Friday, March 31, 2023

Weekly Commentary: That Was Interesting

A quarter that began with The Big Squeeze - only to be interrupted by a banking crisis and intense policy response – concluded with a reemergence of squeeze dynamics.

The Goldman Sachs Short Index jumped 5.1% during the final week of the quarter to end the period with a 7.5% gain. This index had gained 33% y-t-d at February 2nd highs. From this high to March 23rd lows, the index dropped 25%.

The Philadelphia Semiconductor (SOX) Index returned 27.6% for the quarter, with the Nasdaq Computer Index up 25.7% and the NYSE Arca Technology Index gaining 26.1%. The Nasdaq100 (NDX) jumped 20.5%. Nvidia surged 90%, Meta/Facebook 76%, Tesla 68%, Warner Brothers Discovery 59%, Align Technology 58%, AMD 51%, and Airbnb 46%. The ARK Innovation ETF returned 29%. The “average stock” Value Line Arithmetic Index gained 5.8%. The crypto currencies rocketed higher, with Bitcoin rallying 72% during Q1.

The Nasdaq Bank Index lost 21.9%, and the KBW Bank Index fell 18.7%. First Republic sank 88.5%, Western Alliance Bancorp 40.3%, Zions 39.1%, Comerica 35.1%, Keycorp 28.1%, Citizens Financial 22.9%, and Huntington Bancshares 20.6%.

Two-year Treasury yields began the year at 4.43% and were down to 4.10% by February 2nd. Yields then surged almost 100 bps to trade to 5.07% on March 8th. Volatility went from extraordinary to historic. Yields were down to 3.71% intraday on the 15th, only to rally back to 4.25% on the 17th. They sank to a low of 3.63% on the 20th, back up to 4.25% on the 22nd, and then down to 3.55% on the 24th – only to end the quarter at 4.03%.

After beginning the year at 4.92%, market expectations for the “peak” Fed policy rate at the July 26th meeting were up to 5.67% on March 8th. Expectations then collapsed an incredible 156 bps over three sessions, dropping to 4.11% on the 13th. Rate expectations then recovered to 4.64% on the 14th, back down to 4.12% on the 15th, up to 4.55% on the 16th, down to 4.20% on the 17th, and back up to 4.73% on the 21st – ending March at 4.83% (down 9bps for the quarter). Market expectations for the policy rate at the December 13th meeting began the year at 4.59%, surged to a high of 5.56% on March 8th, traded to a March 15th intraday low of 3.40%, and closed the month at 4.35%.

Markets began the year pricing 38 bps of rate cuts between the May 3rd and December 13th FOMC meetings. By March 8th, this had shifted to 20 bps of additional tightening. A week later (March 15), markets were pricing 106 bps of rate cuts. By quarter end, expectations were for rates to drop 39 bps.

It was not, of course, just market prices that turned highly unstable. Two of the three largest bank failures in U.S. history occurred in March. Silicon Valley Bank’s stock began the year at $230, with the stock up 50% y-t-d at February 2nd highs – in a brutal short squeeze. At $271, the stock still enjoyed strong early-2023 gains on March 8th. The stock dropped to $106 on Thursday, March 9th – before trading was halted. California regulators took possession of the failing bank that Friday evening. SVB’s stock opened for trading this Tuesday below a buck. Signature Bank enjoyed an almost 30% gain at February 2nd highs – and was little changed y-t-d on Monday, March 6th. It was closed by New York regulators on Sunday March 12th. So much for stock prices discounting future prospects.

Federal Reserve Credit expanded $391 billion during the final three weeks of the quarter, reversing much of the QT-related contraction that commenced last June. The Fed lent $180 billion to the FDIC. Discount window borrowing surged to $110 billion, while the Fed’s new bank lending facility rose to $64 billion. The Fed’s foreign “repo” lending facility jumped to $55 billion. Once again, aggressive Fed measures were called upon for system stabilization. While crisis dynamics were temporarily contained, another blast of monetary inflation is highly destabilizing.

Money Market assets surged a stunning $304 billion in three weeks to a record $5.198 TN. Money funds were up $384 billion during Q1, posting 32% annualized growth – with one-year expansion of $608 billion, or 13.2%. Money fund assets are commonly viewed as a system liquidity buffer, with some of this cash inevitably heading to the stock market.

My analytical framework takes a foreboding view of this type of monetary inflation. Indeed, the rapid expansion of money market assets is part and parcel of dangerous growth in financial sector leveraging – typically through the rapid expansion of perceived safe and liquid central bank and GSE obligations.

There was a push to contain money market fund risks after the 2008 dislocation exposed acute fragilities (including vulnerability to panicked runs). After ending 2008 at $3.8 TN, money fund assets were down to about $2.5 TN in 2012 – and ended Q1 2019 at about $3.1 TN. Assets have inflated $2.0 TN, or 65%, over the past four years.

It was leaked that the Federal Home Loan Banks increased borrowings $304 billion the week before last, an unprecedented (central bank-like) expansion to accommodate commercial bank liquidity demands (from deposit flight). As a government-sponsored enterprise (GSE), the FHLB enjoys essentially unlimited demand for its perceived risk-free debt securities.

The CBB has a 25-year history of chronicling GSE developments. I have a long-held view that the GSEs – with their implicit government guarantees and far-flung missions – are dangerous financial institutions that have played an instrumental role in the multi-decade Credit Bubble.

I began closely monitoring the GSEs in 1994, after recognizing they were operating as quasi-central banks. Their aggressive securities purchases provided a critical liquidity backstop during a period of intense hedge fund bond market deleveraging (sparked by Fed tightening after an extended period of extraordinarily depressed policy rates). GSE (chiefly Fannie and Freddie) assets expanded an unprecedented $151 billion in 1994, to $782 billion. The 1998 Russia/LTCM collapses induced record one-year GSE growth of $353 billion, to $1.622 TN (as of Q3 ’99). Hamstrung by Fannie and Freddie accounting scandals, one-year GSE growth nonetheless reached a new peak of $418 billion, to $3.360 TN (as of Q2 ’08), during the instability leading up to the 2008 crisis.

GSE growth last year reached an unprecedented $921 billion, to a record $9.224 TN – with three-year growth of $2.094 TN, or 29.4%. And it would not be surprising to see FHLB/GSE Q1 growth well in excess of $500 billion. Over the years, I’ve tried to explain how Washington guarantees (explicit and implicit) and resulting market distortions create unlimited capacity for the GSEs to borrow and extend Credit. Especially during crisis environments, the GSEs readily issue shorter-term debt instruments – including debt securities purchased by the money market fund complex.

Some years back, I dedicated a weekly CBB to the tedious process of walking through a series of debit and Credit accounting entries to illuminate how a GSE would issue short-term debt obligations (IOUs) to a money market fund and use this liquidity to purchase securities from an investment firm or hedge fund – where this liquidity would circulate through the system until being redeposited into the money market. The GSE would then tap this liquidity to issue additional IOUs to purchase more securities – and this process could basically repeat indefinitely. It was fractional reserve banking with the old “deposit multiplier” – a dynamic throughout history responsible for devastating Credit booms and busts. There was, however, one momentous difference: Not subject to bank reserve requirements, GSE borrowing and lending operations were unfettered - with powerful and far-reaching “infinite multiplier” effects.

I appreciate that this pithy explanation is likely not overly satisfying. But this “infinite multiplier” – especially in crisis environments – affords the GSEs the capacity to essentially provide a central bank-style liquidity backstop. It is therefore reasonable to add the FHLB’s (at least) $304 billion to the Fed’s $391 billion – to calibrate the magnitude of system liquidity injections second only to Covid craziness. For perspective, Fed Credit expanded $605 billion over three weeks to accommodate deleveraging during the acute deleveraging phase of the October 2008 market crisis.

The Powell Fed today confronts a historic dilemma. And it is uncomfortably reminiscent of how Federal Reserve officials faced in 1929 a confluence of a weakening economy, a fragile banking system, and a crazy stock market speculative Bubble. Ben Bernanke is fond of pointing blame for the crash and subsequent banking crisis to the “Bubble poppers”. More grounded analysis would recognize that Bubbles do inevitably burst, and the greater the inflation – the more protracted the “Terminal Phase” of excess – the more vulnerable the financial system and economy are to collapse.

Importantly, each bailout and reflation ensures only larger Bubbles – greater amounts of debt, financial system leverage, and speculative excess. The Fed’s $1 TN 2008 QE inflated to massive $5 TN pandemic reflationary measures. It’s distressing to contemplate how much the Federal Reserve’s balance sheet will inflate to accommodate the next serious de-risking/deleveraging crisis. And while most will scoff today at the notion of a systemic “fire”, the reality is that the system suffered bank failures and a run on deposits with unemployment at 3.6% and Q1 GDP growth expected at about 2.5% (Atlanta Fed GDPNow forecast). The massive liquidity response only exacerbates perilous market instability.

While the stock market might appear exceptionally resilient, the system is acutely fragile. There are clear risks of devastating market crashes, domino bank failures, a highly destabilizing Credit contraction, crises of confidence, and synchronized global financial, economic and geopolitical crises. Importantly, acute Bubble fragility ensures – as we witnessed over recent weeks – that the Federal Reserve and Washington will move quickly with extraordinary liquidity and stabilization measures.

Music to the ears of risk markets that have degenerated into hopelessly dysfunctional speculative Bubbles. Huge gains were enjoyed during the quarter by targeting large short positions and markets with outsized hedging and bearish derivative positioning. Short squeezes bookended a fledgling banking crisis – a major loosening of financial conditions, then an abrupt tightening and back to loosening. What is a central bank to do?

Fed officials recognize market propensity for front-running any Fed dovish pivot musings. Now, after a quick $700 billion shot of Washington liquidity, a downdraft in market yields, and a surge in stock prices, the Fed faces the possibility of loose conditions underpinning inflation dynamics. For now, their strategy appears to be to create whatever liquidity the banking system might require, while relying on rate policy to sustain a semblance of an inflation fight. Expect Fed officials to continue pushing back against market expectations of rate cuts this year. Meanwhile, rate markets have seen more than enough to double-down on pricing in an unfolding financial accident.

Markets are in a highly unstable state. Equities relish lower rates and another refreshingly big shot of liquidity – turning giddy at the thought of a repeat of January’s Big Squeeze. Rate markets are in more of a quandary. How much does “risk on” in the short-term counter an unfolding tightening of bank lending? Does Fed and FHLB liquidity work to further reinforce inflationary pressures? It’s worth noting that the Bloomberg Commodities Index jumped 2.4% this week. Crude rallied 9.3% (gasoline up 4.3%). While gold prices slipped this week, the shiny Store of Value advanced $142, or 7.8%, during March. Silver surged 15.2%.

When I contemplate the start of what I expect to be an unruly expansion of Fed liquidity, my thoughts turn to potential dollar vulnerability. Granted, our unsound currency has unsound competitors. Anything could happen. When we previously flooded the world with dollar balances, they were easily absorbed by eager buyers - including the Chinese and EM central banks. But with all the uncertainty associated with a rapidly changing “world order,” I’m skeptical of a replay of the past cycle’s peaceful recycling of excess dollar balances right back into booming U.S. securities markets.

What a wild start to the year. Interesting to say the least, with everything pointing to a highly unstable Q2.

March 31 – Bloomberg (Alex Tanzi): “Deposits at US banks fell sharply and lending declined by the most in nearly two years amid financial turmoil triggered by the collapse of several banks this month. Commercial bank deposits dropped by $125.7 billion in the week ended March 22, marking the ninth-straight period of declines, according to data released Friday by the Federal Reserve. At domestically chartered banks, deposits fell $84 billion, reflecting a decrease at the 25 largest institutions. Deposits at small banks increased. Overall lending fell by $20.4 billion, the most since June 2021 and due to a decline in commercial and industrial loans.”

For the Week:

The S&P500 jumped 3.5% (up 7.0% y-t-d), and the Dow rose 3.2% (up 0.4%). The Utilities rallied 2.8% (down 4.5%). The Banks recovered 4.7% (down 18.7%), and the Broker/Dealers rallied 4.8% (up 2.8%). The Transports surged 5.3% (up 7.8%). The S&P 400 Midcaps rallied 4.5% (up 3.4%), and the small cap Russell 2000 rose 3.9% (up 2.3%). The Nasdaq100 advanced 3.2% (up 20.5%). The Semiconductors jumped 3.5% (up 27.6%). The Biotechs rose 3.4% (up 0.5%). Though bullion slipped $9, the HUI gold equities index gained 3.2% (up 11.5%).

Three-month Treasury bill rates ended the week at 4.5775%. Two-year government yields surged 26 bps this week to 4.03% (down 40bps y-t-d). Five-year T-note yields rose 17 bps to 3.57% (down 43bps). Ten-year Treasury yields gained nine bps to 3.47% (down 41bps). Long bond yields were unchanged at 3.65% (down 32bps). Benchmark Fannie Mae MBS yields jumped 13 bps to 5.05% (down 34bps).

Greek 10-year yields jumped 13 bps to 4.19% (down 37bps y-o-y). Italian yields gained nine bps to 4.10% (down 60bps). Spain's 10-year yields rose 12 bps to 3.30% (down 21bps). German bund yields jumped 16 bps to 2.29% (down 15bps). French yields gained 14 bps to 2.79% (down 190bps). The French to German 10-year bond spread narrowed about two to 50 bps. U.K. 10-year gilt yields surged 21 bps to 3.49% (down 18bps). U.K.'s FTSE equities index jumped 3.1% (up 2.4% y-t-d).

Japan's Nikkei Equities Index gained 2.4% (up 7.5% y-t-d). Japanese 10-year "JGB" yields rose four bps to 0.35% (down 7bps y-t-d). France's CAC40 surged 4.4% (up 13.1%). The German DAX equities index jumped 4.5% (up 12.2%). Spain's IBEX 35 equities index rose 5.0% (up 12.2%). Italy's FTSE MIB index jumped 4.7% (up 14.4%). EM equities were mostly higher. Brazil's Bovespa index rallied 3.1% (down 7.2%), and Mexico's Bolsa index gained 2.2% (up 11.3%). South Korea's Kospi index rose 2.6% (up 10.8%). India's Sensex equities index rallied 2.5% (down 3.0%). China's Shanghai Exchange Index increased 0.2% (up 5.9%). Turkey's Borsa Istanbul National 100 index dropped 4.4% (down 12.6%). Russia's MICEX equities index gained 2.5% (up 13.8%).

Investment-grade bond funds posted outflows of $881 million, and junk bond funds reported negative flows of $2.135 billion (from Lipper).

Federal Reserve Credit jumped $38.1bn last week to a five-month high $8.696 TN - with a three-week gain of $391bn. Fed Credit was down $205bn from the June 22nd peak. Over the past 185 weeks, Fed Credit expanded $4.969 TN, or 133%. Fed Credit inflated $5.885 Trillion, or 209%, over the past 542 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt fell $15.5bn last week to $3.293 TN - the low back to June 2017. "Custody holdings" were down $170bn, or 4.9%, y-o-y.

Total money market fund assets jumped $66bn to a record $5.198 TN, with a three-week gain of $304 billion. Total money funds were up $608bn, or 13.2%, y-o-y.

Total Commercial Paper recovered $19.5bn to $1.138 TN. CP was up $75bn, or 7.1%, over the past year.

Freddie Mac 30-year fixed mortgage rates dropped 15 bps to a seven-week low 6.24% (up 157bps y-o-y). Fifteen-year rates declined seven bps to 5.55% (up 172bps). Five-year hybrid ARM rates added a basis point to 5.56% (up 206bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates up six bps to 6.94% (up 203bps).

Currency Watch:

For the week, the U.S. Dollar Index declined 0.6% to 102.51 (down 1.0% y-t-d). For the week on the upside, the Brazilian real increased 3.6%, the Mexican peso 2.2%, the South African rand 2.0%, the Canadian dollar 1.7%, the New Zealand dollar 0.9%, the British pound 0.9%, the euro 0.7%, the Australian dollar 0.6%, the Swiss franc 0.5%, the Swedish krona 0.2%, the Singapore dollar 0.1%, and the Norwegian krone 0.1%. On the downside, the Japanese yen declined 1.6% and the South Korean won fell 0.6%. The Chinese (onshore) renminbi declined 0.09% versus the dollar (up 0.36%).

Commodities Watch:

The Bloomberg Commodities Index rallied 2.4% (down 6.5% y-t-d). Spot Gold slipped 0.5% to $1,969 (up 8.0%). Silver jumped 3.8% to $24.10 (up 0.6%). WTI crude recovered $6.41, or 9.3%, to $75.67 (down 6%). Gasoline rallied 4.3% (up 10%), while Natural Gas was unchanged at $2.22 (down 51%). Copper added 0.5% (up 8%). Wheat increased 0.5% (down 13%), and Corn jumped 2.7% (down 3%). Bitcoin increased $1,170, or 4.3%, this week to $28,590 (up 73%).

Global Bank Crisis Watch:

March 29 – Bloomberg (Katherine Doherty, Hannah Levitt and Katanga Johnson): “The Federal Deposit Insurance Corp., facing almost $23 billion in costs from recent bank failures, is considering steering a larger-than-usual portion of that burden to the nation’s biggest banks, according to people... The agency has said it plans to propose a so-called special assessment on the industry in May to shore up a $128 billion deposit insurance fund that’s set to take hits after the recent collapses of Silicon Valley Bank and Signature Bank. The regulator — under political pressure to spare small banks — has noted it has latitude in how it sets those fees. Behind the scenes, officials are looking to limit the strain on community lenders…”

March 27 – Reuters (Scott Murdoch and Mehnaz Yasmin): “U.S. regulators said… they would backstop a deal for regional lender First Citizens BancShares to acquire failed Silicon Valley Bank, triggering an estimated $20 billion hit to a government-run insurance fund. The deal comes after the Federal Deposit Insurance Corporation (FDIC) took over Silicon Valley Bank on March 10 after depositors rushed to pull out their money in a bank run that also brought down Signature Bank and wiped out more than half the market value of several other U.S. regional lenders.”

March 28 – Financial Times (Colby Smith and Lauren Fedor): “A top Republican has accused US regulators of being ‘asleep at the wheel’ in the period leading up to the implosion of Silicon Valley Bank, in the first of two bruising congressional hearings intended to shed light on the failings that led to the lender’s collapse. Tim Scott, the top member of the party on the powerful Senate banking committee, said SVB was ‘rife with mismanagement’ and a ‘clear supervisory failure’ had played a role in its unravelling. ‘Our regulators were simply asleep at the wheel,’ he said. Sherrod Brown, the Democrat who chairs the committee, added: ‘We’re left with many questions — and a lot of justified anger — towards bank executives and boards, venture capitalists, federal and state bank regulators and policymakers.’ ‘The officials sitting before us today know that their predecessors rolled back protections like capital and liquidity standards, stress tests, brokered deposit limits and even basic supervision,’ Brown said. ‘They greenlighted these banks to grow too big, too fast.’”

March 24 – Reuters (Michael S. Derby): “An executive who also serves on the board overseeing the New York Federal Reserve warned on Twitter of potentially systemic problems in the real estate finance market and called on the industry to work with authorities to avoid things getting out of hand. Noting there is $1.5 trillion in commercial real estate debt set to mature in the next three years, Scott Rechler, who is CEO of RXR, a large property manager and developer, tweeted: ‘The bulk of this debt was financed when base interest rates were near zero. This debt needs to be refinanced in an environment where rates are higher, values are lower, & in a market with less liquidity.’”

March 29 – Bloomberg (Olga Voitova and Tasos Vossos): “The $256 billion market for additional tier 1 debt is still reeling from Credit Suisse Group AG’s debt wipeout. For all the soothing words from bank regulators and politicians, the controversial writedown of risky debt as part of the Swiss bank’s emergency rescue has caused big ripple effects. Yields have stayed near record highs and concern is growing that the market convention of buying back AT1s will be broken in the coming months, leaving investors stuck with the debt. ‘It’s doubtful that banks will be able to issue new AT1 anytime soon,’ ING credit strategist Timothy Rahill wrote… ‘The AT1 market remains in limbo and the question around the actual value of this product — and subsequently the rest of the liability structure — lingers.’”

March 28 – Financial Times (Nikou Asgari, Owen Walker and Harriet Clarfelt): “Some banks will struggle to issue a form of risky bonds used to bolster their capital and others will pay a much higher price for them after similar debt held by Credit Suisse was wiped out in its forced sale, investors have warned. Swiss regulators’ decision to write down $17bn worth of Credit Suisse’s additional tier 1 (AT1) bonds as part of the bank’s purchase by UBS rather than wipe out shareholders has called into question the future viability of the $260bn segment of debt markets. Greg Peters, co-chief investment officer of PGIM Fixed Income, said the fallout from the decision for banks ‘forever impairs the ability to issue AT1s’. He added: ‘There will be a continued risk premium repricing in that space.’”

March 27 – Financial Times (Martin Arnold): “Depositors have withdrawn €214bn from eurozone banks over the past five months, with outflows hitting a record level in February… The fall in eurozone bank deposits, which started a few months after the ECB began raising interest rates last summer, marks a reversal from the large amounts of money that had been pouring into banks — particularly since the pandemic. The recent outflows indicate banks were finding it harder to attract and retain depositors even before this month’s turmoil… In February, the decline accelerated as depositors cut their holdings at eurozone banks by €71.4bn, which was the biggest reduction since records began in 1997.”

March 25 – Financial Times (Sam Jones): “The global regulatory regime for ‘too big to fail’ banks set up after the 2008 crisis does not work, according to Switzerland’s finance minister. In an interview…, Karin Keller-Sutter — who was at the centre of Swiss authorities’ rush to rescue Credit Suisse last weekend — said following the emergency protocols that are at the centre of the regulatory architecture for big banks ‘would have triggered an international financial crisis’. Capital buffers and extra regulatory rules on risk have been useful for navigating times of stress, Keller-Sutter said, but in a real crisis, plans to facilitate the orderly rescue or wind-down of big banks are inadequate.”

March 25 – Financial Times (George Hammond and Tim Bradshaw): “In late 2020, Silicon Valley Bank vice-president Armando Argueta offered a word of caution to any start-up founder considering loans from less-established lenders. ‘Many players come and go in the venture debt market, so make sure that whomever you are talking to is a long-term player. When a bank decides one day that it is no longer interested in lending venture debt, it can wreak havoc on your business,’ he wrote... Since SVB’s collapse this month, founders are learning the hard way how true those words are. The bank was the pioneer and linchpin of a venture debt market that gave start-ups an alternative source of funding, without the need to sacrifice equity stakes or swallow a much lower valuation.”

Market Instability Watch:

March 31 – Bloomberg (Michael Msika and Alexandra Semenova): “Investors are piling into cash at their fastest pace since the onset of the pandemic, unnerved by a series of bank runs while seeking out higher interest rates at money-market funds. During the first quarter, investors poured $508 billion into cash funds in their largest quarterly inflow since the early days of Covid-19 three years ago, according to Bank of America Corp. strategists citing EPFR Global data. More than $100 billion have flocked into money-market funds in the past two weeks alone, they said.”

March 29 – Bloomberg (Naomi Tajitsu): “The global currency market is vulnerable to a liquidity crunch later this year as financial conditions tighten and economic growth slows, Bank of America Corp. warned… While the Federal Reserve’s dovish stance last week calmed markets following the collapse of Silicon Valley Bank and the takeover of Credit Suisse AG by UBS Group AG, there is a risk that volatility could ramp up again in the coming months, particularly if inflation stays high, BofA strategists Michalis Rousakis and Howard Du wrote…. ‘The lagged effect of bank-credit tightening has yet to fully play out and the economic cycle is likely entering a contractionary phase for growth,’ they said.”

March 30 – Reuters (Marc Jones): “The derivatives industry body, the International Association of Swaps and Derivatives Association (ISDA), has backed Credit Default Swaps amid concerns about the role they have played in the recent bout of global banking turmoil. Credit default swaps (CDS) are derivatives that offer insurance against the risk of a bond issuer - such as a bank - not paying their creditors. European Union markets watchdog ESMA said… that it, together national regulators, had been ‘looking into the recent market movements, including in the CDS market’.”

March 26 – Wall Street Journal (David Uberti, Bob Henderson and Joe Wallace): “The economic fears gripping Wall Street have sparked outsize swings in oil prices, exacerbated by trading that investors and analysts say has little to do with the fundamental value of crude. One culprit is an arcane area of trading known on Wall Street as delta hedging, aimed at reducing the risks tied to directional price moves. Earlier this month, oil’s steepest weekly slide in almost three years accelerated as futures approached levels where many producers owned derivatives designed to lock in prices. As declines mounted, banks and trading firms on the other side of those trades had to unload crude to mitigate potential losses, investors said, dragging benchmark prices to 15-month lows.”

March 29 – Bloomberg (Claire Ballentine and Charlie Wells): “They’ve become a high-speed, high-risk, high-reward tool in turbulent markets: Options with shelf lives so short they expire in less than a day. For big investors, these derivatives — ‘zero-day-to-expiry’ options, or 0DTE for short — offer a way to hedge short-term risk in an era when the market flip-flops daily. That’s in theory. In practice, success is far from certain, and even some Wall Street pros don’t fully understand them. That hasn’t deterred thrill-seeking retail investors from piling into 0DTE options. These traders know the risks. They’ve seen the volatility of GameStop and AMC, the market doldrums of 2022 and the crypto winter. Yet they find the potential upside too enticing to resist. ‘All investing is gambling. I think most things we do in life are gambling,’ said Garrett Mastronardi, a 30-year-old from… Florida. ‘Buying 0DTE options is just pure degenerate gambling.’”

March 30 – Bloomberg (Sagarika Jaisinghani and Michael Msika): “Global stocks and bonds are moving more closely in line with each other than they have in nearly three decades, providing a headache for fund managers seeking to spread their risk. The rolling one-year correlation between the asset classes is near its highest since 1997… The narrowing difference in performance makes it ‘tricky to diversify equity exposure,’ Sanford C. Bernstein strategists Sarah McCarthy and Mark Diver wrote…”

March 30 – Bloomberg (Ruth Carson, Masaki Kondo and Michael Mackenzieurane): “Bank of Japan Governor Haruhiko Kuroda changed the course of global markets when he unleashed a $3.4 trillion firehose of Japanese cash on the investment world. Now Kazuo Ueda is likely to dismantle his legacy, setting the stage for a flow reversal that risks sending shockwaves through the global economy. Just over a week before a momentous leadership change at the BOJ, investors are gearing up for the seemingly inevitable end to a decade of ultra-low interest rates that punished domestic savers and sent a wall of money overseas. The exodus accelerated after Kuroda moved to suppress bond yields in 2016… All this risks unraveling under the new governor Ueda, who may have little choice but to end the world’s boldest easy-money experiment just as rising interest rates elsewhere are already jolting the international banking sector and threatening financial stability. The stakes are enormous…”

March 30 – Bloomberg (Shuli Ren): “When we talk about shadow banking, we think of China, one of the world’s most indebted nations. Lending by companies that do not own a banking license has reached 50 trillion yuan ($7.3 trillion), or about 42% of gross domestic product, according to Moody’s… As the recent banking crisis is forcing investors to figure out where the next pressure point might be, they are starting to see that the US has quietly built up a huge pile of hidden debt as well. After a decade of a risk-on run, the US leveraged finance market — almost held entirely by shadow lenders which typically operate with little or no regulator oversight — has topped $3 trillion.”

Bursting Bubble and Mania Watch:

March 28 – Financial Times (Michael Casey): “Venture capital blossomed from an artisanal strategy into a behemoth over the past decade, raising $163bn last year in the US alone. But the run on Silicon Valley Bank is raising questions about the industry and its prominent voices. While levitating on the vapour of tantalising valuation mark-ups, many of these leaders mistook the advantages of low interest rates and globalisation for their skill, and anointed themselves prophets of innovation. In truth, the wall of cash in recent years led many VC funds to rely less on discrimination and judgment and more on playing a numbers game, investing in an array of start-ups in the hope that one delivered a vertiginous return. This has always been part of the VC playbook but it became more gamified, descending into an undisciplined play on the momentum of industry and market trends. The standards of due diligence deteriorated.”

March 27 – Bloomberg (Neil Callanan and Silas Brown): “As traders rush to identify where the next bout of volatility will come from, some watchdogs think the answer may be buried in the huge pile of hidden leverage that’s been quietly built over the past decade. More than a dozen regulators, bankers, asset managers and former central bank officials interviewed by Bloomberg News say shadow debt and its links to lenders are becoming a major cause for concern… The concern is that private equity firms and others were allowed to load up on cheap loans as banking regulations tightened after the global financial crisis — without enough oversight into how the debt could be interconnected. Though each loan may be small, they have often been layered up in such a way that investors and borrowers could suffer if banks or other credit providers suddenly pull back.”

March 31 – Reuters (Anirban Sen and Andres Gonzalez): “Global mergers and acquisitions (M&A) activity shrank to its lowest level in more than a decade in the first quarter of 2023… M&A volumes during the first quarter slumped 48% to $575.1 billion as of March 30, compared to $1.1 trillion during the same period last year, according to… Dealogic… M&A volumes dropped 44% to $282.7 billion in the U.S. and 70% to $81.87 billion in Europe. Deal volumes in Asia Pacific fell 29% to $176.1 billion.”

March 26 – Financial Times (Erin Griffith): “Jonathan Nelson had lined up commitments for $2 million in new funding for his financial technology start-up, HF.Capital, from two investors last month. He was aiming for $2.5 million and thought securing the rest would be ‘perfunctory.’ Then 67 investors turned him down. In mid-March, his initial investors backed out, too. Mr. Nelson was initially confused by the cold shoulder. But two days later, when Silicon Valley Bank… collapsed after tech investors and start-ups set off a bank run, it all made sense. ‘I was scratching my head, saying, ‘Why did they just ghost?’’ he said. ‘Then the bank run happened, and I was like, ‘Ah, they’re terrified.’’ The same realization is rippling through the start-up world in the wake of SVB’s sudden failure.”

March 28 – Bloomberg (Rachel Butt, Reshmi Basu and John Sage): “Investors are growing more wary of lending to technology companies, fearing that the bout of volatility sparked by the global banking crisis could exacerbate stress in an industry already saturated with lower-rated debt. The collapse and hurried takeover of Silicon Valley Bank, a key lender to tech companies, alongside the failures of other regional US lenders and Switzerland’s Credit Suisse Group AG, may now force tech companies to pay more for their loans. Investors are asking for better safeguards, while some lenders are demanding that corporations pay down some of their debt, or are pushing private equity backers to inject more equity into companies…”

March 31 – Bloomberg (Natalie Wong and Matt Day): “US tech giants, grappling with a post- pandemic slowdown, have already laid off tens of thousands of workers. Now they’re dumping millions of square feet of office space, pushing vacancies in city centers to record highs and ratcheting up pressure on the commercial real estate industry. No sector is looking to sublease more office space than Big Tech, according to Jones Lang LaSalle Inc. Alphabet Inc., Meta Platforms Inc., Microsoft Corp. and Inc. have all announced plans to reduce their office footprint. Amazon has paused construction at a new campus near Washington, DC, and Microsoft is reevaluating plans for a project in Atlanta. Some 174 million square feet of office space… is available for sublease across the US…”

March 26 – Financial Times (Brooke Masters, Harriet Clarfelt and Kate Duguid): “Goldman Sachs, JPMorgan Chase and Fidelity are the biggest winners from investors pouring cash into US money market funds over the past two weeks… More than $286bn has flooded into money market funds so far in March, making it the biggest month of inflows since the depths of the Covid-19 crisis… Goldman’s US money funds have taken in nearly $52bn, a 13% increase, since March 9, the day before Silicon Valley Bank was taken over by US authorities. JPMorgan’s funds received nearly $46bn and Fidelity recorded inflows of almost $37bn…”

March 30 – Bloomberg (Natalie Wong): “Manhattan’s office-vacancy rate is at a record high as new developments add even more space to the struggling market. More than 16% of space was empty as of the first quarter, according to… Jones Lang LaSalle Inc., which tracks about 470 million square feet of Manhattan offices. Leasing is at its lowest levels since the second quarter of 2021.”

March 30 – Bloomberg (Jenny Surane): “The average Wall Street bonus plummeted 26% last year as a slump in dealmaking and banks’ efforts to contain costs weighed on compensation. The industrywide bonus pool sank to $33.7 billion last year, down 21% from 2021, according to… New York State Comptroller Thomas DiNapoli. That meant the typical bonus paid to employees in New York’s securities industry fell to $176,700, the lowest since 2019.”

Crypto Bubble Collapse Watch:

March 27 – Bloomberg (Allyson Versprille, Lydia Beyoud, Tom Schoenberg and Ava Benny-Morrison): “The US took its most forceful move yet on Monday to crack down on crypto exchange Binance Holdings Ltd. and its chief executive officer Changpeng Zhao. The Commodity Futures Trading Commission alleged in federal court in Chicago that Binance and its CEO… routinely broke American derivatives rules as the firm grew to be the world’s largest trading platform. Binance should have registered with the agency years ago and continues to violate the CFTC’s rules, according to the regulator. ‘The defendants’ own emails and chats reflect that Binance’s compliance efforts have been a sham and Binance deliberately chose – over and over – to place profits over following the law,’ Gretchen Lowe, chief counsel in the CFTC’s enforcement division, said.”

March 28 – Bloomberg (Austin Weinstein): “A top US regulator’s case against Binance Holdings Ltd. is mushrooming well beyond Changpeng Zhao’s company and rattling American firms that officials say worked with the exchange to trade crypto. The Commodity Futures Trading Commission’s scrutiny of arrangements that three trading firms had with the exchange has already sent chills across an industry, which relies on US licenses to make markets for securities. The firms weren’t identified in the CFTC’s lawsuit. The stakes are particularly high for American trading firms because even as many have dabbled in crypto, equities and other more traditional assets remain their bread and butter.”

March 30 – Bloomberg (Yueqi Yang, Paige Smith and Katanga Johnson): “US banks, already hesitant to work with crypto customers, are now even warier of providing services to the industry after a string of regional-lender collapses and amid heightened scrutiny by regulators. The closure of crypto-friendly Silvergate Capital Corp. and seizure of Signature Bank has left crypto firms struggling to find new banks for depository and payment services. While there’s no blanket ban on serving crypto clients, financial firms are imposing lengthy application procedures, turning away smaller companies and some retail platforms, and in some cases shutting the door on crypto businesses altogether…”

March 28 – CNBC (MacKenzie Sigalos and Rohan Goswami): “FTX co-founder Sam Bankman-Fried paid out tens of millions of dollars worth of bribes to at least one Chinese government official, federal prosecutors alleged in a new indictment… The indictment said accounts belonging to Bankman-Fried’s hedge fund, Alameda Research, were the target of a freezing order from Chinese police ‘in or around’ November 2021. The indictment alleges that Bankman-Fried and others ‘directed and caused the transfer’ of at least $40 million in cryptocurrency ‘intended for the benefit of one or more Chinese government officials in order to influence and induce them’ to unfreeze some of these accounts.”

Ukraine War Watch:

March 26 – Reuters (Dan Peleschuk): “NATO… criticised Vladimir Putin for what it called his ‘dangerous and irresponsible’ nuclear rhetoric, a day after the Russian president said he planned to station tactical nuclear weapons in Belarus. Putin likened the move on Saturday to the U.S. stationing its weapons in Europe, while insisting that Russia would not violate its nuclear non-proliferation promises. Although not unexpected, the plan is one of Russia's clearest nuclear signals since the beginning of its invasion of Ukraine 13 months ago, and Ukraine called for a meeting of the U.N. Security Council in response.”

March 30 – Wall Street Journal (Ian Lovett): “Military activity is increasing around the Zaporizhzhia nuclear-power plant, according to international atomic energy officials, as Ukrainian and Russian forces gear up for an expected increase in fighting this spring. ‘The situation is not improving—it is obvious that military activity is increasing in this whole region,’ Rafael Grossi, director-general of the International Atomic Energy Agency, said… after a visit to the plant… Mr. Grossi said the activity around the plant raised the risk of a nuclear catastrophe, adding that he had been trying—so far unsuccessfully—to broker an agreement that would stop fighting in the area of the nuclear station.”

March 29 – Reuters (Olena Harmash): “Ukraine struck a railway depot and knocked out power in the Russian-occupied city of Melitopol deep behind the front line… amid growing talk from Kyiv of a counterassault against Russian forces worn out by a failed winter offensive. Unverified images on the internet showed explosions lighting up the night sky with streaks of contrails in Melitopol, base of the Russian-controlled administration in Zaporizhzhia, one of five Ukrainian provinces Russia claims to have annexed.”

U.S./Russia/China/Europe Watch:

March 31 – Bloomberg: “President Vladimir Putin approved a new Russian foreign policy concept that set out to confront the US and its allies, claiming an ‘era of revolutionary changes’ was under way in international relations. The US is ‘the source of fundamental risks to the security of the Russian Federation’ and most European states are pursuing an ‘aggressive policy’ aimed at undermining Russia’s sovereignty, according to the 42-page document signed by the president... The policy ‘serves as a solid doctrinal basis for our further work on international affairs,’ Putin told a meeting of his Security Council. Russia will seek to boost ties with ‘constructive partners’ and create ‘conditions for unfriendly states to abandon their hostile policy toward our country,’ he said.”

March 31 – Wall Street Journal (Alan Cullison and Warren P. Strobel): “Moscow’s arrest of a Wall Street Journal reporter on espionage charges this week broadens a rift between the U.S. and Russia that is already so wide, the two nuclear powers barely maintain diplomatic communications. That will make any agreement on the release of the reporter, 31-year-old Evan Gershkovich, difficult to secure as he heads toward a trial in a court under the control of Russia’s security service, the FSB, U.S. officials say. Such a court is expected to operate on the orders of the Kremlin, increasing the prospect of a conviction after a trial that may be held in secret.”

]March 29 – Foreign Affairs (John Pomfret and Matt Pottinger): “Chinese leader Xi Jinping says he is preparing for war. At the annual meeting of China’s parliament and its top political advisory body in March, Xi wove the theme of war readiness through four separate speeches, in one instance telling his generals to ‘dare to fight.’ His government also announced a 7.2% increase in China’s defense budget… And in recent months, Beijing has unveiled new military readiness laws, new air-raid shelters in cities across the strait from Taiwan, and new ‘National Defense Mobilization’ offices countrywide. It is too early to say for certain what these developments mean. Conflict is not certain or imminent. But something has changed in Beijing that policymakers and business leaders worldwide cannot afford to ignore. If Xi says he is readying for war, it would be foolish not to take him at his word.”

March 27 – Financial Times (Gideon Rachman): “While Xi Jinping was being received with great pomp and ceremony in Moscow last week, Fumio Kishida was 500 miles away in Kyiv. The fact that the president of China and the prime minister of Japan paid simultaneous and competing visits to the capitals of Russia and Ukraine underlines the global significance of the Ukraine war. Japan and China are fierce rivals in east Asia. Both countries understand that their struggle will be profoundly affected by the outcome of the conflict in Europe. This shadow boxing between China and Japan over Ukraine is part of a broader trend. Strategic rivalries in the Euro-Atlantic and Indo-Pacific regions are increasingly overlapping with each other. What is emerging is something that looks more and more like a single geopolitical struggle.”

March 28 – Bloomberg (Rosalind Mathieson): “Chinese President Xi Jinping is working overtime to fashion himself as a statesman on the global stage. His ‘old friend’ in Russia isn’t helping. Having given assistance to a deal for Saudi Arabia and Iran to resume diplomatic ties, Xi has turned his gaze to other geopolitical troubles: Vladimir Putin’s war in Ukraine and the need to reset China-US ties (again) in order to give his own economy space to grow… Xi traveled to Moscow for three days where he held lengthy talks with Putin alongside toasts to their ‘no limit friendship.’ They declared… that ‘all nuclear weapons states should refrain from deploying nuclear weapons abroad.’ But just days later, Putin undercut Xi in announcing plans to ship tactical nuclear weapons to neighboring Belarus, which borders Ukraine.”

March 30 – Bloomberg: “Chinese military is willing to further deepen strategic communication and coordination with Russian military, Tan Kefei, spokesperson of Ministry of National Defense, says at regular briefing. China and Russia will conduct joint naval and air patrols and drills regularly.”

March 30 – Reuters (Andrew Osborn and Felix Light): “A Moscow court ruled that a U.S. journalist for the Wall Street Journal newspaper should be detained for nearly two months on suspicion of spying for Washington, the most serious move against a foreign journalist since Russia invaded Ukraine. Russia's FSB security service said earlier on Thursday it had opened a criminal case against U.S. national Evan Gershkovich on suspicion of espionage and the Kremlin said he had been ‘caught red-handed’”

De-globalization and Iron Curtain Watch:

March 30 – Wall Street Journal (Laurence Norman and Kim Mackrael): “China is seeking a new international order with Beijing as the dominant player, and the European Union must be more assertive in defending its security and economic interests, including possible EU-wide controls on outbound investment, the bloc’s top official said… In a speech… ahead of her trip to China alongside French President Emmanuel Macron…, European Commission President Ursula von der Leyen said the EU must continue engaging with Beijing but needs a strategy for ‘de-risking’ its relationship and dependencies on China. She also tied the future of Europe’s links with China to Beijing’s actions over the war in Ukraine and effectively called a halt to remaining hopes of enacting a 2020 EU-China investment agreement.”

March 25 – Financial Times (Anastasia Stognei): “Russia has adopted the renminbi as one of the main currencies for its international reserves, overseas trade and even some personal banking services as it pivots towards China in the face of western sanctions. The shift has made Russia a rare example of a country adopting the renminbi rather than the US dollar or euro as a reserve currency, but poses risks for Moscow given Beijing’s history of abrupt currency devaluations. China’s desire for international adoption of the renminbi has gone largely unfulfilled, but Russia has been driven towards the Chinese currency by international sanctions, the freezing of $300bn of its international assets and moves to exclude its main banks from global markets.”

March 31 – Bloomberg (Ian King and Peter Martin): “China has opened a cybersecurity review of imports from America’s largest memory chipmaker, Micron Technology Inc., opening a new front in the escalating battle between the two countries over dominance in the semiconductor market. The Chinese government is conducting the review to ensure the security of its information infrastructure supply chain, prevent network security risks and maintain national security, it said…”

March 31 – Bloomberg (Takahiko Hyuga and Yuki Furukawa): “Japan said it will expand restrictions on exports of 23 types of leading-edge chipmaking technology, as the US ratchets up efforts to limit China’s access to key semiconductor knowhow. About 10 Japanese companies… would need to get licenses to ship a broader-than-expected array of equipment used to transform silicon into chips, spanning cleaning, deposition, annealing, lithography, etching and testing. Tokyo’s move follows months of lobbying by the US to get Japan to join it in tightening shipments of semiconductor tools to China.”

March 29 – Reuters (Olga Popova and Karl Plume): “Cargill said… it would take a further step back from the Russian market by stopping handling Russian grain from its export terminal from July, although its shipping unit will continue to carry grain from Russian ports. Most international grain traders have stopped new investment in Russia since last year following Moscow's invasion of Ukraine but continued exporting Russian wheat. ‘As grain export-related challenges continue to mount, Cargill will stop elevating Russian grain for export in July 2023 after the completion of the 2022-2023 season,’ the company said…”

Inflation Watch:

March 31 – CNBC (Jeff Cox): “An inflation gauge the Federal Reserve follows closely rose slightly less than anticipated in February… The personal consumption expenditures price index excluding food and energy increased 0.3% for the month… That was below the 0.4% Dow Jones estimate and lower than the 0.5% January increase. On a 12-month basis, core PCE increased 4.6%, a slight deceleration from the level in January. Including food and energy, headline PCE increased 0.3% monthly and 5% annually, compared to 0.6% and 5.3% in January.”

March 29 – Reuters (Lisa Baertlein): “Manufacturers of everything from pickup trucks to homes are still grappling with tight supplies of microchips and cement - shortages that could translate into delays and higher costs for federal efforts to arm Ukraine against Russian aggression and rebuild U.S. crumbling infrastructure and manufacturing. The supply chain woes that sent costs soaring and spurred shortages of everything from toilet paper to passenger cars are easing for retail-focused industries, but remain stubbornly persistent in important growth sectors like autos, machinery, defense and non-residential construction, experts said.”

March 29 – Reuters (Liz Hampton): “U.S. oil and gas activity stalled in the first quarter as production gains slowed and drillers' outlooks turned negative, according to a survey… by the Federal Reserve Bank of Dallas. The bank's activity index, which measures conditions among oil and gas firms across prime oil production portions of Texas, New Mexico and Louisiana, tumbled to 2.1 from 30.3 in the fourth quarter of 2022. Companies reported rising costs for a ninth straight quarter and said this year's weaker prices for oil and gas are hurting cash flow and profits. Overall, a company outlook index turned negative, falling 27 points to -14.1. ‘An estimated 30–40% cost increase in field operations, increased interest charges on borrowed money, a drastic collapse in natural gas prices combined with lower crude oil prices produced a noticeable lower cash flow,’ said one survey respondent.”

March 30 – Bloomberg (Mumbi Gitau and Pratik Parija): “Sugar, consumed in everything from chocolate to fizzy drinks and baked products, is becoming ever more expensive, raising costs for the industry and keeping up pressure on global food inflation. Prices of refined sugar surged to the highest in more than a decade this week, and are on track to jump about 11% in March… The raw variety, meanwhile, is hovering near its most expensive level in over six years. Global supplies are becoming tighter, mainly because India, one of the world’s top shippers, is cutting exports after rains hurt the sugar cane crop and as the country diverts more of the sweetener to make biofuel.”

March 31 – Bloomberg (Alexander Weber): “Underlying inflation in the euro area hit a record in March, handing ammunition to European Central Bank officials who say interest-rate increases aren’t over yet. The rise to 5.7% in the core price reading, which strips out volatile items like fuel and food costs, came alongside a record plunge in headline inflation to 6.9% from 8.5% in February.”

March 28 – Reuters (James Davey): “British grocery inflation rose again in March to a record 17.5%, inflicting yet more pain on consumers battling a cost-of-living crisis… Market researcher Kantar said prices were rising fastest in markets such as eggs, milk and cheese. It said UK households now face an additional 837 pounds ($1,028) on their annual shopping bills if they do not change their behaviour to cut costs.”

Biden Administration Watch:

March 30 – Bloomberg (Josh Wingrove): “President Joe Biden’s administration is calling on regulators to tighten the rules for mid-sized banks, the latest step in its response to the banking crisis that led to the failure of a pair of regional lenders. The White House… called for federal banking agencies, in conjunction with the Treasury Department, to enact a series of changes to tighten rules. None of the measures requires Congressional approval… The changes include reinstating rules for banks with assets between $100 billion and $250 billion…”

March 29 – Reuters (David Lawder and Kanishka Singh): “The United States is working hard to counter China's influence in international institutions and in lending to developing countries, U.S. Treasury Secretary Janet Yellen said… Yellen said she was concerned by some of China's activities globally, particularly in lending to developing countries. ‘I am very very concerned about some of the activities that China engages in globally, engaging in countries in ways that leave them trapped in debt and don't promote economic development,’ she said in a hearing before the State, Foreign Operations, and Related Programs subcommittee of the House Appropriations Committee.”

March 29 – Bloomberg (Samantha Handler): “Republican lawmakers are hashing out ways to compromise on the state and local tax deduction cap in the runup to a deal they’re looking to make before 2024. Lawmakers from high-tax states like New York and California are looking at ways to raise the $10,000 cap on state and local tax deductions, enacted in the GOP-led 2017 tax overhaul, that they say may draw the bipartisan support needed for passage. While any bill would need a vehicle… some members see a chance to make some headway before they face voters again. Republicans, as well as some Democrats, are turning to proposals that raise the limit rather than eliminate it…”

Federal Reserve Watch:

March 26 – Financial Times (Ruchir Sharma): “As bank runs spread, it has become clear that anyone who questions a government rescue for those caught underfoot will be tarred as a latter-day liquidationist, like those who advised Herbert Hoover to let businesses fail after the crash of 1929. Liquidationist is now challenging fascist as the most inaccurately thrown insult in politics. True, it’s no longer politically possible for governments not to stage rescues, but this is a snowballing problem of their own making. The past few decades of easy money created markets so large — nearing five times larger than the world economy — and so intertwined, that the failure of even a midsize bank risks global contagion. More than low interest rates, the easy money era was shaped by an increasingly automatic state reflex to rescue — to rescue the economy from disappointing growth even during recoveries, to rescue not only banks and other companies but also households, industries, financial markets and foreign governments in times of crisis.”

March 30 – Bloomberg (Catarina Saraiva): “One of the Federal Reserve’s most prolific policy messengers is laying low at a crucial moment for the central bank, after finding herself at the center of controversy over turmoil in the banking sector. San Francisco Fed President Mary Daly, who has been an increasingly influential voice on Fed policy in recent years, is now a target of criticism over how effective Fed supervisors were in monitoring and responding to problems at Silicon Valley Bank before it collapsed. Just a few weeks ago, Daly’s name was among a handful floated as potential candidates to replace former Vice Chair Lael Brainard on the Fed board in Washington.”

March 29 – Bloomberg (Hannah Levitt, Craig Torres and Saleha Mohsin): “For the Federal Reserve system, oversight failures ahead of the collapse of Silicon Valley Bank ran coast to coast. At the San Francisco Fed — largely responsible for monitoring SVB — there was heightened turnover among supervisory officials in recent years… The culture under President Mary Daly at times put more emphasis on improving relationships among staff than installing people with strong oversight backgrounds, leading to departures, the people said. Staff for the Fed board in Washington had informed some officials of their concern around Daly’s management of her branch’s supervisory and regulatory work…”

March 28 – Reuters (Hannah Lang): “The U.S. Federal Reserve's head of banking supervision said… he was first made aware of the interest rate risk-related issues at Silicon Valley Bank in mid-February, just weeks before its failure. Fed Vice Chairman for Supervision Michael Barr told the Senate Banking Committee that Fed staff made a presentation to the central bank's board in mid-February in which staff indicated they were following up with SVB on risk related to rising interest rates. ‘The staff highlighted the interest-rate risk that was present at Silicon Valley Bank and indicated that they were in the middle of a further review,’ Barr said. ‘I believe that is the first time that I was told about interest-rate risk at Silicon Valley Bank.’”

March 28 – Bloomberg (Steve Matthews): “Federal Reserve Bank of St. Louis President James Bullard said financial stress has increased in recent weeks due to the banking crisis but can be contained with regulatory policies rather than interest rates. ‘In my view, continued appropriate macroprudential policy can contain financial stress in the current environment, while appropriate monetary policy can continue to put downward pressure on inflation… The macroprudential policy response to these events has been swift and appropriate. Regulatory authorities have used some of the tools that were developed or first utilized in response to the 2007-09 financial crisis in order to limit the damage to the macroeconomy, and they’re ready to take additional action if necessary.’”

March 26 – Wall Street Journal (Paul H. Kupiec and Alex J. Pollock): “Like all central banks, the Federal Reserve was designed to make money for the government from its monopoly on issuing currency. The Fed did generate profits, which it sent to the Treasury, every year from 1916 on—until last fall. In a development previously unheard of, the Federal Reserve has suffered operating losses of about $42 billion since September 2022. That month, the massive interest-rate risk created by the Fed’s asset-liability maturity mismatch began generating cash-operating losses, and the losses now average $7 billion a month. This is because the Fed’s trillions of dollars of long-term investments yield 2% but cost 4.6% to finance. The Fed will soon have negative equity capital, and as operating losses continue to mount, its equity-capital deficit will grow.”

U.S. Bubble Watch:

March 30 – Bloomberg (Katia Dmitrieva and Michael Sasso): “Act fast on that loan, a banker warned the couple planning to open a pickleball bar in Florida. In Maryland, a toy retailer is struggling with delays in renewing his credit line. An Indiana car-loan financier is nervously watching for any signs of trouble in repayments. In the early fallout from banking sector turmoil, American small businesses are facing a tougher time accessing capital, compounding already-tight lending standards and soaring interest rates. That’s a bad omen for the US economy, and bankers are warning that things will only get worse. The evidence is pointing toward the credit crunch economists warned about as the collapse of Silicon Valley Bank sent tremors throughout the financial system.”

March 30 – CNBC (Jeff Cox): “Initial filings for unemployment insurance ticked higher last week but remained generally low in a tight labor market. Jobless claims for the week ended March 25 totaled 198,000, up 7,000 from the previous period and a bit higher than the 195,000 estimate… Continuing claims, which run a week behind, edged up 4,000 to 1.689 million… The four-week moving average of weekly claims, which smooths volatility in the numbers, rose slightly to 198,250, but has been below 200,000 since mid-January.”

March 28 – CNBC (Diana Olick): “Home prices cooled in January, up only 3.8% nationally than they were a year earlier, according to the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index. That is down from 5.6% in December. Prices have been falling for seven straight months… The 10-city composite rose 2.5% year over year, down from 4.4% in December. The 20-city composite also rose 2.5%, down from 4.6% in the previous month… Prices were lower year over year in San Francisco (-7.6%), Seattle (-5.1%), Portland, Oregon (-0.5%) and San Diego (-1.4%). They were flat in Phoenix. Miami, Tampa and Atlanta again saw the hottest annual price gains of the top 20 cities. Miami prices were up 13.8%, Tampa prices up 10.5%, and Atlanta prices rose 8.4%.”

March 29 – Bloomberg (Augusta Saraiva): “US pending home sales unexpectedly rose in February for a third month, adding to signs that the housing market may be stabilizing after a tumultuous year. The National Association of Realtors’ index of contract signings to purchase previously owned homes increased 0.8% last month to 83.2 — the highest since August…”

March 27 – Wall Street Journal (Nicole Friedman): “The United States is a country of two housing markets. In one, home prices are falling from a year ago. In the other, they’re still posting annual gains. That division runs right down the center of the U.S. In all of the 12 major housing markets west of Texas, plus Austin, home prices fell in January on an annual basis, according to mortgage-data firm Black Knight Inc.’s home-price index. In the 37 biggest metro areas east of Colorado, except Austin, home prices rose year-over-year. This pattern of geographical disparity is highly unusual, if not unprecedented, housing analysts say. ‘We’ve never seen anything quite like this where it’s so stark, west to east,’ said Andy Walden, vice president of enterprise research strategy at Black Knight.”

March 28 – CNBC (Mike Winters): “The rental market has seemingly flipped: After prices surged throughout 2021 and most of 2022, they’ve declined almost as quickly for five of the last six months, a new rent report reveals. U.S. rent prices decreased by 0.25% from January to February 2023, according to… While it’s a smaller decrease than in previous months, it brings the U.S. monthly average rent price down to $1,937 — lower than its August 2022 peak of $2,053. As of February, 12 of the 50 most populous U.S. cities have declining year-over-year rent prices, according to data.”

Fixed Income Watch:

March 28 – Wall Street Journal (Justin Lahart): “For the banking sector, the impact from higher rates is happening right now. For corporate borrowers, it largely has yet to come. But it will come. Thanks to the decadeslong decline in interest rates, their effect on corporate finances was transformed from top of mind to a near afterthought. In 1990, Federal Reserve data show that the interest paid by nonfinancial corporate businesses as a share of their outstanding debt, a proxy for the average interest rates they were paying, came to 13.3%. By 2021—the last year with available data—that had fallen to 3.6%, marking the lowest level since the late 1950s. Over the same period, long-term yields on Baa-rated corporate debt fell from 10.4% to 3.4%...”

China Watch:

March 29 – Bloomberg: “A global banking crisis has put China’s struggling regional lenders under new scrutiny following a sharp slowdown in the economy. But recent moves from Beijing should give investors some comfort. As in the US, China has a problem with its smaller regional banks, who sit on more than 100 trillion yuan ($14.5 trillion) in assets. After years of efforts by authorities to rein in risks in the sector, concerns are rising once again after the failure of Silicon Valley Bank and as a number of smaller banks recently refrained from using redemption options on bonds they had issued.”

March 26 – CNBC (Evelyn Cheng): “Debt-heavy local governments in China need new ways to raise money under a central regime that's made clear its priority is to reduce financial risks. Local governments' direct debt exceeded 120% of revenue in 2022, S&P Global Ratings analysts said, noting that's more than what Beijing has unofficially said was an acceptable debt level. ‘The country's provinces and municipalities have relied heavily on expanded bond issuance to carry them through a COVID-triggered economic slowdown and collapsed land-sale revenues,’ the S&P analysts said…”

March 26 – Bloomberg: “China’s central government is borrowing at the fastest pace on record to finance more spending and to ease the debt burden in provinces. The amount of sovereign bonds sold this quarter, excluding those maturing, reached 277 billion yuan ($40 billion), the highest level for the same period since 1997… The gross issuance of the notes in the first three months soared 35% from a year earlier to 2.1 trillion yuan. In China’s 2023 budget… Beijing outlined plans to increase the central government’s borrowing by roughly 20% from last year to help finance a slightly bigger fiscal deficit and help provinces deal with increasing financial stress.”

March 29 – Bloomberg: “Country Garden…, China’s largest property developer, reported a first full-year loss since its 2007 listing in Hong Kong… The… company posted a net loss of about 6.1 billion yuan ($885 million) in 2022, compared with a profit of 27 billion yuan a year earlier… The result underscores how a slump in China’s real estate sector is weighing on some of the strongest private builders that have avoided a default so far. Once considered a safer investment among developers, Country Garden has become a proxy for financial contagion in an industry that accounts for about a quarter of the country’s gross domestic product.”

March 31 – Bloomberg: “China’s home sales rose for a second month in March…, signaling a recovery after policymakers expanded support for the sector. The value of new home sales by the 100 biggest real estate developers climbed 29.2% from a year earlier to 660.9 billion yuan ($96.1bn), according to… China Real Estate Information Corp. That compares with a 15% rise in February, when the market posted its first increase in 20 months.”

March 30 – Bloomberg: “China’s economic recovery gathered pace in March, with gauges for manufacturing, services and construction activity remaining strong… The purchasing managers’ index for the non-manufacturing sector jumped to 58.2 in March, the highest level since May 2011, led by a surge in the construction sub-index to a record high. The manufacturing PMI was above economists’ forecasts, at 51.9 in March, even though it eased slightly from February’s level.”

March 29 – Bloomberg (Dorothy Ma and Alice Huang): “Global creditors are bracing for a long-drawn battle to recover money from China’s troubled developers, as a property meltdown continues to roil the nation’s $735 billion offshore bond market for a third straight year. Frustrated dollar bondholders have been trying all they can to make defaulters pay, but their efforts have largely been stymied by lengthy debt restructuring processes and litigation. Below their onshore peers in the pecking order, a few have appealed for intervention by regulators… Though a flurry of debt revamp proposals shows incremental progress lately, a plan unveiled last week by China Evergrande Group has raised concerns that investors may have to wait for years to get their money back.”

March 27 – Financial Times (Martin Arnold): “China has significantly expanded its bailout lending as its Belt and Road Initiative blows up following a series of debt write-offs, scandal-ridden projects and allegations of corruption. A study… shows China granted $104bn worth of rescue loans to developing countries between 2019 and the end of 2021. The figure for these years is almost as large as the country’s bailout lending over the previous two decades. The study by researchers at AidData, World Bank, Harvard Kennedy School and Kiel Institute for the World Economy is the first known attempt to capture total Chinese rescue lending on a global basis. Between 2000 and the end of 2021, China undertook 128 bailout operations in 22 debtor countries worth a total of $240bn.”

March 28 – Bloomberg: “China is facing a more challenging global economic environment as growth slows and countries like the US struggle to contain inflation, a senior official at the nation’s economic planning agency said. Global growth lacks momentum and downward pressure is rising, Zhao Chenxin, vice chairman of the National Development and Reform Commission, said... It’s very uncertain whether the US and Europe can curb inflation, he added. Zhao made… additional comments: The anti-globalization trend has increased. Some countries are forming allies, decoupling with others, and using restrictions to disrupt the global economic and investment landscape. The global financial system’s fragility is increasing, and the Silicon Valley Bank crisis will need to be monitored.”

March 30 – Reuters (Joe Cash and Shuyan Wang): “Chinese Premier Li Qiang said… he was committed to opening up and reforming the world's second-largest economy, seeking to win over foreign investors even as trade and geopolitical tensions with the West loom large. His keynote speech, delivered at a business and political summit in the island province of Hainan, came in a week Beijing has mounted a charm offensive on overseas firms as it seeks to shore up an economy battered by years of pandemic restrictions.”

March 30 – Bloomberg: “China has tasked its Vice Premier He Lifeng, a close confidante of President Xi Jinping, with the mandate of shoring up the nation’s embattled property industry as well as the $60 trillion financial sector… He, 68, will have all the financial regulators, including the People’s Bank of China and the newly-created super financial watchdog, under his purview, said the people… In a change from the previous five years, He will also assume the supervision of the housing ministry…”

March 26 – Financial Times (Joe Leahy): “China’s economic rebound is weaker than expected as consumers emerge ‘stunned’ from pandemic-led disruptions and a real estate meltdown last year, according to the head of AP Møller-Maersk. Vincent Clerc, the new chief executive of the world’s second-largest container shipping group… ‘When we started the year, there was this hope that as China reopens after Covid we would see a really strong rebound,’ Clerc said... ‘I think we’ve not seen it yet . . . The Chinese consumer is a bit more stunned by what’s happened and is not in a splurging mood right now.’”

March 26 – Reuters (Qiaoyi Li, Liangping Gao and Ryan Woo): “The slump in Chinese industrial firms' profits deepened in the first two months of 2023, weighed by lacklustre demand and stubbornly high costs… The sharp 22.9% contraction followed a 4.0% fall in industrial profits for the whole of 2022…, pointing to a downbeat start to the year for factories at large.”

March 28 – New York Times (Li Yuan): “In 2015, when Shangqiu, a municipality in central China, laid out a plan for the next two decades, it positioned itself as a transportation hub with a sprawling network of railways, highways and river shipping routes. By the end of 2020, Shangqiu had built 114 miles of high-speed rail… By 2025, Shangqiu expects the coverage of its highway network to have increased by 87%. The city is building its first two airports, three new highways and enough parking space for 20,000 additional slots. The infrastructure splurge is far from over. On Feb. 23, the Shangqiu Communist Party secretary reiterated the city’s vision as a logistics power… That morning, the city’s bus operator announced that it would have to suspend services because of financial difficulties… China’s 31 provincial governments owed around $5.1 trillion at the end of 2022, an increase of 66% from three years earlier. An International Monetary Fund report puts the number at $9.5 trillion… But from the enthusiastic way that the cities have embraced investment — China’s old playbook for economic growth — it’s hard to tell that they’re deeply in debt.”

March 30 – Reuters (Ellen Zhang and Marius Zaharia): “Some of China's most indebted local governments are on a hiring spree, a move that analysts say could put fragile regional finances under more strain as officials seek to create jobs for a record number of graduates entering the workforce this year. China's huge and rising local government debt, totalling $9 trillion, or about half the nation's gross domestic product, is one of the biggest threats to fostering sustainable growth in the world's second largest economy… In poorer areas, which are bleeding people and private business to urban centres, the task of providing jobs falls more squarely on local governments at a time they are struggling to raise revenue through income tax and state land sales.”

Central Banker Watch:

March 26 – Bloomberg (Zoe Schneeweiss): “European Central Bank Executive Board member Isabel Schnabel pushed for this month’s decision statement to signal possible interest-rate hiking in future, according to people with knowledge of the matter. Schnabel, the official in charge of markets, argued against the Governing Council’s avoidance of explicit wording on the path of monetary policy after the half-point hike in borrowing costs on March 16…”

March 29 – Reuters (Balazs Koranyi, Jan Lopatka, Jason Hovet and Robert Muller): “European Central Bank interest rates will likely have to rise further to contain inflation, policymakers said…, but at least one outspoken conservative floated the idea of a slowdown in the pace of increases… ECB chief economist Philip Lane… said that his baseline is for the turmoil to dissipate and then rates would need to rise several times. ‘Under our baseline scenario, in order to make sure inflation comes down to 2%, more hikes will be needed,’ German newspaper Die Zeit quoted Lane as saying. ‘If the financial stress we see is non-zero, but turns out to be still fairly limited, interest rates will still need to go up.’”

Global Bubble Watch:

March 27 – Financial Times (Chris Giles): “The global economy is in danger of suffering a lost decade of growth, which would be even more severe if the current financial turmoil sparked a global recession, according to… the World Bank. The international organisation warned on Monday that the Covid-19 pandemic and Russia’s invasion of Ukraine were set to create lasting damage to economic performance, undermining efforts to improve global living standards, reduce poverty and address climate change. Its research showed that recent setbacks to the world economy have had more lasting effects and would reduce growth rates this decade by a third, compared with the first 10 years of this century.”

March 28 – CNN (Jessie Yeung): “For the past decade, China has lent massive sums to governments across Asia, Africa and Europe, growing its global influence through infrastructure megaprojects and becoming one of the world’s biggest creditors. Now, a new study says Beijing has also become a major emergency rescue lender to those same countries, many of which are struggling to repay their debts. Between 2008 and 2021, China spent $240 billion bailing out 22 countries that are ‘almost exclusively’ debtors in Xi Jinping’s signature Belt and Road infrastructure project, including Argentina, Pakistan, Kenya and Turkey… Though China’s bailouts are still smaller than those provided by the United States or the International Monetary Fund (IMF), which regularly makes emergency loans to countries in crisis, it has become a key player for many developing countries.”

March 31 – Reuters (Andy Bruce): “British house prices slid in March at the fastest annual rate since the financial crisis, mortgage lender Nationwide said… House prices fell 3.1% year-on-year, the biggest such drop since July 2009, Nationwide said. Compared with February this year, prices were 0.8% lower.”

Europe Watch:

March 30 – Financial Times (Martin Arnold and Barney Jopson): “German inflation fell less than expected in March despite a steep drop in energy costs, curbing hopes of a rapid easing in wider price pressures across the eurozone. The 7.8% year-on-year rise in harmonised German consumer prices compared with the previous month’s rate of 9.3%, but was higher than the 7.5% forecast by economists… The main factor in the fall in the German consumer price index was a drop in energy inflation from 19.1% in February to 3.5% in March… This was partly offset by a slight acceleration in food inflation to 22.3% and services price growth to 4.8%.”

March 27 – Reuters (Sarah Marsh and Matthias Williams): “Airports and bus and train stations across Germany were at a standstill on Monday, causing disruption for millions of people during one of the largest walkouts in decades in Europe's biggest economy as soaring inflation stokes wage demands. The 24-hour ‘warning’ strikes called by the Verdi union and railway and transport union EVG were the latest in months of industrial action which has hit major European economies as higher food and energy prices dent living standards… Employers have offered 5% more wages over a period of 27 months and a one-off payment of 2,500 euros ($2,700)… Verdi is demanding a 10.5% wage increase…”

March 30 – Bloomberg (Alonso Soto): “Spanish inflation plummeted as energy costs retreated, though persistent underlying price pressures underscored the dilemma for the European Central Bank… March’s headline reading came in at 3.1% — down from February’s 6% and much lower than the 3.7% median estimate… Core inflation, however — which excludes volatile items like fuel and fresh produce — only dipped a touch, to 7.5%...”

March 28 – Bloomberg (Anna Shiryaevskaya and Elena Mazneva): “Europe has negotiated through the winter of a crisis that threatened to choke energy supplies and overwhelm its economy, but officials are warning that the squeeze may not yet be over. Fears of blackouts and freezing homes have faded for now, and gas reserves remain far fuller than normal. The region is entering a crucial period of replenishing those stockpiles, and avoiding a crunch next winter hinges on its success. It won’t be able to rely on the usually massive supply of pipeline gas from Russia, and EU officials are leaning on companies to end LNG imports from the country.”

Japan Watch:

March 28 – Bloomberg (Toru Fujioka): “The Bank of Japan’s new Deputy Governor Shinichi Uchida indicated the possibility that when the time comes for the bank to adjusts its yield curve control program it may do it as a surprise, amid lingering market speculation over change as a new leadership takes over the BOJ’s helm. The bank shouldn’t communicate its policy decision in advance including any changes surrounding its yield curve control program, as it’s decided by a policy board meeting, Uchida said… ‘Due to the nature of the yield curve control, it’s hard to get markets price in a change beforehand,’ Uchida said. Uchida’s remarks are likely to keep market players on high alert over surprise adjustments from the BOJ.”

March 25 – Financial Times (Kana Inagaki and Leo Lewis): “The failure of Silicon Valley Bank and the ensuing turmoil at Credit Suisse have put Japan’s ailing regional banking sector and its financial institutions under the tightest market scrutiny since the 2008 global financial crisis. In a reflection of contagion concerns, Japan’s central bank and financial authorities held a crisis meeting in mid-March, while shares in the country’s banks have endured a brutal sell-off…, falling more heavily than their counterparts in the US and Europe... From March 9 to Friday, Japan’s Topix banks index was down 17%, compared with a 13% decline for the S&P banks index in the US and a 16% fall for the Euro Stoxx banks index.”

EM Crisis Watch:

March 28 – Bloomberg (Chiranjivi Chakraborty and Ashutosh Joshi): “The Adani Group is back in fire-fighting mode after media reports called into question the Indian conglomerate’s ability to repay debt, reviving a selloff in its stock. Adani units slumped Tuesday after India’s Economic Times said the group is seeking to renegotiate the terms of $4 billion worth of loans, citing people it didn’t identify. The declines — which saw the flagship Adani Enterprises Ltd. sink more than 7% — were compounded by a report from The Ken flagging concerns over the group’s repayment of $2.15 billion of share-backed loans.”

March 31 – Reuters (Asif Shahzad and Ariba Shahid): “Pakistani Finance Minister Ishaq Dar said… China had rolled over a $2 billion loan that matured last week, providing relief during the South Asian nation's acute balance of payment crisis. Locking in a rollover had been critical for Pakistan, where reserves have dipped to just four weeks' worth of imports and talks over an International Monetary Fund bailout tranche of $1.1 billion have hit a stalemate.”

Leveraged Speculation Watch:

March 31 – Reuters (Nell Mackenzie, Carolina Mandl and Summer Zhen): “March's market turmoil has forced many macro and trend-following hedge funds to cut bait on bad portfolio bets and caused at least one bank that lends to them to scrutinize its clients' exposure… Macro and trend-following hedge funds dropped 3.2% this month through March 29, while algorithmic commodity trading advisor funds (CTAs) dove 6.8%. Those funds are down 2.7% and 6% for the year through March 29… Edouard de Langlade, founder and owner of EDL Capital, said in a letter last week that he believed the move in rates was caused by CTAs unwinding positions because of risk-control purposes. ‘There is a lot of pain out there and the other big question we must ask ourselves is how much of the fast money has been unwound,’ de Langlade wrote.”

Social, Political, Environmental, Cybersecurity Instability Watch:

March 27 – Wall Street Journal (Aaron Zitner): “Patriotism, religious faith, having children and other priorities that helped define the national character for generations are receding in importance to Americans, a new Wall Street Journal-NORC poll finds. The survey… also finds the country sharply divided by political party over social trends such as the push for racial diversity in businesses and the use of gender-neutral pronouns. Some 38% of respondents said patriotism was very important to them, and 39% said religion was very important. That was down sharply from when the Journal first asked the question in 1998, when 70% deemed patriotism to be very important, and 62% said so of religion. The share of Americans who say that having children, involvement in their community and hard work are very important values has also fallen. Tolerance for others, deemed very important by 80% of Americans as recently as four years ago, has fallen to 58% since then.”

March 29 – Reuters (David Stanway): “Rapidly melting Antarctic ice is dramatically slowing down the flow of water through the world's oceans, and could have a disastrous impact on global climate, the marine food chain and even the stability of ice shelves, new research has found. The ‘overturning circulation’ of the oceans, driven by the movement of denser water towards the sea floor, helps deliver heat, carbon, oxygen and vital nutrients around the globe. But deep ocean water flows from the Antarctic could decline by 40% by 2050, according to a study… in the journal Nature. ‘That’s stunning to see that happen so quickly,’ said Alan Mix, a paleoclimatologist at Oregon State University and co-author on the latest Intergovernmental Panel on Climate Change assessments... ‘It appears to be kicking into gear right now. That's headline news.’”

March 30 – Reuters (Fabian Cambero and Alexander Villegas): “Chile detected the first case of bird flu in a human, the country's health ministry reported… The case was detected in a 53-year-old man who presented severe influenza symptoms… The government is also investigating the source of contagion as well as others who were in contact with the patient.”

Geopolitical Watch:

March 29 – Reuters (Fabian Hamacher and Bernard Orr): “Taiwan will not let external pressure prevent it engaging with the world, President Tsai Ing-wen said on Wednesday as she headed for the United States after China threatened retaliation if she met U.S. House Speaker Kevin McCarthy… China staged major war games around Taiwan in August when then-U.S. House Speaker Nancy Pelosi visited Taipei. Taiwan's armed forces say they are watching for any Chinese moves when Tsai is abroad… ‘External pressure will not hinder our determination to go to the world,’ Tsai said at Taiwan's main international airport…”

March 28 – Reuters (Hyonhee Shin and Daewoung Kim): “North Korea unveiled new, smaller nuclear warheads and vowed to produce more weapons-grade nuclear material to expand its arsenal…, as a U.S. aircraft carrier arrived in South Korea for military drills. North Korea's Korean Central News Agency (KCNA) released photos of the warheads, dubbed Hwasan-31s. Leader Kim Jong Un visited the Nuclear Weapons Institute and inspected new tactical nuclear weapons and technology for mounting warheads on ballistic missiles, as well as nuclear counterattack operation plans, KCNA said.”

March 25 – Wall Street Journal (Michael R. Gordon, Dion Nissenbaum and Jared Malsin): “Iranian-backed militias brushed aside U.S. warnings and mounted fresh attacks that brought two U.S. sites in eastern Syria under fire and injured an American service member, a U.S. official said… The previous day, Iranian-backed groups mounted a drone attack that killed a U.S. contractor and wounded five service members and another contractor. The new attacks involve rocket strikes that took place late Friday night local time on Mission Support Site Conoco, a small outpost in northeast Syria… Additionally, a series of drone attacks soon followed on Green Village, a base in eastern Syria where U.S. personnel are also deployed.”

March 27 – Wall Street Journal (Dov Lieber, Benoit Faucon and Michael Amon): “Russia is helping Iran gain advanced digital-surveillance capabilities as Tehran seeks deeper cooperation on cyberwarfare, people familiar… said, adding another layer to a burgeoning military alliance that the U.S. sees as a threat. The potential for cyberwarfare collaboration comes after Iran has… sold Russia drones for use in Ukraine, agreed to provide short-range missiles to Moscow and shipped tank and artillery rounds to the battlefield. Tehran is seeking the cyber help along with what U.S. and Iranian officials have said are requests for dozens of elite Russian attack helicopters and jet fighters and aid with its long-range missile program. Russia and Iran both have sophisticated cyber capabilities and have long collaborated with each other…”

March 27 – Reuters (Emily Rose and Steven Scheer): “Prime Minister Benjamin Netanyahu on Monday put off a decision on bitterly contested plans for a judicial overhaul amid fears that Israel's worst national crisis in years could fracture his coalition or escalate into violence. It was unclear how far the bill's delay to next month's new parliamentary session would satisfy either side or cool a crisis that the army chief said on Monday made ‘this hour different to any before’.”