Economic News Summary of the week ending December 2, 2022

Market Instability Watch:

November 28 – Bloomberg (Josyana Joshua and Olivia Raimonde): “Credit investors are piling back into debt with long maturities hoping that the Federal Reserve will soon slow its pace of tightening. US corporate debt due in 10 years or more has surged 9.5% so far this month, on track for its biggest leap since December 2008. The bonds have plunged more than 24% in 2022 given their high duration, which causes prices to drop as rates rise.”

November 26 – Financial Times (Harriet Clarfelt): “Investors have poured almost $16bn in o US corporate bond funds this month, underscoring how signs of easing inflation have helped brighten sentiment… Funds holding high-grade bonds have garnered $8.6bn of new client money in the month to November 23, while those focused on riskier junk-rated debt have posted net inflows of $7.1bn. The combined figure is set to be the highest monthly inflow since July 2020 if the trend holds in the final week of November, according to… EPFR.”

Crypto Bubble Collapse Watch:

December 2 – Financial Times (Joshua Oliver and Kadhim Shubber): “Hedge fund Alameda Research stepped in to shelter FTX from a loss of up to $1bn after a customer trade on the crypto platform blew up last year, highlighting the deep and longstanding links between Sam Bankman-Fried’s digital asset companies. Alameda in early 2021 shouldered FTX’s burden when a client’s leveraged bet on an obscure token tore through buffers designed to shield the exchange from sustaining losses when a trade goes bad, according to people with knowledge of the matter.”

November 30 – Reuters (Bharat Govind Gautam and Jaiveer Shekhawat): “U.S. cryptocurrency brokerage Genesis said it was seeking to avoid bankruptcy after Bloomberg news reported… that creditors to the firm are organizing with restructuring lawyers to prevent insolvency. Citing people with knowledge of the situation, the report said law firms Proskauer Rose and Kirkland & Ellis are being consulted by creditor groups, who are seeking to avoid a situation similar to crypto exchange FTX's rapid descent into bankruptcy.”

November 30 – Reuters (Francesco Canepa): “Bitcoin is being artificially propped up and should not be legitimised by regulators or financial companies as it is more akin to gambling, the European Central Bank said… Bitcoin and other cryptocurrencies have been variously presented as an alternative form of money and a shield from the inflationary policies pursued by major central banks such as the ECB in recent years. But a 75% fall over the past year, just as inflation reared its head, and a string of scandals including the collapse of the FTX exchange this month have given critics among central bankers and regulators ammunition to fight back.”

November 28 – CNBC (Rohan Goswami): “There was supposedly one man who could save crypto — Sam Bankman-Fried. The former FTX CEO bailed out and took over crypto firms as cryptocurrency markets withered with Terra’s spring crash. In October, FTX won the bidding war for bankrupt crypto firm Voyager Digital in a highly advantageous deal. With the collapse of FTX, the firms which Bankman-Fried saved now find themselves in an uncertain state. Voyager put itself back up for auction last week. On Monday, BlockFi filed for bankruptcy in New Jersey, after weeks of speculation that the FTX collapse had fatally crippled it. The FTX ‘death spiral,’ as BlockFi advisor Mark Renzi put it, has now spread to another crypto entity.”

November 27 – Financial Times (Stephen Foley): “Cryptocurrency businesses that need their financial statements audited are probably going to have to pay more for it, and they have Sam Bankman-Fried to thank. The collapse of Bankman-Fried’s crypto empire, and the spotlight it put on the auditors that signed off on his books, have prompted small audit firms to re-examine their work for businesses in the nascent industry. Several US firms told the Financial Times that they had elevated some or all of their crypto-related clients to the status of ‘high risk’, triggering a more thorough audit that will take longer and lead to higher bills. Some clients could ultimately be dropped altogether.”

Bursting Bubble and Mania Watch:

December 1 – Reuters (Marc Jones): “Credit rating firm S&P Global has warned that speculative-grade U.S. and European corporate default rates are likely to double and might even treble next year as rising borrowing costs take their toll. The firm estimated that the ‘trailing-12-month default rates’ in the U.S. and Europe would reach 3.75% and 3.25% respectively by September, more than double the 1.6% and 1.4% in September 2022. With so much depending on the length, breadth and depth of a potential global economic downturn, however, S&P added that ‘pessimistic forecasts for default rates of 6.0% and 5.5% aren’t out of the question’.”

December 2 – Reuters (Julie Zhu, Engen Tham and Jing Xu): “Blackstone Inc limited withdrawals from its $69 billion unlisted real estate income trust (REIT)… after a surge in redemption requests, an unprecedented blow to a franchise that helped it turn into an asset management behemoth. The curbs came because redemptions hit pre-set limits, rather than Blackstone setting the limits on the day. Nonetheless, they fueled investor concerns about the future of the REIT… Many investors in the REIT are concerned that Blackstone has been slow to adjust the vehicle's valuation to that of publicly traded REITs that have taken a hit amid rising interest rates…”

November 30 – Bloomberg (Sam Potter): “Investors who lavished billions betting on a comeback for Big Tech are nursing huge losses in Wall Street’s largest leveraged ETF. The ProShares UltraPro QQQ ETF, which aims to deliver three-times the performance of the Nasdaq 100 Index, has burned through about $20 billion so far this year as the most aggressive monetary tightening in decades slams pricey technology shares -- with TQQQ down a whopping 75% in 2022.”

Inflation Watch:

November 30 – Wall Street Journal (Jinjoo Lee): “Heating bills are about to deliver an unpleasant jolt to American households. In a November report, the U.S. Energy Information Administration said it expects retail natural gas heating expenditures this winter (October to March) to increase by 25% on average and electricity bills to rise 11%. Households using heating oil will see an even bigger shock: EIA expects heating oil expenditures to rise 45% this winter compared with the last one.”

November 28 – Bloomberg (Naureen S. Malik): “New Yorkers face a sharp rise in electricity bills this winter as Russia’s war in Ukraine and a rebound in local demand boosts prices of natural gas, according to the state’s power grid operator. Wholesale electricity prices may be 20% to 30% higher than last winter, the top executive at the state grid operator said…”

Biden Administration Watch:

November 30 – Reuters (Diane Bartz and Alexandra Alper): “The Biden administration has banned approvals of new telecommunications equipment from China's Huawei Technologies and ZTE because they pose ‘an unacceptable risk’ to U.S. national security. The U.S. Federal Communications Commission said… it had adopted the final rules, which also effectively bar the sale or import of new equipment made by Chinese surveillance equipment maker Dahua Technology Co, video surveillance firm Hangzhou Hikvision Digital Technology Co Ltd and telecoms firm Hytera Communications Corp Ltd.””

U.S. Bubble Watch:

December 2 – Bloomberg (Reade Pickert): “US employers added more jobs than forecast and wages surged by the most in nearly a year, pointing to enduring inflation pressures that boost chances of higher interest rates from the Federal Reserve. Nonfarm payrolls increased 263,000 in November after an upwardly revised 284,000 gain in October… The unemployment rate held at 3.7% as participation eased. Average hourly earnings rose twice as much as forecast… Average hourly earnings rose 0.6% in November in a broad-based gain that was the biggest since January, and were up 5.1% from a year earlier. Wages for production and nonsupervisory workers climbed 0.7% from the prior month, the most in almost a year.”

November 30 – CNBC (Jeff Cox): “Private hiring slowed sharply during November in a sign that the historically tight labor market could be losing some steam, according to… ADP. Companies added just 127,000 positions for the month, a steep reduction from the 239,000 the firm reported for October and well below the Dow Jones estimate for 190,000. It also was the lowest total since January 2021. The relatively weak total comes amid Federal Reserve efforts to loosen up a jobs picture in which there are still nearly two open positions for every available worker. The central bank has raised its benchmark borrowing rate six times this year, but the unemployment rate is still 3.7%, near the lowest since 1969.”

November 29 – Reuters (Ananya Mariam Rajesh and Deborah Mary Sophia): “Deal-hungry Americans snapped up everything from toys to electronics during the five-day long Thanksgiving through Cyber Monday shopping bonanza lured by steep discounts… A record 196.7 million people shopped during this period, the National Retail Federation said…, and total retail sales jumped about 11%, not adjusted for inflation, Mastercard SpendingPulse data showed. ‘Black Friday through Cyber Monday has proven to be a pretty solid weekend, which should give retailers some confidence that demand is there to purchase goods,’ said Joseph Feldman, analyst at Telsey Advisory Group.”

November 30 – Reuters (Lucia Mutikani): “U.S. job openings decreased in October, but remained significantly high, pointing to continued labor market resilience despite the Federal Reserve's efforts to cool demand... The tight labor market keeps the Fed on course to continue tightening monetary policy, heightening the risks of a recession next year… Job openings, a measure of labor demand, decreased 353,000 to 10.3 million on the last day of October… It was the 16th straight month that job openings remained above 10 million.”

December 1 – Reuters (Lucia Mutikani): “U.S. consumer spending increased solidly in October, while inflation pressures moderated, giving the economy a powerful boost at the start of the fourth quarter as it faces rising headwinds from the Federal Reserve's aggressive monetary policy tightening… Consumer spending… jumped 0.8% after an unrevised 0.6% increase in September… October's gain was in line with economists' expectations. Consumer bought motor vehicles, furniture and recreational goods. They also dined out and spent more on housing and utilities… Personal income increased 0.7%, the most in a year. With inflation subsiding, income at the disposal of households after accounting for inflation rose 0.4%. But consumers also tapped into their savings to fund their purchases. The saving rate dropped to 2.3%, the lowest since July 2005, from 2.4% in September.”

December 1 – Bloomberg (Jordan Yadoo): “US manufacturing contracted in November for the first time since May 2020 as output weakened in the face of a third-straight month of shrinking orders. The Institute for Supply Management’s gauge of factory activity slid to 49 from 50.2 in the prior month… The measure has fallen in five of the last six months… A measure of prices paid for materials… fell for an eighth straight month... Input prices shrank at the fastest pace since May 2020 in a welcome sign goods inflation is easing amid less stress on supply chains… The group’s measure of new orders has contracted for the fifth time in six months, while the production gauge retreated to 51.5 in November.”

November 29 – Wall Street Journal (Nicole Friedman): “Home prices fell in September from the prior month, marking the first time prices have declined for three straight months in nearly four years. The S&P CoreLogic Case-Shiller National Home Price Index, which measures home prices across the nation, fell 1% in September from August. Over the past three months, the index is down 2.6%. Home prices in many major cities had been booming for years before the pandemic-fueled home buying spree pushed prices even higher. That surge reversed abruptly this year due…”

November 29 – Reuters (Lucia Mutikani): “U.S. single-family home prices slowed further in September as higher mortgage rates eroded demand, closely watched surveys showed... The S&P CoreLogic Case Shiller national home price index dropped 0.8% month-over-month in September. Monthly house prices fell in July for the first time since late 2018. House prices rose 10.6% year-on-year in September, slowing from August's increase of 12.9%.”

November 30 – CNBC (Diana Olick): “Mortgage rates soared over 7% just a month ago, but since then they have fallen more than half a percentage point… The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) decreased to 6.49% from 6.67%... The weakness continues to be in refinance demand, which dropped 13% from the previous week and was 86% lower than the same week one year ago… Mortgage applications to purchase a home gained 4% from the previous week but demand was 41% lower than the same week one year ago.”

November 29 – Reuters (Lucia Mutikani): “U.S. consumer confidence slipped to a four-month low in November, with households less keen to spend on big-ticket items over the next six months amid high inflation and rising borrowing costs, heightening the risks of a recession next year. But the survey from the Conference Board… also showed that consumers remained upbeat about the labor market, which could limit some of the anticipated economic downturn.”

December 1 – Associated Press (Garfield Reynolds and Matthew Burgess): “A measure of inflation that is closely monitored by the Federal Reserve eased but remained at an elevated level in October… Thursday’s report… showed that prices rose 6% in October from a year earlier. That was the smallest increase since November 2021 and was down from a 6.3% year-over-year rise in September. Excluding volatile food and energy prices, so-called core inflation over the previous 12 months was 5%, less than the 5.2% in September.”

November 29 – Dow Jones (Andrew Ackerman): “The federal government is about to backstop mortgages of more than $1 million for the first time… The maximum size of home-mortgage loans eligible for backing by Fannie Mae and Freddie Mac will rise to $1,089,300 next year in high-cost markets, such as parts of California and New York, from $970,800 this year, the Federal Housing Finance Agency said… For most parts of the country, loan limits will rise to $726,200 from a 2022 maximum of $647,200…”

Environmental Watch:

December 1 – Washington Post (Josh Partlow): “The first sign of serious trouble for the drought-stricken American Southwest could be a whirlpool. It could happen if the surface of Lake Powell, a man-made reservoir along the Colorado River that’s already a quarter of its former size, drops another 38 feet down the concrete face of the 710-foot Glen Canyon Dam here. At that point, the surface would be approaching the tops of eight underwater openings that allow river water to pass through the hydroelectric dam… If that happens, the massive turbines that generate electricity for 4.5 million people would have to shut down… or risk destruction from air bubbles. The only outlet for Colorado River water from the dam would then be a set of smaller, deeper and rarely used bypass tubes with a far more limited ability to pass water downstream…”

December 1 – Bloomberg (Mark Chediak): “Drought-stricken California cities will get limited water supplies from the state next year, state officials said… Water agencies that supply 27 million people in the most populous US state will receive 5% of what they requested in 2023, according to an initial estimate from the California Department of Water Resources… The announcement comes as California has suffered through its driest three-year stretch on record, parching farmland, driving water prices to an all-time high and leaving some cities at risk of running out altogether.”

November 27 – Associated Press (Josh Funk): “Nebraska agriculture officials say another 1.8 million chickens must be killed after bird flu was found on a farm in the latest sign that the outbreak that has already prompted the slaughter of more than 50 million birds nationwide continues to spread.”

December 1 – CNBC (Emma Newburger): “Hurricane Ian, a category 4 Atlantic hurricane that struck Florida and South Carolina earlier this year, was the costliest catastrophe and the second-largest insured loss on record after Hurricane Katrina in 2005, according to… Swiss Re. Ian caused between $50 billion and 65 billion in insured damages after it made landfall in western Florida in late September with extreme winds and torrential rain. The storm surges and downpour hit a densely populated coastline during an otherwise tame hurricane season. The analysis found that extreme weather disasters… caused an estimated total economic loss of $260 billion in 2022, well above the 10 year-average of $207 billion. Insurance losses from catastrophes were also high, with estimated damages of $115 billion, higher than the 10-year average of $81 billion…”