Money Market Fund Assets (MMFA) rose another $21 billion the past week to a record $6.263 TN, with a notable four-week gain of $128 billion. MMFA expanded $680 billion, or 12.2%, over the past year, with two-year growth of $1.695 TN, or 37%, and a five-year expansion of $2.899 TN, or 86%. One would think such phenomenal growth in a key monetary aggregate would arouse a little analytical curiosity.
A couple decades back, I argued passionately against the conventional view that “only banks create money.” Sure, it is true that only banks create bank deposits. But what about money market fund deposits and other highly liquid short-term holdings, such as repurchase agreements (“repos”)? As they’ve evolved to dominate finance, non-banks have come to issue Trillions of monetary liabilities. I’ve been amazed at how long the antiquated notion of the Fed and banks’ commanding role in system “money” supply expansion has endured.
While that debate has (kind of) been “settled”, the conventional focus on the banking system persists. Bank loan growth is closely monitored as an indication of general demand for Credit. And the economic community still leans on the M2 monetary aggregate, a narrow definition of “money” that excludes institutional money fund assets and a wide range of monetary instruments. It seems economists don’t know how to approach the analysis of money funds, while Wall Street would prefer not to discuss the issue.
The most common view is also the most simplistic. MMFA is seen as “money” on the sideline, waiting for a good opportunity to buy stocks. Rapid growth in money fund deposits suggests excessive risk aversion – conveniently viewed as a bullish contrarian market signal.
There’s a more insightful framework for analyzing money funds. The money market is the key venue for intermediating finance throughout the contemporary non-bank sector (including broker/dealers and hedge funds). In general, money fund assets expand when non-banks issue short-term liabilities – when their new borrowings are financed by the money fund complex.
It may be helpful to think in terms of traditional “fractional reserve banking” and the bank deposit multiplier. Here a bank takes a deposit, withholds a fraction of it (say 20%) as a reserve, and uses the remaining amount (80%) to fund a new loan. This loan creates a new deposit within the banking system, where it (less the 20% reserve) can be lent to a new borrower – creating yet another new deposit.
Throughout history, fractional reserve banking has been at the epicenter of Bubble inflations, boom and bust cycles, and destabilizing bank runs. During the Great Depression, Irving Fisher proposed a full 100% reserve requirement. Milton Friedman in the 1960s was a vocal proponent of fully reserved bank deposits. Some advocates of Austrian Economics have gone much further, arguing that fractional reserve banking is the root cause of instability and tantamount to fraud. Murray Rothbard argued that fractional reserve banking was an inflationary “government-backed shell game” that created “money out of thin air.”
But the expansion of bank deposits was at least somewhat restrained by reserve requirements. With the powerful dynamic of the money markets intermediating non-bank Credit expansion, I began to refer to an “infinite multiplier” effect in the late nineties.To say this analysis was not well received is an understatement. Yet the unrestrained expansion of money market-based Credit was fundamental to the great mortgage finance Bubble inflation. It remains fundamental to the much greater global government finance super Bubble inflation.
In last week’s CBB, I excerpted from Bloomberg Intelligence Brian Meehan’s research report, “Can Historic $1.1 Trillion Net Short Basis Trade Hold or Crack?” Meehan noted that “leveraged net shorts of Treasury futures have surged to a historic $1.1 trillion in notional value, accelerating 38% ($300bn) in the past four months.”
I’ve been doing this for too long to believe in coincidences. Money Market Fund Assets have expanded $285 billion (14.3% annualized) over the past four months (to a record $6.263 TN).
In a “basis trade,” hedge funds borrow in the repo market to take highly levered positions in Treasury bonds, while hedging market risk through the shorting of Treasury futures. The expansion of repo liabilities creates – or “multiplies” – marketplace liquidity. Similar to how a new bank loan creates a new deposit at another institution that can be used for a new loan, when a hedge fund borrows in the repo market to purchase a Treasury bond, the seller now has new liquidity that will be deposited in the money market complex, where it becomes available to fund another levered “basis trade” repo transaction (or other forms of securities finance).
In the nine (mortgage finance Bubble “terminal phase”) quarters Q1 2006 through Q1 2008, the repo market (Z.1 “Federal Funds and Security Repurchase Agreements”) expanded $1.406 TN, or 37%. Over this period, Money Fund Assets inflated $1.416 TN, or 70%. It’s worth noting that Money Fund Assets expanded a blistering $928 billion in the three quarters following the June 2007 subprime mortgage eruption.
The second notable period was the six quarters Q3 2018 through Q1 2020, where the repo market expanded $1.226 TN, or 34%, while Money Market Fund Assets inflated $1.584 TN, or 50%.
Both above periods of explosive repo/MMFA growth foreshadowed major financial crises. Ponder this: was the historic growth in money market assets primarily the consequence of heightened risk aversion, or was it instead fueled by aggressive late-cycle leveraged speculation? A related issue to contemplate: does inevitable “terminal phase” instability and the certainty of an aggressive monetary stimulus response (lower rates and QE) further promote speculative leverage and extend precarious late-cycle excess?
The expansion of repo borrowings and Money Market Fund Assets in 2007 corresponded with the Fed’s special August 2007 liquidity injections and rate cuts that began in earnest the following month. The 2019 expansions corresponded with the July 2019 rate cut and the September restart of QE.
Over the years, I’ve tried to explain the precarious nature of Bubbles fueled by “money.” A Bubble financed with, for example, junk bonds won’t get too carried away before the marketplace protests, “no more junk!” The relatively short-lived Bubble inflated by the expansion of higher risk Credit ensures it won’t impart deep structural maladjustment.
Unlike junk, “money” essentially enjoys insatiable demand. As such, a Bubble fueled by perceived safe and liquid money-like debt instruments, left unchecked, will inflate over many years and leave a legacy of deep systemic distortions and maladjustment.
Fueled by money-like “AAA” GSE-backed mortgage securities, Wall Street repo liabilities, and an interventionist central bank, total mortgage debt doubled in six years of mortgage finance Bubble excess. Deep market distortion and structural maladjustment ensured the so-called “great financial crisis.”
The global government finance Bubble dwarfs all previous Bubbles. Insatiable demand for perceived safe government debt and central bank Credit has allowed this Bubble to inflate for more than 15 years. Years of massive deficit spending ensure deeply systemic economic maladjustment. Endemic deficit spending has inflated incomes and corporate profits, in the process working to inflate historic securities, housing and other asset market Bubbles.
Importantly, Fed monetization (QE), interest-rate manipulation and market intervention have fomented historic market price distortions. Inflationist monetary policy has ensured that government debt has mushroomed without impacting the perception of safety and liquidity (moneyness).
The current Bubble has been inflating for so long that Bubble analysis is easily dismissed. Yet it is important to appreciate that the “basis trade” is the ultimate “Terminal Phase” government finance Bubble manifestation. Only in the perceived safest and most liquid money-like government debt instruments would it be possible to operate at 50 to 100 times leverage. Only after years of recurring Federal Reserve market interventions, open-ended (i.e., $5 TN) liquidity injections and bailouts would speculators attain the confidence level necessary to accumulate egregious amounts of speculative leverage.
And that this Bubble has inflated so massively and systemically gives the levered players – and markets more generally – confidence that the Fed now has no alternative than to react aggressively to quell nascent de-risking/deleveraging instability (explaining why the market on August 5th priced as much as 148bps of rate reduction by year end). The immediate response to the March 2023 banking crisis bolstered the view that the Fed would inflate first and ask questions later. This further emboldened the “too-big-to-fail” levered “basis trade” players.
Global bond yields reversed higher this week. U.S. house price inflation was stronger-than-expected, as was Conference Board Consumer Confidence. Q2 GDP was revised to 3.0% from 2.8%, with Personal Consumption upgraded to 2.9% from 2.2%. July’s 0.5% gain in Personal Spending boosted one-year growth to 5.3%.
“Dovish pivots” and rate cut signaling are dangerous business in an environment of aggressive levered speculation and enterprising “basis trade” operators. These “Money Machines” are showering Bubble markets and segments of our maladjusted economy with liquidity excess. Financial conditions remain excessively loose, boosting the odds of upside economic and inflation surprises. They’re “Terminal Phase” phenomena, specifically because aggressive speculative leveraging extends late boom cycle excess, sowing the seeds for an especially destabilizing de-risking/deleveraging. Much like fractional reserve banking and bank runs, the money market “infinite multiplier” doesn’t work well in reverse. We have proof (October 2008 and March 2020).
For the Week:
The S&P500 added 0.2% (up 18.4% y-t-d), and the Dow increased 0.9% (up 10.3%). The Utilities gained 0.9% (up 20.8%). The Banks jumped 2.0% (up 20.7%), and the Broker/Dealers added 0.4% (up 21.9%). The Transports increased 0.5% (up 0.9%). The S&P 400 Midcaps slipped 0.2% (up 11.1%), while the small cap Russell 2000 was unchanged (up 9.4%). The Nasdaq100 declined 0.7% (up 16.3%). The Semiconductors lost 1.3% (up 23.6%). The Biotechs added 0.2% (up 8.4%). With bullion slipping $9, the HUI gold index declined 1.9% (up 28.7%).
Three-month Treasury bill rates ended the week at 4.9675%. Two-year government yields were unchanged at 3.92% (down 33bps y-t-d). Five-year T-note yields rose five bps to 3.70% (down 14bps). Ten-year Treasury yields jumped 10 bps to 3.90% (up 2bps). Long bond yields rose 10 bps to 4.20% (up 17bps). Benchmark Fannie Mae MBS yields jumped 11 bps to 5.17% (down 11bps).
Italian yields surged 13 bps to 3.70% (unchanged y-t-d). Greek 10-year yields rose nine bps to 3.35% (up 30bps). Spain's 10-year yields jumped 11 bps to 3.13% (up 14bps). German bund yields gained seven bps to 2.30% (up 28bps). French yields rose nine bps to 3.03% (up 47bps). The French to German 10-year bond spread widened two to 73 bps. U.K. 10-year gilt yields rose 10 bps to 4.02% (up 48bps). U.K.'s FTSE equities index increased 0.6% (up 8.3% y-t-d).
Japan's Nikkei Equities Index increased 0.7% (up 15.5% y-t-d). Japanese 10-year "JGB" yields were unchanged at 0.90% (up 28bps y-t-d). France's CAC40 gained 0.7% (up 1.2%). The German DAX equities index jumped 1.5% (up 12.9%). Spain's IBEX 35 equities index advanced 1.1% (up 12.9%). Italy's FTSE MIB index rose 2.1% (up 13.2%). EM equities were mixed. Brazil's Bovespa index increased 0.3% (up 1.4%), while Mexico's Bolsa index dropped 2.9% (down 9.4%). South Korea's Kospi index fell 1.0% (up 0.7%). India's Sensex equities index gained 1.6% (up 14.0%). China's Shanghai Exchange Index slipped 0.4% (down 4.5%). Turkey's Borsa Istanbul National 100 index rallied 1.7% (up 31.6%).
Federal Reserve Credit declined $9.8 billion last week to $7.091 TN. Fed Credit was down $1.798 TN from the June 22, 2022, peak. Over the past 259 weeks, Fed Credit expanded $3.365 TN, or 90%. Fed Credit inflated $4.280 TN, or 152%, over the past 616 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt increased $2.1 billion last week to $3.300 TN. "Custody holdings" were down $135 billion y-o-y, or 3.9%.
Total money market fund assets jumped $21 billion to a record $6.263 TN. Money funds were up $376 billion y-t-d, or 9.5% annualized, and $680 billion, or 12.2%, y-o-y.
Total Commercial Paper was unchanged at $1.236 TN. CP was up $51 billion, or 4.3%, over the past year.
Freddie Mac 30-year fixed mortgage rates dropped 11 bps to a 15-month low to 6.35% (down 87bps y-o-y). Fifteen-year rates fell 11 bps to 5.51% (down 118bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down eight bps to 6.85% (down 70bps).
Currency Watch:
For the week, the U.S. Dollar Index rallied 1.0% to 101.698 (up 0.4% y-t-d). For the week on the upside, the New Zealand dollar increased 0.3% and the Canadian dollar added 0.1%. On the downside, the Mexican peso declined 3.1%, the Brazilian real 2.2%, the Norwegian krone 1.4%, the euro 1.3%, the Japanese yen 1.2%, the Swedish krona 0.9%, the British pound 0.7%, the South African rand 0.6%, the South Korean won 0.6%, the Australian dollar 0.4%, the Singapore dollar 0.4%, and the Swiss franc 0.2%. The Chinese (onshore) renminbi increased 0.42% versus the dollar (up 0.12% y-t-d).
Commodities Watch:
August 29 – Reuters (Salma El Wardany and Grant Smith): “Libya’s political crisis is threatening to return the OPEC member’s oil production to the chaos that plagued it for years after the toppling of dictator Moammar Al Qaddafi. The North African nation’s crude output was slashed in half this week as authorities in the east shuttered more than 500,000 barrels a day amid a fight with the Tripoli-based government for control of the central bank. All the nation’s eastern export terminals closed on Thursday.”
August 30 – Bloomberg (Dayanne Sousa and Clarice Couto): “First came wildfires that scorched sugar cane fields. Now, the worst drought in more than four decades is threatening coffee and soybean crops in Brazil. From May through August, some key agriculture areas faced the driest weather since 1981… And there is no relief in sight: there’s no rain in the forecast for at least two more weeks, a period when coffee trees usually flower and farmers start planting soy. The lack of rainfall poses risks for global crop supplies in a world that’s become increasingly dependent on Brazil for everything from sugar to coffee and soybeans.”
The Bloomberg Commodities Index slipped 0.4% (down 2.6% y-t-d). Spot Gold dipped 0.4% to $2,503 (up 21.3%). Silver dropped 3.2% to $28.865 (up 21.3%). WTI crude declined $1.28, or 1.7%, to $73.55 (up 3%). Gasoline slumped 3.2% (up 5%), while Natural Gas rallied 5.2% to $2.127 (down 15%). Copper declined 0.8% (up 8%). Wheat surged 6.1% (down 15%), and Corn rallied 2.8% (down 20%). Bitcoin dropped $5,000, or 7.8%, to $59,210 (up 39%).
Middle East War Watch:
August 29 – Financial Times (James Shotter and Heba Saleh): “Israel’s defence minister said… the country must ‘expand’ its war goals to include ensuring that people displaced by rocket attacks from the Lebanese militant group Hizbollah can return to their homes… Speaking at the start of a meeting with military officials, Yoav Gallant said he would propose to Prime Minister Benjamin Netanyahu that enabling the more than 60,000 Israelis who have been displaced by the exchanges with Hizbollah to return home should become one of the war goals. ‘Our mission on the northern front is clear: to ensure the safe return of northern communities to their homes… In order to achieve this goal, we must expand the goals of the war, and include the safe return of Israel’s northern residents to their homes.’”
August 25 – Reuters (Maytaal Angel and Maya Gebeily): “Hezbollah launched hundreds of rockets and drones at Israel early on Sunday, as Israel's military said it struck Lebanon with around 100 jets to thwart a larger attack, in one of the biggest clashes in more than 10 months of border warfare. Missiles were visible curling up through the dawn sky, dark vapour trails behind them, as an air raid siren sounded in Israel and a distant blast lit the horizon, while smoke rose over houses in Khiam in southern Lebanon… Any major spillover in the fighting, which began in parallel with the war in Gaza, risks morphing into a regional conflagration drawing in Hezbollah's backer Iran and Israel's main ally the United States.”
August 26 – Wall Street Journal (Carrie Keller-Lynn and Dov Lieber): “Hezbollah chief Hassan Nasrallah on Sunday told Lebanese people they could ‘take a breath,’ saying that after a salvo of rockets on Sunday, the Iran-backed militant group was done with retaliation against Israel for the July killing of a senior leader in Beirut. Now, all eyes are on Iran, which had said it too would inflict a ‘painful response’ on Israel after the killing of Ismail Haniyeh, leader of Palestinian militant group Hamas, in Tehran hours after the Hezbollah commander’s death.”
August 26 – Reuters (James Mackenzie): “Israeli officials and media reacted with satisfaction on Monday after a long-expected missile attack by the Iranian-backed Hezbollah movement appeared to have been largely thwarted by pre-emptive Israeli strikes in southern Lebanon. Both Hezbollah and Israel seemed content to let Sunday's attack, in retaliation for the killing of a senior Hezbollah commander in Beirut last month, count as settled for the moment. Israeli government spokesperson David Mencer said Hezbollah had suffered a ‘crushing blow’… but that a longer lasting solution was still needed. ‘The current situation is not sustainable,’ he told a briefing, referring to the tens of thousands evacuated from their homes in northern Israel… ‘Israel will do its duty and return its population to our sovereign territory.’”
August 26 – Reuters: “Iran said… that Israel had lost its power to deter and that the strategic balance in the region had shifted against it, following attacks by the Lebanese armed group Hezbollah. Hezbollah launched hundreds of rockets and drones at Israel early on Sunday, as Israel's military said it had struck Lebanon with around 100 jets to thwart a larger attack, in one of the biggest clashes in more than 10 months of border warfare. ‘Despite the comprehensive support of states like the United States, Israel could not predict the time and place of a limited and managed response by the resistance. Israel has lost its deterrence power,’ Iranian foreign ministry spokesman Nasser Kanaani wrote…. Kanaani added that Israel ‘now has to defend itself within its occupied territories’ and that ‘strategic balances have undergone fundamental changes’ to the detriment of Israel.”
August 29 – Associated Press (Stephanie Liechtenstein): “Iran has further increased its stockpile of uranium enriched to near weapons-grade levels in defiance of international demands, a confidential report by the United Nations’ nuclear watchdog said… The report by the International Atomic Energy Agency… said that as of Aug. 17, Iran has 363.1 pounds of uranium enriched up to 60 %. That’s an increase of 49.8 pounds since the IAEA’s last report in May. Uranium enriched up to 60% purity is just a short, technical step away from weapons-grade levels of 90%.”
August 24 – Reuters (Phil Stewart): “The top U.S. general began an unannounced visit to the Middle East on Saturday to discuss ways to avoid any new escalation in tensions that could spiral into a broader conflict, as the region braces for a threatened Iranian attack against Israel. Air Force General C.Q. Brown, chairman of the Joint Chiefs of Staff, began his trip in Jordan and said he will also travel to Egypt and Israel in the coming days to hear the perspectives of military leaders.”
August 28 – Bloomberg (Weilun Soon, Jacob Reid and Alex Longley): “An abandoned oil tanker attacked in the Red Sea by Iran-backed Houthi rebels a week ago appears to be burning and leaking, raising the specter of an environmental disaster, a Pentagon spokesman said… The 900-foot Sounion was hauling 150,000 tons of dense Iraqi crude oil when it was disabled by Houthi militants last week.”
Ukraine War Watch:
August 25 – Wall Street Journal (Matthew Luxmoore and Alexander Ward): “Ukrainian President Volodymyr Zelensky marked his country’s Independence Day on Saturday with a video shot in the region where his armed forces launched a brazen offensive designed to send a message to Russia—and the West. Russian President Vladimir Putin ‘will not dictate any of his red lines to us,’ Zelensky said… ‘Only Ukraine and Ukrainians will determine how to live, what path to take, and what choice to make.’ After a year of gradually losing ground on the battlefield, Zelensky made an audacious gamble to seize back the initiative. His bet is that the operation that began Aug. 6 won’t only knock Russia off balance and force it to shift its troops, but also encourage the West to throw its weight more firmly behind Ukraine.”
August 29 – Associated Press: “After three weeks of fighting, Russia is still struggling to dislodge Ukrainian forces from the Kursk region, a surprisingly slow and low-key response to the first occupation of its territory since World War II. It all comes down to Russian manpower and Russian priorities. With the bulk of its military pressing offensives inside Ukraine, the Kremlin appears to lack enough reserves for now to drive out Kyiv’s forces. President Vladimir Putin doesn’t seem to view the attack… as a grave enough threat to warrant pulling troops from eastern Ukraine’s Donbas region, his priority target. ‘Putin’s focus is on the collapse of the Ukrainian state, which he believes will automatically render any territorial control irrelevant,’ wrote Tatiana Stanovaya, senior fellow at the Carnegie Russia Eurasia Center.”
August 26 – Reuters (Pavel Polityuk, Tom Balmforth and Yuliia Dysa): “Russia attacked Ukraine with more than 200 missiles and drones on Monday, killing seven people and striking energy facilities nationwide, Kyiv said, while neighbouring NATO member Poland reported a drone had probably entered its airspace. Power cuts and water supply outages were reported in many areas, including parts of Kyiv, as officials said the attack - 2-1/2 years since the full-scale invasion - targeted power or other critical infrastructure across the country.”
August 27 – Wall Street Journal (Isabel Coles and Nikita Nikolaienko): “Ukraine said for the first time that it used U.S.-made F-16 jet fighters to intercept drones and missiles as Russia unleashed a massive volley of attacks across Ukraine, battering infrastructure and eroding the country’s air defenses for a second consecutive day. The attacks underscore a desperate problem for Ukraine: how to protect its territory with a limited number of air-defense systems and a diminishing stockpile of interceptor missiles. Ukraine shot down half of the 10 missiles, and 60 of the 81 Iranian-made drones fired by Russia overnight, according to Air Force commander Lt. Gen. Mykola Oleshchuk.”
Market Instability Watch:
August 28 – Bloomberg (Toru Fujioka): “Deputy Governor Ryozo Himino said the Bank of Japan will raise interest rates as long as inflation moves in line with the bank’s view, showing that the central bank’s stance is essentially unchanged despite the ructions in financial markets earlier this month. The BOJ’s basic stance ‘is that it will examine the impact of market developments and the July rate hike,’ Himino said... ‘If it has growing confidence that its outlook for economic activity and prices will be realized, it will adjust the degree of monetary accommodation.’ Himino’s comments reinforce the BOJ’s message that another rate hike remains on the table…”
August 29 – Reuters (Yoruk Bahceli): “Government bond markets, which have enjoyed a summer of solid price gains, now face a reckoning with their bets for speedy central bank rate cuts and slowing inflation, not to mention a tight U.S. presidential election. Benchmark 10-year U.S. Treasury yields are set to end August down nearly 30 bps, their biggest monthly drop this year… Yet big investors reckon that gains will at best lose steam, or, at worst, prove to be overdone. ‘We have many indicators showing that the economy is not falling into a recession. We are just in a soft landing,’ said Guillaume Rigeade, co-head of fixed income at Carmignac. ‘It's not justified to us, this acceleration to a cutting cycle so quick,’ said Rigeade…”
August 25 – Bloomberg (Tania Chen and Marcus Wong): “The hugely popular yen carry trade crashed and burned this month as Japan’s currency surged. A less well-known version of the strategy is likely to be more immune to those kind of shocks. Trades involving borrowing yuan to buy higher-yielding assets are set to be more resilient as China’s central bank keeps its monetary policy dovish, Royal Bank of Canada says. The yuan carry trade differs from the yen one as it mainly involves exporters and multinationals instead of speculators, Macquarie Group Ltd. data shows.”
Global Credit Bubble Watch:
August 24 – Reuters (Oliver Hirt): “Debt levels in the United States and Europe are a risk for international financial stability and for Switzerland, Swiss Finance Minister Karin Keller-Sutter said… In an interview…, Keller-Sutter extolled Switzerland's ‘disciplined’ finances, which she said had enabled the country to deal with the economic challenges posed by the COVID-19 pandemic and Russia's invasion of Ukraine. By contrast, other countries are ‘so indebted they're hardly able to act any more’, she said, giving France as an example. ‘Or take a look at America. That's a time bomb. The mini-crash on the stock markets at the start of August was a warning shot,’ the minister was quoted as saying. ‘It was an expression of investors' fear of a recession. Debt levels in the U.S. and Europe are a risk to international financial stability and a risk for Switzerland,’ she added.”
AI Bubble Watch:
August 29 – Financial Times (Ian King): “Nvidia Corp. failed to live up to investor hopes with its latest results…, delivering an underwhelming forecast and news of production snags with its much-awaited Blackwell chips. The company’s quarterly report — the most anticipated part of the tech industry’s earnings season — met or beat analysts’ estimates on nearly every measure. But Nvidia investors have grown accustomed to blowout quarters, and the latest numbers didn’t qualify. Moreover, Nvidia’s next big cash cow — the new Blackwell processor lineup — has proved more challenging to manufacture than anticipated. The product is the next generation of the company’s dominant artificial intelligence processor.”
August 28 – Reuters (Laila Kearney and Mrinalika Roy): “U.S. technology companies are pursuing energy assets held by bitcoin miners as they race to secure a shrinking supply of electricity for their rapidly expanding artificial intelligence and cloud computing data centers. Those data centers are driving the fastest U.S. power demand growth since the start of the millennium, outpacing grid expansions and leaving giant technology companies, like Amazon and Microsoft, to scavenge for vast amounts of electricity. The electricity scramble is jolting the energy-intensive cryptocurrency mining industry. Some miners are making huge profits leasing or selling their power-connected infrastructure and sites to tech, while others are losing access to the electricity needed to stay in business. ‘The AI battle for dominance is a battle being had by the biggest and best capitalized companies in the world and they care like their lives depend on it that they win,’ said Greg Beard, CEO of Stronghold Digital Mining… ‘Do they care about what they pay for power? Probably not.’”
August 25 – Wall Street Journal (Ryan McMorrow and Eleanor Olcott): “China’s tech giants have doubled capital spending this year as they splurge on artificial intelligence infrastructure, despite US sanctions designed to limit the country’s progress in the crucial technology. Alibaba, Tencent and Baidu had combined capital expenditure of Rmb50bn ($7bn) in the first half, compared with Rmb23bn a year earlier. The groups said the focus was on buying processors and infrastructure related to powering the training of large language models for AI, both their own models and those of others. TikTok parent ByteDance has also increased AI-related spending, backed by a cash pile of more than $50bn and with the benefit of being privately held and relatively free of investor scrutiny…”
Bubble and Mania Watch:
August 28 – Bloomberg (Catherine Bosley): “The structures underpinning financial market volatility in August as investors unwound yen carry trades warrant a closer look by officials, according to the BIS Bulletin. Investor risk taking remains high, only a portion of trades based on cheap yen funding seem to have been unwound. Other trades, involving more illiquid assets, may be closed more slowly. Signs that leveraged positions were rebuilt once the volatility subsided.”
U.S./Russia/China/Europe Watch:
August 27 – Reuters (Guy Faulconbridge and Vladimir Soldatkin): “Russia said the West was playing with fire by considering allowing Ukraine to strike deep into Russia with Western missiles and cautioned the United States… that World War Three would not be confined to Europe. Ukraine attacked Russia's western Kursk region on Aug. 6 and has carved out a slice of territory in the biggest foreign attack on Russia since World War Two. President Vladimir Putin said there would be a worthy response from Russia to the attack. Sergei Lavrov, who has served as Putin's foreign minister for more than 20 years, said that the West was seeking to escalate the Ukraine war and was ‘asking for trouble’ by considering Ukrainian requests to loosen curbs on using foreign-supplied weapons.”
August 27 – Reuters (Mikhail Flores and Karen Lema): “U.S. ships could escort Philippine vessels on resupply missions in the South China Sea, a top admiral said…, describing what he called an ‘an entirely reasonable option’ that required consultation between the treaty allies, however. The remarks, which are likely to annoy China, were made by Samuel Paparo, commander of the U.S. Indo-Pacific Command… ‘Escort of one vessel to the other is an entirely reasonable option within our Mutual Defense Treaty,’ Paparo told reporters…”
De-globalization and Iron Curtain Watch:
August 26 – Financial Times (Demetri Sevastopulo): “Canada’s Prime Minister Justin Trudeau said Ottawa would impose 100% tariffs on imports of Chinese electric vehicles and 25% levies on Chinese steel and aluminium, in a move replicating recent US measures. Trudeau said Canada was introducing the EV tariffs because China was ‘not playing by the same rules’. It marks the latest example of the US and its allies taking actions to counter what they say are unfair economic practices. ‘Actors like China have chosen to give themselves an unfair advantage in the global marketplace,’ Trudeau said… The announcement came one day after US national security adviser Jake Sullivan met the Canadian prime minister in Canada and urged Ottawa to follow Washington in imposing tariffs.”
August 26 – Associated Press (Rob Gillies): “Canada announced… it is launching a 100% tariff on imports of Chinese-made electric vehicles, matching U.S. tariffs imposed over what Western governments say are China’s subsidies that give its industry an unfair advantage. The announcement came after encouragement by U.S. national security advisor Jake Sullivan during a meeting with Canadian Prime Minister Justin Trudeau and Cabinet ministers… Trudeau said Canada also will impose a 25% tariff on Chinese steel and aluminum. ‘Actors like China have chosen to give themselves an unfair advantage in the global marketplace,’ he said.”
August 26 – Financial Times (Harry Dempsey and Edward White): “Chinese export controls on crucial semiconductor materials are hitting supply chains and stoking fears of shortfalls in western production of advanced chips and military optical hardware. Beijing’s curbs on shipments of germanium and gallium, which are used for semiconductor applications and military and communications equipment components, have led to an almost twofold increase in the minerals’ prices in Europe over the past year. China introduced the restrictions, which it says safeguard its ‘national security and interests’, last year in response to US-led controls on sales of advanced chips and chipmaking equipment.”
August 29 – Wall Street Journal (Greg Ip): “China’s economy is unusual. Whereas consumers contribute 50% to 75% of gross domestic product in other major economies, in China they account for 40%. Investment, such as in property, infrastructure and factories, and exports provide most of the rest. Lately, that low consumption has become a headwind to China’s growth because property investment… has collapsed. This isn’t just a problem for China; it’s a problem for the whole world. What Chinese companies can’t sell to Chinese consumers, they export. The result: an annual trade surplus in goods now of almost $900 billion, or 0.8% of global gross domestic product. That surplus effectively requires other countries to run trade deficits.”
Inflation Watch:
August 27 – Yahoo Finance (Dani Romero): “US home prices started the summer at a record high while the pace of price increases moderated in June. The S&P CoreLogic Case-Shiller National Home Price Index increased 0.2% over the prior month in June on a seasonally adjusted basis, less than the 0.3% rise seen in May but marking a fifth straight monthly increase and an all-time high for the index. On an annual basis, prices nationally rose 5.4%... The index tracking home prices in the 20 largest US cities gained 0.4% in June from May, exceeding the… estimate of 0.3% while matching May's monthly jump. The 20-city index rose 6.5% compared to last June.”
August 25 – New York Times (Emily Flitter): “For the poorest Americans, finding an apartment to rent or a home to buy often means tapping into a vast network of nonprofit groups that use public and charitable funds to rehab or build affordable housing. Over the past year, the skyrocketing cost of property insurance has put that network on shaky ground. In Houston, hundreds of apartments once protected from rising rents are being sold off to landlords who can charge the full market rate. In Selma, Ala., insurance premiums are keeping even heavily subsidized homes out of buyers’ reach. In Kingsville, Texas, a planned affordable housing development was scrapped entirely. Costs are rising for homeowners of all types, and in states like Florida, Texas and California, it has become harder to get insurance at all.”
August 27 – Associated Press (Mae Anderson): “While many costs have come down for small business, rents remain high and in some cases are still rising, forcing many owners into some uncomfortable decisions. ‘Every time the rent goes up, we have to raise prices, to keep up with the cost,’ said Adelita Valentine, owner of HairFreek Barbers in Los Angeles. ‘But with the cost of living, it makes it difficult on our customers.’ Other owners are choosing to be late on payments or seeking out new locations where the rent is lower. A few are pushing back against their landlord. Although inflation is easing, it remains a top concern for small businesses.”
Federal Reserve Watch:
August 28 – Bloomberg (Catarina Saraiva and Craig Torres): “With a September interest-rate cut all but certain and attention turning to the pace of future reductions, Federal Reserve officials are coalescing around a gradual approach to the last mile of their inflation fight. A handful of policymakers at the Fed’s annual research symposium… last week made the case for lowering rates in a ‘gradual’ or ‘methodical’ manner. That pushed back against investor expectations for at least one outsized cut this fall. Inflation hasn’t yet fully cooled to their 2% target, the Fed officials argued.”
August 26 – Bloomberg (Christopher Condon): “Federal Reserve Bank of Richmond President Thomas Barkin says he still sees upside risks for inflation, though he supports ‘dialing down’ interest rates in the face of a cooling labor market. ‘Really good’ data would be required over the next six months to bring inflation, on a year-over-year basis, to the Fed’s 2% goal, Barkin tells Bloomberg’s Odd Lots podcast… ‘If the numbers are just pretty good, not really good, there’s a risk that we plateau at some level over 2%.’ Barkin also sees medium-term risks to inflation from geopolitical events, deglobalization and housing.”
U.S. Economic Bubble Watch:
August 27 – Reuters (Lucia Mutikani): “U.S. consumer confidence rose to a six-month high in August amid optimism over the economic outlook, but Americans are becoming more anxious about the labor market… The better-than-expected reading in consumer confidence, reported by the Conference Board…, reflected improved perceptions of business conditions over the next six months, and the survey suggested the odds of a recession had continued to decline… The Conference Board's consumer confidence index increased to 103.3 this month, the highest level since February, from an upwardly revised 101.9 in July.”
August 29 – Associated Press (Paul Wiseman): “The U.S. economy grew last quarter at a healthy 3% annual pace, fueled by strong consumer spending and business investment, the government said… in an upgrade of its initial assessment. The Commerce Department had previously estimated that the nation’s gross domestic product… expanded at a 2.8% rate from April through June. The second-quarter growth marked a sharp acceleration from a sluggish 1.4% growth rate in the first three months of 2024. Consumer spending… rose at a 2.9% annual rate last quarter. That was up from 2.3% in the government’s initial estimate. Business investment expanded at a 7.5% rate, led by a 10.8% jump in investment in equipment.”
August 30 – Reuters (Lucia Mutikani): “U.S. consumer spending increased solidly in July, suggesting the economy remained on firmer ground early in the third quarter and arguing against a half-percentage-point interest rate cut from the Federal Reserve next month. The report… also showed prices rising moderately last month, curbing inflation… Consumer spending… rose 0.5% last month after advancing by an unrevised 0.3% in June… The increase in spending was across both goods and services, with outlays on motor vehicles and parts leading the charge. Consumers also spent more on housing and utilities, food and beverages, recreation services as well as financial services and insurance. They also boosted spending on healthcare, visited restaurants and bars and stayed at hotels.”
August 29 – Reuters (Lucia Mutikani): “The number of Americans filing new applications for jobless benefits slipped last week, but re-employment opportunities for laid-off workers are becoming more scarce… Initial claims for state unemployment benefits fell 2,000 to a seasonally adjusted 231,000 for the week ended Aug. 24. Economists… had forecast 232,000 claims for the latest week. Claims have retreated from an 11-month high in late July as distortions from temporary motor vehicle plant shutdowns for new model retooling and the impact of Hurricane Beryl faded.”
August 29 – Associated Press (Alex Veiga): “The average rate on a 30-year mortgage eased for the second week in a row and remains at its lowest level in more than a year, good news for prospective homebuyers facing home prices near all-time highs. The rate fell to 6.35% from 6.46% last week… A year ago, the rate averaged 7.18%. The last time the average rate was this low was May 11, 2023.”
August 29 – CNBC (Diana Olick): “Mortgage rates fell last week for the fourth straight week, but neither current homeowners nor homebuyers seemed particularly impressed… Despite the drop, demand to refinance decreased 0.1% from the previous week. It was, however, 85% higher than the same week one year ago… Applications for a mortgage to purchase a home rose 1% for the week but were 9% lower than the same week one year ago.”
August 26 – Bloomberg (Alex Tanzi): “Mortgages locked in at low costs provided US consumers with an extra $600 billion in spending cash since 2022, blunting the impact of the Federal Reserve’s interest-rate hikes, according to analysis by the Swiss Re Institute. The boost received by homeowners with fixed-rate mortgages amounted to almost 2% of all personal consumption spending, wrote economists Mahir Rasheed and James Finucane… The effect has been to mute the impact of monetary policy transmission, as consumer demand proved resilient to Fed hikes.”
August 29 – Bloomberg (Alex Veiga): “A gauge of pending US sales of existing homes sunk in July to the lowest level on record, as high prices and borrowing costs continue to scare buyers away. A National Association of Realtors index of contract signings fell 5.5% to 70.2 last month, the lowest in data back to 2001… The drop was larger than all estimates… and reflected declining sales in all four major regions. ‘The positive impact of job growth and higher inventory could not overcome affordability challenges and some degree of wait-and-see related to the upcoming US presidential election,’ said NAR Chief Economist Lawrence Yun…”
Fixed Income Watch:
August 27 – Reuters (Shankar Ramakrishnan): “A failed attempt to sell a New York City office tower helped cause more than a year-long delay for two credit rating agencies to downgrade a commercial mortgage bond to junk… The delayed ratings cut of 1740 Broadway bonds blindsided investors in the safest tranche of the commercial mortgage-backed securities (CMBS). The 26% loss on their $157.5 million investment sent shockwaves across financial markets that rely heavily on ratings as an assessment of credit quality, and marked the first loss on a AAA-rated bond since the 2008 financial crisis.”
China Watch:
August 27 – Financial Times (Robin Harding): “In 1975, in what turned out to be the valedictory speech of his long and tumultuous career, Zhou Enlai, the first premier of the People’s Republic of China, declared proudly that his government was free of all debt. ‘In contrast to the economic turmoil and inflation in the capitalist world… we have maintained a balance between our national revenue and expenditure and contracted no external or internal debts.’ Almost half a century later, that attitude is still written on the hearts of finance ministry bureaucrats in Beijing. China’s central government debt has crept up to about 24% of gross domestic product… Yet in contrast, the debts of China’s local governments are vast — 93% of GDP according to IMF figures, which are probably an underestimate — and rising.”
August 29 – Financial Times (Robin Wigglesworth): “China’s ballooning debt burden has been an enduring bogeyman for over a decade. Efforts to restrain it are failing. After expanding rapidly — to 262% of GDP by the end of 2016 — the authorities worked hard to contain things, slowing the growth in 2017 and then even managing a slight decline in 2018-19. Then Covid-19 wrecked this modest progress, and after a burst of deleveraging in 2021, China’s overall non-financial debt-to-GDP ratio is back at a new record and approaching 300%, according to Goldman Sachs.”
August 26 – Bloomberg: “China’s broad budget expenditure contracted and income from land sales for local governments fell at a record pace, a sign of fiscal weakness that may further increase calls on Beijing to add stimulus to support the $17 trillion economy. The combined spending in the general public budget and the government fund account was about 19.7 trillion yuan ($2.8 trillion) in the first seven months of the year, down 2% from the same point in 2023… Behind the decline was a 8.9% decrease in land-related expenditure that includes payments for primary land development and compensation for existing rural infrastructure in preparation for a potential sale… The property fallout on public finances is becoming increasingly evident on the balance sheets of indebted local governments. Their revenue from land sales in July shrank just over 40% on year to 250 billion yuan…”
August 30 – Bloomberg: “China has stepped into the nation’s government bond market, ending months of speculation that officials would act to rein in a relentless bond rally. The People’s Bank of China sold long-dated bonds and bought short-maturity securities in a move that resulted in a net purchase of 100 billion yuan ($14bn) of debt in August… The trades may help curtail aggressive gains in the nation’s bonds that have pushed benchmark yields to a record low as investors bet the central bank will ease monetary policy to support growth.”
August 27 – Financial Times (Joe Leahy, Wenjie Ding, Cheng Leng and Arjun Neil Alim): “China’s plans to issue billions of dollars of government bonds before the end of the year could lead to a correction in the price of the country’s treasuries, people close to the central bank have warned… The warning follows frenzied buying that has driven up the prices of Chinese 10-year central government bonds, pushing yields below 2.2% and leading the People’s Bank of China to caution that a sudden reversal could threaten financial stability. Official data and state media reports indicate that… the government had yet to issue just over half of its planned 2024 quota of local government and special central government ultra-long treasuries, with a total of about Rmb2.68tn ($376bn) still to come.”
August 30 – Bloomberg: “China Vanke Co. reported a half-year loss for the first time in more than two decades, underscoring the pressure on the property developer as it tries to pay off debts during the country’s unprecedented housing slump… Vanke posted a net loss of 9.85 billion yuan ($1.4 billion) in the six months ended June 30, its first on a semi-annual basis since at least 2003… Revenue plunged 29% from a year earlier to 143 billion yuan… Moody’s downgraded Vanke’s debt ratings deeper into junk earlier this month. It now forecasts the developer’s sales to tumble around 30% this year, faster then a 25% drop expected earlier.”
August 30 – Reuters (Rishav Chatterjee): “China's largest property developer Country Garden on Friday further delayed the release of its 2023 financial results, as it needed more time amid an ongoing debt restructuring. The firm had previously delayed the results in March, saying it needed more time to collect information for making appropriate accounting estimates and judgements.”
August 29 – Bloomberg: “China is considering allowing homeowners to refinance as much as $5.4 trillion of mortgages to lower borrowing costs for millions of families and boost consumption. Under the plan, homeowners would be able to renegotiate terms with their current lenders before January, when banks typically reprice mortgages, people familiar… said… They would also be allowed to refinance with a different bank for the first time since the global financial crisis…”
August 28 – Bloomberg: “China’s annual growth target looks increasingly out of reach to economists, with UBS Group AG adding to a string of recent forecast cuts… With economic momentum held back by a real estate downturn and tight fiscal policy, the Swiss bank now expects China’s gross domestic product to expand 4.6% this year — compared with an earlier forecast of 4.9%. For 2025, UBS sees growth at 4%, down from 4.6% previously. The downgrade, coming after weak earnings reports from several top Chinese consumer companies this month, reflects an emerging consensus among the world’s biggest banks that the country might not meet its growth aim of around 5% in 2024.”
August 29 – Financial Times (Chan Ho-him, Cheng Leng and Wenjie Ding): “Offices in China’s biggest cities are emptier than they were during stringent Covid-19 lockdowns in what analysts say is a sign of how the country’s economic slowdown has hurt business confidence. At least a fifth of high-end office space was vacant in the tech hub of Shenzhen in June…, while office vacancy rates in Beijing, Guangzhou and Shanghai were also higher than in June 2022. Overall, rents are at least 10% lower than they were two years ago… ‘The biggest challenge is still the significant reduction in market demand due to the weakening of China’s economic growth expectations,’ said Lucia Leung, greater China research and consultancy director at Knight Frank.”
August 27 – Bloomberg (Rebecca Choong Wilkins): “Protests in China are on the rise as the effects of a slowing economy rattle citizens and Beijing refrains from taking bolder steps to shore up growth. Cases of dissent increased 18% in the second quarter compared to the same period last year in figures documented by the China Dissent Monitor at Freedom House… The majority of events linked to economic issues… Of those events, 44% related to labor and 21% involved aggrieved homeowners… Generally, it defines dissent as acts of voicing grievances, asserting rights or advancing interests in contention with the authorities or the powerful. The report offers a snapshot of sentiment across China, although it doesn’t fully capture discontent in the world’s No. 2 economy. Physical protests are suppressed and deterred by surveillance…”
August 24 – Financial Times (Kaye Wiggins): “Most of the world’s biggest private equity firms, including Blackstone, KKR and Carlyle, have put the brakes on deals in China this year as geopolitical tensions rise and Beijing exerts tighter control over business. Dealmaking in the world’s second-largest economy has slowed significantly, with just five new investments — mostly small — by the 10 largest global buyout firms this year. The figures underscore how quickly overseas investors’ enthusiasm for China, once a hot market, has waned in recent years.”
August 27 – Reuters (Sophie Yu and Deborah Mary Sophia): “China's PDD Holdings missed market estimates for quarterly revenue…, and downbeat comments from executives about China's domestic e-commerce competition and the firm's global outlook sent its shares down more than 28%. The biggest one-day share fall for PDD since it listed in the U.S. in 2018 wiped out nearly $55 billion in market capitalisation. The e-commerce retailer operates discount-focused platforms Pinduoduo in China and Temu for the international market.”
August 29 – New York Times (Tiffany May): “The two veterans of Hong Kong’s long boisterous news media scene didn’t shy away from publishing pro-democracy voices on their Stand News site, even as China cranked up its national security clampdown to silence critics in the city. Then the police came knocking and, more than two and a half years later, a judge Thursday convicted the two journalists — the former editor in chief of Stand News, Chung Pui-kuen, and his successor, Patrick Lam — of conspiring to publish seditious materials on the now-defunct liberal news outlet. Both face potential prison sentences. The landmark ruling highlighted how far press freedom has shrunk in the city, where local news outlets already self censor to survive and some foreign news organizations have left or moved out staff amid increasing scrutiny from the authorities.”
Central Banking Watch:
August 29 – Financial Times (Cheng Leng and Arjun Neil Alim): “China’s central bank purchased Rmb400bn ($56.3bn) of long-dated sovereign bonds on Thursday, a move that traders interpreted as preparation to directly shore up bond yields in its booming debt markets. The People’s Bank of China said it bought Rmb300bn worth of 10-year notes and Rmb100bn of 15-year notes from primary dealers, which had been sold by the Ministry of Finance to roll over maturing bonds only earlier in the day. Analysts said the move… further fuelled speculation that China’s central bank will soon intervene in the bond market to prevent an eventual snapback that could trigger Silicon Valley Bank-style losses in the financial system.”
August 29 – Reuters (Francesco Canepa): “The European Central Bank should avoid cutting interest rates too fast because it has yet to bring inflation down to 2% even if that goal is now in sight, ECB policymaker Joachim Nagel said… ‘Taken together, a timely return to price stability cannot be taken for granted,’ Nagel, the Bundesbank's president, said... ‘Therefore, we need to be careful and must not lower policy rates too quickly…’ Nagel, one of the hawks who favour higher rates, acknowledged that the target was now close but saw risks coming from higher wages and a stronger economic recovery. ‘While our 2 % target is in sight, we have not reached it,’ he added.”
Europe Watch:
August 26 – Guardian (Kim Willsher): “France has been plunged into further political chaos after Emmanuel Macron refused to name a prime minister from the leftwing coalition that won the most parliamentary seats in the snap election last month. The president had hoped consultations would break the political deadlock caused by the election that left the Assemblée Nationale divided into three roughly equal blocks – left, centre and far right – none of which has a majority of seats. After two days of talks with party and parliamentary leaders to break the stalemate and allow him to name a prime minister with cross-party support, Macron’s decision not to choose the New Popular Front’s candidate was met with anger and threats of impeachment.”
August 27 – Associated Press (Barbara Surk): “France’s main left-wing coalition… accused President Emmanuel Macron of denying democracy after he rejected the New Popular Front’s candidate for prime minister following last month’s inconclusive election. As president, Macron has the sole power to name the prime minister according to the French Constitution. French politicians have been deadlocked over a future government since an early legislative vote in July produced no clear winner. The latest tensions include calls for major protests against Macron next week as Paris prepares to host the Paralympic Games with the opening ceremony set for Wednesday evening.”
August 30 – Reuters (Francesco Canepa and Balazs Koranyi): “Inflation in the euro zone fell to its lowest level in three years in August, setting the stage for a further cut in the European Central Bank's interest rates next month despite an Olympics-driven surge in the price of services… Inflation in the 20 countries sharing the euro currency fell to 2.2% this month, the slowest pace since July 2021 and closing in on the ECB's 2% target…”
Japan Watch:
August 29 – Bloomberg (Yoshiaki Nohara): “Inflation in Tokyo picked up speed in August, supporting the case for the Bank of Japan to continue raising rates at a gradual pace as the bank balances the need to support the economy. Consumer prices excluding fresh food rose 2.4% in the capital, an acceleration from 2.2% growth in July…”
August 28 – Reuters (Takahiko Wada and Makiko Yamazaki): “Bank of Japan Deputy Governor Ryozo Himino… reiterated the central bank's stance that it would continue to raise interest rates if inflation stayed on course, while also closely monitoring financial market conditions. His comments echo those from Governor Kazuo Ueda last week, who suggested that recent market volatility would not derail its long-term rate hike plans. The central bank would, however, first need to monitor financial markets with the ‘utmost vigilance’ as they remain unstable, Himino said… The BOJ will examine the impact of recent market volatility, the interest rate hike in July and the course of the U.S. economy on its economic and price outlook, he said. ‘There is no change to our stance that we would adjust monetary easing if economic activity and prices are likely to meet projections,’ he said.”
August 29 – Bloomberg (Erica Yokoyama): “The Japanese government upgraded its monthly economic assessment for the first time in 15 months, citing signs of a recovery in consumption. The Cabinet Office said… the economy is recovering at a moderate pace, and only parts of it are pausing. In July it saw the pause as being more widespread. The government raised its view on consumer spending for the first time in over a year, noting resilience in spending on goods. It also revised up its assessment for housing construction for the first time in over two years.”
Emerging Markets Watch:
August 27 – Wall Street Journal (Jon Emont): “Asia’s fastest-growing economies are hiding a dirty secret: Their youngest workers are battling stubbornly high rates of unemployment. Bangladesh… clocked an average of 6.5% economic growth a year for the last decade. But over the past few years, youth unemployment climbed to 16%—the highest level in at least three decades... China and India recorded the same percentage of young people who are seeking work without success. In Indonesia, the rate is 14%. Malaysia’s is 12.5%. Across these populous nations, that adds up to 30 million people between the ages of 15 and 24 who are looking for jobs but can’t find suitable ones.”
August 28 – Financial Times (Arjun Neil Alim and Chris Kay): “Foreign investors are pulling money out of India’s equity market, cutting their exposure as the US interest rate cycle turns and millions of domestic savers continue to pile into richly valued stocks. Foreign institutional investors have turned net sellers of India-listed shares in August, with net outflows of more than $1bn, according to data from Bloomberg and the Securities and Exchange Board of India. Year-to-date inflows stood at $2.6bn, well below the $22bn recorded last year.”
August 28 – New York Times (Patricia Cohen): “After a new tax increase incited weeks of deadly riots in Kenya early this summer, President William Ruto announced that he was reversing course… Last week, the government reversed itself again... The Ruto administration is desperately trying to raise revenue to pay off billions of dollars in public debt and avoid defaulting on its loans, even as critical public assistance and services are being cut. Governments throughout Africa are facing the same dilemma. The continent’s foreign debt reached more than $1.1 trillion at the end of last year. More than two dozen countries have excessive debt or are at high risk of it… And roughly 900 million people live in countries that spend more on interest payments than on health care or education.”
Leveraged Speculation Watch:
August 30 – Bloomberg (Nishant Kumar, Bei Hu and Takashi Nakamichi): “As losses piled up during the market turmoil in early August, a cohort of traders faced that dreaded moment: a tap on the shoulder from their hedge fund bosses signaling it was time to stop. At least six traders at multistrategy investment firms Millennium Management, Balyasny Asset Management and BlueCrest Capital Management saw their positions liquidated or teams shut… The closures took place as a rapid unwinding of the yen carry trade and jitters over the US economy sent shockwaves across global markets… The departures are part of a ruthless risk-management move that multistrategy hedge funds frequently make to shield themselves from damaging losses and to continue producing the steady returns they are known for.”
August 26 – Bloomberg (Anna J Kaiser): “Ken Griffin is expecting to break ground next year on a 54-story tower in Miami that will serve as headquarters of his Citadel financial empire… The proposed building at 1201 Brickell Bay Drive will have 1.7 million square feet, combining offices and a roughly 413,000-square-foot hotel on the upper floors… The waterfront project is expected to break ground in the third quarter of 2025… The billionaire founder of hedge fund Citadel and market maker Citadel Securities first proposed the project in 2022, with its cost estimated to be more than $1 billion.”
Social, Political, Environmental, Cybersecurity Instability Watch:
August 29 – Bloomberg (Jonathan Tirone): “Iran’s nuclear-fuel levels rose over the last three months, the United Nations watchdog said, potentially ratcheting up tensions that have threatened to spill into a regional war. Monitors from the International Atomic Energy Agency reported Thursday that Iran’s stockpile of highly enriched uranium increased by 16% between June and August… That’s enough to fuel a handful of warheads, should Iran make a political decision to pursue weapons. ‘The continued production and accumulation of high enriched uranium by Iran, the only non-nuclear weapon state to do so, adds to the agency’s concerns’ IAEA Director General Rafael Mariano Grossi said…, also noting the country continues to stonewall monitoring.”
August 26 – Financial Times (Malcolm Moore, Andrew England and Ben Hall): “The world’s nuclear non-proliferation regime is under greater pressure than at any time since the end of the cold war, as ‘important’ countries were openly debating whether to develop atomic weapons, the head of the UN’s watchdog has warned. Rafael Grossi, the director-general of the International Atomic Energy Agency, told the Financial Times that tense relations between the US, Russia and China, as well as the conflict in the Middle East were putting unprecedented strains on the nuclear non-proliferation treaty signed in 1968 that aimed to limit the development of the world’s atomic arsenal. ‘I don’t think in the 1990s you would hear important countries say, ‘well, why don’t we have nuclear weapons too?’ he said.”
August 27 – Politico (Csongor Koromi): “The United Nations' nuclear watchdog chief warned… of heightened risk at the nuclear power plant in Kursk, Russia, where Ukraine has been conducting a military counteroffensive. International Atomic Energy Agency Director General Rafael Grossi led the mission to the nuclear site after Russian President Vladimir Putin claimed it came under fire following Ukraine's incursion into the region… ‘The danger or the possibility of a nuclear accident has emerged near here,’ Grossi told reporters... He added that during his visit of the plant he saw evidence of drone strikes in the area.”
Geopolitical Watch:
August 26 – Financial Times (Leo Lewis and Joe Leahy): “Japan’s most senior government spokesperson has said an unprecedented incursion by a Chinese military plane into Japanese airspace was ‘totally unacceptable’ and a threat to national security. The comments by Japan’s chief cabinet secretary, Yoshimasa Hayashi, follow an incident on Monday in which a Chinese Y-9 military reconnaissance plane violated Japanese airspace around the Danjo islands… ‘It was not just a severe violation of Japan’s sovereignty but a threat to our security,’ Hayashi told a press conference…, adding that Japan would take all possible measures to monitor and act against any future violations of airspace.”
August 26 – Reuters (Mikhail Flores, Liz Lee and Bernard Orr): “The Philippine government slammed China… for ‘repeated aggressive, unprofessional and illegal’ actions in the South China Sea after a string of clashes and incidents on air and at sea over the past week. The Philippines' national maritime council said Chinese aircraft made unsafe manoeuvres against a civilian aircraft conducting patrols over the Scarborough shoal and Subi reef. On Sunday, Chinese vessels also ‘blocked, rammed and fired water cannons’ against a government fisheries vessel while doing a resupply mission to Filipino fishermen in Sabina shoal, it said.”
August 27 – Bloomberg (Salma El Wardany): “More than a decade after the US, European and Arab governments helped Libyans overthrow their tyrannical ruler Moammar Al Qaddafi, a lasting peace remains elusive. The country is split between two governments, with disputes running the risk of spiraling into violence. In mid-August, one government’s ousting of the leadership of the central bank, custodian of the OPEC nation’s vast oil wealth, sparked a new standoff and an order by the rival government to halt crude production, which roiled global energy markets.”