U.S. Economic News Summary of the week ending November 18, 2022

 Market Instability Watch:

November 14 – Financial Times (Kate Duguid and Tommy Stubbington): “Buying and selling in the world’s biggest bond market is supposed to be easy. However, for most of this year, says Gregory Whiteley, a bond portfolio manager at DoubleLine Capital, it has been anything but straightforward. Whiteley says a trader used to be able to get hold of $400mn of US Treasury bonds — not an outsize quantity in this $24tn market — as a routine matter. But now that typically involves breaking up the order into smaller chunks; perhaps doing $100mn of the trade electronically, he explains, and then… to see if they can prise the rest of the debt from the hands of Wall Street’s trading desks over the course of a day. The US Treasury bond market suffered a huge scare at the start of the coronavirus pandemic… Now as the Federal Reserve battles to rein in inflation, a recession looms and most asset prices have faced a dramatic sell-off, the world’s most important bond market is creaking once again. Liquidity in the market — one crucial measure of how well it is functioning — is at its worst levels since March 2020…”

November 13 – Financial Times (Steve Johnson): “Investors have poured record sums into high-risk leveraged funds this year in spite of the collapse in financial markets. The funds, designed to magnify any market gains, also deepen any losses if asset prices fall… Globally, investors pumped a net $28.3bn into leveraged and inverse exchange traded funds in the first nine months of the year…, equivalent to 5.4% of all purchases of ETFs. This is more than double 2021’s full-year tally of $13.2bn, which accounted for just 1.1% of last year’s bumper ETF flows, and comfortably above the full-year record of $17bn set in 2008.”

Bursting Bubble and Mania Watch:

November 16 – Reuters (Angus Berwick, Anirban Sen, Elizabeth Howcroft and Lawrence Delevingne): “As customers withdrew billions of dollars from crypto exchange FTX one frantic Sunday this month, founder Sam Bankman-Fried worked the phones in a futile bid to raise $7 billion in emergency funds. Hunkered in his Bahamas apartment, Bankman-Fried toiled through the night, calling some of the world's biggest investors, including Sequoia Capital, Apollo Global Management Inc and TPG Inc… Sequoia was among investors that lined up only months before to pump money into Bankman-Fried's empire. But not now. Sequoia was shocked at the amount of money Bankman-Fried needed to save FTX, according to the sources, while Apollo first asked for more information, only to later decline.”

November 16 – Associated Press (Ken Sweet and Thalia Beaty): “Just days after cryptocurrency’s third-largest exchange collapsed, the public is starting to get an idea of how messy FTX’s bankruptcy case could be. Other crypto firms are failing as a result of FTX’s unraveling, events reminiscent of the domino-like meltdowns of the 2008 financial crisis. Users remained frustratingly in the dark Tuesday about when they might get their funds back, if at all, directing much of their anger toward FTX’s founder and CEO, Sam Bankman-Fried. In a court filing, FTX’s lawyers said there were already more than 100,000 claims against the company and estimated that figure could grow to more than 1 million, most of them customers, once the case is complete. The court ordered FTX to provide at least a list of the company’s 50 biggest creditors by Nov. 18.”

November 14 – Reuters (Ann Maria Shibu and Jaiveer Singh Shekhawat): “FTX founder and former Chief Executive Sam Bankman-Fried said he expanded his business too fast and failed to notice signs of trouble at the exchange, whose downfall sent shock waves through the crypto industry… ‘Had I been a bit more concentrated on what I was doing, I would have been able to be more thorough,’ Bankman-Fried said…”

November 14 – Bloomberg (Sidhartha Shukla and Tanzeel Akhtar): “The spectacular collapse of 30-year-old Sam Bankman-Fried’s crypto empire has fueled a spike in outflows across global crypto exchanges. Users yanked a net $3.7 billion worth of Bitcoin and $2.5 billion of Ether in the week from Sunday, Nov. 6 to Sunday, Nov. 13, according to… CryptoQuant. They withdrew more than $2 billion worth of many of the largest stablecoins over the same timeframe, according to CryptoQuant…”

November 17 – Reuters (Manya Saini): “The full extent of the fallout on the crypto industry from the collapse of Sam Bankman-Fried's FTX was yet to come out, Coinbase Global Inc Chief Financial Officer Alesia Haas told the Wall Street Journal… ‘What we are seeing now is a fallout of FTX is becoming much more like the 2008 financial crisis where it's exposing poor credit practices and is exposing poor risk management,’ Haas told the WSJ… It will take a few days or weeks to understand the full contagion of the event, Haas added.”

November 16 – Bloomberg (Vildana Hajric): “The billionaire Winklevoss twins, owners of the Gemini crypto exchange, have always portrayed themselves as the grownups in the room. The ones who ordinary investors could trust. None of that is sparing a chunk of Gemini’s customers from the fallout triggered by FTX’s collapse, which risks taking down a big swath of the industry. The trouble stems from a product called Gemini Earn -- which lets investors accrue as much as 8% in interest by lending out their crypto, including Bitcoin, Ether or stablecoins pegged to the dollar. It’s a kind of product, widely used throughout crypto, that looks and feels very much like high-yield savings accounts, but with far fewer safeguards if things go wrong… On Wednesday, in response to Genesis suspending withdrawals amid FTX’s spreading contagion, Gemini also halted redemptions from its Earn product. That left in limbo a program that, according to a person familiar with the matter, has $700 million of customer money tied up in it.”

November 16 – Financial Times (Nikou Asgari and Philip Stafford): “Genesis, which plays a key role in digital asset fixed income markets, said its decision to suspend redemptions and new loan originations followed ‘abnormal withdrawal requests which have exceeded our current liquidity’. The troubles at Genesis are the latest sign that the failure of Bankman-Fried’s FTX crypto exchange and Alameda Research, his trading firm, is sending shockwaves across the crypto industry… Genesis allows clients to lend out their coins in exchange for yields of as much as 10%, while also providing similar services for groups including exchanges operator Gemini, which is run by twins Tyler and Cameron Winklevoss. Genesis also lends digital coins to institutions such as hedge funds and family offices. Genesis had $2.8bn of ‘active loans’ at the end of the third quarter of 2022…”

November 14 – Associated Press: “The top U.S. banking regulator at the Federal Reserve is urging Congress to pass legislation that would impose regulation on crypto currencies in the wake of the swift collapse last week of FTX, a leading crypto exchange. Michael Barr, the Fed's vice chair for supervision, said in prepared testimony… that ‘recent events in crypto ... have highlighted the risks to investors and consumers associated with new and novel asset classes and activities when not accompanied by strong guardrails.’”

November 15 – Reuters (Ann Saphir and Dan Burns): “Michael Barr, the Federal Reserve's top financial regulatory official… said he is concerned about risks from the non-bank sector, including cryptocurrencies, for which the U.S. central bank and other regulators have poor visibility. ‘We're concerned about the risks that we don't know about in the non-bank sector,’ Barr said… before the Senate Banking Committee. ‘That includes obviously crypto activity, but more broadly risks in parts of the financial system where we don't have good visibility, we don't have good transparency, we don't have good data. That can create risks that blow back to the financial system that we do regulate.’”

November 17 – Bloomberg (Romy Varghese): “California is likely to see a $25 billion deficit in its next fiscal year because of slumping revenue, the state’s nonpartisan budget adviser warned. It’s a stark turnaround from years of staggering surpluses. The Federal Reserve’s path of interest-rate increases have slowed the economy, resulting in lower stocks, falling home prices, and less demand for items such as cars, the state’s Legislative Analyst’s Office said in a report Wednesday. The drop in stocks likely has led to estimated income tax payments this year being ‘notably weaker’ than the previous year, it said.”

November 16 – Bloomberg (David Brooke): “Firms operating in the $1.3 trillion private credit market are getting more selective in what companies they lend to as managing loan books becomes more challenging and a potential recession draws closer, according to a Chicago-based investment bank. Buyout deal flow so far this year is down 35% compared with the same period last year, according to… Lincoln International LLC, as macroeconomic pressures result in a wider risk-off sentiment. The slowdown comes as the Federal Reserve continues to battle inflation, raising interest rates at a fast pace and causing some to fear a recession. Many lenders are moving toward higher quality assets in anticipation of a downturn…”

Inflation Watch:

November 15 – CNBC (Jeff Cox): “Wholesale prices increased less than expected in October, adding to hopes that inflation is on the wane… The produce price index, a measure of the prices that companies get for finished goods in the marketplace, rose 0.2% for the month, against… estimates for a 0.4% increase… On a year-over-year basis, PPI rose 8% compared to an 8.4% increase in September and off the all-time peak of 11.7% hit in March… Excluding food, energy and trade services, the index also rose 0.2% on the month and 5.4% on the year.”

November 17 – Reuters (Howard Schneider): “Let the sticker shock begin: The upcoming U.S. Thanksgiving holiday, a time when families and friends typically celebrate with groaning sideboards, a stuffed turkey, and a more-is-better-than-less attitude, is going to cost roughly 20% more than last year, according to estimates compiled by the American Farm Bureau Federation in an annual survey of grocery prices. Blame it on the weather, Russia's invasion of Ukraine or corporations' drive to maximize profits, all of which have had a hand in rising food prices, but this year's jump is the largest since the Farm Bureau's first Thanksgiving dinner cost survey in 1986.”

November 15 – Bloomberg (Skylar Woodhouse): “New York City cab riders will see a 23% increase in metered fares, the first hike since 2012, following a Tuesday vote from the city’s Taxi and Limousine Commission. Passengers will also face an increase in rush hour and overnight surcharges, and airport flat rates… The increases will also affect per-mile and per-minute rates for Uber Technologies Inc. and Lyft Inc. and are expected to go into effect before year-end, the TLC said.”

U.S. Bubble Watch:

November 15 – Bloomberg (Alex Tanzi and Jonnelle Marte): “US household debt climbed at the fastest annual pace since 2008 in the third quarter, with credit-card balances surging even as the interest rates that lenders charge to consumers hit a multi-decade high. Households added $351 billion in overall debt last quarter, taking the total to $16.5 trillion… That’s an increase of 8.3% from a year earlier, the most since a 9.1% jump in the first quarter of 2008… Most of the latest increase came in mortgage debt, by far the biggest liability on household balance sheets. It rose by $282 billion in the third quarter, and by $1 trillion from a year earlier, to $11.7 trillion. Mortgage and home-equity debt combined are up by $2 trillion since the pandemic began.”

November 16 – Bloomberg (Molly Smith): “Consumer spending is proving largely resilient in the face of high inflation and steep interest-rate hikes from the Federal Reserve that are dealing a sizable blow to housing and squelching manufacturing. Retail sales -- a measure of household spending that is the powerhouse of the nation’s economy -- charged ahead in October with the biggest gain in eight months… The Atlanta Fed’s GDPNow forecast for fourth-quarter growth moved up to 4.4% from a previous estimate of 4% after the stronger retail sales report.”

November 17 – Associated Press: “The U.S. job market remains healthy as fewer Americans applied for unemployment benefits last week… Applications for jobless claims for the week ending Nov. 12 fell by 4,000 to 222,000 from 226,000 the previous week… The four-week moving average rose by 2,000 to 221,000. The total number of Americans collecting unemployment aid rose by 13,000 to 1.51 million for the week ending Nov. 5. a seven-month high…”

November 16 – Associated Press: “Americans stepped up their spending at retailers, restaurants, and auto dealers last month, a sign of consumer resilience as the holiday shopping season begins… The government said… retail sales rose 1.3% in October from September, up from a flat reading in September from August. The increase was led by car sales and higher gas prices. Still, excluding autos and gas, retail spending rose a solid 0.9% last month. Strong auto sales may have been supercharged by the arrival of Hurricane Ian in late September, which destroyed up to 70,000 vehicles…”

November 16 – Reuters (Deborah Sophia, Akash Sriram and Granth Vanaik): “Corporate America is making deep cuts to its employee base as part of its restructuring efforts to navigate a potential downturn in the economy from the U.S. Federal Reserve's war on inflation. Job cuts announced by U.S.-based employers jumped 13% to 33,843 in October, the highest since February 2021…”

November 17 – Reuters: “U.S. homebuilding fell sharply in October, with single-family projects dropping to the lowest level in nearly 2-1/2 years… Housing starts decreased 4.2% to a seasonally adjusted annual rate of 1.425 million units last month… Data for September was revised higher to a rate of 1.488 million units from the previously reported 1.439 million units… Single-family housing starts, which account for the biggest share of homebuilding, tumbled 6.1% to a rate of 855,000 units, the lowest level since May 2020. Single-family homebuilding declined in all four regions.”

November 16 – Bloomberg (Augusta Saraiva): “US homebuilder sentiment weakened in November by more than forecast, hitting the lowest level in a decade when excluding the immediate onset of the pandemic. The National Association of Home Builders/Wells Fargo gauge decreased 5 points to 33 this month… Sentiment has fallen every month this year, extending what was already the longest stretch of declines in data back to 1985… A measure of future sales slid 4 points to 31, the lowest in a decade, while indexes of current sales and prospective buyer traffic weakened to the softest levels since April 2020.”

November 15 – Bloomberg (Catarina Saraiva): “US house prices could tumble as much as 20% in the wake of the surge in mortgage rates, according to… the Federal Reserve Bank of Dallas. House prices, adjusted for inflation, soared during the pandemic by the most since the 1970s, analysis by Dallas Fed economist Enrique Martinez-Garcia showed. A ‘pessimistic’ scenario where prices now retreat by 15% to 20% could subtract 0.5% to 0.7% from inflation-adjusted consumer spending, he wrote in a blog post… ‘Such a negative wealth effect on aggregate demand would further restrain housing demand, deepening the price correction and setting in motion a negative feedback loop,’ Martinez-Garcia wrote…”

November 14 – New York Times (Karen Weise): “Amazon plans to lay off approximately 10,000 people in corporate and technology jobs starting as soon as this week…, in what would be the largest job cuts in the company’s history. The cuts will focus on Amazon’s devices organization, including the voice assistant Alexa, as well as at its retail division and in human resources, said the people, who spoke on condition of anonymity because they were not authorized to speak publicly.”

November 16 – Reuters (Uday Sampath Kumar): “Target Corp forecast a surprise drop in holiday-quarter sales on Wednesday, blaming surging inflation and ‘dramatic changes’ in consumer spending for a drop in demand for everything from toys to electronics. Shares of the big-box retailer fell more than 17% in early trading after it also said an early start to holiday season promotions and shoppers holding back for steeper discounts cut its third-quarter profit by half.”

November 15 – Bloomberg (Katherine Doherty): “Bonus season is looking grim on Wall Street, with year-end incentive pools expected to drop sharply across the finance industry amid a pullback in mergers and acquisitions, persistent inflation and the threat of a potential recession. Bankers advising on M&A are likely to see their bonuses decline as much as 20% this year, while their counterparts in underwriting will probably have the largest drop, with their incentive pay plunging as much as a 45%, according to… compensation consultant Johnson Associates Inc.”

Global Bubble Watch:

November 12 – Financial Times (Richard Waters): “If Wall Street had any doubts about the speed with which the chip industry’s boom has turned to bust, unexpectedly gloomy financial forecasts from companies like mobile chipmaker Qualcomm should have put them to rest. ‘It’s kind of an unprecedented change over a short period of time,’ Akash Palkhiwala, the company’s chief financial officer told analysts... ‘We went from a period of supply shortages to demand declines.’ Qualcomm has sliced 25% from its revenue guidance for the current quarter as weaker consumer spending hit smartphone sales. The forecast came as some of the leading chipmakers issued surprisingly weak sales and profit projections and signalled a round of job cuts ahead.”

November 16 – Reuters (Eva Mathews and Aditya Soni): “Micron Technology Inc said… it would reduce memory chip supply and make more cuts to its capital spending plan, as the semiconductor firm struggles to clear excess inventory due to a slump in demand… Micron was the first major chipmaker to sound an alarm about falling demand for personal computers and smartphones earlier this year in the face of decades-high inflation.”