage of Germany’s main pipeline for gas from Russia underlined that Europe will have to survive without any significant Russian flows.”
September 27 – Reuters: “Kremlin-controlled gas giant Gazprom said… it rejected all claims from Ukraine's energy firm Naftogaz in arbitration proceedings over Russian gas transit, and had notified the arbitration court. It also said that Russia may introduce sanctions against Naftogaz in case it further pursues the arbitration case, meaning Gazprom would be prohibited by the sanctions from paying Ukraine the transit fees.”
September 29 – Bloomberg (Kim Chipman, Dominic Carey and Michael Hirtzer): “American farmers face yet another supply-chain headache just as harvest season moves into high gear: Not enough barges on a shrinking Mississippi River. Drought is drying up the crucial US water artery. That means less room for vessels shipping out corn and soybeans, the biggest US crops. Barge rates reached $49.88 per ton on Tuesday, the highest on record and up nearly 50% from a year ago…”
September 30 – Reuters (Balazs Koranyi): “Euro zone inflation zoomed past forecasts to hit 10.0% in September, a new record high that will reinforce expectations for another jumbo interest rate hike next month from the European Central Bank. Price growth in the 19 countries sharing the euro accelerated from August's 9.1%..., beating expectations for a reading of 9.7%, with some euro zone members experiencing the fastest price growth since the time of the Korean War 70 years ago.”
September 29 – Financial Times (Guy Chazan and Martin Arnold): “German inflation soared to double-digit levels for the first time in more than 70 years, underlining the precarious state of Europe’s largest economy, which leading economists warned could shrink by up to 7.9% next year in a worst-case scenario. Chancellor Olaf Scholz responded to soaring energy costs on Thursday by announcing plans for a €200bn cap on gas prices, which he described as a ‘defensive shield’ to be financed by extending an off-balance sheet fund set up to provide aid during the coronavirus pandemic. Consumer prices in Germany rose 10.9% in the year to September, accelerating from 8.8% in August…”
September 29 – Associated Press (Christopher Rugaber): “The number of Americans filing for jobless benefits dropped last week, a sign that few companies are cutting jobs despite high inflation and a weak economy. Applications for unemployment benefits for the week ending Sept. 24 fell by 16,000 to 193,000… That is the lowest level of unemployment claims since April. Last week’s number was revised down by 4,000 to 209,000.”
September 30 – Reuters (Lucia Mutikani): “U.S. consumer spending increased more than expected in August, but aggressive interest rate hikes from the Federal Reserve as it battles stubbornly high inflation are slowing demand… Spending was driven by services as a drop in gasoline prices freed up cash to spend on travel and dining out. Outlays on services increased 0.8% after edging up 0.1% in July. Spending on goods fell 0.5%, held down by a drop in receipts at gasoline service stations amid lower gasoline prices. Goods spending fell 0.7% in July… The personal consumption expenditures (PCE) price index rose 0.3% last month after dipping 0.1% in July. In the 12 months through August, the PCE price index increased 6.2% after advancing 6.4% in July. Excluding the volatile food and energy components, the PCE price index jumped 0.6%...”
September 27 – CNBC (Diana Olick): “U.S. home prices cooled in July at the fastest rate in the history of the S&P CoreLogic Case-Shiller Index… Home prices in July were still higher than they were a year ago, but cooled significantly from June gains. Prices nationally rose 15.8% over July 2021, well below the 18.1% increase in the previous month… The 10-City composite… climbed 14.9% year over year, down from 17.4% in June. The 20-City composite, which adds regions such as the Seattle metro area and greater Detroit, gained 16.1%, down from 18.7% in the previous month.”
September 28 – CNBC (Diana Olick): “Mortgage rates drove even higher last week after the Federal Reserve signaled it would continue its aggressive action to cool inflation. That, and rising uncertainty in the overall housing market, caused mortgage application volume to drop 3.7% last week compared with the previous week… After a strange rebound the week before, applications to refinance a home loan declined 11% for the week and were 84% lower than the same week one year ago. They are now at a 22-year low because there are very few borrowers who can benefit from a refinance at today’s higher rates.”
September 28 – Reuters (Lindsay Dunsmuir): “The average interest rate on the most popular U.S. home loan climbed to its highest level since August 2008, data from the Mortgage Bankers Association (MBA) showed… Rising mortgage rates are increasingly weighing on the interest-rate-sensitive housing sector as the Federal Reserve pushes on with aggressively lifting borrowing costs to curb high inflation. The average contract rate on a 30-year fixed-rate mortgage rose by 27 bps to 6.52% for the week ended Sept. 23, a level not seen since the financial crisis and the Great Recession.”
September 27 – Bloomberg (Vince Golle): “US sales of new homes unexpectedly rose in August, representing a break in an otherwise rapid descent this year for a housing market still at risk of further deterioration as mortgage rates climb. Purchases of new single-family homes increased nearly 29% to a 685,000 annualized pace… New-home sales rose in all regions, including a 29.4% jump in the South, where the pace was the firmest this year… There were 461,000 new homes for sale at the end of the month, the most since March 2008.”
September 26 – Bloomberg: “China’s shaky recovery continued in September, with a pickup in car and homes sales in the biggest cities compensating for weaker global demand and falling business confidence. That’s the outlook based on Bloomberg’s aggregate index of eight early indicators for this month. The overall gauge was at 5, unchanged from August, signaling that the economic rebound maintained momentum. Overall, China’s economy picked up in the third quarter from the near contraction in the April-June period, but that rebound was undermined by Covid lockdowns and outbreaks in cities across the country, the continued housing slump, and weakening export demand.”
September 26 – Wall Street Journal (Lingling Wei): “China has spent a trillion dollars to expand its influence across Asia, Africa and Latin America through its Belt and Road infrastructure program. Now, Beijing is working on an overhaul of the troubled initiative, according to people involved in policy-making. A slowing global economy, combined with rising interest rates and higher inflation, have left countries struggling to repay their debts to China. Tens of billions of dollars of loans have gone sour, and numerous development projects have stalled. Western leaders have criticized China’s lending practices, which some have labeled ‘debt-trap diplomacy,’ embarrassing Beijing. Many economists and investors have said the country’s lending practices have contributed to debt crises in places like Sri Lanka and Zambia. After nearly a decade of pressing Chinese banks to be generous with loans, Chinese policy makers are discussing a more conservative program…”
September 28 – Bloomberg (Edward Harrison): “Is the Bank of England’s unlimited buying of long-dated gilts QE? It’s certainly curious policy for a central bank ostensibly in the midst of a tightening cycle. In the end, the BOE’s actions demonstrate how market ructions force an about-face from central banks bent on raising rates and tightening policy. Don’t look at the UK situation as an outlier because of an extreme fiscal policy. Instead see it as a harbinger of things to come elsewhere if central banks continue the pace of rate hikes. To be sure, the moves in the gilt market are extreme by any developed market yardstick… But we have been seeing an unusual level of volatility in government bond markets throughout developed markets. The MOVE index that measures Treasury volatility is spiking too.”
September 28 – Bloomberg (Abhinav Ramnarayan): “British blue-chip companies are facing their highest bond refinancing costs on record as new Prime Minister Liz Truss’s fiscal package aimed at turbo-charging growth wreaks havoc on UK markets. The difference in the rate investment-grade companies need to pay if they issue sterling bonds now compared with coupons on existing debt climbed to 325 bps… This is the highest level since the sterling index of investment-grade corporate bonds began more than two decades ago, exceeding the previous high hit in the aftermath of the 2008 financial crisis.”
September 26 – Associated Press (David McHugh, Justin Spike, Karel Janicek and Veselin Toshkov): “As Europe heads into winter in the throes of an energy crisis, offices are getting chillier. Statues and historic buildings are going dark. Bakers who can’t afford to heat their ovens are talking about giving up, while fruit and vegetable growers face letting greenhouses stand idle. In poorer eastern Europe, people are stocking up on firewood, while in wealthier Germany, the wait for an energy-saving heat pump can take half a year. And businesses don’t know how much more they can cut back.”
September 29 – Bloomberg (Jana Randow): “German inflation reached double digits for the first time since the euro was introduced more than 20 years ago, surging more than anticipated after temporary government-relief measures ended and Europe’s energy crisis worsened. Consumer prices jumped 10.9% from a year ago in September, topping August’s 8.8% advance... That’s more than the 10.2% economists… had estimated.”
September 25 – Financial Times (Jonathan Wheatley): “The IMF’s lending to economically troubled countries has hit a record high as the world’s lender of last resort battles simultaneous crises that have pushed at least five countries into default, with more expected to follow. The pandemic, Russia’s attack on Ukraine and a sharp rise in global interest rates have forced dozens of countries to seek IMF assistance. A Financial Times analysis of IMF data shows that at the end of August the volume of loans disbursed by the fund amounted to $140bn in 44 separate programmes.”
September 25 – Reuters (Daniel Leussink): “Japan's factory activity growth hit a 20-month low in September, as firms struggled with a global slowdown and pressure from high energy and raw material prices that was exacerbated by a weak yen. The au Jibun Bank Flash Japan Manufacturing Purchasing Managers' Index (PMI) slipped to a seasonally adjusted 51.0 in September from the prior month's final of 51.5. The headline figure marked the slowest expansion since January 2021…”
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