Economic News Summary for the week ending November 4, 2022

US ECONOMIC NEWS FOR THE PAST WEEK:

Market Instability Watch:

November 1 – Bloomberg (Lu Wang): “It happens in a flash: The S&P 500 turns on a dime, and piranha-like options traders pile into short-dated contracts in a dash to harvest a quick advantage… Once a popular playbook for day traders seeking quick profits on meme stocks, the risky strategy appears to have grown more popular among retail and institutional investors alike. During the third quarter, S&P 500 options expiring within one day accounted for more than 40% of total volume, almost doubling from six months ago, according to… Goldman Sachs... The rush reinforces concern that derivatives can amplify moves in underlying assets, potentially creating market dislocations.”

November 4 – Reuters (Amanda Cooper): “Investors put money into cash at the fastest pace at the start of a quarter since the 2020 COVID crisis in the week to Wednesday…, BofA Global Research said… Cash funds saw inflows of $62.1 billion in the latest week, reflecting investor demand for dollars, which in turn saw the 19th straight week of outflows from gold funds - the longest string of outflows since 2014, BofA said…”

November 3 – Financial Times (Leo Lewis, Kana Inagaki and Tommy Stubbington): “There’s a Chinese proverb that holds it is better to plan one’s means of retreat than 36 different ways to win the battle. The axiom has cropped up on Tokyo trading floors this autumn, after Japan lavished a record $62bn to fight the yen’s collapse below a three-decade low, in as many as four separate interventions since September. That is only one front in its war against global market forces. By the end of June, after months fighting to control the yield curve, the Bank of Japan had raised its holdings of Japanese government bonds (JGBs) to over half a quadrillion yen ($3.6tn). Last week, to fight the negative impact of inflation, the government unveiled a $200bn stimulus package. There is mounting fear, however, that an orderly retreat may be impossible. Instead the BoJ is betting everything on yet another strategy aimed at winning the battle. It is making a giant gamble…”

October 30 – Wall Street Journal (Matt Grossman and Sam Goldfarb): “Rising friction in the trading of U.S. government debt has investors worried about the health of a $24 trillion market that is critical to the functioning of the broader financial system. The ranks of traders ready to buy and sell Treasurys are shrinking. Individual trades are moving prices more. Treasury securities with similar characteristics are trading at larger-than-normal price differences. Major players, including the big banks and asset managers that have long been significant buyers, are in retreat.”

November 2 – Reuters (Alden Bentley and Davide Barbuscia): “The U.S. Treasury said… it will continue to assess whether or how to implement a program to buy back some of its existing bonds, a move partly aimed at improving liquidity in the Treasuries market. Last month, as part of its regular survey of dealers before each of its quarterly refunding announcements, the Treasury asked dealers about the specifics of how buybacks could work. These included questions on how much it would need to buy so-called off-the-run Treasuries, which are older and less liquid issues, to improve liquidity in those securities.”

Bursting Bubble and Mania Watch:

November 2 – Bloomberg (Lydia Beyoud): “The head of Wall Street’s main regulator has a stern warning for market players: the US Securities and Exchange Commission’s crackdown is just getting started. SEC Chair Gary Gensler told securities lawyers… that his agency would continue to pursue violations wherever and however they occur. In remarks for the Practising Law Institute’s 54th Annual Institute on Securities Regulation, Gensler ticked through enforcement actions the agency had brought during his tenure. ‘Make no mistake: If a company or executive misstates or omits information material to securities investors, whether in an earnings call, on social media, or in a press release, we will pursue them for violating the securities laws,’ he said.”

October 29 – Associated Press (Adam Beam): “The good times might soon be over for California’s government. The nation’s most populous state has had so much cash lately that lawmakers have spent freely — handing out free health care to low-income immigrants, paying for every 4-year-old to attend kindergarten and sending more than $21 billion in stimulus checks to taxpayers over the past two years. That seemingly endless flow of money has started to dry up as state tax collections have fallen below expectations for four months in a row. There’s now an 80% chance California will be about $8 billion short when its fiscal year ends next summer, according to the latest estimate from the nonpartisan Legislative Analyst’s Office.”

November 3 – Bloomberg (Patrick Clark): “Opendoor Technologies Inc. reported third-quarter losses that were steeper than expected, after the US housing slump led the company to sell homes for less than anticipated and pushed it to write down the value of its inventory… Opendoor pioneered a data-driven spin on home-flipping known as iBuying, in which the company purchases homes, makes light repairs and resells the properties.””

Inflation Watch:

November 3 – Reuters (Scott Disavino and Laura Sanicola): “This winter the U.S. Northeast faces its highest energy costs in more than 25 years due to tight heating oil supplies and fierce global competition for liquefied natural gas (LNG) cargoes. Throughout 2022, consumers have been socked with higher costs for everyday items, including groceries and gasoline. The winter could bring more pain, with heating costs nationwide set to soar as much as 28% from last year, according to the U.S. Energy Information Administration's (EIA).”

October 31 – Bloomberg (Alexandre Tanzi): “Rent delinquency rates among US small businesses increased significantly this month, a new report shows. About 37% of small businesses… were unable to pay their rent in full in October. That’s according to a survey from… Alignable, a network of 7 million small business members. It’s up seven percentage points from last month and is now at the highest pace this year… The survey of 4,789 small business owners was conducted between Oct. 15 and Oct. 27… More than half say their rent is at least 10% higher than it was six months ago, and in seven say rents have increased at least 20%.”

Biden Administration Watch:

November 3 – CNBC (Chelsey Cox): “U.S. Commerce Secretary Gina Raimondo doubled down on the Biden administration’s controversial plan to ban U.S. companies, and citizens, from helping China manufacture advanced semiconductor chips, saying: ‘We have to protect the American people against China. Period. Full stop.’ ‘China has become more aggressive in what they call their military-civil fusion strategy, which is essentially fancy talk for buying our sophisticated chips, which are supposedly for commercial purposes,’ Raimondo said… China, however, is using those chips in military equipment that U.S. officials worry could be used against America, she said. ‘This is the most strategic, most bold move we’ve ever made to say no, we’re not going to stand for that.’”

October 30 – Financial Times (Kate Duguid and Colby Smith): “US government bond investors are urging the Treasury department to intervene in the market, hoping for signals this week of possible buybacks after months of wild prices swings and poor liquidity. The Federal Reserve’s aggressive increases in interest rates and quantitative tightening programme this year have amplified the drama in the normally staid $24tn Treasury market. Investors want the Treasury to provide clues of its plans when it makes its fourth-quarter funding announcement in the coming days.”

October 31 – CNBC (Emma Kinery): “President Joe Biden threatened… to pursue higher taxes on oil company profits if industry giants do not work to cut gas prices. Biden has criticized oil companies that have made record-high profits as consumers struggle to keep up with high gas prices… ‘Their profits are a windfall of war,’ Biden said, referring to Russia’s war in Ukraine… ‘It’s time for these companies to stop their war profiteering.’ ‘If they don’t they’re going to pay a higher tax on their excess profits,’ he said.”

U.S. Bubble Watch:

November 4 – Associated Press (Christopher Rugaber): “America’s employers kept hiring vigorously in October, adding 261,000 positions, a sign that as Election Day nears, the economy remains a picture of solid job growth and painful inflation. Friday’s report… showed that hiring was brisk across industries last month, though the overall gain declined from 315,000 in September. The unemployment rate rose from a five-decade low of 3.5% to a still-healthy 3.7%. The government also said that average hourly pay, on average, rose 4.7% from a year ago, a smaller year-over-year gain than in September.”

November 1 – Reuters (Lindsay Dunsmuir): “U.S. manufacturing activity grew at its slowest pace in nearly 2-1/2 years in October while a measure of prices paid by businesses for inputs slid for a seventh straight month… The Institute for Supply Management (ISM) said… its manufacturing PMI fell to 50.2 last month from 50.9 in September, both the lowest readings since May 2020. But while overall manufacturing activity fell, the ISM survey's forward-looking new orders sub-index rose to 49.2 last month from 47.1 in September… A measure of prices paid by manufacturers dropped to 46.6, the lowest reading since May 2020, from 51.7 in September.”

November 3 – Bloomberg (Augusta Saraiva): “US service providers expanded in October at the slowest pace since May 2020 as orders growth and business activity moderated, suggesting the broader economy continues to cool. The Institute for Supply Management’s gauge of services retreated to 54.4 last month from 56.7 in September… The group’s measure of business activity… declined to a five-month low, and the new orders index fell to the lowest level since June.”

November 2 – CNBC (Jeff Cox): “Private payroll growth held strong in October while worker pay rose as well, particularly in the leisure and hospitality industry, according… ADP. Companies added 239,000 positions for the month, ahead of the… estimate of 195,000 and better than the downwardly revised 192,000 in September. Wages increased 7.7% on an annual basis… Job gains were especially strong in the pivotal leisure and hospitality sector, which added 210,000 positions while wage growth accelerated 11.2%. The industry, which includes hotels, restaurants, bars and related businesses, is seen as a bellwether as it took the hardest Covid hit and is still below pre-pandemic levels.”

November 1 – CNBC (Jeff Cox): “Job openings surged in September… Employment openings for the month totaled 10.72 million, well above the FactSet estimate for 9.85 million, according to… the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey. The total eclipsed August’s upwardly revised level by nearly half a million.”

November 3 – Wall Street Journal (James Freeman): “Demand for labor remains intense at U.S. small firms as owners continue to struggle to find willing and qualified applicants for their numerous open positions. That’s according to the latest National Federation of Independent Business monthly employment survey... NFIB Chief Economist William Dunkelberg reports: Forty-six percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period, unchanged from September. The share of owners with unfilled job openings far exceeds the 48-year historical average of 23%. Forty percent have openings for skilled workers (down 2 points) and 22% have openings for unskilled labor (unchanged).”

November 3 – CNBC (Jeff Cox): “The cost of labor rose less than expected, but low productivity helped keep the pressure on inflation in the third quarter… Unit labor costs… increased 3.5% for the July-to-September period, below the 4% Dow Jones estimate and down from 8.9% in the second quarter. However, productivity rose at just a 0.3% annualized rate, below the 0.4% estimate…”

November 2 – CNBC (Diana Olick): “Mortgage application volume barely moved last week, falling 0.5% compared with the previous week… Mortgage applications to buy a home fell 1% for the week and were 41% lower year over year. Real estate agents and homebuilders alike say buyer traffic has slowed to a crawl.”

November 2 – Bloomberg (Craig Trudell): “Just as automakers start making headway sorting out the parts shortages that have constrained production and left dealers with a scarce supply of vehicles to sell, the Federal Reserve is putting up a new obstacle: much costlier car loans. The average annual percentage rate on new-car loans was 6.3% last month, the highest since April 2019, according to Edmunds.”

October 31 – Wall Street Journal (Ben Eisen): “The mortgage industry turned from feast to famine faster than America’s largest home lender anticipated. Rocket Mortgage harnessed a generation of low rates to refinance millions of homeowners. Last year, it racked up more than double the refi volume of any other lender, accounting for more than $1 of every $10… Now the Federal Reserve’s efforts to fight inflation have sent mortgage rates soaring. And refinancing, the driver of Rocket’s business, no longer makes sense for many homeowners. With mortgage rates now above 7%, just 133,000 U.S. homeowners can save money by refinancing at today’s rates, down from a peak of over 19 million in late 2020…”

October 31 – Bloomberg (Mary Schlangenstein): “The US airline industry is more vulnerable than it might appear to a potential recession, said William Franke, chairman of discount carrier Frontier Group… Airlines that have racked up a lot of debt during the pandemic will be in trouble if interest rates continue to rise and demand for travel softens with the onset of a recession, Franke said… ‘It’s going to be an interesting issue to see what happens to airlines if there’s a reduction in demand, if there’s a recession and people decide that paying for the car is more, important than flying to see their grandparents,’ he said. ‘You’re going to have an issue.’”