Non-Financial Debt (NFD) expanded at a seasonally adjusted and annualized rate (SAAR) of $3.642 TN, up from Q2’s SAAR $3.471 TN for the strongest expansion in a year. For perspective, NFD expanded $2.534 TN in 2007 - an annual record that held all the way to pandemic 2020’s historic $6.797 TN.
Treasury debt expanded SAAR $2.261 TN during Q3, up from Q2’s $1.888 TN, while accounting for 62% of Q3’s growth in NFD (equating to 7.7% of GDP). In nominal dollars, Treasury Securities expanded $683 billion to a record $27.586 TN. Treasuries inflated $1.965 TN, or 7.6%, over the past year, $3.970 TN, or 16.8%, over two years, and $10.957 TN, or 66%, over the past 19 quarters. Since the end of 2007, Treasuries have ballooned $23.093 TN, or 514%.
We’re just talking about electronic IOUs here. Washington (and governments around the world) will lack the resources to ever pay down ballooning debt loads. Yet for now, the irrepressible inflation of these IOUs boosts incomes, spending and GDP, corporate profits, and extreme market exuberance. Importantly, the massive inflation of Treasury IOUs validates debt throughout the entire system, including prices for corporate bonds, MBS, ABS, leveraged loans, municipal debt, and structured finance more generally.
First warning of the unfolding global government finance Bubble in a February 6, 2009, CBB, “Government Finance Bubble”, I had spent the previous years analyzing the critical role of the GSEs and Wall Street “alchemy” in transforming Trillions of risky Credit into perceived money-like (safe and liquid) instruments that enjoyed insatiable boom-time demand. The “moneyness of Credit” dynamic was fundamental to the great mortgage finance Bubble. Early in the post-Bubble reflationary maelstrom, I became worried that guardrails were to be abandoned on government “money” (sovereign debt and central bank Credit) – the foundation of global finance.
This government “money” had unparalleled inflationary potential. Not only would governments and central banks initially enjoy insatiable demand for their IOUs, central banks also have the power to use their liquidity (balance sheets) to bolster the perception of moneyness for government debt, even in the face of massive over-issuance. Moreover, central bank liquidity backstops incentivize speculation, in particular leveraged speculation in government debt (i.e., “basis” and “carry trades”).
In hindsight, it should have been obvious that the Bernanke Fed's revolutionary reflationary tactics would seduce the entire world – and that Mario Draghi’s 2012 “whatever it takes” permutation would further unleash historic global monetary inflation. After all, history is unequivocal: Monetary inflation is such a slippery slope. Government (modern-day electronic) “printing presses” are the most destructive force for stability in finance, economics, and humanity.
We’re in the throes of end-of-super-cycle blowoff excess. Massive fiscal deficits, enormous Treasury “basis trades” and other speculative leverage, parabolic growth in “repo” and money market fund assets, AI and equities manias, along with social, political and geopolitical animus, are not coincidental.
For Q3, growth in Non-Financial Debt is mirrored throughout the overheated financial sphere. The Financial Sector expanded $4.252 TN during Q3 to a record $144.142 TN – with one-year growth of $13.361 TN, or 10.2%. Debt Securities rose $1.235 TN, or 8.2%, to a record $61.461 TN – the strongest quarterly expansion since pandemic Q2 2020. Debt Securities gained $3.342 TN over the past year. For perspective, prior to record 2020 ($6.195 TN), 2007 held the record for annual Debt Securities growth at $2.566 TN. Debt Securities inflated $17.763 TN, or 40.7%, over the past five years.
Agency Securities increased (nominal) $80 billion, boosting Total Treasury and Agency Securities to $39.724 TN, or 135% of GDP. Corporate Bonds jumped $466 billion during Q3, or 11.7% annualized, the strongest quarterly gain since Q2 2021. One-year growth of $1.087 TN would be second only to 2007’s annual record $1.399 TN. The $174 billion (14.6% annualized) growth in Financial Sector bond liabilities was the strongest in 13 quarters, with a one year expansion of $420 billion, or 9.3%.
Equities inflated $5.812 TN during Q3 to a record $91.720 TN. One-year growth of $21.105 TN, or 29.9%, compares to 2003’s pre-2008 crisis annual record gain of $4.385 TN. Over the past five years, Equities inflated $40.950 TN, or 80.7%. At 312%, Q3’s Equities-to-GDP ratio compares to previous cycle peaks 187% (Q3 2007) and 210% (Q1 2000).
Total (Debt and Equities) Securities inflated $7.047 TN, or 19.3% annualized, during Q3 to a record $153.181 TN. One-year growth of $24.447 TN (19.0%) compares to 2006’s cycle peak growth of $5.369 TN and 2021’s (market recovery) annual record of $17.963 TN. Total Securities inflated $58.714 TN, or 62%, over the past 20 quarters, and $107.590 TN, or 236%, since the end of 2008. Total Securities ended Q3 at 522% of GDP, dwarfing cycle peaks 375% (Q3 2007) and 357% (Q1 2000). It’s worth noting that Total Securities ended 2008 below $50 TN, less than the increase over the past five years.
Z.1 data confirm the ongoing historic expansion in speculative finance.
Broker/Dealer Assets surged $341 billion, or 26.3% annualized, during the quarter to a record $5.526 TN. Broker/Dealer Assets expanded $769 billion, or 16.2%, over the past year, and $1.581 TN, or 40%, over 18 quarters. Repo Assets (securities loans) jumped $124 billion, or 28.9% annualized, to a record $1.832 TN. Miscellaneous Assets gained $114 billion to $1.904 TN (most since Q3 ’08). Debt Securities holdings rose $67 billion to $598 billion, with Treasuries increasing $25 billion to $334 billion, and Agencies up $34 billion to $176 billion. On the Liability side, Repos surged $129 billion to surpass $2.5 TN for the first time since Q3 2008.
Total system “Repo” Assets inflated $388 billion, of 22.2% annualized, during Q3 to $7.395 TN – with six-month growth of $678 billion, or 30% annualized. The Broker/Dealer Repo Liability jumped $129 billion to $2.508 TN, with one-year growth of $441.1 billion, or 21.3%. The Rest of World Repo Liability rose $88 billion, or 21.4% annualized, for the quarter, and $261 billion, or 17.7%, y-o-y to a record $1.734 TN.
It's worth noting that the Fed’s Repo Liability declined $153 billion during the quarter to $900 billion. As such, the total system Repo Liability excluding the Fed ended the quarter at a record $5.272 TN, with one-year growth of $654 billion, or 14.2%, and a two-year expansion of $1.645 TN, or 45.4%.
Money Market Fund Assets (MMFA) expanded another $291 billion, or 17.8% annualized, during Q3 to a record $6.839 TN. Money Fund “Repo” holdings expanded $74 billion to $2.688 TN, though growth was impacted by the $153 billion reduction in the Fed’s “Repo” Liability. MMFA Treasury holdings surged $210 billion to $2.660 TN. MMFA expanded $696 billion, or 11.3%, over the past year, and $2.837 TN, or 71%, over 19 quarters.
Banking (“Private Depository Institutions”) system Assets expanded $127 billion, or 1.8% annualized, during Q3 to $27.836 TN. Loans increased at a 2.3% rate ($83bn) to a record $14.696 TN, with one-year growth of $363 billion, or 2.5%. Why lend when there is such easy money to be made financing and purchasing securities? Bank “Repo” Assets increased $77 billion, or 47% annualized, to $729 billion – the strongest expansion since Q2 2020 (one-year growth of $124bn, or 20.4%). Debt Securities holdings surged $220 billion, or 14.5% annualized, to $6.306 TN – the strongest growth since Q4 ‘21. Agency Securities holdings jumped $135 billion (to $3.170 TN), Treasuries $65 billion ($1.670 TN), and Corporate Bonds $21 billion ($958bn).
The Rest of World (ROW) category never fails to intrigue. ROW holdings of U.S. financial assets surged $2.749 TN, or 20.5% annualized, during the quarter to a record $56.368 TN. Debt Securities holdings jumped a quarterly record $826 billion, or 23.4% annualized, to a record $14.935 TN – with one-year growth of $1.869 TN, or 14.3%. Treasury holdings increased $451 billion (to $8.662 TN), Agency Securities $68 billion ($1.402 TN), and Corporate Bonds $297 billion ($4.619 TN). ROW holdings surged $10.509 TN, or 22.9%, over the past year, and $17.652 TN, or 45.6%, over 16 quarters.
The ROW sector is a formidable player in securities finance. “Repo” Liabilities jumped $88 billion (21.4% annualized) during Q3 and $261 billion (17.7%) y-o-y to a record $1.735 TN. “Repo” Assets gained $71 billion (20.6% annualized) for the quarter and $152 billion (11.7%) over the past year – to a record $1.447 TN. Over four years, ROW “Repo” Assets inflated 68% and “Repo” Liabilities 44%. A booming stock market helped ROW Total Equities holdings surge $920 billion for the quarter and $4.182 TN (31.6%) over the past year – to a record $17.403 TN.
The spectacular inflation in (non-financial, financial, and speculative) Credit and securities prices continues to fuel spectacular inflation in perceived wealth. Household Assets jumped $4.940 TN during Q3, or 10.7% annualized, to a record $189.700 TN, with one-year growth of $17.859 TN, or 10.4%. While Real Estate holdings declined slightly to $52.329 TN, Total (Equities and Mutual Funds) Equities jumped $3.519 TN to a record $49.789 TN. Household Liabilities expanded $174 billion (3.4% annualized) to a record $20.900 TN.
Household Net Worth (Assets less Liabilities) inflated $4.766 TN (11.6% annualized) to a record $168.800 TN, with one-year growth of $17.277 TN, or 11.4%. For perspective, Net Worth inflated a then record $4.006 TN in 1999, and a mortgage finance Bubble high of $6.871 TN in 2004. The pre-pandemic record was set with 2019’s $12.710 TN increase. Net Worth inflated $49,873 TN over 17 quarters, or 42%. There’s no mystery surrounding the ongoing economic boom.
Household holdings of Treasuries rose $209 billion to a record $2.826 TN, with Total Deposits growing $202 billion to $14.500 TN, and Money Funds rising $177 billion to a record $4.311 TN. Treasury Holdings inflated $2.135 TN, or 309%, in three years, with Money Market Funds up $1.605 TN, or 59.3%. Perceived safe Household holdings of Total Deposits, Money Funds, Treasuries and Agency Securities (D, MM, T, &A) surged $590 billion (10.5% annualized) during Q3 to a record $23.021 TN. “D, MM, T, &A” was up $1.435 TN, or 6.7%, y-o-y, and $4.500 TN, or 24.3%, over three years.
Household Net Worth ended September at 575% of GDP (versus Q3 ‘23’s 542%). This compares to Q4 2019’s pre-pandemic record 535%, and previous cycle peaks 488% (Q1 2007) and 444% (Q1 2000). Total Household Equities holdings ended the quarter at 170% of GDP, compared to previous cycle peaks 105% (Q2 2007) and 115% (Q1 2000). The American public is all in.
December 12 – Wall Street Journal (Gina Heeb): “The Trump transition team has started to explore pathways to dramatically shrink, consolidate or even eliminate the top bank watchdogs in Washington. In recent interviews with potential nominees to lead bank regulatory agencies, President-elect Donald Trump’s advisers and officials from his newfound Department of Government Efficiency have, for example, asked whether he could abolish the Federal Deposit Insurance Corp., people familiar… said. Advisers have asked the nominees under consideration for the FDIC, as well as the Office of the Comptroller of the Currency, if deposit insurance could then be absorbed into the Treasury Department, some of the people said.”
This is an especially inauspicious environment to be goosing an already overheated financial sector. There has been a post-election window where the bond market has given the new administration the benefit of the doubt. This week, January 20th suddenly seemed to be approaching quickly.
Ten-year Treasury yields surged 24 bps to 4.24% – the largest weekly jump since October 2023. Benchmark MBS yields rose 30 bps to 5.69%. The market closed the week pricing a 93% probability for a 25 bps rate cut next Wednesday. With overheating risks rising and Team Trump ready to hit the ground running next month, you can’t fault the bond market for being apprehensive. The Fed should be on the sidelines.
Bonds were under pressure globally. Despite another ECB rate cut, yields jumped 20 bps in Italy, 19 bps in Portugal, 17 bps in Greece and Spain, 16 bps in France, and 15 bps in Germany. Dollar-denominated yields were up 28 bps in Peru, 21 bps in Mexico, 21 bps in Chile, and 14 bps in Brazil. Local currency yields were 33 bps higher in Colombia, 18 bps in Cyprus, and 16 bps in Poland.
Seems a bit of a race against the clock is materializing. “Risk off” storm clouds appear to be descending on global markets, with only a couple weeks left before Wall Street books a historic year. One of these years, de-risking/deleveraging will momentously impact Z.1 data, along with so much more.
For the Week:
The S&P500 declined 0.6% (up 26.9% y-t-d), and the Dow fell 1.8% (up 16.3%). The Utilities dropped 2.5% (up 19.1%). The Banks slid 2.9% (up 37.2%), and the Broker/Dealers fell 1.9% (up 48.9%). The Transports declined 1.0% (up 5.1%). The S&P 400 Midcaps lost 1.6% (up 17.8%), and the small cap Russell 2000 slumped 2.6% (up 15.8%). The Nasdaq100 added 0.7% (up 29.4%). The Semiconductors rose 1.7% (up 23.3%). The Biotechs dropped 2.7% (up 8.4%). With bullion gaining $15, the HUI gold index added 0.5% (up 22.4%).
Three-month Treasury bill rates ended the week at 4.2175%. Two-year government yields gained 14 bps to 4.24% (down 1bp y-t-d). Five-year T-note yields jumped 21 bps to 4.25% (up 40bps). Ten-year Treasury yields surged 24 bps to 4.40% (up 52bps). Long bond yields rose 27 bps to 4.60% (up 57bps). Benchmark Fannie Mae MBS yields jumped 30 bps to 5.69% (up 42bps).
Italian 10-year yields jumped 20 bps to 3.39% (down 31bps y-t-d). Greek 10-year yields rose 17 bps to 3.07% (down 2bps). Spain's 10-year yields gained 17 bps to 2.93% (down 7bps). German bund yields were 15 bps higher at 2.26% (up 23bps). French yields rose 16 bps to 3.04% (up 48bps). The French to German 10-year bond spread widened one to 78 bps. U.K. 10-year gilt yields jumped 14 bps to 4.41% (up 88bps). U.K.'s FTSE equities index was little changed (up 7.3% y-t-d).
Japan's Nikkei 225 Equities Index added 1.0% (up 17.9% y-t-d). Japanese 10-year "JGB" yields dipped two bps to 1.04% (up 43bps y-t-d). France's CAC40 slipped 0.2% (down 1.8%). The German DAX equities index was about unchanged (up 21.8%). Spain's IBEX 35 equities index dropped 2.6% (up 16.3%). Italy's FTSE MIB index increased 0.4% (up 14.9%). EM equities were mixed. Brazil's Bovespa index fell 1.1% (down 7.1%), while Mexico's Bolsa index gained 0.5% (down 10.0%). South Korea's Kospi rallied 2.7% (down 6.1%). India's Sensex equities index added 0.5% (up 13.7%). China's Shanghai Exchange Index slipped 0.4% (up 14.0%). Turkey's Borsa Istanbul National 100 index increased 0.4% (up 35.5%).
Federal Reserve Credit declined $4.3 billion last week to $6.856 TN. Fed Credit was down $2.039 TN from the June 22, 2022, peak. Over the past 274 weeks, Fed Credit expanded $3.129 TN, or 84%. Fed Credit inflated $4.045 TN, or 144%, over the past 631 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt dropped $20.8 billion last week to $3.296 TN - near the low back to 2017. "Custody holdings" were down $6 billion y-o-y, or 2.%.
Total money market fund assets were unchanged at a record $6.771 TN. Money funds were up $636 billion over 19 weeks (28% annualized) and $884 billion y-t-d (15.6% ann.).
Total Commercial Paper dipped $3.1 billion to $1.157 TN. CP was down $86 billion, or 7.0%, over the past year.
Freddie Mac 30-year fixed mortgage rates bps this week to a six-week low 6.6% (down bps y-o-y). Fifteen-year rates bps to 5.9% (down 3bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates bps to a seven-week low 7.0% (down 4bps).
Currency Watch:
December 11 – Reuters: “China's top leaders and policymakers are considering allowing the yuan to weaken in 2025 as they brace for higher U.S. trade tariffs as Donald Trump returns to the White House. The contemplated move reflects China's recognition that it needs bigger economic stimulus to combat Trump's threats of punitive trade measures, people with knowledge of the matter said. Trump has said he plans to impose a 10% universal import tariff, and a 60% tariff on Chinese imports into the United States. Reuters spoke to three people who have knowledge of the discussions about letting the yuan depreciate…”
December 11 – Reuters (David Lawder): “U.S. Treasury Secretary Janet Yellen said… the U.S. will ‘react strongly’ when countries try to manipulate their currencies for competitive advantage, but at the moment there is not such market intervention. Yellen said… she does not see any threat to the dollar's reserve currency status, as no other currency can rival its global use in financial markets, trade and other transactions.”
December 11 – Financial Times (Harriet Clarfelt): “A surging US dollar and a ‘confluence of bad news’ have sparked the biggest sell-off in emerging market currencies since the early stages of the Federal Reserve’s aggressive rate-raising campaign two years ago. A JPMorgan index of EM currencies has fallen more than 5% over the past two-and-a-half months, putting it on course for its biggest quarterly decline since September 2022. The decline has been broad, with at least 23 currencies tracked by Bloomberg falling against the dollar this quarter.”
For the week, the U.S. Dollar Index gained 0.9% to 107.003 (up 5.6% y-t-d). For the week on the upside, the South African rand increased 0.9%, the Brazilian real 0.5%, the Mexican peso 0.3%, and the Norwegian krone 0.1%. On the downside, the Japanese yen declined 2.4%, the Swiss franc 1.6%, the New Zealand dollar 1.2%, the British pound 1.0%, the South Korean won 0.8%, the euro 0.6%, the Canadian dollar 0.5%, the Australian dollar 0.5%, the Singapore dollar 0.5%, and the Swedish krona 0.4%. The Chinese (onshore) renminbi slipped 0.03% versus the dollar (down 2.39% y-t-d).
Commodities Watch:
December 6 – Bloomberg (Sybilla Gross): “China’s central bank expanded its gold reserves in November, ending a six-month pause in purchases after prices for the precious metal rose to a record. Bullion held by the People’s Bank of China climbed by 160,000 fine troy ounces last month to 72.96 million fine troy ounces… The PBOC had added to its stockpiles for 18 consecutive months up until April this year, helping to underpin the strength in bullion prices.”
December 10 – Bloomberg (Celia Bergin and Mumbi Gitau): “Coffee hit a record high in New York on mounting worries over a global supply crunch that have made it one of the year’s hottest commodities. Major trader Volcafe Ltd. cut its outlook for production at world’s top supplier Brazil after a crop tour revealed the severity of an extended drought… Futures for the arabica variety have surged more than 80% this year amid crop setbacks in key growers… They rose as much as 5.5% on Tuesday, touching the highest in data going back to 1972…”
The Bloomberg Commodities Index rallied 1.2% (unchanged y-t-d). Spot Gold added 0.6% to $2,648 (up 28.4%). Silver declined 1.3% to $30.553 (up 28.4%). WTI crude rallied $4.09, or 6.1%, to $71.29 (down 1%). Gasoline rallied 5.0% (down 5%), and Natural Gas jumped 6.6% to $3.28 (up 31%). Copper was little changed (up 8%). Wheat gained 1.8% (down 12%), and Corn rose 2.6% (down 6%). Bitcoin added $2,350, or 2.4%, to $101,790 (up 140%).
Trump Administration Watch:
December 13 – Wall Street Journal (Alexander Ward and Laurence Norman): “President-elect Donald Trump is weighing options for stopping Iran from being able to build a nuclear weapon, including the possibility of preventive airstrikes, a move that would break with the longstanding policy of containing Tehran with diplomacy and sanctions. The military-strike option against nuclear facilities is now under more serious review by some members of his transition team, who are weighing the fall of the regime of President Bashar al-Assad—Tehran’s ally—in Syria, the future of U.S. troops in the region, and Israel’s decimation of regime proxy militias Hezbollah and Hamas. Iran’s weakened regional position and recent revelations of Tehran’s burgeoning nuclear work have turbocharged sensitive internal discussions, transition officials said.”
December 8 – Axios (Rebecca Falconer and Russell Contreras): “Stephen Miller, the incoming White House deputy chief of staff for policy, on Sunday gave new details on the Trump administration's plan for what he called ‘the largest deportation operation in American history.’ Miller made clear during his interview on Fox News… that deportations would be Trump's no.1 priority ahead of issues including making reforms to tax and trade and the debt ceiling. President-elect Trump has vowed to crack down on immigration and start mass deportations on Day 1 of his presidency… Miller said… that first, incoming Senate Majority Leader John Thune (R-S.D.) and Sen. Lindsey Graham (R-S.C.) have ‘promised that they can get a full funding package for the border, the most significant board of security investment in American history… to the president’s desk in January or early February.’”
December 9 – Associated Press (Thomas Beaumont, Juliet Linderman and Martha Mendoza): “A week after President-elect Donald Trump’s victory, Elon Musk said his political action committee would ‘play a significant role in primaries.’ The following week, the billionaire responded to a report that he might fund challengers to GOP House members who don’t support Trump’s nominees. ‘How else? There is no other way,’ Musk wrote on X… And during his recent visit to Capitol Hill, Musk and entrepreneur Vivek Ramaswamy delivered a warning to Republicans who don’t go along with their plans to slash spending as part of Trump’s proposed Department of Government Efficiency. ‘Elon and Vivek talked about having a naughty list and a nice list for members of Congress and senators and how we vote and how we’re spending the American people’s money,’ said Rep. Marjorie Taylor Greene….”
Trade War Watch:
December 10 – Bloomberg: “China got a head start on a looming trade war with the US by showcasing a new range of tools it’s prepared to use if Donald Trump makes good on his threat to punish the world’s second-biggest economy with tariffs. Restrictions imposed this month by the Biden administration on China’s access to vital components for AI chips provoked Beijing into providing the world a preview of its targets in a second trade war. Days after the curbs, President Xi Jinping opened a probe into Nvidia Corp. and banned the export of several rare materials with military applications. Beijing has also limited sales to the US and Europe of key components used to build drones. Beijing’s response took a page out of the American and European playbook, extending its export control regime to include a ban on selling some goods to the US by applying it to companies both inside and outside China.”
December 12 – Reuters (Gram Slattery): “A top trade adviser to President-elect Donald Trump told Reuters on Thursday that the new administration would not look ‘fondly’ on any attempt by China to manipulate its currency… Peter Navarro, Trump's incoming senior counselor for trade and manufacturing, said the White House would not interfere with the Treasury Department's biannual review looking into whether foreign trade partners are manipulating their currencies.”
December 12 – Wall Street Journal (Rebecca Feng, Heather Somerville and Jon Emont): “During Donald Trump’s first administration, China learned that it couldn’t match the much larger U.S. economy tit-for-tat when it came to tariffs, and quickly found other ways to try to inflict pain—often by borrowing from his playbook. Now, as Trump’s second stint in office approaches, Beijing is brandishing an expanded arsenal of countermeasures that it is likely to draw upon as the president-elect threatens across-the-board tariffs and levies of as high as 60% on Chinese-made goods. In recent days, Beijing has launched a regulatory probe into U.S. semiconductor champion Nvidia, threatened to blacklist a prominent American apparel maker, blocked the export of critical minerals to the U.S. and squeezed the supply chain for drones, offering clues into how non-tariff measures are likely to dominate China’s tool kit.”
December 12 – Associated Press (Elaine Kurtenbach): “The Biden administration plans to raise tariffs on solar wafers, polysilicon and some tungsten products from China to protect U.S. clean energy businesses. The notice from the U.S. Trade Representative’s office said tariffs on Chinese-made solar wafers and polysilicon will rise to 50% from 25% and duties on certain tungsten products will increase from zero to 25%, effective on Jan. 1… ‘The tariff increases announced today will further blunt the harmful policies and practices by the People’s Republic of China,’ USTR Katharine Tai said…”
December 9 – Bloomberg (Amy Thomson): “China has opened a probe into Nvidia Corp. over suspicions that the US chipmaker broke anti-monopoly laws around a 2020 deal, taking aim at the AI heavyweight as Washington ramps up sanctions. The State Administration for Market Regulation opened an investigation into the company’s recent behavior as well as the circumstances surrounding the acquisition of Mellanox Technologies Ltd…”
December 9 – Reuters (Ryan Woo): “Chinese President Xi Jinping said… that China had full confidence in achieving this year's economic growth target and in continuing to play the role of the world's largest engine of economic growth. Xi also said he hoped the United States… would work with China, according to Chinese state media. There will be no winners in tariff wars, trade wars and technology wars, he told the visiting heads of major international economic organisations.”
France Instability Watch:
December 13 – BBC (Paul Kirby): “President Emmanuel Macron has named centrist leader François Bayrou as France's next prime minister, in a bid to end months of political turmoil. Bayrou, a 73-year-old mayor… who leads the MoDem party, said everyone realised the difficulty of the task ahead: ‘I think reconciliation is necessary.’ He is seen by Macron's entourage as a potential consensus candidate and his task will be to avoid the fate of his predecessor. Ex-Brexit negotiator Michel Barnier lasted just three months and was ousted by MPs nine days ago. Macron is half-way through his second term as president and Bayrou will be his fourth prime minister this year.”
Middle East War Watch:
December 11 – Wall Street Journal (Sune Engel Rasmussen and Isabel Coles): “The unexpectedly swift collapse of the Assad regime has left a vacuum in Syria. The powerful militaries arrayed around its borders are rushing to fill it. The U.S. dispatched B-52 bombers to carry out airstrikes against more than 75 Islamic State targets in central Syria. Rebels backed by Turkey attacked Kurdish forces and seized territory in the country’s north. And Israel has bombed hundreds of Syrian military targets across the country, methodically demolishing the capabilities of a longtime enemy. The incursions by various powers ticking off items on long-held wish lists underscore the fragility of the new Syria, where rebel factions that ended more than five decades of Assad family rule are maneuvering for leverage and control.”
December 9 – Axios (Barak Ravid): “The stunning collapse of Syria's Assad regime has sent tremors throughout the Middle East and wider world, launching a new chapter in a great power struggle that has shaped the region for decades. The culmination of 14 years of war in Syria was accelerated by 14 months of war between Israel, Hamas, Hezbollah and other Iranian-backed proxies allied with Syrian President Bashar al-Assad. The architect of Hamas' Oct. 7 attack, Yahya Sinwar, envisioned his ‘big project’ leading to the destruction of Israel by the pro-Iranian ‘axis of resistance.’ By the same token, Russian President Vladimir Putin — a key Assad backer — saw his invasion of Ukraine as the crown jewel in more than a decade of efforts to reclaim Russia's superpower status. Both turned out to be historic miscalculations — with no clearer evidence than the astonishing fall of an Assad family regime on Sunday that had ruled Syria for 53 years.”
December 11 – Financial Times (Bita Ghaffari): “Iran has sought to put a brave face on the sudden overthrow of its Syrian ally Bashar al-Assad, insisting it will continue to confront the US and Israel in the region even after evacuating thousands of its citizens during the rebel takeover of Damascus. Ayatollah Ali Khamenei, Iran’s supreme leader, said… the defeat of the regime in Syria that Iran’s ‘resistance front’ of allies across the Middle East would ‘grow stronger under pressure’ and ‘extend its reach over the entire region’. But Tehran has also acknowledged evacuating its citizens from Syria in the face of the Islamist rebel advance. ‘Over 4,000 Iranian citizens have been flown back home from Syria aboard 10 Mahan Air flights in the past three days,’ said government spokesperson Fatemeh Mohajerani…”
December 9 – Financial Times (Gideon Rachman): “‘Assad must go,’ said Barack Obama in 2013. More than a decade later, the Syrian dictator has gone. But the mood in the US and Europe is wary rather than celebratory. Recent history in the Middle East gives good ground for caution. The toppling of other dictators, such as Saddam Hussein in Iraq and Muammer Gaddafi in Libya, was followed by violent chaos rather than peace and stability. The fact that the force that defeated Assad, Hayat Tahrir al-Sham (HTS), is classified as a terrorist group by the US, UN and a number of European countries adds an extra layer of apprehension. Memories of the rise of Isis in Syria and Iraq in 2014 are also still fresh. Although they would not say it out loud, the US and the Europeans would probably have preferred the devil they know, Assad, to the uncertainties of a new order in Syria in which HTS is the most powerful force. ‘Reformed jihadis sounds like a contradiction in terms to me,’ says one European leader.”
December 9 – Financial Times (Neri Zilber, Raya Jalabi and Heba Saleh): “Israel has taken more Syrian territory, justifying the incursion as a temporary move to protect its citizens but drawing a furious reaction in the region. Defence minister Israel Katz… said the country’s military was continuing to seize ‘high ground’ inside Syria after the toppling of Bashar al-Assad’s regime on Sunday by a group led by the Islamist Hayat Tahrir al-Sham. The movement of tanks and infantry, which extended into and beyond a previously demilitarised buffer zone, was condemned ‘in the strongest possible terms’ by Egypt. Cairo said it amounted to the ‘occupation of Syrian land’ and a ‘severe breach’ of a 1974 armistice deal.”
December 9 – Bloomberg (Selcan Hacaoglu): “Of all the winners and losers from Syria’s sudden change of power, Turkish President Recep Tayyip Erdogan stands out as among those with the most to gain. Erdogan’s clout over his southern neighbor has increased dramatically with the fall of his one-time friend Bashar al-Assad, bolstering his political standing at home and in the international arena. Erdogan is regarded as a hero by thousands of Syrian rebels who succeeded in overthrowing Assad with Turkey’s help... ‘Turkey is the key country,’ ran the headline in Monday’s edition of Istanbul-based Milliyet newspaper as it hailed the country’s role in Syria.”
December 9 – Reuters (Laurie Chen, James Pomfret and Antoni Slodkowski): “Just over a year ago, China gave Bashar al-Assad and his wife a warm welcome during their six-day visit to the country, offering the former Syrian leader a rare break from years of international isolation since the start of a civil war in 2011. As the couple attended the Asian Games, President Xi Jinping vowed to support Assad in ‘opposing external interference’ and in Syria's rebuilding, while his wife Asma was feted in Chinese media. But the abrupt end to the rule of the authoritarian leader so explicitly backed by Xi only last year has dealt a blow to China's diplomatic ambitions in the Middle East and exposed the limits of its strategy in the region, analysts say.”
Ukraine War Watch:
December 13 – Reuters (Anastasiia Malenko and Pavel Polityuk): “Russia hammered Ukrainian energy facilities in a massive aerial attack on Friday that President Volodymyr Zelenskiy said was one of the largest yet on the ailing grid and evidence of why Kyiv needed more Western support before any peace with Russia. Russia's 12th major assault on the energy system this year damaged power facilities in several Ukrainian regions and forced authorities to impose even longer electricity cuts for millions of civilians, the national grid operator said.”
Taiwan Watch:
December 10 – Wall Street Journal (Joyu Wangand Austin Ramzy): “China massed dozens of navy and coast guard vessels in what appears to be the largest maritime exercises targeting Taiwan and the broader Western Pacific since 1996, a potent warning to the incoming Trump administration of China’s increasingly aggressive stance in the region. China’s military didn’t announce the start of any drills. But Taiwanese authorities said… they were seeing ‘major elements of a military drill’ over a vast expanse of air and sea near Taiwan. As of Tuesday morning, nearly 100 Chinese warships and vessels—involving several thousand personnel—were spotted across the South China Sea, in the waters surrounding Japan and South Korea, and around Taiwan… This is likely the first time such a large-scale maritime operation has involved multiple Chinese theater commands and its coast guard, one of the officials said. Additionally, Russian ships were spotted near Japan and South Korea, they said.”
December 11 – Reuters (Michael Martina and David Brunnstrom): “Two senior members of Taiwan's government are in the United States to meet people connected to President-elect Donald Trump's transition team, five sources told Reuters, in an effort by Taiwan to establish ties with the incoming administration. Lin Fei-fan and Hsu Szu-chien, both deputy secretaries-general of Taiwan's National Security Council and several of their staff have traveled to the Washington area for meetings through this week…”
December 10 – Reuters (Ryan Woo, Ben Blanchard and Yimou Lee): “China said… it takes ‘necessary measures’ to defend the country's sovereignty and will not tolerate ‘separatist’ activities, as Taiwan reported another rise in Chinese warplanes around the island and called on Beijing to halt provocations. Beijing's military has yet to comment on the military activity and has not confirmed it is carrying out exercises. A senior Taiwanese official said they believed the surge in activity was meant to send a political message to the incoming administration of U.S. President-elect Donald Trump. A security diplomat in the region briefed on the matter told Reuters the scale and size of the ongoing Chinese operations, including the manpower being dispatched, was ‘unheard of’ in recent years.”
Market Instability Watch:
December 9 – Financial Times (Martin Arnold): “Hedge funds are using leverage to build larger positions in UK government debt, creating potential new risks in the financial system, the Bank of England has warned. Dave Ramsden, a BoE deputy governor, said… that ‘hedge fund leverage and concentration are a specific example of the vulnerabilities that could lead to system-wide risks and warrants continued and careful monitoring’. Giving details of a new funding window for non-banks that the BoE plans to offer in periods of financial stress, Ramsden said the vulnerabilities created by the increased leverage and concentration of hedge funds ‘can amplify shocks. The BoE executive… said the proportion of overall gilt market transactions done by hedge funds had risen from close to 15% in 2018 to almost 30% this year. “
December 8 – Bloomberg (Jeff Black and Joumanna Bercetche): “The incoming US administration’s potential move to raise tariffs on trading partners could combine with conflicts around the globe to increase risk in financial markets next year, according to the chief executive of UBS Group AG. ‘The acceleration of geopolitical events coupled with escalation on the macroeconomic fronts - tariffs, protectionism — it’s definitely something that has to be watched,’ Sergio Ermotti said... ‘It’s still very uncertain, we’re going to see a lot of volatility in markets.’”
December 11 – Wall Street Journal (Jonathan Weil): “There is great appeal in the notion of a simple investment product that can reliably provide double or triple the returns of a popular stock or index. The results have been disappointing, vaporizing billions of dollars, but Wall Street keeps finding plenty of eager buyers. Leveraged exchange-traded funds are having a moment about two years after the first leveraged single-stock ETFs were introduced in the U.S. They typically use derivatives to seek magnified gains. That also will magnify losses. Through November, the size of these funds in the U.S. grew 46% this year to about $137 billion… About $20 billion of them were single-stock funds, up 11-fold year to date. The biggest leveraged ETF, at $25 billion, is the ProShares UltraPro QQQ.”
December 11 – Bloomberg (Hooyeon Kim and Jaehyun Eom): “The Bank of Korea stepped up injections of cash into the financial market as it vowed ‘unlimited liquidity’ in the wake of a flare-up in political turmoil. The central bank added 14.1 trillion won ($9.8bn) last week via so-called repurchase operations… South Korea’s financial authorities have vowed ‘all possible measures’ to keep markets stable following President Yoon Suk Yeol’s martial law imposition…”
Global Credit Bubble Watch:
December 10 – Bloomberg (Bastian Benrath-Wright): “Government borrowing habits pose the biggest danger to world economic stability and recent shifts in market sentiment should serve as a warning, the Bank for International Settlements said. Presenting the final quarterly report of his career at the… institution, senior official Claudio Borio delivered a parting shot to nations, saying that public-finance repair should be prioritized before any alarm among bond investors takes hold. ‘The global fiscal outlook remains acutely worrying,’ the retiring head of the institution’s monetary and economic department told reporters. ‘Government debt trajectories represent the most serious threat to macroeconomic and financial stability.’”
December 10 – Reuters (Naomi Rovnick): “The threat of soaring government debt supply destabilising financial markets has intensified, the world's top central banking advisory body said…, as it urged policymakers to act swiftly to prevent economic damage. Claudio Borio, head of the Bank for International Settlements' monetary and economic department, said he was on alert for a government debt glut causing bond market ructions that could spill over into other assets… ‘Financial markets are beginning to realise they will have to absorb these growing volumes of government debt,’ he said… ‘It takes time for policymakers to adjust policies and if they wait for markets to wake up, it's going to be too late.’”
December 9 – Bloomberg: “China may raise its budget deficit to the highest in three decades and make the deepest interest-rate cuts since 2015 following the boldest stimulus signals from its top leaders in years, according to economists. At least seven Chinese brokerages forecast that next year’s fiscal deficit target could reach 4% of gross domestic product, the widest since a major tax reform in 1994. Beijing has historically kept its budget deficit ratio at or below 3%. Six of the brokerages expect policy rate cuts of 40 to 60 bps next year, echoing earlier predictions from several foreign banks…”
December 9 – Financial Times (Stephen Gandel and Eric Platt): “Investors’ ‘relentless’ appetite for juicy returns has triggered the biggest boom on Wall Street in complex financial products since the lead-up to the global financial crisis in 2007. The global volume of structured finance transactions has hit $380bn this year, according to… LSEG, which excludes real estate and traditional corporate loans. The figure is up by more than a fifth from the same period a year ago and about $1bn more than all of 2021, which had been the previous post-financial crisis peak… Transactions this year have forged bonds that are backed by income tied to the revenues generated by spicy chicken wings, data centres and music catalogues. ‘We have seen standout years with relentless investor appetite and that is what is going on right now,’ said Jay Steiner, who leads US asset-backed securities at Deutsche Bank.”
December 6 – Financial Times (William Cohan): “There is an old idea making new waves on Wall Street. Banks of all stripes are once again moving risk off their balance sheets, in line with the demands of their prudential regulators, to make room for taking on more risk. These so-called ‘credit risk transfers,’ or CRTs, enable banks to sell only the risks associated with various loans, or pools of loans… to third-parties willing to assume those risks and take the associated rewards, or so they hope. They are also known as ‘significant risk transfer’ or SRTs… Since 2017, the global market has grown by 20 to 25% a year, reaching a record $24bn in 2023, according to data from credit investor Chorus Capital. It says there have been $16.6bn of deals this year up to September 30 involving 44 banks.”
AI Bubble Watch:
December 13 – Bloomberg Intelligence (Robert Schiffman): “Following a year of muted issuance of technology debt, periods of lower rates and smaller credit-risk premiums have attracted considerably more tech borrowing in 2024 across the credit curve, a trend that may slow in 2025. Issuance of technology investment grade and high yield and leverage loans has risen 80%, 24% and 155%, respectively.”
December 12 – Bloomberg (Lynn Doan): “It looks easy enough: Ask ChatGPT something, and it responds. But pull back the curtain, and you’ll find that every ChatGPT prompt and Microsoft Copilot task consumes vast resources. Millions of human beings engineering, correcting and training models. Enough terawatt-hours of electricity to power countries. Data center megacampuses around the world. Power line networks and internet cables. Water, land, metals and minerals. Artificial intelligence needs it all, and it will need more. Researchers have estimated that a single ChatGPT query requires almost 10 times as much electricity to process as a traditional Google search. Your typical search engine crawls the web for content that’s filed away in a massive index. But the latest AI products rely on what are known as large language models, or LLMs, which are fed billions of words of text—from the collected works of William Shakespeare to the latest forecasts of the Federal Reserve.”
Bubble and Mania Watch:
December 10 – New York Times (Rob Copeland): “The day after the presidential election, JPMorgan Chase’s chief executive, Jamie Dimon, picked up his phone for a call he had hoped not to make… Trump didn’t pick up, forcing Mr. Dimon to leave a message on his voice mail… The snub… did not dampen the banker’s enthusiasm. Mr. Dimon said a few days later that his industry was ‘dancing in the street’ over Mr. Trump’s win and incoming Republican majorities in the House of Representatives and Senate. These days, it seems that everyone who is anybody on Wall Street… is amped up for Mr. Trump’s return to the Oval Office. In interviews, bankers, lawyers, investors and corporate executives with a wide range of political views said that despite mixed opinions on Mr. Trump’s proposed policies overall, they see in his administration the greatest possibility for a boon to the business world in a generation or more.”
December 12 – Financial Times (Will Schmitt): “Assets in global exchange traded funds have soared to $15tn, powered by a stampede away from mutual funds that underscores how the vehicles are reshaping the asset management industry. Investors have poured $1.7tn into ETFs this year, pushing the industry’s total assets up 30% compared with 2023, according to… ETFGI. The US has been at the centre of the influx of new cash, notching up inflows of more than $1tn... The rush of inflows highlights how investors are turning to ETFs for a wider variety of strategies beyond ‘passive’ index-tracking where the products initially made inroads in the early 1990s.”
December 9 – Wall Street Journal (Kate Abnett and Alison Withers): “Global advertising spending will surpass $1 trillion in 2024, one year earlier than previously expected, according to a forecast from… GroupM. GroupM, a unit of advertising giant WPP… The new forecast projects that global ad revenue will increase 9.5% over the course of 2024, up from its previous estimate of 7.8%, as major ad sellers including Google, Meta Platforms, ByteDance and Amazon.com have seen significant gains. That would mean advertising grew at a faster clip than in 2023, when it increased 8.4%... Media investment firm Magna said ad revenue will reach $933 billion in 2024, up 10.3% over 2023.”
December 10 – Wall Street Journal (Christopher Otts and Stephen Nakrosis): “General Motors has scrapped its Cruise robotaxi program after nearly a decade and $10 billion in development... GM… said it plans to realign its autonomous driving strategy and give priority to development of advanced driver assistance systems, which take over steering and other functions in certain situations and are common on new vehicles today… Major carmakers piled into the driverless-car space about a decade ago, in what was seen as a race with Silicon Valley to revolutionize the way people and goods move around. GM and others struck deals with upstart firms and set ambitious deadlines to commercialize the technology.”
U.S./Russia/China/Europe Watch:
December 12 – Independent (David Maddox): “Nato general secretary Mark Rutte has warned that the west is ‘not ready’ to deal with the threat of war from Vladimir Putin’s Russia. His warning has come amid concerns over the war in Ukraine with the election of Donald Trump as US president and fears he may pull American backing for the conflict… In a forboding speech in Brussels, Mr Rutte said: ‘Russia is preparing for long-term confrontation, with Ukraine and with us.’ ‘We are not ready for what is coming our way in four to five years,’ he added.”
December 10 – Financial Times (Edward White, Christian Davies, Leo Lewis and Demetri Sevastopulo): “Joe Biden boasted that the US, Japan and South Korea had ‘made history’ when the leaders of the three countries held their first-ever trilateral summit at Camp David last year. The meeting could not have taken place without South Korea’s Yoon Suk Yeol, a staunch US supporter who steered rapprochement with Japan while taking a more hawkish stance than his leftwing predecessors towards China and North Korea. With Yoon now facing impeachment…, there are questions over whether a new government in Seoul — likely from the other end of the political spectrum — might complicate Washington’s efforts under Donald Trump to counter the rise of China as a military superpower… ‘The creation of a trilateral security co-operation structure with the US and Japan is the most likely target of an incoming leftwing government, and I think it is quite likely it will be rolled back,’ said Daniel Sneider, a lecturer in east Asian studies at Stanford University. ‘The fact that Trump has shown no interest in that kind of allied effort will make it all the more easy for the South Korean left to back out of this structure.’”
De-globalization Watch:
December 9 – New York Times (Keith Bradsher): “Alarm is rising among multinational companies doing business with China about Beijing’s decision last week to order a trade embargo on the export of four critical minerals to the United States. The central subject of concern is a provision extending the ban to companies in other countries that transfer minerals to American firms after acquiring them from China. The order is the first time China has included a broad ban on so-called transshipment in a government regulation on exports. It also underlines Beijing’s readiness to escalate its tit-for-tat response to the tougher trade policies promised by President-elect Donald J. Trump…The ban by Beijing threatens to divide global supply chains further, by forcing companies to choose whether products with certain materials and components can be supplied only to the American market or only to the Chinese market.”
Inflation Watch:
December 11 – CNBC (Jeff Cox): “Consumer prices rose at a faster annual pace in November, a reminder that inflation remains an issue both for households and policymakers. The consumer price index showed a 12-month inflation rate of 2.7% after increasing 0.3% on the month… The annual rate was 0.1 percentage point higher than October. Excluding food and energy costs, the core CPI was at 3.3% on an annual basis and 0.3% monthly… Used vehicle prices rose 2% monthly while new vehicle prices increased 0.6%... Elsewhere, food costs rose 0.4% monthly and 2.4% year over year, while the energy index increased 0.2%...”
December 9 – Reuters (Michael S. Derby): “U.S. consumers were bracing last month for higher levels of inflation in coming years even as they marked up expectations that their personal financial situations would improve markedly, the New York Federal Reserve reported… Respondents to the regional Fed bank's survey of consumer expectations in November see inflation a year from now at 3%, versus the 2.9% expected in October, while inflation in three years is seen at 2.6%, compared to 2.5% in the previous month. Inflation five years from now is expected to be 2.9%, compared to 2.8% in October.”
December 12 – CNBC (Jeff Cox): “A measure of wholesale prices rose more than expected in November as questions percolated over whether progress in bringing down inflation has slowed… The producer price index, or PPI, which measures what producers get for their products at the final-demand stage, increased 0.4% for the month, higher than the… consensus estimate for 0.2%. On an annual basis, PPI rose 3%, the biggest advance since February 2023.”
December 11 – Yahoo Finance (Brooke DiPalma): “A popular item in American grocery baskets just got more expensive. Egg prices, which are historically volatile, contributed to the stubborn grocery inflation in November. The item saw a 37.5% year-over-year increase — and a 8.2% jump month over month. A dozen large Grade A eggs cost $3.65 on average in November, compared to $3.37 in October.”
December 11 – New York Times (Peter Eavis and Liz Alderman): “Before this year, Tobias Kammann, a German container ship captain, had only once sailed around the southern tip of Africa, and the lack of other vessels in the little-trafficked waters made him feel very much alone. But these days, there are so many ships there, he said, that ‘it’s a bit like the autobahn.’ To get from Asia to Europe and back, global shipping companies have for decades sailed through the Red Sea and the Suez Canal. But a year ago, the Houthi insurgents in Yemen began targeting vessels in the Red Sea with drones and missiles, forcing shipping companies to divert their cargo around the Cape of Good Hope at Africa’s southern tip, a route that is some 3,500 nautical miles and 10 days longer.”
Federal Reserve Watch:
December 13 – Bloomberg (Bill Dudley): “When US Federal Reserve Chair Jerome Powell faces the media after the central bank’s policy-making meeting next week, he’ll probably get a politically fraught question: How will the Fed incorporate president-elect Donald Trump’s stated plans — including tax cuts, tariffs and deportations — into its economic outlook and monetary policy? In November, Powell’s response was categorical: ‘We don’t guess, we don’t speculate, and we don’t assume.’ This time around, he’ll have to be more nuanced. In fact, the Fed can and must at times make assumptions about what politicians will do.”
U.S. Economic Bubble Watch:
December 11 – Reuters (David Lawder): “The U.S. government posted a $367 billion budget deficit for November, up 17% from a year earlier, as calendar adjustments for benefit payments boosted outlays by some $80 billion compared to the same month in 2023… Without the acceleration of December payments for the Medicare and Social Security programs into November, the deficit last month would have been about $29 billion, or 9% lower than last year… the November deficit was a record high for that month. Receipts and outlays also were record highs for the month of November, with receipts up 10% to $302 billion, and outlays up 14% to $669 billion. The deficit for the first two months of the 2025 fiscal year also was a record high for that period - higher than the deficits of the COVID-19 era - reaching $624 billion…”
December 11 – Bloomberg (Viktoria Dendrinou): “The US budget deficit widened once again in the first two months of the fiscal year, driven primarily by higher spending on health, defense and Social Security. The gap for the two months through the end of November was $624 billion… Adjusting for calendar differences, that’s a 19% jump from the previous year. Besides higher outlays, lower tax revenues also drove the widening gap from a year earlier. These, however, were largely due to an influx of deferred tax revenue in late 2023 thanks to filing extensions for those affected by natural disasters the prior year. Taking into account last year’s inflated tax take and adjusting for calendar differences would leave the deficit for the first two months of this fiscal year essentially flat, a Treasury official said.”
December 10 – Bloomberg (Maria Clara Cobo): “US small-business optimism surged in November to a more than three-year high in anticipation of more favorable economic policies after Donald Trump sealed his return to the White House. The National Federation of Independent Business optimism index jumped 8 points, the most on record, to 101.7 — the highest reading since June 2021. The group’s uncertainty gauge dropped 12 points after reaching a record high prior to the presidential election. ‘The election results signal a major shift in economic policy, leading to a surge in optimism among small-business owners,’ Bill Dunkelberg, NFIB chief economist, said... ‘Owners are particularly hopeful for tax and regulation policies that favor strong economic growth as well as relief from inflationary pressures.’”
December 9 – Bloomberg (Jonnelle Marte): “The share of US households expecting their financial situations to improve over the next year climbed in November to the highest level since early 2020… Nearly 38% of consumers foresee being somewhat or much better off, according to… the Federal Reserve Bank of New York. The percentage of people who anticipate a worse financial situation… dropped to the lowest level since May 2021. About 42% of Americans expect conditions to remain roughly the same. ‘Year-ahead expectations about households’ financial situations improved considerably in November,’ the New York Fed wrote…”
December 12 – Associated Press (Matt Ott): “U.S. applications for unemployment benefits jumped to their highest level in two months last week but remain low relative to historical standards. Jobless claim applications climbed by 17,000 to 242,000 for the week of Dec. 7… That’s significantly more than the 220,000 analysts were forecasting. Continuing claims… rose by 15,000 to 1.89 million for the week of Nov. 30.”
December 11 – CNBC (Diana Olick): “Applications to refinance a home loan surged 27% week to week and were 42% higher than the same week one year ago… Applications for a mortgage to purchase a home fell 4% for the week and were 4% higher than the same week one year ago… ‘Purchase applications remained relatively strong and have shown annual gains in all but one week over the past three months. In addition to lower rates, purchase activity continues to be supported by sustained housing demand and inventory that continues to grow gradually in many markets,’ wrote Joel Kan, an MBA economist…”
December 10 – Yahoo Finance (Jordan Weissmann): “Millions of Americans who are behind on their student debt may face a financial shock next year: The federal government is expected to start collecting on defaulted loans for the first time since payments were paused during the pandemic. Though the Biden administration required borrowers to begin making their normal repayments in 2023, it has yet to resume efforts to recover money involuntarily from people with seriously past-due balances. That process can involve garnishing wages, tax refunds, and Social Security benefits, along with formal legal proceedings.”
December 7 – Axios (Ben Berkowitz): “Gen Z's lofty salary goal of nearly $600,000 a year underlies a generational shift to the political right. Young voters were already moving away from a liberal worldview, but if these attitudes hold, the implications for the next few election cycles are profound. Financial services company Empower surveyed more than 2,200 Americans in September and the Gen Z respondents — born between 1997 and 2012 — said they would need to make more than $587,000 a year to be ‘financially successful’… ‘Many people feel they're coming up short — with half believing they're less financially successful compared to others around them,’ Rebecca Rickert, head of communications at Empower, tells Axios. ‘The majority think prosperity is harder to achieve for their generation, which factors into the magic number people attach to success.’”
Fixed Income Watch:
December 10 – Bloomberg (Amanda Albright): “Wall Street’s biggest money managers are zeroing in on a $142 billion segment of the municipal-bond market. There have been 27 muni exchange-traded fund launches this year, marking an annual record as firms like PGIM and Rockefeller Asset Management muscle into the space. That momentum represents a longer-term bet on ETFs that cater to state and local-government debt investors, given it can take years for the products to garner substantive inflows.”
China Watch:
December 13 – Bloomberg: “China’s credit expansion unexpectedly slowed in November as loan demand faltered, signaling increased challenges to economic growth. Aggregate financing, a broad measure of credit, rose 2.34 trillion yuan… That compares with a median forecast of 2.7 trillion yuan by economists…, and an increase of 2.5 trillion yuan in the same month a year ago. Financial institutions offered 580 billion yuan of new loans in the month… The median forecast was 995 billion yuan. Loans extended to the real economy, which exclude those issued to financial institutions, fell to the lowest for the month of November since 2009. That offset elevated government bond issuance to drag down overall credit growth.”
December 9 – Reuters (Ellen Zhang and Kevin Yao): “In one of their most dovish statements in more than a decade, Chinese leaders signalled… they are ready to deploy whatever stimulus is needed to counter the impact of expected U.S. trade tariffs on next year's economic growth. After a meeting of top Communist Party officials, the Politburo, officials said they would switch to an ‘appropriately loose’ monetary policy stance, and ‘more proactive’ fiscal levers. The previous ‘prudent’ stance that the central bank had held for the past 14 years coincided with overall debt - including that of governments, households and companies - jumping more than 5 times.”
December 10 – Financial Times (Cheng Leng, Joe Leahy and Thomas Hale): “Xi Jinping has pledged that China will meet its ambitious GDP growth target of 5% this year and remain the engine of global economic expansion as Beijing steps up efforts to boost flagging investor confidence. The Chinese president’s comments came a day after the country’s leaders eased their monetary policy stance for the first time in 14 years in a bid to tackle entrenched weak consumption and deflationary pressures in the world’s second-largest economy… ‘China has full confidence in achieving this year’s economic growth target and continuing to play its role as the world’s largest economic growth engine,’ Xi told a gathering in Beijing of multilateral institution heads…”
December 9 – Financial Times (Joe Leahy, William Sandlund and Ian Smith): “China’s leaders have changed their stance on monetary policy to ‘moderately loose’ from ‘prudent’ for the first time in 14 years, sending stocks and bond prices higher as investors bet policymakers were taking the economic situation more seriously. The announcement… comes as leaders prepare to hold an annual meeting this month to lay out the economic agenda for next year. The politburo said authorities ‘must implement more proactive fiscal policies and moderately loose monetary policies’. It added that authorities needed to ‘strengthen extraordinary countercyclical adjustments and… vigorously boost consumption, improve investment efficiency and expand domestic demand in all directions’.”
December 12 – New York Times (Meaghan Tobin and John Liu): “China’s top leaders… pledged more stimulus measures to shore up the country’s economy, building on steps they have taken in recent months to bolster growth. At an annual gathering of the Chinese Communist Party and the cabinet, led by… Xi Jinping, officials agreed that the government should allow a bigger budget deficit, borrow more and cut interest rates, the state television broadcaster said… The statements suggest a willingness by Beijing to take more aggressive steps to increase spending, part of a shift that began in September to turn around years of weak consumer demand, lackluster growth and declining prices. China ‘will need to maintain economic growth and maintain overall stability of employment and prices next year,’ the state broadcaster said…”
December 12 – Wall Street Journal (Jason Douglas): “China’s leaders promised more government support for their struggling economy next year as they brace for the return of President-elect Donald Trump and another big showdown over trade. An annual gathering of top officials on the economy concluded with pledges to cut interest rates and boost government borrowing to pep up economic growth… Officials also vowed to stabilize stock and real-estate markets and see off risks from ‘external shocks,’ the report said, a veiled reference to the likelihood of renewed confrontation with Washington over trade, technology and other hot-button issues under a second Trump presidency.”
December 9 – Bloomberg: “Chinese Premier Li Qiang pledged Beijing will do everything possible to boost domestic consumption in an effort to support the country’s economic growth. China will strengthen countercyclical measures and step up implementation of macroeconomic policies to shore up the economy, Li said…”
December 12 – Financial Times (Ryan McMorrow and Cheng Leng): “China’s Communist party leaders have said ‘vigorous’ efforts to boost domestic consumption are the country’s top economic priority at a keenly awaited annual meeting in Beijing. President Xi Jinping and senior party leaders also pledged to increase China’s fiscal deficit and issue more ‘ultra-long’ special bonds at the two-day Central Economic Work Conference, which is used to set the country’s economic policy path for the coming year.”
December 9 – Reuters (Joe Cash): “China's exports slowed sharply and imports unexpectedly shrank in November, in a worrying sign for the world's No. 2 economy as Donald Trump's imminent return to the White House brings fresh trade risks. The disappointing trade figures follow other indicators showing patchy growth in November… Outbound shipments grew 6.7% last month…, missing a forecast 8.5% increase and down from a 12.7% rise in October. Of more concern for authorities, imports shrank 3.9%, their worst performance in nine months…”
Central Bank Watch:
December 12 – Reuters (Francesco Canepa): “The European Central Bank cut interest rates for the fourth time this year… and kept the door open to further easing ahead as inflation closes in on its goal and the economy remains weak. The central bank… reduced the rate it pays on bank deposits, which drives financing conditions in the bloc, to 3.0% from 3.25%. It was at a record 4.0% only in June… ‘Financing conditions are easing, as the Governing Council’s recent interest rate cuts gradually make new borrowing less expensive for firms and households,’ the ECB said. ‘But they continue to be tight because monetary policy remains restrictive and past interest rate hikes are still transmitting to the outstanding stock of credit.’”
December 11 – Reuters (Promit Mukherjee and David Ljunggren): “The Bank of Canada slashed its key policy rate by 50 bps to 3.25%... to help address slower growth, though Governor Tiff Macklem indicated that further cuts would be more gradual and said he does not expect a recession. Canada's economy has been shrinking on a per capita basis for six consecutive quarters and most of the growth observed has been supported by an increase in population.”
December 12 – Reuters (John Revill): “The Swiss National Bank cut its interest rate by 50 bps…, its biggest reduction in almost 10 years, responding to weaker than expected inflation in Switzerland and growing uncertainty about the global economy. The central bank flagged tepid price increases, rising risks around future U.S. economic policy and political hazards in Europe as it reduced its policy rate from 1.0% to 0.5%, the lowest since November 2022.”
Global Bubble Watch:
December 13 – Wall Street Journal (Max Colchester and David Luhnow): “One lesson from an unprecedented year of elections around the world is that voters in industrialized countries are particularly unhappy, ready to boot unpopular leaders out of office and making it more difficult for politicians in power to enact bold programs of change. Rarely have the rich world’s political leaders been so widely disliked. No leader of an industrialized country other than tiny Switzerland has a positive rating, according to a survey of some 25 democracies by pollster Morning Consult. Ruling parties that went to the polls this year largely got a drubbing, including in the U.S. and U.K. President Biden has a 37% approval rating. Canada’s Prime Minister Justin Trudeau has 26% approval, while France’s Emmanuel Macron sits at 19% and German Chancellor Olaf Scholz at 18%, according to Morning Consult.”
Europe Watch:
December 11 – Financial Times (Leila Abboud): “French President Emmanuel Macron is exploring a non-aggression pact with moderate parties of left and right under which he would concede to some of their demands and they would promise not to censure his next prime minister following the unceremonious ousting of Michel Barnier. In an effort to calm the political turmoil in France, Macron… held talks at the Elysée palace with party leaders, during which they laid out their demands and hinted at premiers they would object to… Macron excluded from the talks the far-right Rassemblement National (RN)… and the far-left France Unbowed (LFI), which both teamed up with other leftwing parties to vote out Barnier after just three months in office over his budget plans.”
December 13 – Financial Times (Olaf Storbeck): “Germany faces another year of economic stagnation after the Bundesbank slashed the country’s 2025 growth forecast and warned that a US-led trade war risked pushing it into recession. The central bank said… that Europe’s largest economy would grow by just 0.1% next year. But it added that if President-elect Donald Trump followed through on his threats to impose a 10% tariff on European goods and a 60% levy on Chinese exports, this could knock as much as 0.6 percentage points off Germany’s GDP in 2025.”
Japan Watch:
December 10 – Bloomberg (Yoshiaki Nohara): “Inflation in Japan’s corporate goods prices accelerated to the fastest pace in 16 months, an outcome that points to growing inflationary pressure in the economy and supports the central bank’s further normalization of policy. The measure of input prices for Japanese firms rose 3.7% in November from a year earlier... The gain, led by agricultural products and utilities, was larger than all the estimates…”
December 9 – Bloomberg (Toru Fujioka and Sumio Ito): “The Bank of Japan should raise its benchmark interest rate early, and it faces the risk it has already fallen behind the curve, according to a prominent economics professor who was an adviser to the prime minister. ‘The BOJ had better move early while it can,’ said Hiroshi Yoshikawa, professor emeritus at the University of Tokyo. In a sense, ‘they may already be behind the curve,’ he said…”
December 8 – Wall Street Journal (Megumi Fujikawa): “The Japanese economy grew more quickly than initially estimated in the July-September quarter, fueling expectations that the Bank of Japan will raise interest rates soon and lending further strength to the yen. Real gross domestic product expanded 1.2% on an annualized basis in the quarter…”
December 8 – Reuters (Kantaro Komiya): “Japan's bankruptcy filings this year are set to surpass 10,000 and hit the highest since 2013, private-sector data by Tokyo Shoko Research (TSR) showed… In November, 841 Japanese companies went bankrupt, bringing the January-November tally to 9,164, already exceeding last year's total… The 2024 bankruptcy figure will likely exceed 10,000 for the first time since 2013…”
Emerging Markets Watch:
December 9 – Bloomberg (Alex Vasquez and Maria Eloisa Capurro): “Mexico’s headline inflation slowed slightly more than expected in November, boosting the odds of a fourth straight interest rate cut at the central bank’s meeting next week. Official data… showed consumer prices rose 4.55% from a year prior, under both the 4.6% median estimate…”
December 12 – Bloomberg (Maria Eloisa Capurro): “Brazil’s central bank lifted its key interest rate by one percentage point and surprised investors by promising two more hikes of the same size, its strongest move yet to recover investor confidence and tame inflation expectations that have been propelled by public spending and a hot economy. Board members boosted the Selic to 12.25%... ‘In light of a more adverse scenario for inflation convergence, the Committee anticipates further adjustments of the same magnitude in the next two meetings, if the scenario evolves as expected,’ board members wrote.”
Leveraged Speculation Watch:
December 10 – Bloomberg (Hema Parmar and Katherine Burton): “Hedge funds are going downmarket for their next pot of money: ‘mini-millionaires.’ The trend to attract doctors, lawyers, business owners — or anyone with seven- or eight-figure fortunes — has been gaining velocity as the usual hedge fund clientele of big institutions and the ultra-wealthy become more reticent. All across Wall Street, velvet ropes are coming down. From private-equity players to real estate operators to hot new private-credit funds, nearly everyone is trying to woo the rich-but-not-crazy-rich with promises of an entree to exclusive investments. Others are even talking up the 401(k) crowd — which some on Wall Street cynically refer to as ‘dumb money,’ said Andrew Beer, who runs investment firm DBi.”
December 11 – Bloomberg (Lu Wang): “The near-$5 trillion hedge fund industry is having one of the toughest years in decades in convincing fee-conscious investors to fork out cash for new market players. Despite a spirited pickup in inflows over the third quarter, the challenge is evident in the dwindling number of freshly launched funds and a drop in performance fees. According to… Preqin, a total of 123 firms opened up shop this year through September — poised for the smallest annual tally of new entrants since at least 2000.”
Social, Political, Environmental, Cybersecurity Instability Watch:
December 9 – Reuters (Kate Abnett and Alison Withers): “This year will be the world's warmest since records began, with extraordinarily high temperatures expected to persist into at least the first few months of 2025, European Union scientists said… The data from the EU's Copernicus Climate Change Service (C3S) comes two weeks after U.N. climate talks yielded a $300 billion deal to tackle climate change… C3S said data from January to November had confirmed 2024 is now certain to be the hottest year on record, and the first in which average global temperatures exceed 1.5 degrees Celsius (2.7 F) above the 1850-1900 pre-industrial period. The previous hottest year on record was 2023.”
December 9 – Financial Times (Kenza Bryan and Jana Tauschinski): “Sea surface temperatures remained unusually high across many regions in the Pacific Ocean in November, leaving the world on course for a record warm year, the European Earth observation agency said. The month of November was the second-warmest on record on land and at sea, with air temperatures at 1.62C above pre-industrial levels… The average sea surface temperature for the month was 20.58C. This produced more rainfall than normal in many parts of the world last month, causing flooding, as the warmer air holds more moisture.”
December 7 – New York Times (Lydia DePillis): “As sea levels rise and natural disasters become more intense, homes in low-lying coastal areas or tinder-dry mountains are starting to lose value. That’s a problem for the finances of Fannie Mae and Freddie Mac, the government-sponsored enterprises that back half of the nation’s outstanding mortgages — and keep the residential real estate market liquid by buying mortgages from banks and repackaging them into securities.”
Geopolitical Watch:
December 9 – Bloomberg (Soo-Hyang Choi): “South Korea banned President Yoon Suk Yeol from traveling overseas as a series of probes put the embattled leader at risk of detention over his chaotic declaration of martial law. The Justice Ministry accepted a request for the ban on Monday from the Corruption Investigation Office For High-ranking Officials… Bae was speaking during a parliamentary session. Oh Dong-woon, head of the CIO, didn’t rule out detention when asked by a lawmaker if his office was determined to seek Yoon’s arrest.”
