For the Week:
The S&P500 (up 14.5% y-t-d) and the Dow (up 3.8%) were little changed. The Utilities fell 1.3% (up 8.2%). The Banks rallied 2.5% (up 8.8%), and the Broker/Dealers rose 1.5% (up 13.3%). The Transports advanced 2.0% (down 3.0%). The S&P 400 Midcaps were little changed (up 5.3%), while the small cap Russell 2000 rallied 1.3% (up 1.0%). The Nasdaq100 was about unchanged (up 17.0%). The Semiconductors retreated 1.2% (up 31.1%). The Biotechs gained 0.7% (down 2.4%). With bullion up $5, the HUI gold index added 0.2% (up 10.1%).
Three-month Treasury bill rates ended the week at 5.205%. Two-year government yields added a basis point this week to 4.74% (up 49bps y-t-d). Five-year T-note yields rose nine bps to 4.37% (up 52bps). Ten-year Treasury yields jumped 14 bps to 4.39% (up 52bps). Long bond yields rose16 bps to 4.56% (up 53bps). Benchmark Fannie Mae MBS yields surged 19 bps to 5.89% (up 61bps).
Italian yields jumped 13 bps to 4.07% (up 37bps y-t-d). Greek 10-year yields rose 11 bps to 3.74% (up 69bps). Spain's 10-year yields surged 13 bps to 3.12% (up 43bps). German bund yields rose nine bps to 2.50% (up 48bps). French yields gained nine bps to 3.30% (up 74bps). The French to German 10-year bond spread was unchanged at 80 bps. U.K. 10-year gilt yields jumped nine bps to 4.17% (up 64bps). U.K.'s FTSE equities index declined 0.9% (up 5.6% y-t-d).
Japan's Nikkei Equities Index surged 2.9% (up 18.6% y-t-d). Japanese 10-year "JGB" yields surged 12 bps to 1.08% (up 46bps y-t-d). France's CAC40 fell 2.0% (down 0.8%). The German DAX equities index added 0.4% (up 8.9%). Spain's IBEX 35 equities index declined 0.8% (up 8.3%). Italy's FTSE MIB index slipped 0.5% (up 9.2%). EM equities were mixed. Brazil's Bovespa index gained 2.1% (down 7.7%), while Mexico's Bolsa index declined 0.7% (down 8.6%). South Korea's Kospi index increased 0.5% (up 5.4%). India's Sensex equities index jumped 2.4% (up 9.4%). China's Shanghai Exchange Index fell 1.0% (down 0.3%). Turkey's Borsa Istanbul National 100 index declined 1.1% (up 42.5%). Russia's MICEX equities index was unchanged (up 0.8%).
Federal Reserve Credit declined $13.2 billion last week to $7.208 TN. Fed Credit was down $1.682 TN from the June 22, 2022, peak. Over the past 250 weeks, Fed Credit expanded $3.481 TN, or 93%. Fed Credit inflated $4.397 TN, or 156%, over the past 607 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt recovered $4.5bn last week to $3.314 TN. "Custody holdings" were down $118 billion y-o-y, or 3.4%.
Total money market fund assets added $4.3 billion to $6.103 TN. Money funds were up $669 billion, or 12.3%, y-o-y.
Total Commercial Paper added $1.1 billion to $1.290 TN. CP was up $127bn, or 10.9%, over the past year.
Freddie Mac 30-year fixed mortgage rates slipped one basis point to an 11-week low 6.86% (up 16bps y-o-y). Fifteen-year rates gained three bps to 6.16% (up 5bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down four bps 7.32% (up 12bps).
Currency Watch:
June 26 – Reuters (Gertrude Chavez-Dreyfuss): “The yen sank to its lowest against the U.S. dollar in nearly 38 years on Wednesday, as wide interest rate differentials between the two economies in favor of the greenback continued to pummel the Japanese unit, keeping traders on alert for any sign of intervention from Japan to boost its currency. The U.S. dollar rose to as high 160.82, its strongest level since December 1986.”
June 18 – Nikkei Asia (Pak Yiu): “China saw the world’s biggest outflow of high-net-worth individuals last year and is expected to see a record exodus of 15,200 in 2024, dealing a further blow to its economy, a new report says. Uncertainty over China's economic trajectory and geopolitical tensions are top of mind for many Chinese millionaires, in dollar terms, who choose to leave their country, according to… investment migration firm Henley & Partners. The U.S., China's international archrival, stands out as the top destination… China last year saw 13,800 high-net-worth individuals depart, mostly to the U.S., Canada and Singapore, the firm found. Such individuals, abbreviated as HNWIs, are defined as those with at least $1 million in assets.”
June 23 – Reuters (Winni Zhou and Ankur Banerjee): “A sliding yuan and extensive outflows of cash from the mainland into Hong Kong show China's domestic investors are shelving expectations for any immediate recovery in their home markets and fleeing to the closest better-yielding assets. The yuan has dropped to seven-month lows this week, alongside a reversal in equity investment flows into China. Analysts said Hong Kong's stockpile of yuan deposits has also grown as mainland investors use their limited offshore investment channels to seek higher yields and companies prepare to pay annual dividends, adding to the pressure on the currency.”
June 22 – Financial Times (Mary McDougall and Joseph Cotterill): “Emerging market currencies are on track for their worst first half of the year since 2020, pushed lower by an unexpectedly strong dollar and an unwind in a popular trading strategy across Latin American markets. JPMorgan’s emerging markets foreign exchange index has fallen 4.4% so far this year, a drop more than twice as large as the same period in the three previous years.”
For the week, the U.S. Dollar Index was little changed at 105.87 (up 4.5% y-t-d). For the week on the upside, the South Korean won increased 0.9%, the Australian dollar 0.4%, the euro 0.2%, and the Canadian dollar 0.1%. On the downside, the Brazilian real declined 2.9%, the South African rand 1.2%, the Mexican peso 1.1%, the Norwegian krone 1.0%, the Swedish krone 0.8%, the Japanese yen 0.7%, the Swiss franc 0.6%, the New Zealand dollar 0.4%, and the Singapore dollar 0.1%. The Chinese (onshore) renminbi declined 0.09% versus the dollar (down 2.31% y-t-d).
Commodities Watch:
June 28 – Reuters (Rahul Paswan): “Gold prices steadied on Friday and were headed for a third straight quarterly gain after a key U.S. inflation report was broadly in line with expectations, boosting hopes that the Federal Reserve could cut interest rates by September. Spot gold was steady at $2,326.47 per ounce... Prices have gained over 4% for the quarter.”
The Bloomberg Commodities Index declined 0.7% (up 2.4% y-t-d). Spot Gold added 0.2% to $2,327 (up 12.8%). Silver dropped 1.4% $29.143 (up 22.5%). WTI crude gained 81 cents, or 1.0%, to $81.54 (up 13.8%). Gasoline added 0.2% (up 3.5%), while Natural Gas dropped 8.3% to $2.601 (up 4%). Copper declined 0.8% (up 13%). Wheat fell 1.4% (down 12%), and Corn sank 8.7% (down 16%). Bitcoin slumped $4,042, or 6.3%, to $60,118 (up 41.4%).
Middle East War Watch:
June 27 – Politico (Erin Banco): “A large-scale confrontation between Israel and Hezbollah is likely to break out in the next several weeks if Jerusalem and Hamas fail to reach a cease-fire deal in Gaza, U.S. intelligence indicates. U.S. officials are trying to convince both sides to deescalate — a task that would be significantly easier with a cease-fire in place in Gaza. But that agreement is in tense negotiations and U.S. officials are not confident Israel and Hamas will agree to the deal on the table in the near future. Meanwhile, the Israel Defense Forces and Hezbollah have drafted battle plans and are in the process of trying to procure additional weapons, according to two senior U.S. officials briefed on the intelligence.”
June 28 – Bloomberg (Ethan Bronner): “North Israel is a series of ghost towns — abandoned houses and scorched forests from Hezbollah missiles. Parts of south Lebanon have been hit so hard by Israeli bombs that they’ve been reduced to rubble. Tens of thousands of residents have been driven from homes on both sides. A steady, if ugly, tit-for-tat between Israel and Hezbollah since the October outbreak of the Gaza war has been shifting into something more alarming. Record numbers of Hezbollah projectiles — some 900 — have hit Israel this month and its chief says he’s overwhelmed by volunteers ready to fight Israel ‘without any rules, restraints or ceiling.’ Israel, meanwhile, is carrying out deeper and more destructive attacks in Lebanon and its northern military command has just approved a battle plan for the country.”
June 23 – BBC: “A number of Iraq’s leading Shia militias have pledged their allegiance and vowed to fight alongside Lebanon’s Hezbollah movement if Israel enters into a full-scale war against the group, according to a leading Lebanese newspaper. The pro-Iran Al-Akhbar newspaper published a report… saying that its Al-Nujaba Movement and Kataib Hezbollah faction (Hezbollah Brigades) had ‘announced their readiness to participate, if [Lebanese] Hezbollah agrees, in confronting any possible Israeli aggression against Lebanon’.”
June 24 – Wall Street Journal (Paul Berger and Costas Paris): “Ship backups that plagued seaports during the Covid pandemic are making a comeback, as vessel diversions because of attacks in the Red Sea trigger gridlock and soaring costs at the start of the peak shipping season. Flotillas of containerships and bulk carriers are growing off the coasts of Singapore, Malaysia, South Korea and China while ports in Spain and other parts of Europe look to dig out from container piles… The snags are complicating logistics for retail and manufactured goods, but importers and exporters say they are most concerned that the backups could expand as demand picks up in the coming months... That could drive already-resurgent freight rates close to levels seen during the pandemic…”
Ukraine War Watch:
June 23 – Reuters (Guy Faulconbridge and Filipp Lebedev): “Russia said… the United States was responsible for a Ukrainian attack on the Russian-annexed Crimean peninsula with five U.S.-supplied missiles that killed four people, including two children, and injured 151 more. The Russian Defence Ministry said four of the U.S.-delivered Army Tactical Missile System (ATACMS) missiles, equipped with cluster warheads, were shot down by air defence systems and the ammunition of a fifth had detonated in mid-air… ‘Responsibility for the deliberate missile attack on the civilians of Sevastopol is borne above all by Washington, which supplied these weapons to Ukraine, and by the Kyiv regime…’ the ministry said.”
France Instability Watch:
June 24 – Financial Times (Gideon Rachman): “‘Our Europe is mortal, it can die,’ warned Emmanuel Macron in late April. Who knew that just a few weeks later France’s president would set about proving his point… At present, global attention is focused on the immediate political dramas in France. The first round of voting will take place on June 30… At best, a parliament dominated by the political extremes would plunge France into a period of prolonged instability. At worst, it would lead to the adoption of spendthrift and nationalistic policies that would swiftly provoke an economic and social crisis in France. A French meltdown would rapidly become the EU’s problem. There would be two main transmission mechanisms. The first is fiscal. The second is diplomatic. France is in a financial mess.”
June 24 – Politico (Clea Caulcutt): “French President Emmanuel Macron warned Monday that a victory for the far left or the far right in this month’s snap election could spark ‘civil war.’ Macron said the far-left France Unbowed and Marine Le Pen’s far-right National Rally both pursued divisive policies that stoked tensions between communities. The far right’s answer to insecurity ‘reduces people to their religion or their origin’ and therefore ‘pushes people towards civil war,’ he said…”
June 25 – Bloomberg (Alice Atkins): “French officials must reassure foreign investors that the nation’s finances are in order or risk a fresh blowout in bond spreads, according to Allianz Global Investors’ multi-asset chief investment officer. Overseas investors own a much larger share of French government debt than they do elsewhere, and some fear the current political turmoil could trigger a European debt crisis to rival the one seen over a decade ago, said Gregor Hirt, whose division has €156 billion ($168bn) of assets under management. ‘Any reminder of the European sovereign debt crisis is a red flag for many international investors,’ he said.”
June 28 – Bloomberg (Valentine Baldassari and Ania Nussbaum): “President Emmanuel Macron’s approval rating fell to the lowest level in three months, delivering a boost to Marine Le Pen’s far-right National Rally party just two days before voting starts in France’s legislative election. Support for Macron dropped six points to 36%, the worst showing since March, according to a Toluna-Harris Interactive poll for LCI TV published on Friday.”
Taiwan Watch:
June 24 – Reuters (Ben Blanchard): “Democracy is not a crime and autocracy is the real ‘evil’, Taiwan President Lai Ching-te said… after China threatened to impose the death penalty in extreme cases for ‘diehard’ Taiwan independence separatists… On Friday, China ramped up its pressure on Taiwan by issuing new legal guidelines to punish those it says support the island's formal independence, though Chinese courts have no jurisdiction on the democratically governed island.”
June 22 – Reuters (Ben Blanchard): “Taiwan's annual war games this year will be as close as possible to actual combat, no longer just putting on a show to score points but aiming to simulate real fighting given a rapidly rising ‘enemy threat’ from China, a senior official said… A senior Taiwan defence official… said there was an urgent need to rethink how the drills were conducted. ‘In recent years, the enemy threat has changed rapidly,’ the official said. ‘Our defence combat plan must also be continuously revised on a rolling basis, and the urgency of comprehensive combat training is becoming more and more important.’”
Market Instability Watch:
June 24 – Bloomberg (Alexandra Harris): “US fiscal deficits are projected to grow over the next decade, likely pushing the government to increasingly rely on Treasury bills and healthy demand to plug the holes. The nonpartisan Congressional Budget Office last week upped its deficit estimate for 2024 to almost $2 trillion from about $1.6 trillion in February… Total deficits are expected to equal or exceed 5.5% of GDP in every year from 2024 to 2034... Those latest projections sounded the alarm on Wall Street, prompting analysts to revise trajectories for bill sales.”
June 27 – Financial Times (Claire Jones): “The IMF has urged the US to ‘urgently’ address its mounting fiscal burden, as it took aim at the tax plans of both presidential candidates just hours before their first electoral debate. The fund said projects from its annual Article IV health check of the US economy showed the debt-to-GDP ratio hitting 140% by 2032 — much higher than its current level of 120.7%. The surge, off the back of successive projected fiscal deficits in the coming years, would leave the debt burden in excess of previous highs in the aftermath of the second world war. ‘Such high deficits and debt create a growing risk to the US and global economy, potentially feeding into higher fiscal financing costs and a growing risk to the smooth rollover of maturing obligations,’ the fund said in its Article IV consultation. ‘These chronic fiscal deficits represent a significant and persistent policy misalignment that needs to be urgently addressed.’”
June 26 – Bloomberg (Iris Ouyang and Shulun Huang): “The yield on China’s benchmark bond fell to a more than two decade low as investors continued to flock to the notes amid lingering concerns about the domestic economy and expectations for further stimulus. The onshore 10-year government yield slipped to 2.22%, the lowest since 2002. Yields on the 20- and 50- year bonds have been trading at their historic lows for months.”
Global Credit Bubble Watch:
June 28 – Bloomberg (Samantha Stewart): “US leveraged loan pricings this quarter have reached $370 billion, the most since Bloomberg began tracking broadly syndicated loan data in 2013. The fresh high beats the prior of $339 billion set in the first quarter of 2017 during a repricing wave…”
June 28 – Bloomberg (Harry Suhartono and Ameya Karve): “Asian credit markets are suddenly standing out, even in a world awash in debt deals. Total corporate bond issuance in the region across all currencies has surged to $1.3 trillion this year… Sales of local-currency debt by companies has hit a record for the first half, while this week alone saw the biggest weekly dollar bond issuance for 17 months… The surge in debt sales has come as the region’s borrowers face nearly $2 trillion of maturing bonds next year and the similar amount in 2026… Total company bond issuance in the first half has climbed 18% to an all-time high... Sales of dollar-denominated debt… jumped to $22 billion this week, the most since the start of 2023, as spreads for regional issuers have remained tighter than for their US peers.”
June 27 – Financial Times (Ortenca Aliaj): “Defaults on loans to risky borrowers, a lifeline for companies owned by private equity, have leapt 250%, the Bank of England said as it warned that the sector was ‘facing challenges in the higher rate environment’. Global defaults on leveraged loans jumped 5 percentage points, from about 2% in early 2022 to about 7%, the BoE said… About 73% of these types of loans are extended to companies backed by private equity, according to the central bank. There is still some way to go before defaults on leveraged loans reach the peak of 12% hit during the financial crisis, it added.”
AI Bubble Watch:
June 28 – Wall Street Journal (Karen Langley): “The AI fervor powering the stock market shows no sign of cooling down. Much as in 2023, investors piled into bets in the first half of this year that the artificial intelligence boom is just getting started. They sent Nvidia shares soaring 149%, propelling the graphics-chip maker’s market value above $3 trillion and briefly making it the most valuable company in the world. Nvidia’s ascent is a big reason the S&P 500 has climbed 14% this year… even as a series of hot inflation readings damped investors’ hopes that the Federal Reserve would soon begin to cut interest rates.”
June 25 – Bloomberg (Carmen Arroyo and Immanual John Milton): “The AI revolution is increasingly being funded in a little-watched part of the debt market. Artificial intelligence products need vast troves of information and processing power to turn facts into something approximating human thought. Across the world, companies are pouring billions of dollars into building data centers to store and process this information, and fiber-optic cables to connect computers to these sites and one another… Global spending on data center construction is likely to top $55 billion by 2030, according to Synergy Research Group. The companies building data centers are often thinly capitalized, forcing them to raise at least some of that money in the asset-backed securities market, where they can get financing based on the revenue they expect to generate from the properties, at cheaper prices than they might otherwise find.”
June 28 – Yahoo Finance (Hamza Shaban): “Shareholders getting in on the AI power trade stand to gain from the immense energy demands of AI technology. But those same demands will have challenging ramifications for the sustainability goals of technology companies — and put a massive new strain on the power grid. Already this month, the major heat wave in parts of the Northeast, mid-Atlantic, and Midwest flashed an early preview of a potentially stifling summer that pushed the power grid's load. Those demands pile onto the nationwide boom in data center development that's leading to a surge in long-term demand for electricity, which has done the impossible — made the utilities trade look hot. With power-hungry AI systems, the energy trade is now the AI trade.”
June 25 – Financial Times (Martin Arnold): “Central banks urgently need to ‘raise their game’ to tackle the challenges and opportunities of artificial intelligence, as it transforms economies and the financial system, according to the Bank for International Settlements. The BIS conclusions… underline the awareness of global financial authorities that they need to keep pace with the wave of innovation being released by generative AI, including large language models such as ChatGPT. The organization… has carried out several experiments using the technology. It said AI was likely to be ‘a game changer for many activities and have a profound impact’ on the broader economy and financial system.”
Bubble and Mania Watch:
June 28 – Reuters (Marc Jones and Rodrigo Campos): “The unstoppable march of the mega caps, sloth-like central bank pivots, political palpitations aplenty and M&A is back - the first half of 2024 has been another whirlwind in world markets. Forecasts for a global interest-rate-cutting frenzy may not have materialized, but Nvidia and the rest of the Magnificent 7 soared another $3.6 trillion in market value. MSCI's 47-country world stocks index has clocked up a punchy 11% since January. Good yes, but nowhere near the 30% leap of team tech, or the frankly eye-popping 150% gain of chip champ Nvidia.”
June 27 – Financial Times (George Steer): “Banks including Goldman Sachs, Citigroup and UBS this month upgraded their end-of-year forecasts for the S&P 500 index, which has hit successive record highs during its surge of about 15% so far this year, driven by a small group of soaring AI stocks. Faced with a growing number of investors convinced that the rally will continue, the few remaining bearish strategists say their contrarian views are proving an increasingly difficult sell. ‘This rally has been tough and we’re having a hard time convincing [clients] to be bearish,’ said Barry Bannister, chief equity strategist at Stifel. ‘There’s a wall of money that’s willing to buy the market at any price and embrace fanatical thinking. People are bubbled up right now, they think the sky is the limit,’ added Bannister…”
June 27 – Financial Times (Hugo Cox): “Three weeks ago, Charlie Jenkins was approached by a couple who, after 18 months of searching for the right holiday home in the Mediterranean, had finally found the perfect place: now they needed to buy it before anyone else could. Arranging a mortgage would take too long, they figured... Could Jenkins, head of asset finance at SPF Private Clients, find them a £1.5mn loan, as soon as possible? Among their possessions was a valuable art collection, worth roughly £5mn. After a few calls, Jenkins had an offer of the full amount secured against some of the paintings… In recent years, as the value of many collectable assets has risen, the industry for lending against them has grown. From fine art, luxury watches, and investment portfolios to yachts, jets and classic cars, the very rich are taking a close look at trophy assets as a means to raise cash. ‘The most common lending is against an investment portfolio,” says Hina Bhudia, of Knight Frank Finance’s private office in London.”
Global Banking Watch:
June 26 – Wall Street Journal (Andrew Ackerman): “Big U.S. banks passed their latest annual stress test, with the Federal Reserve finding they would be able to continue lending to households and businesses in a severe recession, even while suffering steeper losses than last year’s tests. This year’s exercise measured the 31 biggest banks’ ability to maintain strong capital levels in a hypothetical recession marked by double-digit unemployment and a severe stock-market decline. The banks would collectively lose nearly $685 billion in the Fed’s imaginary worst-case recession... That would be more than last year, but all the banks would still remain above their minimum capital requirements.”
June 24 – New York Times (Matthew Goldstein): “Some Wall Street banks, worried that landlords of vacant and struggling office buildings won’t be able to pay off their mortgages, have begun offloading their portfolios of commercial real estate loans hoping to cut their losses. It’s an early but telling sign of the broader distress brewing in the commercial real estate market, which is hurting from the twin punches of high interest rates, which make it harder to refinance loans, and low occupancy rates for office buildings — an outcome of the pandemic.”
U.S./Russia/China/Europe Watch:
June 27 – Reuters (Guy Faulconbridge): “Russia is considering a possible downgrading of relations with the West due to the deeper involvement of the United States and its allies in the Ukraine war, but no decision had yet been taken, the Kremlin said… A downgrading of relations - or even breaking them off - would illustrate the gravity of the confrontation between Russia and the West over Ukraine after an escalation in tensions over the war in recent months.”
June 28 – Reuters (Ethan Wang, Ella Cao and Bernard Orr): “China urged the United States on Friday to stop tolerating and supporting ‘provocations’ by the Philippines, after Deputy Secretary of State Kurt Campbell expressed concern about Beijing's ‘destabilizing actions in the South China Sea’. China and the Philippines have recently traded accusations over ‘dangerous and illegal maneuvers’ affecting their respective vessels in the area around the Second Thomas Shoal, a disputed atoll in the busy waterway.”
De-globalization and Iron Curtain Watch:
June 28 – Bloomberg: “Chinese leader Xi Jinping called for the Global South to have a greater say in international affairs, stepping up his efforts to challenge US influence around the world. Developing nations should ‘be at the forefront of promoting the building of a community with a shared future for mankind,’ Xi said… The countries ‘need to work together to be a stabilizing force for peace’ and contribute to resolving conflicts around the world… In a veiled swipe at the US, Xi said the world ‘should never be allowed to listen to whoever has a strong arm.’”
June 25 – Financial Times (Madeleine Speed and Susannah Savage): “The world is headed for ‘food wars’ as geopolitical tensions and climate change push countries into conflict over waning supplies, said one of the world’s largest agricultural commodity traders. ‘We have fought many wars over oil. We will fight bigger wars over food and water,’ said Sunny Verghese, chief executive of Olam Agri, a Singapore-based agricultural trading house. Speaking at the Redburn Atlantic and Rothschild consumer conference last week, Verghese warned that trade barriers imposed by governments seeking to shore up domestic food stocks had exacerbated food inflation.”
Inflation Watch:
June 28 – CNBC (Jeff Cox): “An important economic measure for the Federal Reserve showed… inflation during May slowed to its lowest annual rate in more than three years. The core personal consumption expenditures price index increased just a seasonally adjusted 0.1% for the month and was up 2.6% from a year ago, the latter number down 0.2 percentage point from the April level… May marked the lowest annual rate since March 2021, which was the first time in this economic cycle that inflation topped the Fed’s 2% target. Including food and energy, headline inflation was flat on the month and also up 2.6% on an annual basis.”
June 27 – Reuters (Renee Hickman): “The price of a July Fourth cookout will be 5% higher in 2024 than the previous year, according to a survey from the U.S. Farm Bureau… The farmer and rancher organization said an Independence Day cookout for 10 people will cost an average of $71.22 this year versus $67.73 in 2023.”
June 25 – Bloomberg (Swati Pandey): “Australia’s inflation accelerated faster than expected for a third straight month in May, sending the currency higher as traders boosted bets that the Reserve Bank will resume raising interest rates at its next meeting. The monthly consumer price indicator climbed 4% from a year earlier, exceeding economists’ estimate of 3.8%... The trimmed mean core measure… advanced to 4.4% versus 4.1% a month earlier.”
Biden Administration Watch:
June 30 - New York Times (Katie Rogers and Peter Baker): “President Biden is trying to figure out how to tamp down Democratic anxiety after last week’s disastrous debate performance. President Biden’s family is urging him to stay in the race and keep fighting despite last week’s disastrous debate performance, even as some members of his clan privately expressed exasperation at how he was prepared for the event by his staff… Mr. Biden huddled with his wife, children and grandchildren at Camp David while he tried to figure out how to tamp down Democratic anxiety. While his relatives were acutely aware of how poorly he did against former President Donald J. Trump, they argued that he could still show the country that he remains capable of serving for another four years.”
June 27 – Wall Street Journal (Michael R. Gordon): “A Biden administration push to curtail worsening border clashes between Israel and Hezbollah in southern Lebanon is running into major headwinds because of the difficulty the U.S. faces in arranging a cease-fire in Gaza, U.S. officials say. The connections between the two fronts underscore the diplomatic conundrum facing the White House as it seeks to prevent a full-scale war that could draw in Iran and broaden the fighting well beyond Gaza. The White House insists that de-escalation along Israel’s northern frontier can’t be conditional on an elusive cease-fire in Gaza and is mounting a major diplomatic effort to defuse tensions in the north after weeks of unsuccessful pressure on Hamas to agree to a halt in the fighting in the south.”
Federal Reserve Watch:
June 28 – Bloomberg (Craig Torres and William Horobin): “Federal Reserve Bank of Richmond President Thomas Barkin said the inflation battle still hasn’t been won, and the US economy is likely to remain resilient as long as unemployment remains low and asset valuations high. ‘The US economy, particularly its consumer, has been much more resilient to rate increases than most expected and is likely to stay so as long as valuations remain elevated, and unemployment remains low,’ Barkin said…”
June 25 – Financial Times (Claire Jones): “A top Federal Reserve official has backed more interest rate rises if inflation sticks at its current level, saying immigration and aggressive fiscal stimulus are likely to keep US prices rising more quickly than in other rich economies. Michelle Bowman, one of the Fed’s governors and a voter on its rate-setting Federal Open Market Committee, said she remained ‘willing to raise’ borrowing costs again ‘should progress on inflation stall or even reverse’.”
June 25 – Bloomberg (Amara Omeokwe): “Federal Reserve Governor Michelle Bowman said she sees a number of upside risks to the inflation outlook, and reiterated the need to keep borrowing costs elevated for some time. ‘We are still not yet at the point where it is appropriate to lower the policy rate,’ Bowman said… ‘Given the risks and uncertainties regarding my economic outlook, I will remain cautious in my approach to considering future changes in the stance of policy.’ In a moderated discussion following her speech, the Fed governor said she doesn’t project any interest-rate cuts this year…”
U.S. Economic Bubble Watch:
June 28 – Wall Street Journal (Carol Ryan): “If you locked in a dirt-cheap mortgage when interest rates were low, congratulations for being one of the winners in America’s skewed housing market. Renters, realtors and recruiters are among those getting the raw end of the deal. High interest rates have had an unexpected impact on U.S. housing. Instead of triggering a fall in home prices, as happened with commercial real estate, costlier mortgages have pushed residential values higher. The value of the median existing home rose to a record $419,300 in May… Before the pandemic, it was $270,000. Blame the ‘lock-in’ effect of ultracheap mortgages secured when interest rates were low, which are trapping owners in their homes. It is an unforeseen consequence of years of easy money. Two-thirds of outstanding U.S. mortgages have a rate below 4%, according to Morgan Stanley’s housing strategist Jim Egan.”
June 28 – Wall Street Journal (Margot Amouyal): “More people are set to fly in the U.S. this Friday than ever before. That was also true on Sunday. And in late May. Over three million should make their way through airport security Friday to kick off a stretch of record-breaking travel around the July 4 holiday, according to the Transportation Security Administration. Seven of the 10 busiest air-travel days in the history of the TSA happened between May 23 and June 27. Fliers reset the record again last Sunday, when just under three million passed through U.S. airports. The numbers are still climbing. More than 32 million people are projected to fly between Thursday and July 8, a 5.4% rise over last year’s Independence Day holiday…”
June 25 – CNBC (Diana Olick): “Home prices set another record in April, even as mortgage rates rose and the supply of homes for sale increased. Usually, under those circumstances, prices would weaken, but today’s housing market is unlike any other in recent history. Prices in April rose 6.3% compared with the year-earlier month, according to the S&P CoreLogic Case-Shiller National Home Price Index. It marks the second straight month that the national index jumped at least 1% over its previous all-time high… It feeds into what is now one of the least affordable housing markets in U.S. history for both homeownership and renting… Home prices are now 47% higher than they were in early 2020, with the median sale price now five times the median household income...”
June 26 – Reuters (Lucia Mutikani): “Sales of new U.S. single-family homes dropped to a six-month low in May as a jump in mortgage rates weighed on demand, offering more evidence that the housing market recovery was faltering… Supply was the highest in more than 16 years… New home sales declined 11.3% to a seasonally adjusted annual rate of 619,000 units last month, the lowest level since November... The percentage-based drop was the biggest since September 2022. The sales pace for April was revised up to 698,000 units, a nine-month high, from a previously reported 634,000 units.”
Fixed-Income Watch:
June 26 – Financial Times (Harriet Clarfelt and Antoine Gara): “US companies have been able to reprice almost $400bn of debt at lower interest rates this year due to booming investor appetite for junk loans, in an easing of financing conditions for corporate America. Even before the Federal Reserve cuts interest rates from a 23-year high, a number of borrowers in the US leveraged loan market have benefited from the equivalent of two quarter-point Fed cuts, according to strategists at Goldman Sachs. The $391bn of so-called repricing deals is the highest ever at this point in the year, according to… PitchBook LCD going back to 2002, equal to more than a quarter of the $1.34tn leveraged loan market.”
China Watch:
June 25 – Financial Times (Chen Long): “China’s real estate recession is three years old, and many investors are wondering when it will bottom out. By many measures, we have witnessed one of the greatest housing market corrections in economic history… On a rolling 12-month basis, China’s new home sales have fallen to 850mn square metres, or roughly 8.5mn apartment units… That is half the level of three years ago. The floor space of construction starts has fallen to 620mn sq m, two-thirds below the peak in early 2021. The share of real estate and construction activities has shrunk to 12.9% of GDP in 2023, the lowest since 2009, from 15.2% in 2020… On average, prices have come down by about 20% across China over the past three years, according to official and third-party data.”
June 23 – Wall Street Journal: “China’s foreign direct investment fell further in May, extending a streak of declines for the 12th straight month… China attracted 412.51 billion yuan ($56.81bn) worth of foreign direct investment in the January to May period, down 28.2% from the same period last year… That widened from the 27.9% drop recorded for the first four months of the year. The metric has been falling since June 2023.”
June 24 – Bloomberg: “China’s fiscal revenue shrank at the fastest pace in more than a year, fueling expectations that the government could make another rare mid-year budget revision to aid an economic recovery. Total revenues… fell 4.1% during January-May from last year to 11.36 trillion yuan ($1.6 trillion). That’s the steepest drop since February 2023…”
June 27 – Bloomberg: “The era of big paychecks for Chinese financiers is fast coming to an end as some of the industry’s biggest companies impose strict new limits to comply with President Xi Jinping’s ‘common prosperity’ campaign. The nation’s largest financial conglomerates have asked senior staff to forgo deferred bonuses and in some cases return pay from previous years to comply with a pre-tax cap of 2.9 million yuan ($400,000)… Vilified by Beijing as ‘hedonists’ over their lavish lifestyles, top-earning finance workers including investment bankers and fund managers have been among the hardest hit by Xi’s push for a more equal distribution of wealth. The $66 trillion financial industry has fallen under tighter Communist Party control, with banks and brokerages slashing pay and other perks.”
June 25 – Bloomberg (Shawna Kwan and Low De Wei): “In many parts of China, the warehouses and industrial parks that used to be a magnet for international investors are grappling with a surprising slowdown in business activity. Logistics hubs that were built in anticipation of a long-lasting boom in e-commerce, manufacturing and food storage are losing tenants, forcing building owners to slash rents and shorten lease terms… Average vacancy rates at logistics properties in east and north China are approaching 20%, the highest in years, according to real estate consultancies. More warehouses are being built, which is making the problem worse. ‘We are looking at a supply glut in logistics and industrial properties in China,’ said Xavier Lee, an equity analyst at Morningstar…”
June 26 – Reuters (Qiaoyi Li and Ryan Woo): “China's industrial profits rose at a sharply slower pace in May, official data showed on Thursday, underlining the struggles faced by the world's second-largest economy as weak domestic demand crimps overall growth. Earnings rose 0.7% year-on-year last month after a 4% increase in April while gains over the first five months also eased to 3.4% from 4.3% in the January-April period…”
June 24 – Bloomberg (Dorothy Ma and Pearl Liu): “A Hong Kong court has given Chinese developer Kaisa Group Holdings Ltd. seven more weeks to work on its debt restructuring plan in order to avoid being liquidated, but also warned this might be the company’s last chance. The amount of debt being restructured amounts to nearly $13 Billion…”
June 27 – Reuters: “China's treasury futures leapt to fresh highs on Thursday, while long-dated yields skirted record lows, as investors continued to plough money into bonds, shrugging off repeated warnings about risk from the central bank. Assets of Chinese bond mutual funds ballooned to a record 6.5 trillion yuan ($894.3bn) in May, up 40% from a year earlier… The rise reflects how lower deposit rates are steering savings into fixed income products amid stock market volatility.”
Central Bank Watch:
June 27 – Bloomberg (Daniel Hornak): “European Central Bank Governing Council member Peter Kazimir said one more reduction in borrowing costs is likely in 2024. ‘I think we could expect one more interest-rate cut this year,” the Slovak official said... ‘I still see a significant risk of rising inflation, which may not fully align with our expectations. I expect this pressure of possible price increases mainly from wage growth.’”
June 29 – Bloomberg (Zoe Schneeweiss): “European Central Bank Governing Council member Robert Holzmann warned that inflation’s tenacity is being miscalculated… ‘I truly believe that it’s being underestimated how sticky inflation is,’ he was cited as saying. The hawkish Austrian central banker was the sole dissenter against the ECB’s June interest-rate cut, something Holzman has since justified by saying that a data-dependent policy stance must adhere to signals from incoming economic data.”
Global Bubble Watch:
June 27 – Reuters (Lisa Barrington and Jeslyn Lerh): “Congestion at Singapore's container port is at its worst since the COVID-19 pandemic, a sign of how prolonged vessel re-routing to avoid Red Sea attacks has disrupted global ocean shipping - with bottlenecks also appearing in other Asian and European ports. Retailers, manufacturers and other industries that rely on massive box ships are again battling surging rates, port backups and shortages of empty containers, even as many consumer-oriented firms look to build inventories heading into the peak year-end shopping season. Global port congestion has reached an 18-month high, with 60% of ships waiting at anchor located in Asia, maritime data firm Linerlytica said...”
June 26 – New York Times (Patricia Cohen and Keith Bradsher): “The immediate trigger for the raging protest that gripped Kenya’s capital on Tuesday was a raft of proposed tax increases — additional shillings that ordinary citizens would owe their government. The underlying cause, though, are the billions of dollars their government owes its creditors. Kenya has the fastest growing economy in Africa and a vibrant business center. But its government is desperate to stave off default. The country’s staggering $80 billion in domestic and foreign public debt accounts for nearly three-quarters of Kenya’s entire economic output…”
Europe Watch:
June 25 – Bloomberg (Jorge Valero and Michael Nienaber): “The German government and its allies are succeeding in their efforts to block plans for new joint borrowing to finance critical European Union projects like defense. So-called defense bonds are likely to be off the table when European leaders gather Thursday to discuss their top priorities for the next five years… The push to shut down debate on shared debt has been helped by the turmoil in France, said the officials…”
Japan Watch:
June 25 – Reuters (Leika Kihara): “The Bank of Japan is dropping signals its quantitative tightening (QT) plan in July could be bigger than markets think, and may even be accompanied by an interest rate hike, as it steps up a steady retreat from its still-huge monetary stimulus. Hawkish hints delivered over the past week highlight the pressure the central bank faces in the wake of renewed yen falls, which could push inflation well above its 2% target by raising import costs.”
June 27 – Bloomberg (Erica Yokoyama): “Inflation in Tokyo picked up in June on the back of higher energy prices and industrial output rose more than expected in May, likely keeping the Bank of Japan on track to consider an interest rate hike as early as July. Consumer prices excluding fresh food rose 2.1% in the capital, accelerating from 1.9% in May… Tokyo’s figures are leading indicators of the national data to be released in July. In a separate set of data, Japan’s factory output rose 2.8% in May from April, beating the consensus call for 2% growth…”
June 27 – Reuters (Yoshifumi Takemoto): “Japanese retail sales rose 3.0% in May from a year earlier… That was above the median market forecast for a 2.0% rise.”
Emerging Market Watch:
June 28 – Bloomberg (Srinivasan Sivabalan, Carolina Wilson and Leda Alvim): “Latin America has flipped from emerging-market investors’ most-favored region to their least loved in just six weeks. Volatility began to creep back into foreign exchange markets in mid-May, leading them to question favorites like the Mexican peso and Brazilian real. Now, those positions have all but fallen apart, with the region leading global losses. The main issue is politics. Leaders have floated policy changes that investors worry will lead to overspending, scuppering the stability that drew many to the area.”
June 24 – Bloomberg (Maya Averbuch): “Mexico’s inflation accelerated more than expected in early June to move further above the central bank’s target… Consumer prices rose 4.78% in the first two weeks of the month from a year earlier, above the 4.73% median estimate…”
June 27 – Reuters (Daniel Ramos): “Bolivian armed forces pulled back from the presidential palace in La Paz on Wednesday evening and a general was arrested after President Luis Arce slammed a ‘coup’ attempt against the government and called for international support. Earlier in the day, military units led by General Juan Jose Zuniga, recently stripped of his military command, had gathered in the central Plaza Murillo square, home to the presidential palace and Congress. A Reuters witness saw an armored vehicle ram a door of the presidential palace and soldiers rush in.”
Leveraged Speculation Watch:
June 27 – Bloomberg (Michael Msika): “In a month when Nvidia Corp. briefly became the world’s largest company, hedge funds were ‘aggressively’ selling tech stocks, according to analysis from Goldman Sachs... This month’s net selling in the US tech sector is on track to be the largest on record going back in data since 2017, according to Goldman’s prime brokerage data. Semiconductor and semiconductor equipment stocks were the ones offloaded the most by hedge funds, followed by software and internet stocks.”
Social, Political, Environmental, Cybersecurity Instability Watch:
June 25 – Axios (Andrew Freedman): “Extreme wildfire events during the past two decades more than doubled in frequency and magnitude globally, with the six worst seasons occurring during the past seven years, a new study found. Why it matters: Intense wildfires — as measured by satellites — are more difficult to fight, emit vast quantities of greenhouse gases and noxious smoke, and can cause disastrous consequences for communities… The new study, published… in the journal Nature Ecology and Evolution, found that the biggest upward trends in extreme wildfires are in temperate conifer biomes, such as in the western U.S., along with the boreal forests that ring the Arctic region.”
Geopolitical Watch:
June 25 – Financial Times (Editorial Board): “For years, China has asserted its claims over the South China Sea — a quest for control that is an affront to neighbours’ security, to global commerce and, according to a tribunal in The Hague, to international law. Yet Beijing has been adroit: using ‘salami-slicing’ tactics to expand its influence by incrementally building military installations, but never doing so at a pace that would force Washington to take military action. Recent spats with the Philippines, however, suggest that opposition to Beijing is rising. President Ferdinand Marcos Jr has directed his navy to better secure the Second Thomas Shoal, a contested reef that is far closer to the Philippines than to China… Beijing has, in turn, become more aggressive. Its paramilitary vessels have rammed Philippine ships and sprayed them with water cannons. Its coast guard has threatened Manila’s boats with knives and hatchets.”
June 25 – Financial Times (Demetri Sevastopulo): “The Philippine ambassador to Washington has warned that a conflict with China over a contested reef in the South China Sea could engulf countries across the Indo-Pacific, raising the spectre of a possible nuclear war. Jose Manuel Romualdez said the dispute with China over the Second Thomas Shoal had created an incendiary situation. In recent months, the Chinese coast guard has violently blocked Philippine boats from carrying out supply missions to marines stationed on the Sierra Madre, a marooned ship on the reef. ‘It’s the most dangerous time… weapons of mass destruction are very real,’ Romualdez told the Financial Times... ‘You have several countries, major powers that have large arsenals of nuclear power.’”
June 27 – Reuters (Neil Jerome Morales and Mikhail Flores): “The Philippines needs to do more than protest China's ‘illegal action’ against its navy during a routine resupply mission in the South China Sea last week, President Ferdinand Marcos Jr said… A Philippine sailor was injured on June 17 after what the Southeast Asian nation's military called ‘intentional-high speed ramming’ by the Chinese Coast Guard, an assertion China has disputed, saying the actions were lawful.”
June 28 – Reuters (Neil Jerome Morales and Mikhail Flores): “Japan and the Philippines' foreign and defence ministers will meet in Manila next month for talks that could include a breakthrough defence pact that would allow their military forces to visit each other's soil. Japanese foreign minister Yoko Kamikawa and Defence Minister Minoru Kihara will meet their Philippine counterparts on July 8 for a 2+2 meeting, Manila's foreign ministry said…”
June 29 – Reuters (Parisa Hafezi): “A moderate lawmaker will face Iran supreme leader’s protege in a run-off presidential election on July 5 after… no candidate secured enough votes in the first round of voting. Friday's vote to replace Ebrahim Raisi after his death in a helicopter crash came down to a tight race between a low-profile lawmaker Massoud Pezeshkian, the sole moderate in a field of four candidates, and former Revolutionary Guards member Saeed Jalili.”
Sunday, June 30, 2024
Sunday's News Links
[Reuters] France votes in election that could hand power to far right
[Reuters] BIS sends government debt warning before important elections
[Reuters] France election 2024: what happens if no one gets an absolute majority?
[Reuters] Key party figures to know in the French election campaign
[Reuters] Israeli tanks advance into areas in north and south Gaza, fighting rages
[Yahoo/Bloomberg] CLOs Have Too Much Money and Are Running Out of Things to Buy
[Reuters] China's June factory activity contracts again, services slows
[Bloomberg] Beware Market’s Sudden Wrath Over Debt, BIS Tells Governments
[Bloomberg] China’s Slump in Home Sales Slows After Top Cities Ease Policy
[WSJ] It’s Home-Building Season, but No One Is Buying Lumber
[FT] Central banks should set a ‘high bar’ for interest rate cuts, BIS warns
Saturday, June 29, 2024
Saturday's News Links
[AP] France is facing an election like no other. Here’s how it works and what comes next
[Yahoo/Bloomberg] Macron Heads Into Election Showdown as Le Pen Looks Hard to Beat
[Reuters] Tech boom leads global markets through first half of 2024
[Politico] US intel indicates war between Israel and Hezbollah inching closer
[Reuters] Khamenei protege, sole moderate to battle in Iran's presidential run-off
[Bloomberg] Economic Cracks Are Getting Exposed in the 2024 Market Bounty
[Bloomberg] ECB’s Holzmann Says Inflation’s Stickiness Underestimated: Pulso
[WSJ] AI Frenzy Propels Stocks to Monster First Half
[FT] ECB faces speculation over market intervention after French elections
[FT] Marine Le Pen and Jordan Bardella — the French far right’s dream ticket?
Friday, June 28, 2024
Friday's News Links
[Yahoo/Bloomberg] Stocks Gain as Focus Turns From Debate to Data: Markets Wrap
[Yahoo/Bloomberg] Oil Hits Two-Month High as Mideast Tensions Rattle Market
[Reuters] Euro on track for biggest monthly fall since January, dollar breaks 161 yen
[Reuters] Gold eyes quarterly gain; spotlight on US inflation data
[Reuters] Morning Bid: Parsing Biden TV flop, France poll, PCE time
[CNBC] Key Fed measure shows inflation rose 2.6% in May from a year ago, as expected
[Yahoo/Bloomberg] Le Pen’s Far Right Solidifies Its Lead Before French Vote
[Reuters] France's far-right National Rally seen winning 37% of vote in first election round
[Reuters] France's Le Pen expects clear far-right win and power over Macron
[Yahoo/Bloomberg] Israel and Hezbollah Lurch Closer to War
[Yahoo Finance] AI and heat waves pose dual threats to the power grid: Morning Brief
[Yahoo/Bloomberg] Tokyo Inflation Quickens, Output Gains Keeping BOJ on Hike Path
[Reuters] China urges U.S. to stop supporting the Philippines' 'provocations'
[Reuters] Philippines, Japan foreign and defence ministers to meet July 8 in Manila
[Bloomberg] Macron’s Approval Plunges Just Two Days Ahead of French Election
[NYT] Wall Street Seems Calm. A Closer Look Shows Something Else.
[WSJ] Macron Runs France Like a CEO. His Customers Aren’t Happy.
[WSJ] America’s Frozen Housing Market Is Warping the Economy
[WSJ] It’s the Busiest Air-Travel Day Ever. That’s Happening a Lot Lately.
[FT] The dazzling rise and fall of Macronism
[FT] IMF warns US must ‘urgently’ address debt burden
[FT] Defaults on leveraged loans soar as BoE warns on private equity’s ‘challenges’
[FT] Wall Street’s last remaining bears struggle to convince optimistic clients
Wednesday, June 26, 2024
Thursday's News Links
[Yahoo/Bloomberg] Stocks Slip Ahead of Data as Micron Plunges: Markets Wrap
[Reuters] Oil edges higher as Middle East risks offset US demand concerns
[Yahoo/Bloomberg] Asian Currencies Slump to Lowest Since 2022 on Dollar Strength
[Reuters] Bruised yen mired near multi-decade low with eye on intervention
[Yahoo/Bloomberg] Micron’s Selloff Shows Risk of Sky-High AI Expectations
[CNBC] ‘A disastrous event’: All-out war between Israel and Hezbollah could devastate both sides
[Reuters] US July Fourth cookout costs up by 5% this year, survey shows
[Yahoo/Bloomberg] Hedge funds sell tech stocks ‘aggressively,’ Goldman says
[AP] Few have flood insurance to help recover from devastating Midwest storms
[Reuters] China's industrial profits growth slows sharply in May amid patchy recovery
[Reuters] Chinese money flows into bonds even as central bank warns of risks
[Yahoo/Bloomberg] China’s Financial Elite Face $400,000 Pay Caps, Bonus Clawbacks
[Reuters] Japan May retail sales rise 3.0% year-on-year, exceeding expectations
[Yahoo/Bloomberg] Japan Inflation Outlook Jumps, Backing BOJ Case for Rate Hike
[Yahoo/Bloomberg] ECB May Only Cut Rates Once More This Year, Kazimir Says
[Reuters] Russia considering downgrading relations with the West, the Kremlin says
[WSJ] Biden Administration Scrambles to Head Off Wider War Between Israel and Hezbollah
[FT] Macron’s presidency — a tragedy in four acts
[FT] Israel’s push to create a ‘dead zone’ in Lebanon
Wednesday Evening Links
[Yahoo/Bloomberg] Asian Stocks to Fall as Yen Plunges to Fresh Low: Markets Wrap
[Reuters] Yen plunges to 38-year low vs dollar as markets brace for Japan intervention
[Reuters] Oil settles slightly up as global supply risks offset US demand concerns
[Reuters] US new home sales slump; supply at more than 16-year high
[Reuters] Bolivia military withdraws after president slams coup attempt
[WSJ] Biggest Banks Can Withstand Severe Downturn, $685 Billion in Losses, Fed Says
Tuesday, June 25, 2024
Wednesday's News Links
[Yahoo/Bloomberg] Stocks Fall as Fed Official Cools Rate Hopes: Markets Wrap
[Reuters] Yen slumps to lowest since 1986, putting traders on red alert
[Reuters] European shares slip, yen sinks to 38-year low
[Yahoo/Bloomberg] Oil Holds Above $85 a Barrel as Market Gears Up for US Data
[Yahoo/Bloomberg] China Bond Yield Declines to Lowest Since 2002 as Rally Extends
[AP] Suspected Houthi attacks target a ship in Gulf of Aden and Israeli port city of Eilat
[Yahoo/Bloomberg] Australia’s Faster Inflation Raises Risk of RBA Rate Hike
[Yahoo/Bloomberg] A $100 Billion Bet on China’s Economy Sours as Warehouses Empty
[Reuters] Singapore port congestion shows global ripple impact of Red Sea attacks
[Nikkei] China to see biggest millionaire exodus in 2024 as many head to U.S.
[Bloomberg] Even Macron’s Closest Allies Fear His Brand Is Toxic
[NYT] Behind the Unrest in Kenya, a Staggering and Painful National Debt
[FT] Companies slash borrowing costs on $400bn of US junk loans
[FT] China’s big housing correction is not over
[FT] US warns of Hizbollah ‘provocations’ as diplomats try to avert Israel-Lebanon war
[FT] World headed for ‘food wars’ amid geopolitics and climate change, warns Olam
Tuesday Afternoon Links
[Reuters] Nvidia, megacaps power strong Nasdaq recovery; Dow pulls back
[Reuters] US dollar gains after hawkish Fed comment, economic data
[Reuters] US consumer confidence retreats slightly; house prices remain elevated
[CNBC] Here’s how bad housing affordability is now
[Yahoo/Bloomberg] Fed’s Cook Says Rate Cut Needed at Some Point But Timing Unclear
[Axios] Extreme wildfires doubled in frequency, magnitude since 2003
[WSJ] War Between Israel and Iran Is Inevitable
[FT] Philippines warns of region-wide conflict over South China Sea reef dispute
Monday, June 24, 2024
Tuesday's News Links
[Yahoo/Bloomberg] Stocks Gain After Nvidia-Led Slump: Markets Wrap
[Reuters] European stocks fall after Nvidia slump
[Reuters] Japan to respond appropriately to excessive yen volatility, official says
[Reuters] Morning Bid: Nvidia's half trillion hiccup; Bitcoin, China slide
[Yahoo/Bloomberg] Forget 160, Traders See Yen Slumping as Far as 170 This Time
[Reuters] US house prices increase steadily in April -FHFA
[Yahoo/Bloomberg] Fed’s Bowman Warns of Upside Risks to Inflation, Not Time to Cut
[Reuters] Fed's Bowman: need steady policy rate 'for some time' to beat inflation
[Yahoo/Bloomberg] Asset-Backed Bond Market Is Helping to Fuel the Global AI Boom
[Politico] France’s existential election
[Yahoo/Bloomberg] Allianz Says French Bondholders Fear a Replay of Euro Crisis
[Politico] Macron warns of ‘civil war’ if far left or far right wins
[Yahoo/Bloomberg] Le Pen Brands Macron’s ‘Civil War’ Comment as Scaremongering
[Guardian] The Guardian view on Macron’s snap election: France on the brink
[Time] Macron Called an Election to Thwart the Far Right. He Resuscitated the Left Instead
[Yahoo/Bloomberg] With Macron Distracted, Germany Shuts Down Push for Joint EU Debt
[Reuters] Bank of Japan opens door for a hawkish double surprise
[Yahoo/Bloomberg] China’s Farmers Brace for More Rain and Flooding Risk to Crops
[Axios] U.S. warned Hezbollah it can't hold Israel back if escalation continues
[Reuters] Iran’s presidential election dominated by Khamenei loyalists
[NYT] Fearing Losses, Banks Are Quietly Dumping Real Estate Loans
[NYT] ‘It’s All Happening Again.’ The Supply Chain Is Under Strain.
[FT] French parliamentary election tracker 2024
[FT] Top Federal Reserve official warns US central bank may need to raise interest rates again
[FT] Central banks urged to keep pace with ‘game changer’ AI
Monday Afternoon Links
[CNBC] Dow jumps 200 points as investors rotate out of hot chip stocks like Nvidia: Live updates
[Yahoo/Bloomberg] Nvidia Enters Correction Territory as Slump Erases $400 Billion
[Yahoo/Bloomberg] Bitcoin Extends Drop After One of Crypto’s Worst Weeks of 2024
[Yahoo/Bloomberg] Larger US Deficits Pave the Way for Even More Treasury Bills
[Yahoo/Bloomberg] ECB’s Schnabel Downplays Prospect of Policy Divergence From US
Sunday, June 23, 2024
Monday's News Links
[Yahoo/Bloomberg] Nasdaq Under Pressure as Nvidia Retreats: Markets Wrap
[Yahoo/Bloomberg] Oil Creeps Up After Loss as Prices Take Cues From Wider Markets
[Yahoo/Bloomberg] Bitcoin Extends Drop After One of Crypto’s Worst Weeks of 2024
[Yahoo/Bloomberg] Yuan Pressure Mounts as Trading Disruptions Appear Once More
[Yahoo/Bloomberg] Options Market Signals Volatility on French Vote Likely to Last
[Reuters] In the Market: French bond vigilantes have lessons for the US
[Reuters] Cash is leaving China again, pressuring yuan
[AP] Millions swelter as temperatures soar across the US, while floodwaters inundate the Midwest
[Yahoo/Bloomberg] Le Pen’s Far-Right Party Says Ready to Govern Amid Rise in Polls
[Yahoo/Bloomberg] France Keeps Markets on Edge With Le Pen Fighting Left for Power
[Reuters] Ripple effect from CDK hack widens as more US auto dealers flag hit
[Reuters] Russia vows retaliation against US for Ukraine's ATACMS missile attack on Crimea
[Reuters] BOJ debated need for timely rate hike at June meeting, summary show
[Yahoo/Bloomberg] Mexico Inflation Accelerates More Than Expected in Early June
[Yahoo/Bloomberg] China’s Fiscal Income Drops at Quickest Pace in More Than a Year
[AP] Chinese hackers have stepped up attacks on Taiwanese organizations, cybersecurity firm says
[Reuters] Autocracy is 'evil', Taiwan president says after China threatens death for separatism
[WSJ] Ocean Shipping Prices Are Pushing Toward Pandemic-Era Highs as Congestion Swells
[WSJ] China’s Foreign Direct Investment Falls Further in May
[FT] France could trigger the next euro crisis
[FT] The real risks for investors after the rise of the European far right
Sunday Evening Links
[Reuters] Heat wave scorches US East Coast as dangerous temperatures expand to West
[Yahoo/Bloomberg] Five Key Charts to Watch in Global Commodity Markets This Week
[Yahoo/Bloomberg] How Long Will High Rates Last? Bond Markets Say Maybe Forever
[Reuters] France's far right National Rally still leading ahead of election, poll shows
[Reuters] Israel offensive in Lebanon could increase risk of broader war, U.S. general says
[Reuters] Russia says US is responsible for deadly Ukrainian attack on Crimea
[Yahoo/Bloomberg] Schnabel Says Potential Shocks Mean ECB Can’t Precommit on Rates
Sunday's News Links
[Yahoo Finance] Fed's favorite inflation reading highlights last week of Q2: What to know this week
[Yahoo/Bloomberg] NYC Temperature to Approach Record as Heat Sits Over Eastern US
[Yahoo/Bloomberg] A Stock Trader’s Guide to Navigating the French Election Turmoil
[Yahoo/Bloomberg] Credit’s Strong Run Stumbles for First Time This Year
[Yahoo/Bloomberg] Fed’s key inflation gauges may offer path to rate cuts
[Reuters] Taiwan war games to mimic combat as closely as possible
[FT] French trust Marine Le Pen’s RN most on economy, FT poll suggests
Saturday, June 22, 2024
Saturday's News Links
[Yahoo/Bloomberg] Macron Courts Coalition of Rivals to Block ‘Extremes’ From Power
[Yahoo/Bloomberg] Charting the Global Economy: BOE Leaves Rate-Cut Hopes Alive
[Reuters] Wall St Week Ahead Rally in U.S. big tech stocks may be getting stretched
[Reuters] U.S. East Asia envoy says South China Sea situation deeply concerning
[Reuters] US aircraft carrier arrives in South Korea for military drills
[Bloomberg] France’s National Rally Confirms Lead in Snap Election Polls
[FT] Emerging market currencies suffer worst start to the year since 2020
Friday, June 21, 2024
Weekly Commentary: Greatest Threat
Let’s get started with domestic. Ten-year Treasury yields traded this week at the lowest level since March. Markets have taken this as confirmation of economic weakening. The market closed Friday pricing a 4.85% policy rate at the Fed’s December meeting, implying two rate cuts (48 bps).
Mohamed El-Erian is emboldened, penning his “The Fed Needs to Cut Sooner Rather Than Later” piece this week for the Financial Times: “The stronger argument for the importance of timing relates to the state of the economy. Mounting, though not yet universal, data signal economic weakening, including deteriorating forward-looking indicators.”
As for forward-looking indicators, I remain skeptical that the economy will meaningfully weaken so long as financial conditions remain extraordinarily loose. Corporate debt issuance remains exceptional. Meanwhile, state and local governments have joined the party.
June 20 – Bloomberg (Joe Mysak): “The municipal bond market this week soaked up a record 27th deal of $1 billion or more, with overall borrowing accelerating at a torrid pace. Debt sales are being driven in part by a decline in borrowing costs over the past few weeks… Top-rated borrowers can borrow money for 10 years at about 2.80%... That’s down from 3.09% at the end of May. The previous annual record for so-called mega-deals was in 2020, when 26 were sold, totaling $46.49 billion… Through Wednesday, 27 muni megadeals totaling $42.96 billion have been sold. So far this year, states and localities have sold $221.4 billion in long-term debt, 42.8% ahead of last year’s pace.”
This “torrid pace” of borrowing will boost spending. Markets disregarded the strong Services ISM report from a couple weeks back. Strength was corroborated by Friday’s stronger-than-expected PMI data. My analysis weights the much larger service sector above manufacturing activity, but it’s worth noting that the Manufacturing PMI rose to the highest level (51.7) since March. The Employment component gained to the strongest reading since September 2022. At 55.1, the Services PMI rose to the high since April 2022.
The PMI release included a notable quote from S&P Global Market Intelligence Chief Economist Chris Williamson (compliments of Bloomberg’s Vince Golle): “The upturn is broad-based, as rising demand continues to filter through the economy. Although led by the service sector, reflecting strong domestic spending, the expansion is being supported by an ongoing recovery in manufacturing.”
Still, there are ample signs of economic weakness. To be sure, the U.S. Bubble Economy is extraordinarily unbalanced. Yet the overall economy maintains sufficient momentum to sustain inflationary pressures and keep the Fed on the sideline. The Atlanta Fed GDPNow indicator remains above 3.0%. The U.S. economy is incredibly vulnerable, though perpetuating “Terminal Phase” excess only exacerbates fragilities. So far, trouble at the “periphery” (i.e., France) has supported loose conditions at the “core”. Probabilities for a destabilizing global “risk off” deleveraging continue to rise.
With French elections (June 30th and July 7th) rapidly approaching, Wall Street remains summer-time free and easy. They may talk reckless tax and spend and anti-reform policies, but France’s far-left and far-right parties surely wouldn’t risk a market crisis. Besides, Marine Le Pen has her sights on the 2027 presidential election prize. As the thinking goes, she’ll keep one eye on the markets, as she dons her most engaging political moderate guise.
June 17 – Bloomberg (Alice Gledhill and Farah Elbahrawy): “French stocks gained and bonds posted small moves as traders weighed assurances from far-right leader Marine Le Pen that she’d work with President Emmanuel Macron should she prevail in national elections… Concern about political volatility after Macron called a snap vote for later this month spurred a flight to haven assets last week, wiping out $258 billion from the market capitalization of the country’s stocks. On Monday, traders initially seized on Le Pen’s comments that she won’t try to push Macron out, but sentiment remains fragile before the first round of voting on June 30.”
Le Pen's comments comforted markets eager to believe the previous week's instability was an overreaction. German yields reversed as much as eight bps higher Monday, as the France/Germany 10-year yield spread narrowed. By the end of the week, however, the spread had widened another three bps to a 12-year high of 80 bps. French 10-year yields jumped eight bps this week - exceeding Portuguese yields by five bps and coming within eight bps of Spain.
Much of the early-week relief decline in European bank and high-yield (“crossover”) CDS had also faded by Friday. Subordinated bank debt CDS declined six on the week, an unconvincing reversal following the previous week’s 31.5 bps spike. High yield CDS reversed only seven of the 42 bps surge. BNP Paribas CDS gained another two to 53 bps, the high since December 2023. Societe Generale CDS rose three to 62 bps – also the high since December. Individual European bank (senior) CDS generally rose to multi-month highs.
June 21 – Bloomberg (Jenny Che): “Marine Le Pen’s far-right National Rally would win first round of the French legislative election with 35%, according to latest Ifop-Fiducial poll of voting intentions... National Rally gains 1 point since previous survey… Alliance of left-wing parties would get 29%... President Emmanuel Macron’s group would get 21.5%... National Rally would get 200-240 seats; left-wing alliance would get 180-210; Macron’s group would get 80-110.”
I don’t sense a fear of financial crisis is top of mind (outside of, perhaps, European debt markets). It’s late in the speculative cycle, so U.S. market complacency is not surprising. Markets have inflated so big, bold, and dominant that the notion of European politicians going rogue and triggering a crisis seems implausible to most. But if France’s extremist party leaders are these days intimidated by the financial markets, they do a decent job of concealing it.
June 21 – Bloomberg (William Horobin): “France’s leftist alliance unveiled plans to address the country’s economic challenges with a vast increase in taxation and public spending, and reaffirmed it would abolish several of Emmanuel Macron’s pro-business reforms. By 2027, when the president’s mandate ends, the New Popular Front is budgeting €90 billion ($96.2bn) annually to boost purchasing power, €30 billion to protect the environment, and a further €30 billion to repair public services — totaling roughly 5.4% of last year’s gross domestic product. That would be matched by extra revenue including from levies on multinationals and financial transactions, it said. ‘The Macron era is over,’ Socialist Party Senator Alexandre Ouizille told a news conference on Friday. ‘In a few days, there’ll be nothing left of it.’”
Under the headline, “Why Far Right Won’t Spark a Euro Crisis,” The Wall Street Journal’s Greg Ip wrote: “Since a debt crisis beginning in Greece in 2009 almost destroyed the euro, investors have been alert to anything that threatens the survival of the European Union or the common currency shared by 20 of its 27 members. But an RN [Pen’s National Rally Party] victory wouldn’t qualify. As Europe’s far-right parties have crept closer to power, their stated goals have shifted from leaving the EU to reforming it from within. The underappreciated story of Europe’s election season isn’t the fragility of the EU and euro, but their resilience.”
The European monetary union was arguably at greater risk during the 2011/12 (Italian-led) European debt crisis (compared to 2009) – a cataclysm that provoked Mario Draghi’s “bumblebee” speech and history-altering “whatever it takes” money printing. The ECB’s balance sheet had doubled from 2011’s $2.0 TN to surpass $4.0 TN in early 2017 – only to almost reach $9.0 TN following egregious pandemic monetary inflation. Massive central bank buying and market backstopping promoted government borrowing excess and material debt ratio deterioration. France’s debt at 111% of GDP is similar to Italy’s level when Italian bonds in 2011 suffered a crisis of confidence (yields spiking to 7%).
I’ll assume the extremist parties are not today hankering to blow apart the EU and the euro currency. But how willing will a far-right and far-left-dominated French parliament be to work with the EU to shrink France’s deficit (currently 5.5% of GDP) back below the 3% limit?
June 19 – Bloomberg (Jorge Valero, William Horobin and Alessandra Migliaccio): “France and Italy were reprimanded by the European Union for running big deficits, the first stage in a confrontation that will test the bloc’s resolve and could in theory prompt billions of euros in fines. The announcement by the European Commission… is all the more consequential with French legislative elections looming that have rattled investors on the prospect that a winner from either the far-right or the left will only further bloat the country’s public finances. In total, seven nations newly face censure by officials for running budget shortfalls above the bloc’s 3% limit, leaving them subject to the bloc’s so-called Excessive Deficit Procedure that requires remedial action and can lead to fines for non compliance.”
France is at the “core” of the EU and the euro – and it’s reasonable to assume that the new parliament would flout the deficit rules and remain in non-compliance indefinitely.
The ECB has its so-called “Transmission Protection Instrument”, or TPI, that was conceived as a mechanism to backstop periphery bond markets “to counter unwarranted, disorderly market developments if these pose a serious threat to the smooth transmission of monetary policy across the euro area.” Basically, the ECB believed that if markets understood the central bank was ready to purchase bonds in the event of a significant widening of spreads (to cap peripheral yields), the marketplace wouldn’t panic and dump (Greek and Italian) bonds during periods of instability.
From QE to APP, OMT, LTRO, TLTRO, MRO, PEPP, and TPI – the “whatever it takes” ECB developed a liquidity facility to rectify seemingly any unfavorable market development. And all these programs worked to bankroll a fabricated stability – relatively stable markets that accommodated borrowing excess and resulting deficit spending significantly in excess of EU rules. Now what? Austerity would inflict hardship on an already indignant population.
I won’t profess great insight into France’s election. I certainly can’t claim expertise in the inner workings of the EU or ECB. But I’ve analyzed my share of crises. And this one has potential to surprise many folks – to shock manic markets that have pushed risk-taking to the limits. Potentially, the first debt crisis in a “core” economy since the "great financial crisis".
The EU’s second largest economy – with the largest ($2.6 TN) government debt market - is likely at the brink of political crisis. Markets, having grown accustomed to not worrying about debt crises, could confront one that doesn’t fit within the parameters of ECB bailout mechanisms. The TPI is structured specifically to “combat deteriorations in financing conditions not warranted by country-specific fundamentals…” Benefitting nations “must pursue sound and sustainable fiscal and macroeconomic policies”.
“In particular, the criteria include: (1) compliance with the EU fiscal framework: not being subject to an excessive deficit procedure (EDP), or not being assessed as having failed to take effective action in response to an EU Council recommendation under Article 126(7) of the Treaty on the Functioning of the European Union (TFEU)… (2) absence of severe macroeconomic imbalances: not being subject to an excessive imbalance procedure (EIP)… (3) fiscal sustainability: in ascertaining that the trajectory of public debt is sustainable, the Governing Council will take into account, where available, the debt sustainability analyses by the European Commission… (4) sound and sustainable macroeconomic policies…”
The ECB must be praying it won’t have to get involved. A huge bailout for France, especially with “Eurosceptics” and extremists effectively in control of the government, would be controversial to say the least. And while markets imagine Le Pen playing nice (until ’27), all bets are off in a crisis environment. Understandably, supporters on both the left and right will expect the ECB to immediately quell crisis dynamics. Quick to point blame at the ECB and EU, an angry population will pressure political leaders to not cave to the demands of Frankfurt or Brussels.
The euro was little changed this week, failing to muster even a mild relief recovery. As they say, crises unfold gradually and then suddenly. If the first vote is inconclusive (i.e., no party wins a majority), some semblance of clarity may have to wait until July 7th. And even post-election, it could take weeks or even months to gain a clear understanding of the direction of political leadership and policymaking.
But it’s difficult to see a scenario that doesn’t involve an unfolding (at best) political crisis. And highly levered European debt markets ensure fragility. The prospect of a political and debt crisis at Europe’s “core” doesn’t instill confidence in the euro currency.
In a more normal backdrop, markets at least in the near-term would afford the euro the benefit of the doubt. But this is a global environment seemingly on the cusp of acute instability. The Japanese yen dropped 1.5% versus the dollar to end Friday with the weakest closing price all the way back to April 1990. China’s renminbi slipped to the weakest level since November.
It doesn’t take a wild imagination to envisage a scenario where weakness in the euro, yen and renminbi feeds on itself, propelling destabilizing dollar strength that slams the vulnerable emerging markets. As I noted in last week’s CBB, instability at Europe’s “core” and attendant euro worries create a potential de-risking/deleveraging catalyst. And “risk off” would catch extremely over-levered and complacent markets by surprise.
June 21 – MarketWatch (Joseph Adinolfi): “Trading in bullish calls tied to megacap growth and tech stocks outnumber bearish puts by the widest margin on record… Options traders piled into bullish bets on megacap growth stocks like Nvidia Corp. at a record pace this week, surpassing the previous pandemic-era peak. On average, trading in bullish call contracts exceeded bearish puts by roughly 4.5 million contracts during the five days through Friday… Calls tied to Nvidia were the most popular options ahead of Friday’s June ‘triple witching’ expiration, even surpassing activity in contracts tied to the S&P 500 and a popular ETF SPY that tracks the benchmark index…”
June 21 – Bloomberg (Rita Nazareth): “Wall Street’s massive expiration of options not only left stock traders more cautious, it also drove one of the leaders of the bull market to a roller-coaster ride. Volume soared at the close of trading. It was estimated that $5.5 trillion expired during the quarterly event ominously known as triple witching’ in which derivatives contracts tied to equities, index options and futures mature. Nearly 18 billion shares changed hands on US exchanges Friday. That’s over 55% above the three-month average.”
Nothing to see in Europe. Not with Nvidia/AI/big tech melting up into a $5.5 TN quarterly options expiration. Reasonable odds of peak mania. And what is the probability of full-scale war erupting between Israel and Hezbollah? Rising.
Hadn’t heard much of the “basis trade” for a bit – that is until Thursday’s Bloomberg Intelligence (Brian Meehan) Report: “Biggest Bond Market Threat: Massive Basis Trade.” “Assessing the risk of the cash-futures basis market reveals near-record net short positions at the front end of the curve -- the two-, five- and 10-year contracts – while the rest is neutral. At the same time, open interest in Treasury futures is at an all-time high of $2.5 trillion, up 40% from the last basis blowout in 2020, while the leveraged net short has more than doubled to $875 billion in 18 months. The warning signal is loud and clear: Any stress in the repo market that leads to forced liquidations of those massive basis positions is the greatest threat the market has ever seen.”
Unfolding stress in Europe pressuring Treasury yields lower while bolstering the dollar. Looser financial conditions buoying the U.S. Bubble Economy, holding Fed rate cuts at bay. Higher yields and perceived safe haven U.S. financial markets acting as magnets for liquidity, as global risk aversion and de-leveraging gather momentum.
Mohamed El-Erian is emboldened, penning his “The Fed Needs to Cut Sooner Rather Than Later” piece this week for the Financial Times: “The stronger argument for the importance of timing relates to the state of the economy. Mounting, though not yet universal, data signal economic weakening, including deteriorating forward-looking indicators.”
As for forward-looking indicators, I remain skeptical that the economy will meaningfully weaken so long as financial conditions remain extraordinarily loose. Corporate debt issuance remains exceptional. Meanwhile, state and local governments have joined the party.
June 20 – Bloomberg (Joe Mysak): “The municipal bond market this week soaked up a record 27th deal of $1 billion or more, with overall borrowing accelerating at a torrid pace. Debt sales are being driven in part by a decline in borrowing costs over the past few weeks… Top-rated borrowers can borrow money for 10 years at about 2.80%... That’s down from 3.09% at the end of May. The previous annual record for so-called mega-deals was in 2020, when 26 were sold, totaling $46.49 billion… Through Wednesday, 27 muni megadeals totaling $42.96 billion have been sold. So far this year, states and localities have sold $221.4 billion in long-term debt, 42.8% ahead of last year’s pace.”
This “torrid pace” of borrowing will boost spending. Markets disregarded the strong Services ISM report from a couple weeks back. Strength was corroborated by Friday’s stronger-than-expected PMI data. My analysis weights the much larger service sector above manufacturing activity, but it’s worth noting that the Manufacturing PMI rose to the highest level (51.7) since March. The Employment component gained to the strongest reading since September 2022. At 55.1, the Services PMI rose to the high since April 2022.
The PMI release included a notable quote from S&P Global Market Intelligence Chief Economist Chris Williamson (compliments of Bloomberg’s Vince Golle): “The upturn is broad-based, as rising demand continues to filter through the economy. Although led by the service sector, reflecting strong domestic spending, the expansion is being supported by an ongoing recovery in manufacturing.”
Still, there are ample signs of economic weakness. To be sure, the U.S. Bubble Economy is extraordinarily unbalanced. Yet the overall economy maintains sufficient momentum to sustain inflationary pressures and keep the Fed on the sideline. The Atlanta Fed GDPNow indicator remains above 3.0%. The U.S. economy is incredibly vulnerable, though perpetuating “Terminal Phase” excess only exacerbates fragilities. So far, trouble at the “periphery” (i.e., France) has supported loose conditions at the “core”. Probabilities for a destabilizing global “risk off” deleveraging continue to rise.
With French elections (June 30th and July 7th) rapidly approaching, Wall Street remains summer-time free and easy. They may talk reckless tax and spend and anti-reform policies, but France’s far-left and far-right parties surely wouldn’t risk a market crisis. Besides, Marine Le Pen has her sights on the 2027 presidential election prize. As the thinking goes, she’ll keep one eye on the markets, as she dons her most engaging political moderate guise.
June 17 – Bloomberg (Alice Gledhill and Farah Elbahrawy): “French stocks gained and bonds posted small moves as traders weighed assurances from far-right leader Marine Le Pen that she’d work with President Emmanuel Macron should she prevail in national elections… Concern about political volatility after Macron called a snap vote for later this month spurred a flight to haven assets last week, wiping out $258 billion from the market capitalization of the country’s stocks. On Monday, traders initially seized on Le Pen’s comments that she won’t try to push Macron out, but sentiment remains fragile before the first round of voting on June 30.”
Le Pen's comments comforted markets eager to believe the previous week's instability was an overreaction. German yields reversed as much as eight bps higher Monday, as the France/Germany 10-year yield spread narrowed. By the end of the week, however, the spread had widened another three bps to a 12-year high of 80 bps. French 10-year yields jumped eight bps this week - exceeding Portuguese yields by five bps and coming within eight bps of Spain.
Much of the early-week relief decline in European bank and high-yield (“crossover”) CDS had also faded by Friday. Subordinated bank debt CDS declined six on the week, an unconvincing reversal following the previous week’s 31.5 bps spike. High yield CDS reversed only seven of the 42 bps surge. BNP Paribas CDS gained another two to 53 bps, the high since December 2023. Societe Generale CDS rose three to 62 bps – also the high since December. Individual European bank (senior) CDS generally rose to multi-month highs.
June 21 – Bloomberg (Jenny Che): “Marine Le Pen’s far-right National Rally would win first round of the French legislative election with 35%, according to latest Ifop-Fiducial poll of voting intentions... National Rally gains 1 point since previous survey… Alliance of left-wing parties would get 29%... President Emmanuel Macron’s group would get 21.5%... National Rally would get 200-240 seats; left-wing alliance would get 180-210; Macron’s group would get 80-110.”
I don’t sense a fear of financial crisis is top of mind (outside of, perhaps, European debt markets). It’s late in the speculative cycle, so U.S. market complacency is not surprising. Markets have inflated so big, bold, and dominant that the notion of European politicians going rogue and triggering a crisis seems implausible to most. But if France’s extremist party leaders are these days intimidated by the financial markets, they do a decent job of concealing it.
June 21 – Bloomberg (William Horobin): “France’s leftist alliance unveiled plans to address the country’s economic challenges with a vast increase in taxation and public spending, and reaffirmed it would abolish several of Emmanuel Macron’s pro-business reforms. By 2027, when the president’s mandate ends, the New Popular Front is budgeting €90 billion ($96.2bn) annually to boost purchasing power, €30 billion to protect the environment, and a further €30 billion to repair public services — totaling roughly 5.4% of last year’s gross domestic product. That would be matched by extra revenue including from levies on multinationals and financial transactions, it said. ‘The Macron era is over,’ Socialist Party Senator Alexandre Ouizille told a news conference on Friday. ‘In a few days, there’ll be nothing left of it.’”
Under the headline, “Why Far Right Won’t Spark a Euro Crisis,” The Wall Street Journal’s Greg Ip wrote: “Since a debt crisis beginning in Greece in 2009 almost destroyed the euro, investors have been alert to anything that threatens the survival of the European Union or the common currency shared by 20 of its 27 members. But an RN [Pen’s National Rally Party] victory wouldn’t qualify. As Europe’s far-right parties have crept closer to power, their stated goals have shifted from leaving the EU to reforming it from within. The underappreciated story of Europe’s election season isn’t the fragility of the EU and euro, but their resilience.”
The European monetary union was arguably at greater risk during the 2011/12 (Italian-led) European debt crisis (compared to 2009) – a cataclysm that provoked Mario Draghi’s “bumblebee” speech and history-altering “whatever it takes” money printing. The ECB’s balance sheet had doubled from 2011’s $2.0 TN to surpass $4.0 TN in early 2017 – only to almost reach $9.0 TN following egregious pandemic monetary inflation. Massive central bank buying and market backstopping promoted government borrowing excess and material debt ratio deterioration. France’s debt at 111% of GDP is similar to Italy’s level when Italian bonds in 2011 suffered a crisis of confidence (yields spiking to 7%).
I’ll assume the extremist parties are not today hankering to blow apart the EU and the euro currency. But how willing will a far-right and far-left-dominated French parliament be to work with the EU to shrink France’s deficit (currently 5.5% of GDP) back below the 3% limit?
June 19 – Bloomberg (Jorge Valero, William Horobin and Alessandra Migliaccio): “France and Italy were reprimanded by the European Union for running big deficits, the first stage in a confrontation that will test the bloc’s resolve and could in theory prompt billions of euros in fines. The announcement by the European Commission… is all the more consequential with French legislative elections looming that have rattled investors on the prospect that a winner from either the far-right or the left will only further bloat the country’s public finances. In total, seven nations newly face censure by officials for running budget shortfalls above the bloc’s 3% limit, leaving them subject to the bloc’s so-called Excessive Deficit Procedure that requires remedial action and can lead to fines for non compliance.”
France is at the “core” of the EU and the euro – and it’s reasonable to assume that the new parliament would flout the deficit rules and remain in non-compliance indefinitely.
The ECB has its so-called “Transmission Protection Instrument”, or TPI, that was conceived as a mechanism to backstop periphery bond markets “to counter unwarranted, disorderly market developments if these pose a serious threat to the smooth transmission of monetary policy across the euro area.” Basically, the ECB believed that if markets understood the central bank was ready to purchase bonds in the event of a significant widening of spreads (to cap peripheral yields), the marketplace wouldn’t panic and dump (Greek and Italian) bonds during periods of instability.
From QE to APP, OMT, LTRO, TLTRO, MRO, PEPP, and TPI – the “whatever it takes” ECB developed a liquidity facility to rectify seemingly any unfavorable market development. And all these programs worked to bankroll a fabricated stability – relatively stable markets that accommodated borrowing excess and resulting deficit spending significantly in excess of EU rules. Now what? Austerity would inflict hardship on an already indignant population.
I won’t profess great insight into France’s election. I certainly can’t claim expertise in the inner workings of the EU or ECB. But I’ve analyzed my share of crises. And this one has potential to surprise many folks – to shock manic markets that have pushed risk-taking to the limits. Potentially, the first debt crisis in a “core” economy since the "great financial crisis".
The EU’s second largest economy – with the largest ($2.6 TN) government debt market - is likely at the brink of political crisis. Markets, having grown accustomed to not worrying about debt crises, could confront one that doesn’t fit within the parameters of ECB bailout mechanisms. The TPI is structured specifically to “combat deteriorations in financing conditions not warranted by country-specific fundamentals…” Benefitting nations “must pursue sound and sustainable fiscal and macroeconomic policies”.
“In particular, the criteria include: (1) compliance with the EU fiscal framework: not being subject to an excessive deficit procedure (EDP), or not being assessed as having failed to take effective action in response to an EU Council recommendation under Article 126(7) of the Treaty on the Functioning of the European Union (TFEU)… (2) absence of severe macroeconomic imbalances: not being subject to an excessive imbalance procedure (EIP)… (3) fiscal sustainability: in ascertaining that the trajectory of public debt is sustainable, the Governing Council will take into account, where available, the debt sustainability analyses by the European Commission… (4) sound and sustainable macroeconomic policies…”
The ECB must be praying it won’t have to get involved. A huge bailout for France, especially with “Eurosceptics” and extremists effectively in control of the government, would be controversial to say the least. And while markets imagine Le Pen playing nice (until ’27), all bets are off in a crisis environment. Understandably, supporters on both the left and right will expect the ECB to immediately quell crisis dynamics. Quick to point blame at the ECB and EU, an angry population will pressure political leaders to not cave to the demands of Frankfurt or Brussels.
The euro was little changed this week, failing to muster even a mild relief recovery. As they say, crises unfold gradually and then suddenly. If the first vote is inconclusive (i.e., no party wins a majority), some semblance of clarity may have to wait until July 7th. And even post-election, it could take weeks or even months to gain a clear understanding of the direction of political leadership and policymaking.
But it’s difficult to see a scenario that doesn’t involve an unfolding (at best) political crisis. And highly levered European debt markets ensure fragility. The prospect of a political and debt crisis at Europe’s “core” doesn’t instill confidence in the euro currency.
In a more normal backdrop, markets at least in the near-term would afford the euro the benefit of the doubt. But this is a global environment seemingly on the cusp of acute instability. The Japanese yen dropped 1.5% versus the dollar to end Friday with the weakest closing price all the way back to April 1990. China’s renminbi slipped to the weakest level since November.
It doesn’t take a wild imagination to envisage a scenario where weakness in the euro, yen and renminbi feeds on itself, propelling destabilizing dollar strength that slams the vulnerable emerging markets. As I noted in last week’s CBB, instability at Europe’s “core” and attendant euro worries create a potential de-risking/deleveraging catalyst. And “risk off” would catch extremely over-levered and complacent markets by surprise.
June 21 – MarketWatch (Joseph Adinolfi): “Trading in bullish calls tied to megacap growth and tech stocks outnumber bearish puts by the widest margin on record… Options traders piled into bullish bets on megacap growth stocks like Nvidia Corp. at a record pace this week, surpassing the previous pandemic-era peak. On average, trading in bullish call contracts exceeded bearish puts by roughly 4.5 million contracts during the five days through Friday… Calls tied to Nvidia were the most popular options ahead of Friday’s June ‘triple witching’ expiration, even surpassing activity in contracts tied to the S&P 500 and a popular ETF SPY that tracks the benchmark index…”
June 21 – Bloomberg (Rita Nazareth): “Wall Street’s massive expiration of options not only left stock traders more cautious, it also drove one of the leaders of the bull market to a roller-coaster ride. Volume soared at the close of trading. It was estimated that $5.5 trillion expired during the quarterly event ominously known as triple witching’ in which derivatives contracts tied to equities, index options and futures mature. Nearly 18 billion shares changed hands on US exchanges Friday. That’s over 55% above the three-month average.”
Nothing to see in Europe. Not with Nvidia/AI/big tech melting up into a $5.5 TN quarterly options expiration. Reasonable odds of peak mania. And what is the probability of full-scale war erupting between Israel and Hezbollah? Rising.
Hadn’t heard much of the “basis trade” for a bit – that is until Thursday’s Bloomberg Intelligence (Brian Meehan) Report: “Biggest Bond Market Threat: Massive Basis Trade.” “Assessing the risk of the cash-futures basis market reveals near-record net short positions at the front end of the curve -- the two-, five- and 10-year contracts – while the rest is neutral. At the same time, open interest in Treasury futures is at an all-time high of $2.5 trillion, up 40% from the last basis blowout in 2020, while the leveraged net short has more than doubled to $875 billion in 18 months. The warning signal is loud and clear: Any stress in the repo market that leads to forced liquidations of those massive basis positions is the greatest threat the market has ever seen.”
Unfolding stress in Europe pressuring Treasury yields lower while bolstering the dollar. Looser financial conditions buoying the U.S. Bubble Economy, holding Fed rate cuts at bay. Higher yields and perceived safe haven U.S. financial markets acting as magnets for liquidity, as global risk aversion and de-leveraging gather momentum.
Leveraged speculation has never so dominated every nook and cranny of global finance. Global de-risking/deleveraging “is the Greatest Threat markets have ever seen.”
For the Week:
The S&P500 added 0.6% (up 14.6% y-t-d), and the Dow rallied 1.5% (up 3.9%). The Utilities declined 0.8% (up 9.6%). The Banks recovered 1.6% (up 6.1%), and the Broker/Dealers gained 0.7% (up 11.6%). The Transports rallied 2.1% (down 4.9%). The S&P 400 Midcaps rose 1.3% (up 5.4%), and the small cap Russell 2000 increased 0.8% (down 0.2%). The Nasdaq100 added 0.2% (up 17.1%). The Semiconductors declined 1.1% (up 32.6%). The Biotechs gained 1.1% (down 3.1%). While bullion slipped $11, the HUI gold index jumped 2.0% (up 9.8%).
Three-month Treasury bill rates ended the week at 5.2175%. Two-year government yields increased three bps this week to 4.73% (up 48bps y-t-d). Five-year T-note yields rose four bps to 4.27% (up 43bps). Ten-year Treasury yields gained three bps to 4.26% (up 38bps). Long bond yields rose five bps to 4.40% (up 37bps). Benchmark Fannie Mae MBS yields added two bps to 5.70% (up 43bps).
Italian yields added a basis point to 3.94% (up 24bps y-t-d). Greek 10-year yields slipped one basis point to 3.63% (up 58bps). Spain's 10-year yields dipped a basis point to 3.29% (up 29bps). German bund yields rose five bps to 2.41% (up 39bps). French yields jumped eight bps to 3.21% (up 65bps). The French to German 10-year bond spread widened three bps to 80 bps. U.K. 10-year gilt yields gained three bps to 4.08% (up 55bps). U.K.'s FTSE equities index rallied 1.1% (up 6.5% y-t-d).
Japan's Nikkei Equities Index declined 0.6% (up 15.3% y-t-d). Japanese 10-year "JGB" yields rose three bps to 0.98% (up 36bps y-t-d). France's CAC40 recovered 1.7% (up 1.1%). The German DAX equities index gained 0.9% (up 8.4%). Spain's IBEX 35 equities index increased 0.4% (up 9.2%). Italy's FTSE MIB index rallied 2.0% (up 9.7%). EM equities were mixed. Brazil's Bovespa index rose 1.4% (down 9.6%), and Mexico's Bolsa index gained 1.1% (down 8.0%). South Korea's Kospi index added 0.9% (up 4.9%). India's Sensex equities index increased 0.3% (up 6.9%). China's Shanghai Exchange Index fell 1.1% (up 0.8%). Turkey's Borsa Istanbul National 100 index jumped 2.9% (up 44.2%). Russia's MICEX equities index sank 2.9% (up 0.8%).
Federal Reserve Credit dipped $706 million last week to $7.221 TN. Fed Credit was down $1.669 TN from the June 22, 2022, peak. Over the past 249 weeks, Fed Credit expanded $3.494 TN, or 94%. Fed Credit inflated $4.410 TN, or 157%, over the past 606 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt sank $20.7bn last week to a 14-month low $3.310 TN. "Custody holdings" were down $116 billion y-o-y, or 3.4%.
Total money market fund assets fell $22.3 billion to $6.098 TN. Money funds were up $646bn, or 11.9%, y-o-y.
Total Commercial Paper surged $20.3bn to $1.289 TN. CP was up $146bn, or 12.8%, over the past year.
Freddie Mac 30-year fixed mortgage rates dropped eight bps to an 11-week low 6.87% (up 24bps y-o-y). Fifteen-year rates declined four bps to 6.13% (up 10bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates up three bps 7.36% (up 29bps).
Currency Watch:
June 19 – Bloomberg: “China set the yuan’s daily reference rate at its weakest since November in a sign policymakers are loosening their grip on the currency. The People’s Bank of China set the so-called fixing at 7.1192 per dollar, an increase of 33 ticks, the most in about two months. The move comes as the dollar inches closer to this year’s peak, with traders betting on higher-for-longer interest rates in the US.”
June 21 – Reuters (Winni Zhou and Ankur Banerjee): “A sliding yuan and extensive outflows of cash from the mainland into Hong Kong show China's domestic investors are shelving expectations for any immediate recovery in their home markets and fleeing to the closest better-yielding assets. The yuan has dropped to seven-month lows this week, alongside a reversal in equity investment flows into China… ‘Sentiment on China soured over the past month as the market has rallied ahead of improvement in macro data which continues to disappoint,’ said Gary Tan, a Singapore-based portfolio manager at Allspring Global Investments.”
June 16 – Reuters (Xie Yu): “Hong Kong investment products such as insurance and high-yield time deposits are seeing resurgent demand from wealthy Chinese who are aiming to shield returns from a domestic economic and property sector downturn and also a weaker currency. The trend became evident last year but has accelerated in recent months after China relaxed investment rules for the 'wealth connect' programme in February, Hong Kong wealth managers said.”
For the week, the U.S. Dollar Index 0.3% to 105.832 (up 4.4% y-t-d). For the week on the upside, the South African rand increased 2.3%, the Mexican peso 1.9%, the Norwegian krone 1.0%, the Australian dollar 0.4%, the Canadian dollar 0.3%, and the Swedish krona 0.1%. On the downside, the Japanese yen declined 1.5%, the Brazilian real 1.0%, the South Korean won 0.7%, the New Zealand dollar 0.4%, the Swiss franc 0.4%, the British pound 0.3%, the Singapore dollar 0.1%, and the euro 0.1%. The Chinese (onshore) renminbi slipped 0.07% versus the dollar (down 2.22% y-t-d).
Commodities Watch:
June 18 – Wall Street Journal (Joseph Hoppe): “Central banks around the world expect global reserves of gold to increase over the next year, while pessimism toward the U.S. dollar has grown, according to a new report. More than four in five respondents expect reserve managers to increase global holdings of bullion, the highest proportion on record since the annual survey began, the World Gold Council’s report said. Nearly 30% of the banks plan to add to their own reserves within the next year, including 13% of banks in advanced economies. Banks in emerging markets kept their positive attitude toward gold’s future in reserves, but were now joined in this view by 57% of advanced economy central banks, up from 38% in 2023.”
The Bloomberg Commodities Index declined 0.7% (up 3.1% y-t-d). Spot Gold slipped 0.5% to $2,322 (up 12.6%). Silver was little changed at $29.554 (up 24.2%). WTI crude jumped $2.28, or 2.9%, to $80.73 (up 13%). Gasoline surged 4.8% (up 19%), while Natural Gas dropped 6.1% to $2.705 (up 8%). Copper fell 1.0% (up 14%). Wheat sank 8.4% (down 11%), and Corn fell 3.3% (down 8%). Bitcoin dropped $1,650, or 2.5%, to $64,235 (up 51%).
Middle East War Watch:
June 18 – Reuters (Maya Gebeily and Steven Scheer): “Israeli Foreign Minister Israel Katz warned… that a decision on an all-out war with Hezbollah was coming soon, even as the United States tries to avert any escalation. U.S. envoy Amos Hochstein was sent to Lebanon to try and cool tensions following an increase in cross-border fire along Lebanon's southern frontier that has escalated to Hezbollah hinting it could attack Haifa, Israel's third-largest city… Katz said… that in the wake of threats by Sayyed Hassan Nasrallah, the group's head, to damage Haifa's ports that are operated by Chinese and Indian companies, ‘we are getting very close to the moment of deciding on changing the rules of the game against Hezbollah and Lebanon’.”
June 18 – Financial Times (James Shotter): “The Israeli military… said senior officers had approved ‘operational plans for an offensive in Lebanon’, as fears grow that Israel and Hizbollah could slide into a full-blown conflict. The Lebanese militant group and Israeli forces have been trading fire on an almost daily basis since the beginning of the war between Israel and Hamas in Gaza, but exchanges escalated last week… The announcement came hours after Hizbollah… released a nine-minute video of what it said was footage gathered by its surveillance drones of parts of Israel, including the port in the northern city of Haifa. In addition to views of the port… the undated footage included what Hizbollah said were images of other military infrastructure. The video drew a furious response from Israel, with foreign minister Israel Katz warning that his government was ‘very close to the moment of decision to change the rules against Hizbollah and Lebanon’.”
June 19 – Financial Times (Raya Jalabi and James Shotter): “Hizbollah leader Hassan Nasrallah has warned that the Lebanese militant group would fight ‘without rules and without limits’ if its conflict with Israel widens. In a televised address, Nasrallah also threatened neighbouring Cyprus for the first time, saying Hizbollah would consider the country ‘part of the war’ if it allowed Israel to continue using Cypriot airports and bases for military exercises… The speech comes as fears have risen of a full-blown war between Hizbollah and Israel, with belligerent rhetoric escalating and the Lebanese militant group this week issuing surveillance drone footage of sites in Israel.”
June 19 – Wall Street Journal (Rory Jones): “Tensions heated up along Israel’s Lebanese border, as the Israeli military approved a plan for a possible invasion of its northern neighbor and Hezbollah showed off what it said was drone surveillance of northern Israeli cities. The Israeli military plans outline an assault into Lebanon should a larger-scale conflict between Israel and Hezbollah break out. The operation would need approval from the Israeli government.”
June 19 – Reuters (Jonathan Saul): “Urgent action must be taken in the Red Sea to stop attacks on merchant shipping by Yemen's Houthis, leading industry groups said…, after the sinking of a second ship. Iran-aligned Houthi militants first launched drone and missile strikes on the important trade route in November in what they say is solidarity with Palestinians in Gaza. In more than 70 attacks, they have also seized one vessel and its crew and killed at least three seafarers… ‘It is deplorable that innocent seafarers are being attacked while simply performing their jobs, vital jobs which keep the world warm, fed, and clothed,’ the world's top shipping associations said…”
June 20 – Bloomberg (Alex Longley): “The sinking of a coal-carrier by a sea drone has boosted the risk of navigating the vital Bab el-Mandeb chokepoint to a new level and is driving a fresh surge in insurance costs. The British navy said… the only visible objects in the last known location of the Tutor dry-bulk carrier… were some debris and an oil slick. Yemen’s Houthi militants managed to strike it with a seaborne drone, killing one crew member and injuring others. They said they eventually sank it with explosives.”
Ukraine War Watch:
June 19 – Bloomberg (Soo-Hyang Choi): “North Korean leader Kim Jong Un pledged to ‘unconditionally support’ Russia in its invasion of Ukraine at talks with President Vladimir Putin in Pyongyang that emphasized deepening ties amid US concerns about arms supplies to the Kremlin’s war machine… ‘I would like to stress that the birth of this treaty, the most powerful treaty in the history of North Korea-Russia relations, was possible thanks to President Putin’s outstanding foresightedness and bold determination,’ Kim said…”
June 21 – BBC (Kelly Ng): “Vladimir Putin has warned South Korea it would be making ‘a big mistake’ if it arms Ukraine in the war against Russia. His comments come after Seoul said it was considering such a possibility, in response to Russia and North Korea's new pact to help each other in the event of ‘aggression’ against either country. Moscow ‘will... [make] decisions which are unlikely to please the current leadership of South Korea’ if Seoul decides to supply arms to Kyiv, Mr Putin told reporters…”
France Instability Watch:
June 18 – Bloomberg (Simon White): “Political uncertainty in France is leading to increasing scrutiny of its finances. Though France is regarded as part of Europe’s economic core, it now displays debt and deficit dynamics that are worse in many respects than the periphery countries of Greece, Italy, Spain and Portugal. French yields are rising at a pace that will soon push them higher than some on the periphery. There is also the risk of global contagion. Turmoil in France has the potential to spill abroad via banks, one of the main vectors of global financial contagion when there is a crisis. French banks are the fourth biggest international lenders after Japan, the US, and the UK, with $2.4 trillion of foreign loans on their balance sheets. The US, followed by Italy and Japan are the biggest borrowers from banks in France, while UK, US and Japanese banks have lent the most to France.”
June 16 – Telegraph (Anne-Elisabeth Moutet): “As some 500,000 Left-wingers marched in France’s cities yesterday, shouting anti-Fascist slogans, never had Lenin’s phrase seemed more apposite: ‘There are decades where nothing happens; and there are weeks where decades happen.’ Upended by Emmanuel Macron’s decision last week to call a snap election after the hard-Right National Rally won over a third of the vote in the European elections, French politics is now in a state of chaos. Macron deliberately chose the shortest constitutionally-compatible timeline, with a first round to be held on June 30, and the runoff on July 7. Defiance, hostility and suspicion reign between adversaries, but also among so-called allies, forced by circumstances into unnatural coalitions.”
June 18 – Bloomberg (Abhinav Ramnarayan and Tasos Vossos): “President Emmanuel Macron’s surprise election call last week has highlighted France’s prominence in European credit markets. Whether it’s blue-chip, junk bonds or collateralized loan obligations, euro-denominated credit markets have been battered after the French president’s June 9 decision threw the country into political chaos. IHS Markit’s crossover index of credit default swaps, a key indicator of European credit risk, had its biggest spike in well over a year last week, rising 42 bps. The driver of this rout, in large part, is France. The nation’s firms account for the biggest component in the main categories of the region’s debt, so any damage in the Republic’s corporate loans and bonds will drag the whole index down.”
June 21 – Bloomberg (Frank Connelly): “France’s leftist alliance plans public spending of €200 billion ($214bn) for its priorities over the next five years if it wins the snap election as it seeks to reverse President Emmanuel Macron’s labor and pension reforms and boost growth. Jean-Luc Melenchon, whose far-left France Unbowed party is part of the coalition, brushed off any concerns about the extra spending, saying he expects the state to get revenue of €230 billion over the same period thanks to a ‘boost in activity.’ ‘Every election, the program of the left is equated to the country’s ruin,’ he told Le Figaro… ‘Social spending creates well-being, which allows consumption, which produces jobs and tax revenue.’”
June 17 – Reuters (Balazs Koranyi and Francesco Canepa): “The European Central Bank's chief economist said… there was no need for the ECB to come to France's rescue by buying bonds because recent market turmoil fuelled by political uncertainty was ‘not disorderly’… Philip Lane said he remained confident inflation will fall back to the ECB's 2% target in 2025 after four years of unusually brisk price growth following the COVID pandemic and Russia's invasion of Ukraine… But Lane said the latest market moves did not fulfil one of the key conditions for ECB intervention - that a rise in risk premiums is disorderly and unwarranted. ‘What we are seeing in the markets is a repricing but it is not in the world of disorderly markets right now,’ Lane said…”
June 18 – Bloomberg (William Horobin): “Bank of France Governor Francois Villeroy de Galhau repeated his call to avoid deepening budget deficits after a sell off of French assets as investors fret over the fiscal outlook for France after snap elections. Speaking on the eve of an expected European Commission move to put France on the list of countries that face infringement procedures for excessive deficits, Villeroy told a conference of economists at his institution that ‘we owe our fellow citizens all the respect, consideration, and truth that they expect.’”
June 18 – Financial Times (Leila Abboud, Adrienne Klasa and Sarah White): “France’s corporate bosses are racing to build contacts with Marine Le Pen’s far right after recoiling from the radical tax-and-spend agenda of the rival leftwing alliance in the country’s snap parliamentary elections. Four senior executives and bankers told the Financial Times that the left — which polls suggest is the strongest bloc vying with Le Pen — would be even worse for business than the Rassemblement National’s unfunded tax cuts and anti-immigration policies. ‘The RN’s economic policies are more of a blank slate that business thinks they can help push in the right direction,’ a Cac 40 corporate leader said of Le Pen’s party… ‘The left is not likely to water down its hardline anti-capitalist agenda.’”
June 19 – Financial Times (Ben Hall and Ian Johnston): “France’s far-right and hard-left parties have for years made generous spending promises in answer to people’s grievances against President Emmanuel Macron and his centrist government. Now they may come first and second in snap elections for the National Assembly on June 30 and July 7, with Macron’s alliance a distant third, according to opinion polls. The possibility of the far-right Rassemblement National (RN) in government, victory for the leftwing Nouveau Front Populaire (NFP) alliance or the most likely scenario of a hung parliament full of fiscal populists has rattled investors, business leaders and France’s EU partners. ‘Will the next government compromise or will it go crazy? If they go crazy… then it’s a massive crash,’ said Silvia Ardagna, chief European economist at Barclays.”
June 17 – Financial Times (Gideon Rachman): “France’s far right would like — henceforth — to be known simply as ‘the right’. One can see the logic. The Rassemblement National, the far-right party, is well ahead in the polls for fast-approaching legislative elections in France. Meanwhile the traditional right is in meltdown. If the RN becomes the largest group in the French parliament in July, the party will have redefined French conservatism. The question of whether to rebrand the far right as the right resonates well beyond France. There is a similar issue in the US, where Donald Trump has transformed the Republican party in his own image. The traditional pro-market, internationalist party of George HW Bush barely exists today. Trump’s ‘America First’ nativism now commands the conservative movement.”
June 17 – Bloomberg (Ania Nussbaum, Ewa Krukowska and Jorge Valero): “France’s political turmoil is causing concern in some European Union capitals that initiatives like joint military spending and a fresh push to support Ukraine could fall by the wayside. Doubts are growing over beefing up EU defense outlays through collective financing — an idea that President Emmanuel Macron backs strongly, according to people familiar with the matter. There’s also a fear that the snap legislative elections he called this month will undermine his role as one of Kyiv’s top cheerleaders, including his plan to dispatch army trainers to Ukraine.”
June 18 – Bloomberg (Daisuke Sakai): “Two Japanese institutional investors with holdings of French government bonds said they’re unlikely to buy more of the debt for now despite its cheapness, citing concern that political turmoil will trigger further declines”
Taiwan Watch:
June 18 – Reuters (Ben Blanchard and Faith Hung): “Only military strength can keep the peace with China and the Taiwanese people will not give in to Chinese coercion, Taiwan President Lai Ching-te said… as the United States agreed on a speeded-up arms package… Lai said Taiwan's people ‘love peace’. ‘But peace must rely on strength, which is to say avoiding war by preparing for war to achieve peace. Empty promises are not true peace,’ he said. China's national policy is to annex Taiwan, Lai added. ‘Apart from using force, in recent years they have even been using non-traditional coercive measures to force Taiwan to succumb but Taiwan will not give in,’ he said.”
June 16 – Financial Times (Kathrin Hille): “Taiwan’s president Lai Ching-te has implored the country’s armed forces to shake off its legacy as the army of the Chinese Nationalist party and urgently focus on its mission of defending against an unprecedented threat from China. Lai addressed instructors, cadets and veterans of the country’s top military school at a celebration of its founding as Whampoa Military Academy in China 100 years ago. ‘All instructors and cadets should understand the challenges and mission of the new era… The biggest challenge is to face the strong rise of China, which is destroying the status quo across the Taiwan Strait and viewing the annexation of Taiwan and the elimination of the Republic of China as its national cause.”
June 16 – Reuters (Ben Blanchard and Ann Wang): “China views the annexation and ‘elimination’ of Taiwan as its great national cause, Taiwan President Lai Ching-te said on Sunday, telling cadets at the military's premier academy they must know their enemy and not give in to defeatism. Lai has faced sustained personal attacks from China, which views Taiwan as its own territory, since assuming office last month, with Beijing calling him a ‘separatist’… Lai said today's cadets must recognise the challenges of the ‘new era’.”
June 21 – Financial Times (Kathrin Hille): “China has officially defined behaviour aimed at Taiwan independence as a criminal act, threatening punishments up to the death penalty for perpetrators, in a move that analysts said would further inflame tensions across the Strait. The Supreme People’s Court, the Supreme People’s Procuratorate, the ministries for public security and state security and the justice ministry jointly announced on Friday ‘guidelines for punishing ‘Taiwan independence’ diehard separatists for committing crimes of secession and the incitement of secession’. The new rules lay out the general definition of the crimes, and the standards for punishment on the basis of existing law such as China’s criminal code, its Criminal Procedure Law and the 2005 Anti-Secession Law aimed at Taiwan, state news agency Xinhua said.”
Market Instability Watch:
June 17 – Bloomberg (Natalia Kniazhevich): “Wall Street strategists are rushing to raise their targets for the S&P 500 Index, but hedge funds are growing increasingly cautious about equities due to the Federal Reserve’s reluctance to cut interest rates, softer economic data and narrow stock market breadth. Hedge funds decreased their long-short gross leverage, which measures their overall exposure to the market, by the most since March 2022, according to a note from Goldman Sachs...”
June 19 – Financial Times (Martin Arnold): “Eurozone countries are facing ‘significant fiscal burdens’ from ageing populations, extra defence spending and climate change, making it more urgent that they cut their high debt levels, the European Central Bank has warned. Officials at the central bank estimate Eurozone countries have to reduce their budget deficits by an average of 5 percentage points of GDP, which would require savings or extra revenue of €720bn at current output levels. The ECB’s assessment of the budgetary challenges confronting the 20 members of the single currency bloc came as the European Commission reprimanded France and six other countries for breaching EU fiscal rules, increasing investor anxiety about the sustainability of public finances.”
June 16 – Bloomberg (Naomi Tajitsu, Greg Ritchie, and Philip Aldrick): “The specter of the UK’s epic market meltdown two years ago is looming large over politicians as Britain prepares to go to the polls on July 4. The fear of so-called bond vigilantes… is coloring almost all discussion of Britain’s finances on the campaign trail. From Keir Starmer’s repeated references to the turmoil precipitated by Liz Truss’s unfunded tax cuts, to Rishi Sunak’s push to brand his opponent as an irresponsible tax-and-spender, debt is a near-constant talking point. Markets appear to be listening.”
AI Bubble Watch:
June 19 – Wall Street Journal (Asa Fitch): “Nvidia became the world’s most valuable listed company Tuesday thanks to the demand for its artificial-intelligence chips, leading a tech boom that brings back memories from around the start of this century. Nvidia’s chips have been the workhorses of the AI boom, essential tools in the creation of sophisticated AI systems that have captured the public’s imagination… The last time a big provider of computing infrastructure was the most valuable U.S. company was in March 2000, when networking-equipment company Cisco took that spot at the height of the dot-com boom. Cisco was riding the wave of a different revolution—the internet—where its products powered that budding industry. Like Nvidia, Cisco also surpassed Microsoft to become the most valuable company.”
June 21 – Bloomberg (Sagarika Jaisinghani): “The ongoing artificial intelligence frenzy that briefly made Nvidia Corp. the world’s most valuable company this week also drove record inflows into tech funds, said Bank of America Corp. strategists. About $8.7 billion flowed into tech funds in the week through June 19, according to a note from the bank citing EPFR Global data. ‘The ‘all roads lead to Nvidia’ trade is once again bolstered’ as Europe falters amid the political turmoil in France, strategist Michael Hartnett said.”
June 18 – Bloomberg (Jeran Wittenstein): “Nvidia Corp. insiders have sold shares worth more than $700 million this year as the stock continues to push deeper into record territory amid unrelenting demand for its chips. Executives and directors have unloaded about 770,000 Nvidia shares so far, excluding the effect of the company’s 10-for-1 stock split on June 10 for the sake of comparison. That’s the most in a half year period since the first six months of 2023 when about 848,000 shares were sold…”
Bubble and Mania Watch:
June 20 – Bloomberg (Alexandra Semenova): “The economy is growing, lower interest rates are on the horizon, artificial intelligence technology is set to create a utopia of corporate efficiency, and nothing can stop the soaring stock market. After being burned last year by doom-and-gloom calls that failed to materialize, equities strategists can’t turn bullish fast enough, making bears a rarity as the S&P 500 Index keeps setting new records… ‘It’s not just the excessive valuation,’ said David Rosenberg, founder and president of Rosenberg Research. ‘It’s the market sentiment, the complacency, the extraordinary popular delusions of maddening crowds.’”
June 17 – Bloomberg (Sonali Basak and John Sage): “Private equity investors are clamoring for their payouts. A risky approach to meeting their demands is setting records — and getting more popular. Dividend recapitalizations, where owners of lower-rated companies raise debt in the firm’s name to hand cash to investors, have soared in the first half of 2024. Some $30.2 billion of leveraged loans to pay for these checks have been sold so far this year, according to PitchBook…, matching the amount in 2021, which was the most in at least a decade.”
Global Banking Watch:
June 18 – Bloomberg (Taiga Uranaka): “Norinchukin Bank will consider investing in a range of assets as it braces for massive losses on the sale of roughly 10 trillion yen ($63bn) in US and European sovereign bonds. Japan’s biggest agricultural bank will dispose of the foreign bonds gradually during the fiscal year ending March, a company spokesman said in an email. It expects a net loss of 1.5 trillion yen for the year, triple the previous estimate of 500 billion yen. Collateralized loan obligations are an investment option, the spokesman said... It will also look at investing in domestic and overseas bonds, stocks and project financing. Its unrealized losses have been reflected in its capital ratio and won’t affect the bank’s soundness, the spokesman added. With an investment portfolio equivalent to $357 billion, Norinchukin is one of the largest Japanese investors in international financial markets.”
U.S./Russia/China/Europe Watch:
June 18 – Financial Times (Toru Tsunashima, Chris Cook, Max Seddon and Chloe Cornish): “Russia is scouring China for second-hand machine tools using shadowy networks of buyers, as the Kremlin races to secure vital equipment to increase arms production. Moscow’s covert strategy for obtaining precision machinery, uncovered by researchers, attempts to sidestep increasingly restrictive western sanctions and export controls… The operations, run through networks of opaque companies, tap a stock of older high-end machine tools made by western companies that remain in China after decades of sales to local factories.”
De-globalization and Iron Curtain Watch:
June 21 – Reuters (Joe Cash and Maria Martinez): “Beijing warned on Friday that escalating frictions with the European Union over electric vehicle imports could trigger a trade war, as Germany's economy minister arrived in the Chinese capital with the proposed tariffs high on his agenda. Robert Habeck's three-day trip to China is the first by a senior European official since Brussels proposed hefty duties on imports of Chinese-made electric vehicles to combat excessive subsidies. That has unleashed countermeasures by China and harsh criticism from Chinese leaders.”
June 17 – Reuters (Joe Cash): “China has opened an anti-dumping investigation into imported pork and its by-products from the European Union, a step that appears mainly aimed at Spain, the Netherlands and Denmark, in response to curbs on its electric vehicle exports. The investigation announced by China's commerce ministry… will focus on pork intended for human consumption, such as fresh, cold and frozen whole cuts, as well as pig intestines, bladders and stomachs. The probe will begin on June 17.”
June 20 – Bloomberg (Philip J. Heijmans): “As Russian President Vladimir Putin and Chinese Premier Li Qiang wrapped up separate meetings in Southeast Asia this week, the two partners in the BRICS economic bloc encountered a region keen to join a group seen as a hedge against Western-led institutions… For countries seeking to mitigate the economic risks of intensifying US-China competition, joining BRICS is an attempt to straddle some of those tensions. In Southeast Asia, many nations depend economically on trade with China while also simultaneously welcoming the security presence and investment Washington provides.”
June 20 – Reuters (Sakura Murakami): “Japan imposed trade restrictions on China-based companies as part of a fresh round of sanctions against individuals and groups supporting Russia's war on Ukraine, the foreign ministry said… The new sanctions also target firms in India, Kazakhstan, and Uzbekistan. It marks the first time Japan has imposed sanctions on China-based firms in connection with the war in Ukraine, according to Japan's foreign ministry.”
June 21 – Bloomberg (Brian Platt): “Prime Minister Justin Trudeau’s government is preparing potential new tariffs on Chinese-made electric vehicles to align Canada with actions taken by the US and European Union, according to people familiar... The government still has to make final decisions on how to proceed, but it’s likely to announce soon the start of public consultations on tariffs that would hit Chinese exports of EVs into Canada…”
Inflation Watch:
June 18 – Yahoo Finance (Rick Newman): “Inflation is abating, and many economists think prices for most things will settle back into normal ranges within a year or so. But America’s 86 million homeowners face a new form of sticker shock likely to get worse, not better: rising insurance costs largely caused by climate change. Americans who live in well-known hurricane, tornado, flood, or wildfire zones have long borne the risks of natural disasters. But severe weather risk… is now spreading to parts of the country that have never had to deal with them before. ‘We used to have billion-dollar hurricanes,’ said Bob Bunting, CEO of the Climate Adaptation Center… ‘Now we have billion-dollar thunderstorms. There are increased disruptions everywhere, and the general nature of insurance is it’s getting more expensive.’ He added, ‘There is nowhere to hide from this.’”
June 18 – Wall Street Journal (Will Parker): “Apartment dwellers got a break recently when rent growth slowed and fell in parts of the country following years of steep increases. That relief appears to be ending. Rents in several Northeast and Midwest cities, such as Kansas City, Mo., and Washington, D.C., are rising this year. While asking rents for new leases nationally are running nearly flat over the past 12 months, those figures are heavily influenced by the Sunbelt, where record-high supply has turned rent growth negative in some cities… The least affordable home-sales market in decades is compelling more renters to stay put. Large apartment owners say fewer renters are moving out to buy homes than ever before…”
June 17 – Wall Street Journal (Nicole Friedman): “Board members of the Highland Park Community Association in Mission Viejo, Calif., braced last year for a rise in insurance costs. Yet they were still shocked to receive a quote for over $170,000, which was more than four times what the association paid in 2022. Another 12 insurers declined to offer quotes, because wildfire risk has made insurers less willing to do business in California. The new policy provides up to $70.9 million in property coverage to this community of 208 townhomes and condominiums. But in the case of wildfire damage, the maximum coverage would be $2 million, said Mark Speros, the board’s president. ‘It was like a bombshell,’ he said. The board raised residents’ dues by 20%, the most the association allows per year, to $474 a month.”
June 20 – Bloomberg (Brendan Murray): “The spot rate for shipping goods in containers to Europe from Asia rose for a ninth straight week, the longest stretch of rising prices since the pandemic disrupted global supply chains in 2021. The rate for a 40-foot container to Genoa, Italy, from China hit $7,029 over the past week, the highest level since September 2022, according to the Drewry World Container Index... The cost to Rotterdam increased to $6,867. Both rates have essentially doubled since April. For the busy trade route from Shanghai to Los Angeles, the rate rose for a seventh straight week, to $6,441.”
Federal Reserve Watch:
June 18 – Reuters (Lindsay Dunsmuir): “The U.S. central bank should only start to cut interest rates after ‘months, and more likely quarters’ of falling inflation, moderating demand and expanding supply, St. Louis Federal Reserve President Alberto Musalem said…, in his first public comments… since becoming head of the regional Fed bank. ‘I will need to observe a period of favorable inflation, moderating demand and expanding supply before becoming confident that a reduction in the target range for the federal funds rate is appropriate. These conditions could take months, and more likely quarters to play out,’ Musalem told the CFA Society St. Louis.”
June 20 – Bloomberg (Craig Torres): “Federal Reserve Bank of Richmond President Thomas Barkin said he needs further clarity on the path of inflation before lowering interest rates. ‘My personal view is let’s get more conviction before moving,’ Barkin said… When asked if the Fed could do one rate cut and hold at that level, Barkin said it depends on the economy. If current conditions hold, he said it may not be the best time to give guidance on timing about subsequent policy adjustments. ‘There are times where we will want to give forward guidance and have given forward guidance… This doesn’t feel like one of those times to me. It doesn’t feel like a forward guidance time.’”
June 16 – Reuters (Ann Saphir): “Minneapolis Federal Reserve President Neel Kashkari… said it's a ‘reasonable prediction’ that the U.S. central bank will cut interest rates once this year, waiting until December to do it. ‘We need to see more evidence to convince us that inflation is well on our way back down to 2%,’ Kashkari said…”
June 18 – Bloomberg (Christopher Condon): “Federal Reserve Bank of Boston President Susan Collins said the US central bank should be patient as it considers when to lower interest rates, despite recent encouraging data on inflation. ‘It is too soon to determine whether inflation is durably on a path back to the 2% target,’ Collins said... ‘We should not overreact to a month or two of promising news.’ ‘The appropriate approach to monetary policy continues to require patience,’ she added…”
U.S. Economic Bubble Watch:
June 18 – Reuters (David Lawder): “The U.S. budget deficit will jump to $1.915 trillion for fiscal 2024, topping last year's $1.695 trillion gap as the largest outside the COVID-19 era, the Congressional Budget Office said…, citing increased spending for a 27% increase over its previous forecast. The CBO said in an update to its budget outlook that higher outlays for student loan relief, Medicaid healthcare for the poor, higher Federal Deposit Insurance Corp costs to resolve bank failures and U.S. aid to Ukraine and Israel make up the bulk of a $408 billion increase in this year's projected deficit since February, when it forecast a $1.507 trillion deficit.”
June 18 – New York Times (Alan Rappeport): “The United States is on a pace to add trillions of dollars to its national debt over the next decade, borrowing money more quickly than previously expected, at a time when big legislative fights loom over taxes and spending. The Congressional Budget Office said… that the U.S. national debt is poised to top $56 trillion by 2034, as rising spending and interest expenses outpace tax revenues. The mounting costs of Social Security and Medicare continue to weigh on the nation’s finances, along with rising interest rates, which have made it more costly for the federal government to borrow huge sums of money. As a result, the United States is expected to continue running large budget deficits… Over the next 10 years, the annual deficit is projected to swell to $2.9 trillion. As a share of the economy, debt held by the public in 2034 will be 122% of gross domestic product, up from 99% in 2024.”
June 18 – Bloomberg (Josh Schafer): “Retail sales increased at a slower-than-expected pace in May as high interest rates and inflation continued to weigh on consumers. Retail sales increased 0.1%, less than the 0.3% economists had expected. In April, retail sales ticked down 0.2%... Excluding autos and gas, retail sales increased 0.1%, below estimates for a 0.4% increase but above the 0.3% decline in April. Within the report, gasoline stations led the declines, falling 2.2% from the month prior.”
June 20 – Reuters (Lucia Mutikani, Lindsay Dunsmuir and Dan Burns): “Fewer Americans enrolled for first-time unemployment benefits last week…, though the latest data showed the number of people on benefits rolls overall was the highest since January, a sign that the U.S. job market continues to cool… Initial claims for state unemployment benefits declined 5,000 to a seasonally adjusted 238,000 for the week ended June 15…”
June 20 – Bloomberg (Reid Champlin): “Mortgage rates in the US dropped for a third consecutive week, falling to the lowest level since early April. The average for a 30-year, fixed loan was 6.87%, down from 6.95% last week, Freddie Mac said… While the string of recent declines helps ease some of the pressure on homebuyers, many remain on the sidelines.”
June 20 – Bloomberg (Michael Sasso): “New home construction in the US slumped in May to the slowest pace in four years, as higher-for-longer interest rates sap the housing industry’s momentum from earlier this year. Housing starts decreased 5.5% to a 1.28 million annualized rate last month… Building permits… fell 3.8% to a 1.39 million annual rate, also the weakest since June 2020. The declines in starts and permits were broad across multifamily and single-family units. Authorized permits for single-family homes dropped for a fourth straight month to the slowest pace in a year.”
June 19 – Yahoo Finance (Rebecca Chen): “Real estate prices surged nationwide when the pandemic hit. Bidding wars, all-cash offers, and contingency removals became commonplace. Now, the tide has turned in some markets. Home prices in some large US cities declined in April, according to global mortgage data and technology provider Intercontinental Exchange (ICE). San Antonio and Austin in Texas, and Tampa, Florida — among the most popular cities during the pandemic — saw the biggest monthly price declines… ‘The key differentiator we're seeing in terms of growing inventory levels in Florida and Texas is a rise in sellers' willingness to list their homes for sale,’ said Andy Walden, vice president of enterprise research strategy at ICE Mortgage. Nine major US markets have seen new listings exceed pre-pandemic averages, he said, and eight of those are in Texas or Florida.”
June 20 – CNBC (Charlotte Morabito): “Buy now, pay later options are becoming more accessible to consumers. A quarter of Americans surveyed in April 2024 said they used buy now, pay later services in the past 12 months, according to… NerdWallet. The number of buy now, pay later loans increased nearly 1,100% between 2019 and 2021, according to… the Consumer Financial Protection Bureau. The rapid growth has some analysts concerned because where there are loans, there is debt — but exactly how much debt is still unclear. A December 2023 report from Wells Fargo concluded that the ‘Buy Now, Pay Later market may be small now, but if we don’t know how fast it’s growing, it logically follows that we simply cannot know when it will be a problem.’ ‘We’ve often referred to this as phantom debt, where it’s sort of flying under the radar and not really something that anybody has a good grasp on,’ Shannon Grein, one of the authors of the December note, told CNBC.”
June 16 – Financial Times (Patrick Temple-West): “US bosses’ pay is increasing at the fastest rate for at least 14 years, according to figures that critics say illustrate how ballooning reward packages such as Elon Musk’s risk exacerbating social inequality. In 2024, median chief executive pay at S&P 500 companies has risen by 12%, according to ISS Corporate… That compares with a 4.1% year-on-year increase in US wage growth... Musk this week secured an emphatic victory in a shareholder vote on his $56bn package of stock options — the largest in US history.”
China Watch:
June 20 – Bloomberg: “It started with a cryptic quote from President Xi Jinping buried in a 172-page book on the financial sector. Three months later, plans for potentially the biggest shift in years in how China conducts monetary policy are starting to surface. Pan Gongsheng, governor of the People’s Bank of China, …gave the clearest acknowledgment that the monetary authority is looking into trading government bonds in the secondary market as a way to regulate liquidity. The PBOC is studying the implementation with the finance ministry and it will be a gradual process, he said in a speech. That responds to Xi’s directive to ‘enrich the monetary policy toolbox’ and ‘gradually increase government bond buying and selling in central bank open market operation’ in a speech during a financial policy meeting last year, made public only in the book published in March.”
June 20 – Wall Street Journal: “A speech by China’s central bank chief signals that it is looking to update its monetary tool kit with potential changes that economists say herald a major policy revamp, bringing it closer to practices adopted by its western peers. Pan Gongsheng, governor of the People’s Bank of China, said… the monetary authority might restart trading Treasury bonds in secondary markets, a policy shift that could rewrite the way Beijing manages liquidity. Over the past decade, the PBOC has mainly relied on various lending facilities and cuts to banks’ reserve requirements to ease monetary settings… Apart from bond trading, Pan also hinted at simplifying China’s current policy rates to allow a single short-term rate to play a bigger role in guiding banks.”
June 19 – Financial Times (Thomas Hale and Cheng Leng): “China’s central bank chief has warned markets to expect weaker credit growth, in a speech that highlighted the impact of a prolonged property slowdown on the world’s second-largest economy. Pan Gongsheng, governor of the People’s Bank of China, told a major financial forum… that real estate and local government financing vehicles account for a large share of China’s Rmb250tn ($34.5tn) of bank lending. ‘Not only is this area no longer growing, but it is actually declining,’ he said. ‘It is natural that the growth rate of credit has declined alongside a shift from high-speed to ‘high-quality development’,’ he told the Lujiazui Forum, referencing the high volume of existing lending. ‘Many loans in China are not efficient,’ he added.”
June 19 – Bloomberg: “China’s central bank chief hinted at a blueprint for a new toolkit that could open the door to its biggest policy overhaul in years, as officials try to bolster growth in the world’s No.2 economy. Pan Gongsheng, governor of the People’s Bank of China, gave the clearest signal yet that the authority may start trading government bonds in the secondary market… That shift has the potential to rewire how the central bank injects money into the economy and regulate liquidity.”
June 18 – Bloomberg: “China should shake off its ‘taboo’ regarding quantitative easing… and recognize that it may be necessary in the interest of stoking economic growth, a former People’s Bank of China adviser said. Chinese policymakers have long rejected QE, which was used by most advanced economy central banks as a stimulus tool after they had lowered interest rates toward zero. It’s sometimes been associated with stagnant economic growth and excessive public debt, and by some critics as evidence of Western economies’ decline. ‘China doesn’t have to embark on massive QE just yet,’ Yu Yongding, who sat on the PBOC’s monetary policy committee between 2004 and 2006, wrote… ‘But it’s necessary we shake off the thinking that QE is a taboo first so that we can launch it immediately when needed.’”
June 16 – Bloomberg: “China’s home prices fell at a faster pace in May… New-home prices in 70 cities… slid 0.71% from April, the most since October 2014… Values of existing homes dropped 1%, the sharpest decline since at least 2011 when China started using the current data collection method… Price declines also deepened from a year earlier. New-home prices slid 4.3% and used-home values tumbled 7.5%...”
June 16 – Reuters (Ella Cao, Liangping Gao and Ryan Woo): “Property investment in China fell 10.1% in the first five months of 2024 from a year earlier, after dropping 9.8% in January-April, even as policymakers doubled down on efforts to support the ailing sector and shore up consumer confidence. Property sales by floor area in January-May fell 20.3% from a year earlier, compared with a 20.2% slump in January-April… New construction starts measured by floor area fell 24.2% on year, after a 24.6% drop in the first four months. Funds raised by China's property developers were down 24.3% from a year earlier after a 24.9% fall in January-April.”
June 17 – Reuters (Liangping Gao and Marius Zaharia): “China's latest property support measures have boosted transactions in its biggest cities, but activity in smaller localities is struggling to get off the ground, pointing to more pain ahead for most of the country's real estate market. On May 17, China cut minimum mortgage rates and downpayments and instructed municipalities to buy unsold apartments to turn them into social housing, sparking dozens of announcements from cities easing policies under the new guidelines. Small samples of transactions data and interviews with 10 real estate agents across China show the measures had an uneven impact throughout the country…”
June 20 – Bloomberg (Pearl Liu and Dorothy Ma): “Four defaulted Chinese developers are headed into Hong Kong court hearings on liquidation demands next week, marking one of the busiest such stretches ever for the sector. The focus is on Kaisa Group Holdings Ltd., once a symbol of the boom years in China’s credit markets, which has its hearing Monday. That’s followed on Wednesday by Shimao Group Holdings Ltd., whose landmark projects include five-star hotels in Shanghai. The companies must show they have made progress in restructuring their debt, or run the risk of judges ordering their assets to be sold off to repay creditors.”
June 21 – Bloomberg: “Two global credit ratings firms lowered their forecasts for China’s property market, as an accelerating slump in home prices hampers the country’s efforts to rescue the sector. S&P Global Ratings now expects residential sales to drop 15% this year, more than the 5% decline it projected earlier. That will put sales below 10 trillion yuan ($1.4 trillion), around half the peak in 2021… Fitch Ratings… cut its annual sales estimate to a decrease of 15%-20%, worse than an earlier estimate of a 5%-10% drop. The ratings firms’ bleaker outlook suggests they have little confidence that recent stimulus measures will end the property slump…”
June 21 – Bloomberg: “China’s electric vehicle industry received at least $231 billion in government subsidies and aid from 2009 through to the end of last year, even as the amount of support per vehicle has declined, according to a new research. Slightly more than half the total amount of support was in the form of sales tax exemptions, according to the research from Scott Kennedy, a China specialist at the Center for Strategic and International Studies. The rest is made up of nationally approved buyer rebates, government funding for infrastructure such as charging stations, government procurement of EVs as well as R&D support programs…”'
June 18 – Reuters: “The task of controlling floods in China is becoming increasingly arduous, President Xi Jinping said on Tuesday, calling for all-out efforts to safeguard lives and property as powerful storms pounded provinces from the interior to the eastern coast. About a dozen people have been reported killed in floods or rain-induced mudslides in recent days with the annual flooding season in southern Chinese provinces in full swing.”
Central Bank Watch:
June 20 – Bloomberg (Tom Rees): “The Bank of England breathed fresh life into hopes for an imminent cut in interest rates, hinting that more of its officials may be close to backing a pivot away from the highest borrowing costs in 16 years. Investors priced in more than a 50% chance of a move in August… The UK central bank left the key rate on hold at 5.25%..., but said the decision not to ease was ‘finely balanced’ for some of the nine members on the Monetary Policy Committee. Governor Andrew Bailey said it was ‘good news’ that inflation fell back to its 2% target for the first time in almost three years but that officials wanted to be sure that pressure on prices is subdued before acting.”
June 19 – Reuters (John Revill): “The Swiss National Bank cut interest rates… for the second time running, pointing to easing price pressures that allowed it to maintain its position as a front-runner in the global policy easing cycle now underway. The Swiss franc weakened against other currencies and stocks gained after the central bank cut its policy rate by 25 bps to 1.25%, as expected…, following a quarter-point reduction in March… ‘The underlying inflationary pressure has decreased again compared to the previous quarter,’ SNB Chairman Thomas Jordan said. ‘With today's lowering of the SNB policy rate, we are able to maintain appropriate monetary conditions.’”
Europe Watch:
June 21 – Reuters (Jonathan Cable): “Euro zone business growth slowed sharply this month as demand fell for the first time since February, a survey found, with the bloc's services industry showing some signs of weakening while the downturn in manufacturing took a turn for the worse… HCOB's preliminary composite Purchasing Managers' Index, compiled by S&P Global, sank to 50.8 this month from May's 52.2, confounding expectations in a Reuters poll for a rise to 52.5.”
June 19 – Reuters (Sachin Ravikumar and Kylie Maclellan): “Three opinion polls on Wednesday predicted a record defeat for British Prime Minister Rishi Sunak's Conservatives at a July 4 election, forecasting the Labour Party would comfortably win a large majority after 14 years in opposition. Polling by YouGov showed Keir Starmer's Labour was on track to win 425 parliamentary seats in Britain's 650-strong House of Commons, the most in its history. Savanta predicted 516 seats for Labour and More in Common gave it 406. YouGov had the Conservatives on 108 and the Liberal Democrats on 67, while Savanta predicted the Conservatives would take 53 parliamentary seats and the Liberal Democrats 50. More in Common forecast 155 and 49 seats respectively.”
June 16 – Reuters (David Milliken): “Three British opinion polls released late on Saturday presented a grim picture for Prime Minister Rishi Sunak's Conservative Party, and one pollster warned that the party faced ‘electoral extinction’ in July 4's election. The polls come just over halfway through the election campaign, after a week in which both the Conservatives and Labour set out their manifestos, and shortly before voters begin to receive postal ballots.”
June 21 – Bloomberg (Reed Landberg): “Britain’s private sector companies reported slower growth and stronger pressures to increase prices in the lead up to the general election, a closely watched industry survey showed. S&P Global’s composite Purchasing Managers’ Index slipped to 51.7 in June from 53 the month before, the lowest reading since November… The report also showed inflationary pressures, driven by a jump in wages and rising prices for goods.”
June 17 – Financial Times (Martin Arnold): “Germany’s largest industrial union is gearing up for a battle over pay in the country’s manufacturing heartlands after it called for a 7% wage rise for millions of electrical and metal workers. IG Metall said… its board recommended negotiators seek the pay rise for a 12-month period for 3.9mn workers in the sector, which is the backbone of Germany’s wider economy and a bellwether for wage agreements in other sectors.”
June 19 – Reuters (Tom Sims): “Hundreds of thousands of bank employees in Europe's largest economy are fighting for pay increases of up to 16% to cope with rising living costs and unions are warning of possible strikes. Pay negotiations for Germany's public and private bank employees follow a spike in costs that has hit ordinary workers hard, while the banks have benefited from the higher interest rates imposed to combat inflation.”
Japan Watch:
June 17 – Bloomberg (Toru Fujioka and Yoshiaki Nohara): “Bank of Japan Governor Kazuo Ueda kept the door open to a possible interest rate increase in July, defying market skepticism over the potential for such action after the bank said it would take another big step toward quantitative tightening next month via a cut in its bond buying. ‘The reduction of bond buying and a policy rate hike are separate issues,’ Ueda said… ‘There is a good chance for the policy rate to be raised, depending on data and information over the economy, inflation and financial conditions.’”
June 18 – Bloomberg (Toru Fujioka): “Bank of Japan board members discussed the possibility of pursuing a faster pace of policy normalization amid ongoing risks that the weak yen’s effect on inflation might force a response by the bank, according to minutes from the April policy meeting. ‘Some members pointed out that exchange rates were one of the important factors affecting economic activity and prices, and that monetary policy responses would be necessary’ if currencies affect the inflation outlook, including spurring upside risks, according to the minutes…”
June 16 – Reuters (Leika Kihara and Takahiko Wada): “The Bank of Japan is likely to trim bond buying by around 24 trillion yen ($152bn) annually in new guidance due next month, but forgo raising interest rates at least until September, former board member Makoto Sakurai said… At its policy meeting on Friday, the BOJ decided to start trimming its huge bond purchases and announce a detailed plan in July on reducing its nearly $5 trillion balance sheet, taking another step toward unwinding its massive monetary stimulus.”
June 20 – Bloomberg (Erica Yokoyama): “Japan’s inflation accelerated on the back of rising energy costs, a result that backs the case for the central bank to consider raising interest rates in coming months. Consumer prices excluding fresh food rose 2.5% in May from a year ago, quickening from 2.2% in April…”
Emerging Market Watch:
June 18 – Reuters (Tanvi Mehta): “Peak demand for power in India's hot, arid northern plains hit a record on Monday, the government said as it continues to implement measures to meet high energy consumption, although the weeks' long heatwave is forecast to abate soon. The India Meteorological Department (IMD) has predicted above-normal temperatures for June in the northwest and central parts of the country, making it one of the longest heatwave spells.”
Leveraged Speculation Watch:
June 17 – Reuters (Nell Mackenzie and Anousha Sakoui): “Hedge fund managers making bets on mergers and acquisitions outperformed those deploying other strategies with a return of 7.7% in the first five months of 2024, Goldman Sachs said…, as deal-making rebounded… Worldwide M&A was worth $1.3 trillion during the first five months of 2024, a 23% increase versus the same period of 2023, but below the $1.8 trillion recorded in January-May 2022, according to LSEG data.”
June 21 – Bloomberg (Nishant Kumar): “Millennium Management is planning to raise new cash equivalent to about 10% of its $68 billion in assets as the multistrategy hedge fund giant looks to bolster its ability to access capital when needed. The New York-based investment firm is in talks with investors to get their commitments in a so-called draw-down fund that will allow Millennium to call the cash at will…”
The S&P500 added 0.6% (up 14.6% y-t-d), and the Dow rallied 1.5% (up 3.9%). The Utilities declined 0.8% (up 9.6%). The Banks recovered 1.6% (up 6.1%), and the Broker/Dealers gained 0.7% (up 11.6%). The Transports rallied 2.1% (down 4.9%). The S&P 400 Midcaps rose 1.3% (up 5.4%), and the small cap Russell 2000 increased 0.8% (down 0.2%). The Nasdaq100 added 0.2% (up 17.1%). The Semiconductors declined 1.1% (up 32.6%). The Biotechs gained 1.1% (down 3.1%). While bullion slipped $11, the HUI gold index jumped 2.0% (up 9.8%).
Three-month Treasury bill rates ended the week at 5.2175%. Two-year government yields increased three bps this week to 4.73% (up 48bps y-t-d). Five-year T-note yields rose four bps to 4.27% (up 43bps). Ten-year Treasury yields gained three bps to 4.26% (up 38bps). Long bond yields rose five bps to 4.40% (up 37bps). Benchmark Fannie Mae MBS yields added two bps to 5.70% (up 43bps).
Italian yields added a basis point to 3.94% (up 24bps y-t-d). Greek 10-year yields slipped one basis point to 3.63% (up 58bps). Spain's 10-year yields dipped a basis point to 3.29% (up 29bps). German bund yields rose five bps to 2.41% (up 39bps). French yields jumped eight bps to 3.21% (up 65bps). The French to German 10-year bond spread widened three bps to 80 bps. U.K. 10-year gilt yields gained three bps to 4.08% (up 55bps). U.K.'s FTSE equities index rallied 1.1% (up 6.5% y-t-d).
Japan's Nikkei Equities Index declined 0.6% (up 15.3% y-t-d). Japanese 10-year "JGB" yields rose three bps to 0.98% (up 36bps y-t-d). France's CAC40 recovered 1.7% (up 1.1%). The German DAX equities index gained 0.9% (up 8.4%). Spain's IBEX 35 equities index increased 0.4% (up 9.2%). Italy's FTSE MIB index rallied 2.0% (up 9.7%). EM equities were mixed. Brazil's Bovespa index rose 1.4% (down 9.6%), and Mexico's Bolsa index gained 1.1% (down 8.0%). South Korea's Kospi index added 0.9% (up 4.9%). India's Sensex equities index increased 0.3% (up 6.9%). China's Shanghai Exchange Index fell 1.1% (up 0.8%). Turkey's Borsa Istanbul National 100 index jumped 2.9% (up 44.2%). Russia's MICEX equities index sank 2.9% (up 0.8%).
Federal Reserve Credit dipped $706 million last week to $7.221 TN. Fed Credit was down $1.669 TN from the June 22, 2022, peak. Over the past 249 weeks, Fed Credit expanded $3.494 TN, or 94%. Fed Credit inflated $4.410 TN, or 157%, over the past 606 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt sank $20.7bn last week to a 14-month low $3.310 TN. "Custody holdings" were down $116 billion y-o-y, or 3.4%.
Total money market fund assets fell $22.3 billion to $6.098 TN. Money funds were up $646bn, or 11.9%, y-o-y.
Total Commercial Paper surged $20.3bn to $1.289 TN. CP was up $146bn, or 12.8%, over the past year.
Freddie Mac 30-year fixed mortgage rates dropped eight bps to an 11-week low 6.87% (up 24bps y-o-y). Fifteen-year rates declined four bps to 6.13% (up 10bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates up three bps 7.36% (up 29bps).
Currency Watch:
June 19 – Bloomberg: “China set the yuan’s daily reference rate at its weakest since November in a sign policymakers are loosening their grip on the currency. The People’s Bank of China set the so-called fixing at 7.1192 per dollar, an increase of 33 ticks, the most in about two months. The move comes as the dollar inches closer to this year’s peak, with traders betting on higher-for-longer interest rates in the US.”
June 21 – Reuters (Winni Zhou and Ankur Banerjee): “A sliding yuan and extensive outflows of cash from the mainland into Hong Kong show China's domestic investors are shelving expectations for any immediate recovery in their home markets and fleeing to the closest better-yielding assets. The yuan has dropped to seven-month lows this week, alongside a reversal in equity investment flows into China… ‘Sentiment on China soured over the past month as the market has rallied ahead of improvement in macro data which continues to disappoint,’ said Gary Tan, a Singapore-based portfolio manager at Allspring Global Investments.”
June 16 – Reuters (Xie Yu): “Hong Kong investment products such as insurance and high-yield time deposits are seeing resurgent demand from wealthy Chinese who are aiming to shield returns from a domestic economic and property sector downturn and also a weaker currency. The trend became evident last year but has accelerated in recent months after China relaxed investment rules for the 'wealth connect' programme in February, Hong Kong wealth managers said.”
For the week, the U.S. Dollar Index 0.3% to 105.832 (up 4.4% y-t-d). For the week on the upside, the South African rand increased 2.3%, the Mexican peso 1.9%, the Norwegian krone 1.0%, the Australian dollar 0.4%, the Canadian dollar 0.3%, and the Swedish krona 0.1%. On the downside, the Japanese yen declined 1.5%, the Brazilian real 1.0%, the South Korean won 0.7%, the New Zealand dollar 0.4%, the Swiss franc 0.4%, the British pound 0.3%, the Singapore dollar 0.1%, and the euro 0.1%. The Chinese (onshore) renminbi slipped 0.07% versus the dollar (down 2.22% y-t-d).
Commodities Watch:
June 18 – Wall Street Journal (Joseph Hoppe): “Central banks around the world expect global reserves of gold to increase over the next year, while pessimism toward the U.S. dollar has grown, according to a new report. More than four in five respondents expect reserve managers to increase global holdings of bullion, the highest proportion on record since the annual survey began, the World Gold Council’s report said. Nearly 30% of the banks plan to add to their own reserves within the next year, including 13% of banks in advanced economies. Banks in emerging markets kept their positive attitude toward gold’s future in reserves, but were now joined in this view by 57% of advanced economy central banks, up from 38% in 2023.”
The Bloomberg Commodities Index declined 0.7% (up 3.1% y-t-d). Spot Gold slipped 0.5% to $2,322 (up 12.6%). Silver was little changed at $29.554 (up 24.2%). WTI crude jumped $2.28, or 2.9%, to $80.73 (up 13%). Gasoline surged 4.8% (up 19%), while Natural Gas dropped 6.1% to $2.705 (up 8%). Copper fell 1.0% (up 14%). Wheat sank 8.4% (down 11%), and Corn fell 3.3% (down 8%). Bitcoin dropped $1,650, or 2.5%, to $64,235 (up 51%).
Middle East War Watch:
June 18 – Reuters (Maya Gebeily and Steven Scheer): “Israeli Foreign Minister Israel Katz warned… that a decision on an all-out war with Hezbollah was coming soon, even as the United States tries to avert any escalation. U.S. envoy Amos Hochstein was sent to Lebanon to try and cool tensions following an increase in cross-border fire along Lebanon's southern frontier that has escalated to Hezbollah hinting it could attack Haifa, Israel's third-largest city… Katz said… that in the wake of threats by Sayyed Hassan Nasrallah, the group's head, to damage Haifa's ports that are operated by Chinese and Indian companies, ‘we are getting very close to the moment of deciding on changing the rules of the game against Hezbollah and Lebanon’.”
June 18 – Financial Times (James Shotter): “The Israeli military… said senior officers had approved ‘operational plans for an offensive in Lebanon’, as fears grow that Israel and Hizbollah could slide into a full-blown conflict. The Lebanese militant group and Israeli forces have been trading fire on an almost daily basis since the beginning of the war between Israel and Hamas in Gaza, but exchanges escalated last week… The announcement came hours after Hizbollah… released a nine-minute video of what it said was footage gathered by its surveillance drones of parts of Israel, including the port in the northern city of Haifa. In addition to views of the port… the undated footage included what Hizbollah said were images of other military infrastructure. The video drew a furious response from Israel, with foreign minister Israel Katz warning that his government was ‘very close to the moment of decision to change the rules against Hizbollah and Lebanon’.”
June 19 – Financial Times (Raya Jalabi and James Shotter): “Hizbollah leader Hassan Nasrallah has warned that the Lebanese militant group would fight ‘without rules and without limits’ if its conflict with Israel widens. In a televised address, Nasrallah also threatened neighbouring Cyprus for the first time, saying Hizbollah would consider the country ‘part of the war’ if it allowed Israel to continue using Cypriot airports and bases for military exercises… The speech comes as fears have risen of a full-blown war between Hizbollah and Israel, with belligerent rhetoric escalating and the Lebanese militant group this week issuing surveillance drone footage of sites in Israel.”
June 19 – Wall Street Journal (Rory Jones): “Tensions heated up along Israel’s Lebanese border, as the Israeli military approved a plan for a possible invasion of its northern neighbor and Hezbollah showed off what it said was drone surveillance of northern Israeli cities. The Israeli military plans outline an assault into Lebanon should a larger-scale conflict between Israel and Hezbollah break out. The operation would need approval from the Israeli government.”
June 19 – Reuters (Jonathan Saul): “Urgent action must be taken in the Red Sea to stop attacks on merchant shipping by Yemen's Houthis, leading industry groups said…, after the sinking of a second ship. Iran-aligned Houthi militants first launched drone and missile strikes on the important trade route in November in what they say is solidarity with Palestinians in Gaza. In more than 70 attacks, they have also seized one vessel and its crew and killed at least three seafarers… ‘It is deplorable that innocent seafarers are being attacked while simply performing their jobs, vital jobs which keep the world warm, fed, and clothed,’ the world's top shipping associations said…”
June 20 – Bloomberg (Alex Longley): “The sinking of a coal-carrier by a sea drone has boosted the risk of navigating the vital Bab el-Mandeb chokepoint to a new level and is driving a fresh surge in insurance costs. The British navy said… the only visible objects in the last known location of the Tutor dry-bulk carrier… were some debris and an oil slick. Yemen’s Houthi militants managed to strike it with a seaborne drone, killing one crew member and injuring others. They said they eventually sank it with explosives.”
Ukraine War Watch:
June 19 – Bloomberg (Soo-Hyang Choi): “North Korean leader Kim Jong Un pledged to ‘unconditionally support’ Russia in its invasion of Ukraine at talks with President Vladimir Putin in Pyongyang that emphasized deepening ties amid US concerns about arms supplies to the Kremlin’s war machine… ‘I would like to stress that the birth of this treaty, the most powerful treaty in the history of North Korea-Russia relations, was possible thanks to President Putin’s outstanding foresightedness and bold determination,’ Kim said…”
June 21 – BBC (Kelly Ng): “Vladimir Putin has warned South Korea it would be making ‘a big mistake’ if it arms Ukraine in the war against Russia. His comments come after Seoul said it was considering such a possibility, in response to Russia and North Korea's new pact to help each other in the event of ‘aggression’ against either country. Moscow ‘will... [make] decisions which are unlikely to please the current leadership of South Korea’ if Seoul decides to supply arms to Kyiv, Mr Putin told reporters…”
France Instability Watch:
June 18 – Bloomberg (Simon White): “Political uncertainty in France is leading to increasing scrutiny of its finances. Though France is regarded as part of Europe’s economic core, it now displays debt and deficit dynamics that are worse in many respects than the periphery countries of Greece, Italy, Spain and Portugal. French yields are rising at a pace that will soon push them higher than some on the periphery. There is also the risk of global contagion. Turmoil in France has the potential to spill abroad via banks, one of the main vectors of global financial contagion when there is a crisis. French banks are the fourth biggest international lenders after Japan, the US, and the UK, with $2.4 trillion of foreign loans on their balance sheets. The US, followed by Italy and Japan are the biggest borrowers from banks in France, while UK, US and Japanese banks have lent the most to France.”
June 16 – Telegraph (Anne-Elisabeth Moutet): “As some 500,000 Left-wingers marched in France’s cities yesterday, shouting anti-Fascist slogans, never had Lenin’s phrase seemed more apposite: ‘There are decades where nothing happens; and there are weeks where decades happen.’ Upended by Emmanuel Macron’s decision last week to call a snap election after the hard-Right National Rally won over a third of the vote in the European elections, French politics is now in a state of chaos. Macron deliberately chose the shortest constitutionally-compatible timeline, with a first round to be held on June 30, and the runoff on July 7. Defiance, hostility and suspicion reign between adversaries, but also among so-called allies, forced by circumstances into unnatural coalitions.”
June 18 – Bloomberg (Abhinav Ramnarayan and Tasos Vossos): “President Emmanuel Macron’s surprise election call last week has highlighted France’s prominence in European credit markets. Whether it’s blue-chip, junk bonds or collateralized loan obligations, euro-denominated credit markets have been battered after the French president’s June 9 decision threw the country into political chaos. IHS Markit’s crossover index of credit default swaps, a key indicator of European credit risk, had its biggest spike in well over a year last week, rising 42 bps. The driver of this rout, in large part, is France. The nation’s firms account for the biggest component in the main categories of the region’s debt, so any damage in the Republic’s corporate loans and bonds will drag the whole index down.”
June 21 – Bloomberg (Frank Connelly): “France’s leftist alliance plans public spending of €200 billion ($214bn) for its priorities over the next five years if it wins the snap election as it seeks to reverse President Emmanuel Macron’s labor and pension reforms and boost growth. Jean-Luc Melenchon, whose far-left France Unbowed party is part of the coalition, brushed off any concerns about the extra spending, saying he expects the state to get revenue of €230 billion over the same period thanks to a ‘boost in activity.’ ‘Every election, the program of the left is equated to the country’s ruin,’ he told Le Figaro… ‘Social spending creates well-being, which allows consumption, which produces jobs and tax revenue.’”
June 17 – Reuters (Balazs Koranyi and Francesco Canepa): “The European Central Bank's chief economist said… there was no need for the ECB to come to France's rescue by buying bonds because recent market turmoil fuelled by political uncertainty was ‘not disorderly’… Philip Lane said he remained confident inflation will fall back to the ECB's 2% target in 2025 after four years of unusually brisk price growth following the COVID pandemic and Russia's invasion of Ukraine… But Lane said the latest market moves did not fulfil one of the key conditions for ECB intervention - that a rise in risk premiums is disorderly and unwarranted. ‘What we are seeing in the markets is a repricing but it is not in the world of disorderly markets right now,’ Lane said…”
June 18 – Bloomberg (William Horobin): “Bank of France Governor Francois Villeroy de Galhau repeated his call to avoid deepening budget deficits after a sell off of French assets as investors fret over the fiscal outlook for France after snap elections. Speaking on the eve of an expected European Commission move to put France on the list of countries that face infringement procedures for excessive deficits, Villeroy told a conference of economists at his institution that ‘we owe our fellow citizens all the respect, consideration, and truth that they expect.’”
June 18 – Financial Times (Leila Abboud, Adrienne Klasa and Sarah White): “France’s corporate bosses are racing to build contacts with Marine Le Pen’s far right after recoiling from the radical tax-and-spend agenda of the rival leftwing alliance in the country’s snap parliamentary elections. Four senior executives and bankers told the Financial Times that the left — which polls suggest is the strongest bloc vying with Le Pen — would be even worse for business than the Rassemblement National’s unfunded tax cuts and anti-immigration policies. ‘The RN’s economic policies are more of a blank slate that business thinks they can help push in the right direction,’ a Cac 40 corporate leader said of Le Pen’s party… ‘The left is not likely to water down its hardline anti-capitalist agenda.’”
June 19 – Financial Times (Ben Hall and Ian Johnston): “France’s far-right and hard-left parties have for years made generous spending promises in answer to people’s grievances against President Emmanuel Macron and his centrist government. Now they may come first and second in snap elections for the National Assembly on June 30 and July 7, with Macron’s alliance a distant third, according to opinion polls. The possibility of the far-right Rassemblement National (RN) in government, victory for the leftwing Nouveau Front Populaire (NFP) alliance or the most likely scenario of a hung parliament full of fiscal populists has rattled investors, business leaders and France’s EU partners. ‘Will the next government compromise or will it go crazy? If they go crazy… then it’s a massive crash,’ said Silvia Ardagna, chief European economist at Barclays.”
June 17 – Financial Times (Gideon Rachman): “France’s far right would like — henceforth — to be known simply as ‘the right’. One can see the logic. The Rassemblement National, the far-right party, is well ahead in the polls for fast-approaching legislative elections in France. Meanwhile the traditional right is in meltdown. If the RN becomes the largest group in the French parliament in July, the party will have redefined French conservatism. The question of whether to rebrand the far right as the right resonates well beyond France. There is a similar issue in the US, where Donald Trump has transformed the Republican party in his own image. The traditional pro-market, internationalist party of George HW Bush barely exists today. Trump’s ‘America First’ nativism now commands the conservative movement.”
June 17 – Bloomberg (Ania Nussbaum, Ewa Krukowska and Jorge Valero): “France’s political turmoil is causing concern in some European Union capitals that initiatives like joint military spending and a fresh push to support Ukraine could fall by the wayside. Doubts are growing over beefing up EU defense outlays through collective financing — an idea that President Emmanuel Macron backs strongly, according to people familiar with the matter. There’s also a fear that the snap legislative elections he called this month will undermine his role as one of Kyiv’s top cheerleaders, including his plan to dispatch army trainers to Ukraine.”
June 18 – Bloomberg (Daisuke Sakai): “Two Japanese institutional investors with holdings of French government bonds said they’re unlikely to buy more of the debt for now despite its cheapness, citing concern that political turmoil will trigger further declines”
Taiwan Watch:
June 18 – Reuters (Ben Blanchard and Faith Hung): “Only military strength can keep the peace with China and the Taiwanese people will not give in to Chinese coercion, Taiwan President Lai Ching-te said… as the United States agreed on a speeded-up arms package… Lai said Taiwan's people ‘love peace’. ‘But peace must rely on strength, which is to say avoiding war by preparing for war to achieve peace. Empty promises are not true peace,’ he said. China's national policy is to annex Taiwan, Lai added. ‘Apart from using force, in recent years they have even been using non-traditional coercive measures to force Taiwan to succumb but Taiwan will not give in,’ he said.”
June 16 – Financial Times (Kathrin Hille): “Taiwan’s president Lai Ching-te has implored the country’s armed forces to shake off its legacy as the army of the Chinese Nationalist party and urgently focus on its mission of defending against an unprecedented threat from China. Lai addressed instructors, cadets and veterans of the country’s top military school at a celebration of its founding as Whampoa Military Academy in China 100 years ago. ‘All instructors and cadets should understand the challenges and mission of the new era… The biggest challenge is to face the strong rise of China, which is destroying the status quo across the Taiwan Strait and viewing the annexation of Taiwan and the elimination of the Republic of China as its national cause.”
June 16 – Reuters (Ben Blanchard and Ann Wang): “China views the annexation and ‘elimination’ of Taiwan as its great national cause, Taiwan President Lai Ching-te said on Sunday, telling cadets at the military's premier academy they must know their enemy and not give in to defeatism. Lai has faced sustained personal attacks from China, which views Taiwan as its own territory, since assuming office last month, with Beijing calling him a ‘separatist’… Lai said today's cadets must recognise the challenges of the ‘new era’.”
June 21 – Financial Times (Kathrin Hille): “China has officially defined behaviour aimed at Taiwan independence as a criminal act, threatening punishments up to the death penalty for perpetrators, in a move that analysts said would further inflame tensions across the Strait. The Supreme People’s Court, the Supreme People’s Procuratorate, the ministries for public security and state security and the justice ministry jointly announced on Friday ‘guidelines for punishing ‘Taiwan independence’ diehard separatists for committing crimes of secession and the incitement of secession’. The new rules lay out the general definition of the crimes, and the standards for punishment on the basis of existing law such as China’s criminal code, its Criminal Procedure Law and the 2005 Anti-Secession Law aimed at Taiwan, state news agency Xinhua said.”
Market Instability Watch:
June 17 – Bloomberg (Natalia Kniazhevich): “Wall Street strategists are rushing to raise their targets for the S&P 500 Index, but hedge funds are growing increasingly cautious about equities due to the Federal Reserve’s reluctance to cut interest rates, softer economic data and narrow stock market breadth. Hedge funds decreased their long-short gross leverage, which measures their overall exposure to the market, by the most since March 2022, according to a note from Goldman Sachs...”
June 19 – Financial Times (Martin Arnold): “Eurozone countries are facing ‘significant fiscal burdens’ from ageing populations, extra defence spending and climate change, making it more urgent that they cut their high debt levels, the European Central Bank has warned. Officials at the central bank estimate Eurozone countries have to reduce their budget deficits by an average of 5 percentage points of GDP, which would require savings or extra revenue of €720bn at current output levels. The ECB’s assessment of the budgetary challenges confronting the 20 members of the single currency bloc came as the European Commission reprimanded France and six other countries for breaching EU fiscal rules, increasing investor anxiety about the sustainability of public finances.”
June 16 – Bloomberg (Naomi Tajitsu, Greg Ritchie, and Philip Aldrick): “The specter of the UK’s epic market meltdown two years ago is looming large over politicians as Britain prepares to go to the polls on July 4. The fear of so-called bond vigilantes… is coloring almost all discussion of Britain’s finances on the campaign trail. From Keir Starmer’s repeated references to the turmoil precipitated by Liz Truss’s unfunded tax cuts, to Rishi Sunak’s push to brand his opponent as an irresponsible tax-and-spender, debt is a near-constant talking point. Markets appear to be listening.”
AI Bubble Watch:
June 19 – Wall Street Journal (Asa Fitch): “Nvidia became the world’s most valuable listed company Tuesday thanks to the demand for its artificial-intelligence chips, leading a tech boom that brings back memories from around the start of this century. Nvidia’s chips have been the workhorses of the AI boom, essential tools in the creation of sophisticated AI systems that have captured the public’s imagination… The last time a big provider of computing infrastructure was the most valuable U.S. company was in March 2000, when networking-equipment company Cisco took that spot at the height of the dot-com boom. Cisco was riding the wave of a different revolution—the internet—where its products powered that budding industry. Like Nvidia, Cisco also surpassed Microsoft to become the most valuable company.”
June 21 – Bloomberg (Sagarika Jaisinghani): “The ongoing artificial intelligence frenzy that briefly made Nvidia Corp. the world’s most valuable company this week also drove record inflows into tech funds, said Bank of America Corp. strategists. About $8.7 billion flowed into tech funds in the week through June 19, according to a note from the bank citing EPFR Global data. ‘The ‘all roads lead to Nvidia’ trade is once again bolstered’ as Europe falters amid the political turmoil in France, strategist Michael Hartnett said.”
June 18 – Bloomberg (Jeran Wittenstein): “Nvidia Corp. insiders have sold shares worth more than $700 million this year as the stock continues to push deeper into record territory amid unrelenting demand for its chips. Executives and directors have unloaded about 770,000 Nvidia shares so far, excluding the effect of the company’s 10-for-1 stock split on June 10 for the sake of comparison. That’s the most in a half year period since the first six months of 2023 when about 848,000 shares were sold…”
Bubble and Mania Watch:
June 20 – Bloomberg (Alexandra Semenova): “The economy is growing, lower interest rates are on the horizon, artificial intelligence technology is set to create a utopia of corporate efficiency, and nothing can stop the soaring stock market. After being burned last year by doom-and-gloom calls that failed to materialize, equities strategists can’t turn bullish fast enough, making bears a rarity as the S&P 500 Index keeps setting new records… ‘It’s not just the excessive valuation,’ said David Rosenberg, founder and president of Rosenberg Research. ‘It’s the market sentiment, the complacency, the extraordinary popular delusions of maddening crowds.’”
June 17 – Bloomberg (Sonali Basak and John Sage): “Private equity investors are clamoring for their payouts. A risky approach to meeting their demands is setting records — and getting more popular. Dividend recapitalizations, where owners of lower-rated companies raise debt in the firm’s name to hand cash to investors, have soared in the first half of 2024. Some $30.2 billion of leveraged loans to pay for these checks have been sold so far this year, according to PitchBook…, matching the amount in 2021, which was the most in at least a decade.”
Global Banking Watch:
June 18 – Bloomberg (Taiga Uranaka): “Norinchukin Bank will consider investing in a range of assets as it braces for massive losses on the sale of roughly 10 trillion yen ($63bn) in US and European sovereign bonds. Japan’s biggest agricultural bank will dispose of the foreign bonds gradually during the fiscal year ending March, a company spokesman said in an email. It expects a net loss of 1.5 trillion yen for the year, triple the previous estimate of 500 billion yen. Collateralized loan obligations are an investment option, the spokesman said... It will also look at investing in domestic and overseas bonds, stocks and project financing. Its unrealized losses have been reflected in its capital ratio and won’t affect the bank’s soundness, the spokesman added. With an investment portfolio equivalent to $357 billion, Norinchukin is one of the largest Japanese investors in international financial markets.”
U.S./Russia/China/Europe Watch:
June 18 – Financial Times (Toru Tsunashima, Chris Cook, Max Seddon and Chloe Cornish): “Russia is scouring China for second-hand machine tools using shadowy networks of buyers, as the Kremlin races to secure vital equipment to increase arms production. Moscow’s covert strategy for obtaining precision machinery, uncovered by researchers, attempts to sidestep increasingly restrictive western sanctions and export controls… The operations, run through networks of opaque companies, tap a stock of older high-end machine tools made by western companies that remain in China after decades of sales to local factories.”
De-globalization and Iron Curtain Watch:
June 21 – Reuters (Joe Cash and Maria Martinez): “Beijing warned on Friday that escalating frictions with the European Union over electric vehicle imports could trigger a trade war, as Germany's economy minister arrived in the Chinese capital with the proposed tariffs high on his agenda. Robert Habeck's three-day trip to China is the first by a senior European official since Brussels proposed hefty duties on imports of Chinese-made electric vehicles to combat excessive subsidies. That has unleashed countermeasures by China and harsh criticism from Chinese leaders.”
June 17 – Reuters (Joe Cash): “China has opened an anti-dumping investigation into imported pork and its by-products from the European Union, a step that appears mainly aimed at Spain, the Netherlands and Denmark, in response to curbs on its electric vehicle exports. The investigation announced by China's commerce ministry… will focus on pork intended for human consumption, such as fresh, cold and frozen whole cuts, as well as pig intestines, bladders and stomachs. The probe will begin on June 17.”
June 20 – Bloomberg (Philip J. Heijmans): “As Russian President Vladimir Putin and Chinese Premier Li Qiang wrapped up separate meetings in Southeast Asia this week, the two partners in the BRICS economic bloc encountered a region keen to join a group seen as a hedge against Western-led institutions… For countries seeking to mitigate the economic risks of intensifying US-China competition, joining BRICS is an attempt to straddle some of those tensions. In Southeast Asia, many nations depend economically on trade with China while also simultaneously welcoming the security presence and investment Washington provides.”
June 20 – Reuters (Sakura Murakami): “Japan imposed trade restrictions on China-based companies as part of a fresh round of sanctions against individuals and groups supporting Russia's war on Ukraine, the foreign ministry said… The new sanctions also target firms in India, Kazakhstan, and Uzbekistan. It marks the first time Japan has imposed sanctions on China-based firms in connection with the war in Ukraine, according to Japan's foreign ministry.”
June 21 – Bloomberg (Brian Platt): “Prime Minister Justin Trudeau’s government is preparing potential new tariffs on Chinese-made electric vehicles to align Canada with actions taken by the US and European Union, according to people familiar... The government still has to make final decisions on how to proceed, but it’s likely to announce soon the start of public consultations on tariffs that would hit Chinese exports of EVs into Canada…”
Inflation Watch:
June 18 – Yahoo Finance (Rick Newman): “Inflation is abating, and many economists think prices for most things will settle back into normal ranges within a year or so. But America’s 86 million homeowners face a new form of sticker shock likely to get worse, not better: rising insurance costs largely caused by climate change. Americans who live in well-known hurricane, tornado, flood, or wildfire zones have long borne the risks of natural disasters. But severe weather risk… is now spreading to parts of the country that have never had to deal with them before. ‘We used to have billion-dollar hurricanes,’ said Bob Bunting, CEO of the Climate Adaptation Center… ‘Now we have billion-dollar thunderstorms. There are increased disruptions everywhere, and the general nature of insurance is it’s getting more expensive.’ He added, ‘There is nowhere to hide from this.’”
June 18 – Wall Street Journal (Will Parker): “Apartment dwellers got a break recently when rent growth slowed and fell in parts of the country following years of steep increases. That relief appears to be ending. Rents in several Northeast and Midwest cities, such as Kansas City, Mo., and Washington, D.C., are rising this year. While asking rents for new leases nationally are running nearly flat over the past 12 months, those figures are heavily influenced by the Sunbelt, where record-high supply has turned rent growth negative in some cities… The least affordable home-sales market in decades is compelling more renters to stay put. Large apartment owners say fewer renters are moving out to buy homes than ever before…”
June 17 – Wall Street Journal (Nicole Friedman): “Board members of the Highland Park Community Association in Mission Viejo, Calif., braced last year for a rise in insurance costs. Yet they were still shocked to receive a quote for over $170,000, which was more than four times what the association paid in 2022. Another 12 insurers declined to offer quotes, because wildfire risk has made insurers less willing to do business in California. The new policy provides up to $70.9 million in property coverage to this community of 208 townhomes and condominiums. But in the case of wildfire damage, the maximum coverage would be $2 million, said Mark Speros, the board’s president. ‘It was like a bombshell,’ he said. The board raised residents’ dues by 20%, the most the association allows per year, to $474 a month.”
June 20 – Bloomberg (Brendan Murray): “The spot rate for shipping goods in containers to Europe from Asia rose for a ninth straight week, the longest stretch of rising prices since the pandemic disrupted global supply chains in 2021. The rate for a 40-foot container to Genoa, Italy, from China hit $7,029 over the past week, the highest level since September 2022, according to the Drewry World Container Index... The cost to Rotterdam increased to $6,867. Both rates have essentially doubled since April. For the busy trade route from Shanghai to Los Angeles, the rate rose for a seventh straight week, to $6,441.”
Federal Reserve Watch:
June 18 – Reuters (Lindsay Dunsmuir): “The U.S. central bank should only start to cut interest rates after ‘months, and more likely quarters’ of falling inflation, moderating demand and expanding supply, St. Louis Federal Reserve President Alberto Musalem said…, in his first public comments… since becoming head of the regional Fed bank. ‘I will need to observe a period of favorable inflation, moderating demand and expanding supply before becoming confident that a reduction in the target range for the federal funds rate is appropriate. These conditions could take months, and more likely quarters to play out,’ Musalem told the CFA Society St. Louis.”
June 20 – Bloomberg (Craig Torres): “Federal Reserve Bank of Richmond President Thomas Barkin said he needs further clarity on the path of inflation before lowering interest rates. ‘My personal view is let’s get more conviction before moving,’ Barkin said… When asked if the Fed could do one rate cut and hold at that level, Barkin said it depends on the economy. If current conditions hold, he said it may not be the best time to give guidance on timing about subsequent policy adjustments. ‘There are times where we will want to give forward guidance and have given forward guidance… This doesn’t feel like one of those times to me. It doesn’t feel like a forward guidance time.’”
June 16 – Reuters (Ann Saphir): “Minneapolis Federal Reserve President Neel Kashkari… said it's a ‘reasonable prediction’ that the U.S. central bank will cut interest rates once this year, waiting until December to do it. ‘We need to see more evidence to convince us that inflation is well on our way back down to 2%,’ Kashkari said…”
June 18 – Bloomberg (Christopher Condon): “Federal Reserve Bank of Boston President Susan Collins said the US central bank should be patient as it considers when to lower interest rates, despite recent encouraging data on inflation. ‘It is too soon to determine whether inflation is durably on a path back to the 2% target,’ Collins said... ‘We should not overreact to a month or two of promising news.’ ‘The appropriate approach to monetary policy continues to require patience,’ she added…”
U.S. Economic Bubble Watch:
June 18 – Reuters (David Lawder): “The U.S. budget deficit will jump to $1.915 trillion for fiscal 2024, topping last year's $1.695 trillion gap as the largest outside the COVID-19 era, the Congressional Budget Office said…, citing increased spending for a 27% increase over its previous forecast. The CBO said in an update to its budget outlook that higher outlays for student loan relief, Medicaid healthcare for the poor, higher Federal Deposit Insurance Corp costs to resolve bank failures and U.S. aid to Ukraine and Israel make up the bulk of a $408 billion increase in this year's projected deficit since February, when it forecast a $1.507 trillion deficit.”
June 18 – New York Times (Alan Rappeport): “The United States is on a pace to add trillions of dollars to its national debt over the next decade, borrowing money more quickly than previously expected, at a time when big legislative fights loom over taxes and spending. The Congressional Budget Office said… that the U.S. national debt is poised to top $56 trillion by 2034, as rising spending and interest expenses outpace tax revenues. The mounting costs of Social Security and Medicare continue to weigh on the nation’s finances, along with rising interest rates, which have made it more costly for the federal government to borrow huge sums of money. As a result, the United States is expected to continue running large budget deficits… Over the next 10 years, the annual deficit is projected to swell to $2.9 trillion. As a share of the economy, debt held by the public in 2034 will be 122% of gross domestic product, up from 99% in 2024.”
June 18 – Bloomberg (Josh Schafer): “Retail sales increased at a slower-than-expected pace in May as high interest rates and inflation continued to weigh on consumers. Retail sales increased 0.1%, less than the 0.3% economists had expected. In April, retail sales ticked down 0.2%... Excluding autos and gas, retail sales increased 0.1%, below estimates for a 0.4% increase but above the 0.3% decline in April. Within the report, gasoline stations led the declines, falling 2.2% from the month prior.”
June 20 – Reuters (Lucia Mutikani, Lindsay Dunsmuir and Dan Burns): “Fewer Americans enrolled for first-time unemployment benefits last week…, though the latest data showed the number of people on benefits rolls overall was the highest since January, a sign that the U.S. job market continues to cool… Initial claims for state unemployment benefits declined 5,000 to a seasonally adjusted 238,000 for the week ended June 15…”
June 20 – Bloomberg (Reid Champlin): “Mortgage rates in the US dropped for a third consecutive week, falling to the lowest level since early April. The average for a 30-year, fixed loan was 6.87%, down from 6.95% last week, Freddie Mac said… While the string of recent declines helps ease some of the pressure on homebuyers, many remain on the sidelines.”
June 20 – Bloomberg (Michael Sasso): “New home construction in the US slumped in May to the slowest pace in four years, as higher-for-longer interest rates sap the housing industry’s momentum from earlier this year. Housing starts decreased 5.5% to a 1.28 million annualized rate last month… Building permits… fell 3.8% to a 1.39 million annual rate, also the weakest since June 2020. The declines in starts and permits were broad across multifamily and single-family units. Authorized permits for single-family homes dropped for a fourth straight month to the slowest pace in a year.”
June 19 – Yahoo Finance (Rebecca Chen): “Real estate prices surged nationwide when the pandemic hit. Bidding wars, all-cash offers, and contingency removals became commonplace. Now, the tide has turned in some markets. Home prices in some large US cities declined in April, according to global mortgage data and technology provider Intercontinental Exchange (ICE). San Antonio and Austin in Texas, and Tampa, Florida — among the most popular cities during the pandemic — saw the biggest monthly price declines… ‘The key differentiator we're seeing in terms of growing inventory levels in Florida and Texas is a rise in sellers' willingness to list their homes for sale,’ said Andy Walden, vice president of enterprise research strategy at ICE Mortgage. Nine major US markets have seen new listings exceed pre-pandemic averages, he said, and eight of those are in Texas or Florida.”
June 20 – CNBC (Charlotte Morabito): “Buy now, pay later options are becoming more accessible to consumers. A quarter of Americans surveyed in April 2024 said they used buy now, pay later services in the past 12 months, according to… NerdWallet. The number of buy now, pay later loans increased nearly 1,100% between 2019 and 2021, according to… the Consumer Financial Protection Bureau. The rapid growth has some analysts concerned because where there are loans, there is debt — but exactly how much debt is still unclear. A December 2023 report from Wells Fargo concluded that the ‘Buy Now, Pay Later market may be small now, but if we don’t know how fast it’s growing, it logically follows that we simply cannot know when it will be a problem.’ ‘We’ve often referred to this as phantom debt, where it’s sort of flying under the radar and not really something that anybody has a good grasp on,’ Shannon Grein, one of the authors of the December note, told CNBC.”
June 16 – Financial Times (Patrick Temple-West): “US bosses’ pay is increasing at the fastest rate for at least 14 years, according to figures that critics say illustrate how ballooning reward packages such as Elon Musk’s risk exacerbating social inequality. In 2024, median chief executive pay at S&P 500 companies has risen by 12%, according to ISS Corporate… That compares with a 4.1% year-on-year increase in US wage growth... Musk this week secured an emphatic victory in a shareholder vote on his $56bn package of stock options — the largest in US history.”
China Watch:
June 20 – Bloomberg: “It started with a cryptic quote from President Xi Jinping buried in a 172-page book on the financial sector. Three months later, plans for potentially the biggest shift in years in how China conducts monetary policy are starting to surface. Pan Gongsheng, governor of the People’s Bank of China, …gave the clearest acknowledgment that the monetary authority is looking into trading government bonds in the secondary market as a way to regulate liquidity. The PBOC is studying the implementation with the finance ministry and it will be a gradual process, he said in a speech. That responds to Xi’s directive to ‘enrich the monetary policy toolbox’ and ‘gradually increase government bond buying and selling in central bank open market operation’ in a speech during a financial policy meeting last year, made public only in the book published in March.”
June 20 – Wall Street Journal: “A speech by China’s central bank chief signals that it is looking to update its monetary tool kit with potential changes that economists say herald a major policy revamp, bringing it closer to practices adopted by its western peers. Pan Gongsheng, governor of the People’s Bank of China, said… the monetary authority might restart trading Treasury bonds in secondary markets, a policy shift that could rewrite the way Beijing manages liquidity. Over the past decade, the PBOC has mainly relied on various lending facilities and cuts to banks’ reserve requirements to ease monetary settings… Apart from bond trading, Pan also hinted at simplifying China’s current policy rates to allow a single short-term rate to play a bigger role in guiding banks.”
June 19 – Financial Times (Thomas Hale and Cheng Leng): “China’s central bank chief has warned markets to expect weaker credit growth, in a speech that highlighted the impact of a prolonged property slowdown on the world’s second-largest economy. Pan Gongsheng, governor of the People’s Bank of China, told a major financial forum… that real estate and local government financing vehicles account for a large share of China’s Rmb250tn ($34.5tn) of bank lending. ‘Not only is this area no longer growing, but it is actually declining,’ he said. ‘It is natural that the growth rate of credit has declined alongside a shift from high-speed to ‘high-quality development’,’ he told the Lujiazui Forum, referencing the high volume of existing lending. ‘Many loans in China are not efficient,’ he added.”
June 19 – Bloomberg: “China’s central bank chief hinted at a blueprint for a new toolkit that could open the door to its biggest policy overhaul in years, as officials try to bolster growth in the world’s No.2 economy. Pan Gongsheng, governor of the People’s Bank of China, gave the clearest signal yet that the authority may start trading government bonds in the secondary market… That shift has the potential to rewire how the central bank injects money into the economy and regulate liquidity.”
June 18 – Bloomberg: “China should shake off its ‘taboo’ regarding quantitative easing… and recognize that it may be necessary in the interest of stoking economic growth, a former People’s Bank of China adviser said. Chinese policymakers have long rejected QE, which was used by most advanced economy central banks as a stimulus tool after they had lowered interest rates toward zero. It’s sometimes been associated with stagnant economic growth and excessive public debt, and by some critics as evidence of Western economies’ decline. ‘China doesn’t have to embark on massive QE just yet,’ Yu Yongding, who sat on the PBOC’s monetary policy committee between 2004 and 2006, wrote… ‘But it’s necessary we shake off the thinking that QE is a taboo first so that we can launch it immediately when needed.’”
June 16 – Bloomberg: “China’s home prices fell at a faster pace in May… New-home prices in 70 cities… slid 0.71% from April, the most since October 2014… Values of existing homes dropped 1%, the sharpest decline since at least 2011 when China started using the current data collection method… Price declines also deepened from a year earlier. New-home prices slid 4.3% and used-home values tumbled 7.5%...”
June 16 – Reuters (Ella Cao, Liangping Gao and Ryan Woo): “Property investment in China fell 10.1% in the first five months of 2024 from a year earlier, after dropping 9.8% in January-April, even as policymakers doubled down on efforts to support the ailing sector and shore up consumer confidence. Property sales by floor area in January-May fell 20.3% from a year earlier, compared with a 20.2% slump in January-April… New construction starts measured by floor area fell 24.2% on year, after a 24.6% drop in the first four months. Funds raised by China's property developers were down 24.3% from a year earlier after a 24.9% fall in January-April.”
June 17 – Reuters (Liangping Gao and Marius Zaharia): “China's latest property support measures have boosted transactions in its biggest cities, but activity in smaller localities is struggling to get off the ground, pointing to more pain ahead for most of the country's real estate market. On May 17, China cut minimum mortgage rates and downpayments and instructed municipalities to buy unsold apartments to turn them into social housing, sparking dozens of announcements from cities easing policies under the new guidelines. Small samples of transactions data and interviews with 10 real estate agents across China show the measures had an uneven impact throughout the country…”
June 20 – Bloomberg (Pearl Liu and Dorothy Ma): “Four defaulted Chinese developers are headed into Hong Kong court hearings on liquidation demands next week, marking one of the busiest such stretches ever for the sector. The focus is on Kaisa Group Holdings Ltd., once a symbol of the boom years in China’s credit markets, which has its hearing Monday. That’s followed on Wednesday by Shimao Group Holdings Ltd., whose landmark projects include five-star hotels in Shanghai. The companies must show they have made progress in restructuring their debt, or run the risk of judges ordering their assets to be sold off to repay creditors.”
June 21 – Bloomberg: “Two global credit ratings firms lowered their forecasts for China’s property market, as an accelerating slump in home prices hampers the country’s efforts to rescue the sector. S&P Global Ratings now expects residential sales to drop 15% this year, more than the 5% decline it projected earlier. That will put sales below 10 trillion yuan ($1.4 trillion), around half the peak in 2021… Fitch Ratings… cut its annual sales estimate to a decrease of 15%-20%, worse than an earlier estimate of a 5%-10% drop. The ratings firms’ bleaker outlook suggests they have little confidence that recent stimulus measures will end the property slump…”
June 21 – Bloomberg: “China’s electric vehicle industry received at least $231 billion in government subsidies and aid from 2009 through to the end of last year, even as the amount of support per vehicle has declined, according to a new research. Slightly more than half the total amount of support was in the form of sales tax exemptions, according to the research from Scott Kennedy, a China specialist at the Center for Strategic and International Studies. The rest is made up of nationally approved buyer rebates, government funding for infrastructure such as charging stations, government procurement of EVs as well as R&D support programs…”'
June 18 – Reuters: “The task of controlling floods in China is becoming increasingly arduous, President Xi Jinping said on Tuesday, calling for all-out efforts to safeguard lives and property as powerful storms pounded provinces from the interior to the eastern coast. About a dozen people have been reported killed in floods or rain-induced mudslides in recent days with the annual flooding season in southern Chinese provinces in full swing.”
Central Bank Watch:
June 20 – Bloomberg (Tom Rees): “The Bank of England breathed fresh life into hopes for an imminent cut in interest rates, hinting that more of its officials may be close to backing a pivot away from the highest borrowing costs in 16 years. Investors priced in more than a 50% chance of a move in August… The UK central bank left the key rate on hold at 5.25%..., but said the decision not to ease was ‘finely balanced’ for some of the nine members on the Monetary Policy Committee. Governor Andrew Bailey said it was ‘good news’ that inflation fell back to its 2% target for the first time in almost three years but that officials wanted to be sure that pressure on prices is subdued before acting.”
June 19 – Reuters (John Revill): “The Swiss National Bank cut interest rates… for the second time running, pointing to easing price pressures that allowed it to maintain its position as a front-runner in the global policy easing cycle now underway. The Swiss franc weakened against other currencies and stocks gained after the central bank cut its policy rate by 25 bps to 1.25%, as expected…, following a quarter-point reduction in March… ‘The underlying inflationary pressure has decreased again compared to the previous quarter,’ SNB Chairman Thomas Jordan said. ‘With today's lowering of the SNB policy rate, we are able to maintain appropriate monetary conditions.’”
Europe Watch:
June 21 – Reuters (Jonathan Cable): “Euro zone business growth slowed sharply this month as demand fell for the first time since February, a survey found, with the bloc's services industry showing some signs of weakening while the downturn in manufacturing took a turn for the worse… HCOB's preliminary composite Purchasing Managers' Index, compiled by S&P Global, sank to 50.8 this month from May's 52.2, confounding expectations in a Reuters poll for a rise to 52.5.”
June 19 – Reuters (Sachin Ravikumar and Kylie Maclellan): “Three opinion polls on Wednesday predicted a record defeat for British Prime Minister Rishi Sunak's Conservatives at a July 4 election, forecasting the Labour Party would comfortably win a large majority after 14 years in opposition. Polling by YouGov showed Keir Starmer's Labour was on track to win 425 parliamentary seats in Britain's 650-strong House of Commons, the most in its history. Savanta predicted 516 seats for Labour and More in Common gave it 406. YouGov had the Conservatives on 108 and the Liberal Democrats on 67, while Savanta predicted the Conservatives would take 53 parliamentary seats and the Liberal Democrats 50. More in Common forecast 155 and 49 seats respectively.”
June 16 – Reuters (David Milliken): “Three British opinion polls released late on Saturday presented a grim picture for Prime Minister Rishi Sunak's Conservative Party, and one pollster warned that the party faced ‘electoral extinction’ in July 4's election. The polls come just over halfway through the election campaign, after a week in which both the Conservatives and Labour set out their manifestos, and shortly before voters begin to receive postal ballots.”
June 21 – Bloomberg (Reed Landberg): “Britain’s private sector companies reported slower growth and stronger pressures to increase prices in the lead up to the general election, a closely watched industry survey showed. S&P Global’s composite Purchasing Managers’ Index slipped to 51.7 in June from 53 the month before, the lowest reading since November… The report also showed inflationary pressures, driven by a jump in wages and rising prices for goods.”
June 17 – Financial Times (Martin Arnold): “Germany’s largest industrial union is gearing up for a battle over pay in the country’s manufacturing heartlands after it called for a 7% wage rise for millions of electrical and metal workers. IG Metall said… its board recommended negotiators seek the pay rise for a 12-month period for 3.9mn workers in the sector, which is the backbone of Germany’s wider economy and a bellwether for wage agreements in other sectors.”
June 19 – Reuters (Tom Sims): “Hundreds of thousands of bank employees in Europe's largest economy are fighting for pay increases of up to 16% to cope with rising living costs and unions are warning of possible strikes. Pay negotiations for Germany's public and private bank employees follow a spike in costs that has hit ordinary workers hard, while the banks have benefited from the higher interest rates imposed to combat inflation.”
Japan Watch:
June 17 – Bloomberg (Toru Fujioka and Yoshiaki Nohara): “Bank of Japan Governor Kazuo Ueda kept the door open to a possible interest rate increase in July, defying market skepticism over the potential for such action after the bank said it would take another big step toward quantitative tightening next month via a cut in its bond buying. ‘The reduction of bond buying and a policy rate hike are separate issues,’ Ueda said… ‘There is a good chance for the policy rate to be raised, depending on data and information over the economy, inflation and financial conditions.’”
June 18 – Bloomberg (Toru Fujioka): “Bank of Japan board members discussed the possibility of pursuing a faster pace of policy normalization amid ongoing risks that the weak yen’s effect on inflation might force a response by the bank, according to minutes from the April policy meeting. ‘Some members pointed out that exchange rates were one of the important factors affecting economic activity and prices, and that monetary policy responses would be necessary’ if currencies affect the inflation outlook, including spurring upside risks, according to the minutes…”
June 16 – Reuters (Leika Kihara and Takahiko Wada): “The Bank of Japan is likely to trim bond buying by around 24 trillion yen ($152bn) annually in new guidance due next month, but forgo raising interest rates at least until September, former board member Makoto Sakurai said… At its policy meeting on Friday, the BOJ decided to start trimming its huge bond purchases and announce a detailed plan in July on reducing its nearly $5 trillion balance sheet, taking another step toward unwinding its massive monetary stimulus.”
June 20 – Bloomberg (Erica Yokoyama): “Japan’s inflation accelerated on the back of rising energy costs, a result that backs the case for the central bank to consider raising interest rates in coming months. Consumer prices excluding fresh food rose 2.5% in May from a year ago, quickening from 2.2% in April…”
Emerging Market Watch:
June 18 – Reuters (Tanvi Mehta): “Peak demand for power in India's hot, arid northern plains hit a record on Monday, the government said as it continues to implement measures to meet high energy consumption, although the weeks' long heatwave is forecast to abate soon. The India Meteorological Department (IMD) has predicted above-normal temperatures for June in the northwest and central parts of the country, making it one of the longest heatwave spells.”
Leveraged Speculation Watch:
June 17 – Reuters (Nell Mackenzie and Anousha Sakoui): “Hedge fund managers making bets on mergers and acquisitions outperformed those deploying other strategies with a return of 7.7% in the first five months of 2024, Goldman Sachs said…, as deal-making rebounded… Worldwide M&A was worth $1.3 trillion during the first five months of 2024, a 23% increase versus the same period of 2023, but below the $1.8 trillion recorded in January-May 2022, according to LSEG data.”
June 21 – Bloomberg (Nishant Kumar): “Millennium Management is planning to raise new cash equivalent to about 10% of its $68 billion in assets as the multistrategy hedge fund giant looks to bolster its ability to access capital when needed. The New York-based investment firm is in talks with investors to get their commitments in a so-called draw-down fund that will allow Millennium to call the cash at will…”
June 20 – Bloomberg (Anya Andrianova and VinÃcius Andrade): “The South African rand is emerging as the new favorite bet against the low-yielder Japanese yen, stealing the spotlight from the Mexican peso for the lucrative carry trade, according to Jefferies... The rand’s appeal grew in the wake of a May 29 election that reassured investors of a more business-friendly approach. By contrast, there has been a lack of clarity on policies from Claudia Sheinbaum, who won the vote in Mexico on June 2 to become the country’s first female president-elect.”
Social, Political, Environmental, Cybersecurity Instability Watch:
June 20 – Axios (Rebecca Falconer): “An intensifying heat wave that's striking the Midwest to the Northeast has seen multiple new maximum temperature records set or tied this week, with more to come… Officials in several states have activated emergency operations and opened cooling centers in response to the lingering heat dome that left over 100 million people under heat alerts… New York Gov. Kathy Hochul has activated emergency operations that are in effect through Friday for parts of the state impacted by the heat dome and Boston Mayor Michelle Wu declared a heat emergency that's effective through Thursday… Southern New England saw multiple daily temperature records set, including in Boston, which hit 98°F on Wednesday.”
June 21 – Bloomberg (Kara Carlson, Evan Gorelick and Jake Bleiberg): “A dealership in Phoenix is handwriting paper contracts and gauging creditworthiness with guesswork. A Jeep owner in Alabama keeps calling about when a replacement part will be in stock. A family in New Jersey is waiting for word on when they can take delivery of their new Audi. Such is life for auto retailers and their customers across the US and Canada after CDK Global — a software provider to some 15,000 dealers — was waylaid by debilitating cyberattacks. The barrage began June 19, costing US dealers a burst of business on a federal holiday. CDK has warned that a second incident Thursday is likely to keep its systems down for several more days. The attacks have had a crippling effect on an industry that topped $1.2 trillion in sales last year just in the US.”
June 19 – Reuters (Robert Harvey): “Global fossil fuel consumption and energy emissions hit all-time highs in 2023, even as fossil fuels' share of the global energy mix decreased slightly on the year, the industry's Statistical Review of World Energy report said… Growing demand for fossil fuel despite the scaling up of renewables could be a sticking point for the transition to lower carbon energy as global temperature increases reach 1.5C (2.7F), the threshold beyond which scientists say impacts such as temperature rise, drought and flooding will become more extreme.”
June 21 – Reuters (Aleksandar Vasovic, Daria Sito-Sucic, Stevo Vasiljevic and Fatos Bytyci): “A major power outage hit Montenegro, Bosnia, Albania and most of Croatia's coast on Friday, disrupting businesses, shutting down traffic lights and leaving people sweltering without air conditioning in the middle of a heatwave. Montenegro's energy minister said the shutdown had been caused by a sudden increase in power consumption brought on by high temperatures, and by the heat itself. Power distribution systems are linked across the Balkans for transfers and trading.”
June 19 – Bloomberg (Stephan Kueffner): “A blackout hit the whole of Ecuador on Wednesday, leaving the nation of 18 million without power. Energy Minister Roberto Luque blamed the massive outage on a incident with a transmission line in southern Ecuador which triggered a ‘cascading disconnection.’ The blackout was the first of its kind in 20 years and ‘shows how fragile our system is, and reflects the energy crisis we’re experiencing,’ Luque told reporters…”
June 19 – Bloomberg (Eamon Akil Farhat): “China’s energy use per person surpassed Europe’s for the first time last year as demand from technology and manufacturing industries continued to climb. The country ramped up coal-fired generation, but also added more renewable capacity than the rest of the world combined, according to the Energy Institute’s annual Statistical Review… Chinese consumption is being driven by the expansion of data centers, 5G infrastructure and car charging, while many factories are also running at full tilt to meet demand for goods overseas.”
Geopolitical Watch:
June 20 – Financial Times (Song Jung-a and Kana Inagaki): “Japan and South Korea have sounded the alarm over deepening military collaboration between Russia and North Korea after Vladimir Putin and Kim Jong Un signed a far-reaching strategic partnership that included mutual assistance against ‘aggression’. North Korea’s official news agency… released the text of the agreement, which included a pledge to deploy ‘all means at its disposal without delay’ to provide ‘military and other assistance’ in the event that one of the signatories was invaded or in a state of war… South Korea’s foreign ministry… expressed regret over the strategic partnership… and warning that their co-operation on military technology would violate UN Security Council resolutions. ‘We will sternly respond to any act threatening our security with the international community, including our allies, after conducting thorough analysis on [Putin’s] visit to North Korea and their comprehensive strategic partnership agreement,’ the ministry said.”
June 15 – Reuters: “Iran called upon the Group of Seven… to distance itself from ‘destructive policies of the past’, the Iranian Foreign Ministry spokesperson Nasser Kanaani said, referring to a G7 statement condemning Iran's recent nuclear programme escalation. On Friday, the G7 warned Iran against advancing its nuclear enrichment programme and said they would be ready to enforce new measures if Tehran were to transfer ballistic missiles to Russia. ‘Any attempt to link the war in Ukraine to the bilateral cooperation between Iran and Russia is an act with only biased political goals,’ Kanaani said…”
June 20 – Financial Times (Demetri Sevastopulo): “The Philippines has secretly reinforced a dilapidated warship marooned on a South China Sea reef that is central to an increasingly dangerous dispute with Beijing… In recent months, the Philippine military has conducted missions to reinforce the Sierra Madre, which is lodged on the disputed Second Thomas Shoal in the Spratly Islands…. It did so due to rising concern that the rusting ship was in danger of breaking apart. The Philippines ran the Sierra Madre aground in 1999 to help reinforce its claim to the reef, over which China also asserts sovereignty as part of an expansive claim — opposed by its neighbours — over most of the South China Sea.”
June 20 – Wall Street Journal (Niharika Mandhana): “The Chinese coast guard came in small boats with axes, long knives and spears. They used the crude weapons to slash and puncture the Philippine military’s rubber craft. One Chinese boat rammed a Philippine boat at high speed, severing the thumb of a Filipino seaman who was holding on to the side of his ride. During Monday’s frantic events in the South China Sea, the Chinese coast guard crew also boarded a Philippine boat, smashed its outboard motor and communications equipment, and grabbed the Filipino crew’s cellphones. They seized seven disassembled rifles that were packed in cases for delivery to a Philippine outpost, the Philippine military said. ‘Only pirates do this,’ said Gen. Romeo Brawner Jr., the Philippine military’s chief of staff. ‘Only pirates board, steal, and destroy ships, equipment and belongings.’”
June 16 – The Hill (Nick Robertson): “The Chinese nuclear arsenal is expanding and quickly, according to a report from the Stockholm International Peace Research Institute (SIPRI) published this week. The number of operational nuclear warheads globally is increasing every year, the report found, with the most rapidly-increasing stockpile belonging to China. The institute predicted the Chinese arsenal of active intercontinental nuclear missiles could grow to match the American and Russian armaments by 2030.”
June 17 – Reuters (David Ljunggren): “The Canadian Liberal government, criticized by opposition legislators for sending a patrol ship to Havana while Russian vessels were there, on Monday said the visit was meant to send a message of deterrence to Moscow. The Canadian navy patrol ship sailed into the harbor early on Friday, two days after the arrival of a Russian nuclear-powered submarine and a frigate.”
Social, Political, Environmental, Cybersecurity Instability Watch:
June 20 – Axios (Rebecca Falconer): “An intensifying heat wave that's striking the Midwest to the Northeast has seen multiple new maximum temperature records set or tied this week, with more to come… Officials in several states have activated emergency operations and opened cooling centers in response to the lingering heat dome that left over 100 million people under heat alerts… New York Gov. Kathy Hochul has activated emergency operations that are in effect through Friday for parts of the state impacted by the heat dome and Boston Mayor Michelle Wu declared a heat emergency that's effective through Thursday… Southern New England saw multiple daily temperature records set, including in Boston, which hit 98°F on Wednesday.”
June 21 – Bloomberg (Kara Carlson, Evan Gorelick and Jake Bleiberg): “A dealership in Phoenix is handwriting paper contracts and gauging creditworthiness with guesswork. A Jeep owner in Alabama keeps calling about when a replacement part will be in stock. A family in New Jersey is waiting for word on when they can take delivery of their new Audi. Such is life for auto retailers and their customers across the US and Canada after CDK Global — a software provider to some 15,000 dealers — was waylaid by debilitating cyberattacks. The barrage began June 19, costing US dealers a burst of business on a federal holiday. CDK has warned that a second incident Thursday is likely to keep its systems down for several more days. The attacks have had a crippling effect on an industry that topped $1.2 trillion in sales last year just in the US.”
June 19 – Reuters (Robert Harvey): “Global fossil fuel consumption and energy emissions hit all-time highs in 2023, even as fossil fuels' share of the global energy mix decreased slightly on the year, the industry's Statistical Review of World Energy report said… Growing demand for fossil fuel despite the scaling up of renewables could be a sticking point for the transition to lower carbon energy as global temperature increases reach 1.5C (2.7F), the threshold beyond which scientists say impacts such as temperature rise, drought and flooding will become more extreme.”
June 21 – Reuters (Aleksandar Vasovic, Daria Sito-Sucic, Stevo Vasiljevic and Fatos Bytyci): “A major power outage hit Montenegro, Bosnia, Albania and most of Croatia's coast on Friday, disrupting businesses, shutting down traffic lights and leaving people sweltering without air conditioning in the middle of a heatwave. Montenegro's energy minister said the shutdown had been caused by a sudden increase in power consumption brought on by high temperatures, and by the heat itself. Power distribution systems are linked across the Balkans for transfers and trading.”
June 19 – Bloomberg (Stephan Kueffner): “A blackout hit the whole of Ecuador on Wednesday, leaving the nation of 18 million without power. Energy Minister Roberto Luque blamed the massive outage on a incident with a transmission line in southern Ecuador which triggered a ‘cascading disconnection.’ The blackout was the first of its kind in 20 years and ‘shows how fragile our system is, and reflects the energy crisis we’re experiencing,’ Luque told reporters…”
June 19 – Bloomberg (Eamon Akil Farhat): “China’s energy use per person surpassed Europe’s for the first time last year as demand from technology and manufacturing industries continued to climb. The country ramped up coal-fired generation, but also added more renewable capacity than the rest of the world combined, according to the Energy Institute’s annual Statistical Review… Chinese consumption is being driven by the expansion of data centers, 5G infrastructure and car charging, while many factories are also running at full tilt to meet demand for goods overseas.”
Geopolitical Watch:
June 20 – Financial Times (Song Jung-a and Kana Inagaki): “Japan and South Korea have sounded the alarm over deepening military collaboration between Russia and North Korea after Vladimir Putin and Kim Jong Un signed a far-reaching strategic partnership that included mutual assistance against ‘aggression’. North Korea’s official news agency… released the text of the agreement, which included a pledge to deploy ‘all means at its disposal without delay’ to provide ‘military and other assistance’ in the event that one of the signatories was invaded or in a state of war… South Korea’s foreign ministry… expressed regret over the strategic partnership… and warning that their co-operation on military technology would violate UN Security Council resolutions. ‘We will sternly respond to any act threatening our security with the international community, including our allies, after conducting thorough analysis on [Putin’s] visit to North Korea and their comprehensive strategic partnership agreement,’ the ministry said.”
June 15 – Reuters: “Iran called upon the Group of Seven… to distance itself from ‘destructive policies of the past’, the Iranian Foreign Ministry spokesperson Nasser Kanaani said, referring to a G7 statement condemning Iran's recent nuclear programme escalation. On Friday, the G7 warned Iran against advancing its nuclear enrichment programme and said they would be ready to enforce new measures if Tehran were to transfer ballistic missiles to Russia. ‘Any attempt to link the war in Ukraine to the bilateral cooperation between Iran and Russia is an act with only biased political goals,’ Kanaani said…”
June 20 – Financial Times (Demetri Sevastopulo): “The Philippines has secretly reinforced a dilapidated warship marooned on a South China Sea reef that is central to an increasingly dangerous dispute with Beijing… In recent months, the Philippine military has conducted missions to reinforce the Sierra Madre, which is lodged on the disputed Second Thomas Shoal in the Spratly Islands…. It did so due to rising concern that the rusting ship was in danger of breaking apart. The Philippines ran the Sierra Madre aground in 1999 to help reinforce its claim to the reef, over which China also asserts sovereignty as part of an expansive claim — opposed by its neighbours — over most of the South China Sea.”
June 20 – Wall Street Journal (Niharika Mandhana): “The Chinese coast guard came in small boats with axes, long knives and spears. They used the crude weapons to slash and puncture the Philippine military’s rubber craft. One Chinese boat rammed a Philippine boat at high speed, severing the thumb of a Filipino seaman who was holding on to the side of his ride. During Monday’s frantic events in the South China Sea, the Chinese coast guard crew also boarded a Philippine boat, smashed its outboard motor and communications equipment, and grabbed the Filipino crew’s cellphones. They seized seven disassembled rifles that were packed in cases for delivery to a Philippine outpost, the Philippine military said. ‘Only pirates do this,’ said Gen. Romeo Brawner Jr., the Philippine military’s chief of staff. ‘Only pirates board, steal, and destroy ships, equipment and belongings.’”
June 16 – The Hill (Nick Robertson): “The Chinese nuclear arsenal is expanding and quickly, according to a report from the Stockholm International Peace Research Institute (SIPRI) published this week. The number of operational nuclear warheads globally is increasing every year, the report found, with the most rapidly-increasing stockpile belonging to China. The institute predicted the Chinese arsenal of active intercontinental nuclear missiles could grow to match the American and Russian armaments by 2030.”
June 17 – Reuters (David Ljunggren): “The Canadian Liberal government, criticized by opposition legislators for sending a patrol ship to Havana while Russian vessels were there, on Monday said the visit was meant to send a message of deterrence to Moscow. The Canadian navy patrol ship sailed into the harbor early on Friday, two days after the arrival of a Russian nuclear-powered submarine and a frigate.”
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