So much for “risk off,” at least for the week. The Semiconductor Index surged 9.9%, recovering from last week’s 9.2% drubbing. The Nasdaq100 jumped 4.0%, getting back much of last week’s 5.4% loss. After dropping 13.6%, Nvidia this week surged 15.1%. Not for the faint of heart. Bloomberg: “‘AI Craze’ Powers Best Week in 2024 for Stocks.” Also from Bloomberg: “Wall Street Humbled as Fast-Reversing Markets Confound the Pros.”
Did we learn much this week? The bulls have plenty of fight. We would expect nothing less, especially at this point in the cycle. Short squeezes are alive and well. Elon Musk will pick his spots to partake in a favorite pastime: punishing the shorts. Tesla surged 14.4% this week, as market-pleasing talk eclipsed fundamental deterioration. The Goldman Sachs short index jumped 4.3% this week.
The earnings picture was mixed. Alphabet/Google and Microsoft, of course, knocked it out of the park. Things were less than convincing elsewhere. Meta was hit for 7.9%, with the market signaling notable newfound skepticism with the whole AI thing. Intel’s earnings miss (stock down 6.8% this week) was another important indication that all is not well in the semiconductor space, AI boom notwithstanding.
But the bulls wrested back control. The VIX (equities volatility) Index dropped 3.7 points to 15.0. CDS prices reversed sharply lower. After surging 49 bps in four weeks, high yield CDS sank 22 this week to 347 bps. Bank CDS reversed lower. JPMorgan CDS declined three to 46 bps – following a two-week 10 bps surge. European bank CDS more than reversed two weeks of gains.
The equities rally didn’t give fragile global bonds the warm and fuzzies. Neither did U.S. price data (i.e., 3.7% Q1 Core PCE, 3.1% Q1 GDP Price Index, 2.8% y-o-y March monthly Core PCE…). Ten-year Treasury yields added another four bps to 4.66%, trading this week to a six-month high. German bund yields gained eight bps to 2.58%, rising to highs since November. Also trading to six-month highs, UK gilt yields jumped nine bps to 4.32%. Australian 10-year yields surged 27 bps to 4.52%, with New Zealand yields up 19 bps to 4.98%. Japanese JGB yields added four bps to 0.88%.
The Bank of Japan (BOJ) just can’t stop playing with fire. Rates were held unchanged at zero to 0.1% at its Friday policy meeting. The BOJ also stuck with its bond-buying program, pushing out the anticipated shift to QT. The bank was again compelled to reiterate that conditions would remain easy. Meanwhile, the BOJ boosted its forecast of core CPI for the year from 2.4% to 2.8%. Governor Kazuo Ueda conveyed little concern for yen weakness, while downplaying its inflationary impact.
Ueda: “For now, the weak yen has not had a big impact on underlying inflation. But prices are overshooting as a whole, and the chance of inflation moving in line with our forecasts is rising... There’s a risk that we could see a second round of cost-push inflation. The impact of yen moves is usually temporary. But the chance of the impact being prolonged is not zero.”
With Ueda basically announcing, “go ahead and have your way with it”, the market proceeded to take the yen out to the woodshed. The Japanese currency was slammed 1.7% in Friday trading to 158.33 to the dollar – the low all the way back to May 1990. From 151.76 to 158.33 in 13 sessions. If I were a Japanese citizen, I’d be livid.
The BOJ is certainly not oblivious to the imbalances and fragilities propagated from their historic monetary experiment. They are resolved to approach policy “normalization” with extreme caution. I believe the BOJ delayed its policy reversal as it waited for a more hospitable global environment (i.e., waning inflation, lower bond yields, and easier global monetary policy). Japan’s central bank has a gambling problem.
Global inflation is surprising to the upside. Bond yields have generally surged back to highs since November. The Fed has been forced to backtrack from its dovish pivot, with the market now pricing only 34 bps of rate reduction this year. Yen weakness is providing key support to dollar melt-up dynamics, as the BOJ digs in its heels with super-slow-motion “normalization” in a world of fast-moving dynamics. Ueda basically ceded the yen fragility issue to the Ministry of Finance (MOF), affirming Friday it wasn’t in the BOJ’s purview. In a hostile world of daring speculative warfare - with the BOJ relentlessly arming the yen bears - the MOF must fear it’s outgunned.
June Japanese government bond (JGB) futures yields traded to 1.12% Thursday, the high back to November. Yields declined slightly Friday on assurances of ongoing BOJ bond support. Risks are mounting. As global yields march higher, liquidity created for JGB purchases is poised to exacerbate yen weakness. Ominously, the BOJ and Ueda Friday unleashed disorderly currency trading.
Gaining 0.4% in Friday’s session, the Dollar Index ended the week at 105.94. One would typically expect persistent demand for dollars in a “risk off” backdrop. But the dollar has remained notably resilient, whether U.S. stocks are surging or retreating. Moreover, stress associated with dollar strength is gaining important momentum. The Bank of Indonesia surprised markets Wednesday as the first Asian central bank to hike rates to support a vulnerable currency.
April 24 – Bloomberg (Grace Sihombing and Claire Jiao): “Bank Indonesia defied expectations and raised its benchmark interest rate to a record high to help guide the rupiah below the psychological level of 16,000 against the dollar by year-end. The central bank increased the BI-Rate by 25 bps to 6.25% on Wednesday… Global uncertainty has flared up with the dollar’s resurgence and conflict in the Middle East, requiring an ‘anticipatory, forward-looking, and preemptive’ policy response, Governor Perry Warjiyo said in a virtual briefing. The surprise hike could set the tone for other emerging Asian central banks that are having to ramp up their currency defenses…”
Indonesian local currency bond yields surged 15 bps this week to 7.14%. Yields have spiked 47 bps this month, and now approach the multi-year high from the October spike (7.26%). Bonds have been under intense pressure throughout the region. Philippine (dollar) bond yields added five bps this week (5.51%), increasing the April yield spike to 57 bps. Yields are 31 bps higher this month in Singapore (3.38%), 27 bps in South Korea (3.67%), 20 bps in Thailand (2.73%), and 15 bps in Malaysia (3.99%).
Month-to-date currency losses include the Japanese yen's 4.0%, the Philippine peso's 2.5%, Indonesian rupiah's 2.2%, South Korean won's 2.0%, Taiwanese dollar's 1.8%, and the Thai baht's 1.5%. Market concerns are mounting that currency instability is about to intensify.
April 24 – Bloomberg (James Hirai): “The swaps market is flashing warnings there could be a dash for dollar liquidity on a scale last seen at the start of the pandemic, according to Mizuho International Plc. Andra Belcea, head of cross-currency swaps trading at Mizuho, flags the cross-currency basis — a measure of the extra cost non-US banks face when sourcing dollars offshore instead of through their US-based branch. Derived from the cost of exchanging cash flows in one currency for those in another, it shows the cost of dollars is now near the lows seen after central banks took emergency steps to pump liquidity into markets in the wake of the pandemic. ‘Risky asset classes are doing great,’ said Belcea. ‘But the market is wondering when the music will stop.’”
April 25 – Bloomberg (Claire Jiao, Catherine Bosley and Katia Dmitrieva): “Investors are looking for the next policy domino to fall in Asia amid an escalating campaign against a resurgent dollar, after Indonesia used a surprise interest rate hike to defend the rupiah. The currencies of Japan, South Korea, Thailand, Taiwan, Malaysia, the Philippines and India are all trading within sight of multi-year lows, raising the odds for local authorities to take firmer action to stem the slide. Won and ringgit swaps, for example, are already pricing in a less dovish stance by the two local central banks. Indonesia’s unexpected monetary tightening this week demonstrates the precarious position of central banks as they grapple with the outlook of higher-for-longer US interest rates. Policymakers across Asia must choose between damping economic growth or protecting exchange rates that are in free-fall.”
Japan’s predicament is a major issue. Yet the sustainability of China’s currency peg might be the elephant in the market. The yen has devalued 11.3% versus the renminbi over the past year, with the Indonesian rupiah down 4.3%, the Thai baht 3.2%, and the Malaysian ringgit 2.2%.
With China’s apartment Bubble deflation gaining further momentum, Beijing faces huge challenges to attain growth mandates. Maintaining competitiveness for China’s massive export sector will be a top priority. Especially with its archrival’s economy and stock market booming, Beijing is resorting to increasingly desperate measures to hold Bubble deflation at bay. According to Bloomberg, “China’s sovereign wealth fund likely bought at least $43 billion of onshore exchange-traded funds in the first quarter” – and this was only a portion of enormous “national team” market support.
Beijing used to claim they had studied and learned from Japan’s Bubble experience. Chinese officials later criticized U.S. and “western” central banks for adopting inflationary QE measures. Well, look who’s now talking central bank bond buying.
April 22 – Bloomberg: “China’s Ministry of Finance said it supports allowing the central bank to buy and sell government bonds, reaffirming a comment by President Xi Jinping that ignited market speculation about a change of monetary strategy. The ministry called for stepping up coordination between fiscal and monetary policy and ‘improving the mechanisms of base money injection and money supply adjustment,’ in an article written by a study group and published by the People’s Daily... It was based on a recent book that compiled Xi’s statements about finance and economics. In that text, Xi was quoted as saying that the People’s Bank of China should gradually increase the buying and selling of government bonds in open-market operations.”
As Beijing pushes ever harder to sustain its Bubble Economy and thwart systemic debt crisis, the world is watching. Ongoing massive Credit growth ensures an only greater debacle, while Beijing directives are bringing new meaning to “malinvestment.” Importantly, this is not the good old days when perceptions of a great and infallible Beijing meritocracy had global analysts - and rating agencies - reverent and inhibited. The bloom is off the rose, and skepticism is these days palpable.
April 24 – CNBC (Evelyn Cheng): “China’s state-directed economy may be creating the conditions for a new wave of bond defaults that could come as soon as next year, according to an S&P Global Ratings report… It would be the third round of corporate defaults in about a decade, the ratings agency pointed out. It comes against a backdrop of extremely few defaults in China amid concerns about overall growth in the world’s second-largest economy. ‘The real thing to watch for policymakers is whether the current directives are creating distorted incentives in the economy,’ Charles Chang, greater China country lead at S&P Global Ratings, said…”
Meanwhile, governments around the world are on guard. This week from Treasury Secretary Yellen: “So it’s important that China recognize the concern and begin to act to address it… But we don’t want our industry wiped out in the meantime, so I wouldn’t want to take anything off the table.” The U.S. is not alone.
April 26 – Politico (Stuart Lau, Camille Gijs and Koen Verhelst): “For years, Brussels has repeatedly taken an emollient tone with Beijing, seeking ultimately futile dialogue on state subsidies and overcapacity in sectors such as steel, aluminum and green tech, rather than choosing direct confrontation and a tit-for-tat trade war. Now the gloves are off — as the political consensus grows that Europe needs to protect core technologies. The writing has been on the wall since October, when the EU launched a probe into China's state support of electric vehicles. Brussels has now followed up with investigations into wind turbines and hospital equipment to ‘rebalance the EU-China partnership.’”
The U.S., Europe and the “western alliance” are also sick and tired of China’s support for Putin’s Russia. Beijing is also advancing relationships with Iran and North Korea. If I were advising Beijing on measures necessary to underpin the renminbi, I’d start with a simple proposition: have an Opposite Day.
April 26 – Bloomberg (Simon White): “Gold trading in China has exploded and stocks of copper have risen sharply prompting speculation that policymakers are on the brink of a yuan devaluation. Even though it’s still a tail-risk, it’s one requiring greater vigilance as the economy becomes increasingly deflationary, redoubling capital outflow pressures. The yuan has been steadily falling versus the dollar this year. So far the decline has been measured, but activity in commodities has prompted conjecture that China is about to orchestrate a significant one-off yuan devaluation. Futures gold trading in China has moved sharply higher, and the net long position has been rising. Also, there has been a sharp rise in China’s copper stocks. Copper as well as other commodities is used as a source of collateral in China.”
April 25 – Bloomberg (Tania Chen and Ruth Carson): “In the scenario that China devalues its currency, it could prompt other exporter countries in the region to follow suit, according to Jefferies LLC. ‘If China were to devalue by 5% or 10%, then we would see currencies in the region follow suit to the tune of say 3% or 7%, respectively,’ wrote Brad Bechtel global head of foreign-exchange wrote... ‘This would force a more substantial response by everyone in the region.”
April 26 – Reuters: “China’s sliding yuan has been hitting the weak end of the band in so-called cash settlement transactions this week, making it challenging for banks and businesses on the mainland to transact, traders say. Under unrelenting pressure from rising U.S. yields and outflows from China, the yuan is at five-month lows against the dollar and has been declining to near its 2% policy band limit each day. The yuan’s decline to the weak end of the permissible band underscores the heavy demand for dollars and rising depreciation pressures on the currency. Short-term swap markets show deeply skewed demand-supply conditions for the yuan, which could potentially lead to panic and spillovers to bond and equity markets.”
I remember the summer of 1987, watching spiking bond yields and increasingly disorderly currency markets – along with a crazy equities speculative melt-up. There was the 1994 Fed tightening and bond market dislocation that triggered tesobonos deleveraging and currency collapse in Mexico. Then in 1997, after Thailand burned through their international reserves, the collapse of the Thai baht peg ignited a catastrophic domino Asian Tiger collapse. The next year it was Russia and LTCM. The CBB chronicled the acute fragility of Argentina’s dollar currency regime up to its devastating 2002 collapse.
Currency crises are destabilizing and horrible. The current setup is the most alarming I’ve witnessed during my career. It’s not today unreasonable to contemplate China stockpiling gold and commodities ahead of a currency devaluation. Seems reasonable for Asian economies, and EM more generally, to build inventories while they have the liquidity to do so. Reasonable and inflationary. And as financial asset Bubbles turn increasingly vulnerable, a shift towards hard assets becomes all the more compelling. It has the feel of a major cycle in transition. Every reason to expect volatility is here for the duration.
Did we learn much this week? The bulls have plenty of fight. We would expect nothing less, especially at this point in the cycle. Short squeezes are alive and well. Elon Musk will pick his spots to partake in a favorite pastime: punishing the shorts. Tesla surged 14.4% this week, as market-pleasing talk eclipsed fundamental deterioration. The Goldman Sachs short index jumped 4.3% this week.
The earnings picture was mixed. Alphabet/Google and Microsoft, of course, knocked it out of the park. Things were less than convincing elsewhere. Meta was hit for 7.9%, with the market signaling notable newfound skepticism with the whole AI thing. Intel’s earnings miss (stock down 6.8% this week) was another important indication that all is not well in the semiconductor space, AI boom notwithstanding.
But the bulls wrested back control. The VIX (equities volatility) Index dropped 3.7 points to 15.0. CDS prices reversed sharply lower. After surging 49 bps in four weeks, high yield CDS sank 22 this week to 347 bps. Bank CDS reversed lower. JPMorgan CDS declined three to 46 bps – following a two-week 10 bps surge. European bank CDS more than reversed two weeks of gains.
The equities rally didn’t give fragile global bonds the warm and fuzzies. Neither did U.S. price data (i.e., 3.7% Q1 Core PCE, 3.1% Q1 GDP Price Index, 2.8% y-o-y March monthly Core PCE…). Ten-year Treasury yields added another four bps to 4.66%, trading this week to a six-month high. German bund yields gained eight bps to 2.58%, rising to highs since November. Also trading to six-month highs, UK gilt yields jumped nine bps to 4.32%. Australian 10-year yields surged 27 bps to 4.52%, with New Zealand yields up 19 bps to 4.98%. Japanese JGB yields added four bps to 0.88%.
The Bank of Japan (BOJ) just can’t stop playing with fire. Rates were held unchanged at zero to 0.1% at its Friday policy meeting. The BOJ also stuck with its bond-buying program, pushing out the anticipated shift to QT. The bank was again compelled to reiterate that conditions would remain easy. Meanwhile, the BOJ boosted its forecast of core CPI for the year from 2.4% to 2.8%. Governor Kazuo Ueda conveyed little concern for yen weakness, while downplaying its inflationary impact.
Ueda: “For now, the weak yen has not had a big impact on underlying inflation. But prices are overshooting as a whole, and the chance of inflation moving in line with our forecasts is rising... There’s a risk that we could see a second round of cost-push inflation. The impact of yen moves is usually temporary. But the chance of the impact being prolonged is not zero.”
With Ueda basically announcing, “go ahead and have your way with it”, the market proceeded to take the yen out to the woodshed. The Japanese currency was slammed 1.7% in Friday trading to 158.33 to the dollar – the low all the way back to May 1990. From 151.76 to 158.33 in 13 sessions. If I were a Japanese citizen, I’d be livid.
The BOJ is certainly not oblivious to the imbalances and fragilities propagated from their historic monetary experiment. They are resolved to approach policy “normalization” with extreme caution. I believe the BOJ delayed its policy reversal as it waited for a more hospitable global environment (i.e., waning inflation, lower bond yields, and easier global monetary policy). Japan’s central bank has a gambling problem.
Global inflation is surprising to the upside. Bond yields have generally surged back to highs since November. The Fed has been forced to backtrack from its dovish pivot, with the market now pricing only 34 bps of rate reduction this year. Yen weakness is providing key support to dollar melt-up dynamics, as the BOJ digs in its heels with super-slow-motion “normalization” in a world of fast-moving dynamics. Ueda basically ceded the yen fragility issue to the Ministry of Finance (MOF), affirming Friday it wasn’t in the BOJ’s purview. In a hostile world of daring speculative warfare - with the BOJ relentlessly arming the yen bears - the MOF must fear it’s outgunned.
June Japanese government bond (JGB) futures yields traded to 1.12% Thursday, the high back to November. Yields declined slightly Friday on assurances of ongoing BOJ bond support. Risks are mounting. As global yields march higher, liquidity created for JGB purchases is poised to exacerbate yen weakness. Ominously, the BOJ and Ueda Friday unleashed disorderly currency trading.
Gaining 0.4% in Friday’s session, the Dollar Index ended the week at 105.94. One would typically expect persistent demand for dollars in a “risk off” backdrop. But the dollar has remained notably resilient, whether U.S. stocks are surging or retreating. Moreover, stress associated with dollar strength is gaining important momentum. The Bank of Indonesia surprised markets Wednesday as the first Asian central bank to hike rates to support a vulnerable currency.
April 24 – Bloomberg (Grace Sihombing and Claire Jiao): “Bank Indonesia defied expectations and raised its benchmark interest rate to a record high to help guide the rupiah below the psychological level of 16,000 against the dollar by year-end. The central bank increased the BI-Rate by 25 bps to 6.25% on Wednesday… Global uncertainty has flared up with the dollar’s resurgence and conflict in the Middle East, requiring an ‘anticipatory, forward-looking, and preemptive’ policy response, Governor Perry Warjiyo said in a virtual briefing. The surprise hike could set the tone for other emerging Asian central banks that are having to ramp up their currency defenses…”
Indonesian local currency bond yields surged 15 bps this week to 7.14%. Yields have spiked 47 bps this month, and now approach the multi-year high from the October spike (7.26%). Bonds have been under intense pressure throughout the region. Philippine (dollar) bond yields added five bps this week (5.51%), increasing the April yield spike to 57 bps. Yields are 31 bps higher this month in Singapore (3.38%), 27 bps in South Korea (3.67%), 20 bps in Thailand (2.73%), and 15 bps in Malaysia (3.99%).
Month-to-date currency losses include the Japanese yen's 4.0%, the Philippine peso's 2.5%, Indonesian rupiah's 2.2%, South Korean won's 2.0%, Taiwanese dollar's 1.8%, and the Thai baht's 1.5%. Market concerns are mounting that currency instability is about to intensify.
April 24 – Bloomberg (James Hirai): “The swaps market is flashing warnings there could be a dash for dollar liquidity on a scale last seen at the start of the pandemic, according to Mizuho International Plc. Andra Belcea, head of cross-currency swaps trading at Mizuho, flags the cross-currency basis — a measure of the extra cost non-US banks face when sourcing dollars offshore instead of through their US-based branch. Derived from the cost of exchanging cash flows in one currency for those in another, it shows the cost of dollars is now near the lows seen after central banks took emergency steps to pump liquidity into markets in the wake of the pandemic. ‘Risky asset classes are doing great,’ said Belcea. ‘But the market is wondering when the music will stop.’”
April 25 – Bloomberg (Claire Jiao, Catherine Bosley and Katia Dmitrieva): “Investors are looking for the next policy domino to fall in Asia amid an escalating campaign against a resurgent dollar, after Indonesia used a surprise interest rate hike to defend the rupiah. The currencies of Japan, South Korea, Thailand, Taiwan, Malaysia, the Philippines and India are all trading within sight of multi-year lows, raising the odds for local authorities to take firmer action to stem the slide. Won and ringgit swaps, for example, are already pricing in a less dovish stance by the two local central banks. Indonesia’s unexpected monetary tightening this week demonstrates the precarious position of central banks as they grapple with the outlook of higher-for-longer US interest rates. Policymakers across Asia must choose between damping economic growth or protecting exchange rates that are in free-fall.”
Japan’s predicament is a major issue. Yet the sustainability of China’s currency peg might be the elephant in the market. The yen has devalued 11.3% versus the renminbi over the past year, with the Indonesian rupiah down 4.3%, the Thai baht 3.2%, and the Malaysian ringgit 2.2%.
With China’s apartment Bubble deflation gaining further momentum, Beijing faces huge challenges to attain growth mandates. Maintaining competitiveness for China’s massive export sector will be a top priority. Especially with its archrival’s economy and stock market booming, Beijing is resorting to increasingly desperate measures to hold Bubble deflation at bay. According to Bloomberg, “China’s sovereign wealth fund likely bought at least $43 billion of onshore exchange-traded funds in the first quarter” – and this was only a portion of enormous “national team” market support.
Beijing used to claim they had studied and learned from Japan’s Bubble experience. Chinese officials later criticized U.S. and “western” central banks for adopting inflationary QE measures. Well, look who’s now talking central bank bond buying.
April 22 – Bloomberg: “China’s Ministry of Finance said it supports allowing the central bank to buy and sell government bonds, reaffirming a comment by President Xi Jinping that ignited market speculation about a change of monetary strategy. The ministry called for stepping up coordination between fiscal and monetary policy and ‘improving the mechanisms of base money injection and money supply adjustment,’ in an article written by a study group and published by the People’s Daily... It was based on a recent book that compiled Xi’s statements about finance and economics. In that text, Xi was quoted as saying that the People’s Bank of China should gradually increase the buying and selling of government bonds in open-market operations.”
As Beijing pushes ever harder to sustain its Bubble Economy and thwart systemic debt crisis, the world is watching. Ongoing massive Credit growth ensures an only greater debacle, while Beijing directives are bringing new meaning to “malinvestment.” Importantly, this is not the good old days when perceptions of a great and infallible Beijing meritocracy had global analysts - and rating agencies - reverent and inhibited. The bloom is off the rose, and skepticism is these days palpable.
April 24 – CNBC (Evelyn Cheng): “China’s state-directed economy may be creating the conditions for a new wave of bond defaults that could come as soon as next year, according to an S&P Global Ratings report… It would be the third round of corporate defaults in about a decade, the ratings agency pointed out. It comes against a backdrop of extremely few defaults in China amid concerns about overall growth in the world’s second-largest economy. ‘The real thing to watch for policymakers is whether the current directives are creating distorted incentives in the economy,’ Charles Chang, greater China country lead at S&P Global Ratings, said…”
Meanwhile, governments around the world are on guard. This week from Treasury Secretary Yellen: “So it’s important that China recognize the concern and begin to act to address it… But we don’t want our industry wiped out in the meantime, so I wouldn’t want to take anything off the table.” The U.S. is not alone.
April 26 – Politico (Stuart Lau, Camille Gijs and Koen Verhelst): “For years, Brussels has repeatedly taken an emollient tone with Beijing, seeking ultimately futile dialogue on state subsidies and overcapacity in sectors such as steel, aluminum and green tech, rather than choosing direct confrontation and a tit-for-tat trade war. Now the gloves are off — as the political consensus grows that Europe needs to protect core technologies. The writing has been on the wall since October, when the EU launched a probe into China's state support of electric vehicles. Brussels has now followed up with investigations into wind turbines and hospital equipment to ‘rebalance the EU-China partnership.’”
The U.S., Europe and the “western alliance” are also sick and tired of China’s support for Putin’s Russia. Beijing is also advancing relationships with Iran and North Korea. If I were advising Beijing on measures necessary to underpin the renminbi, I’d start with a simple proposition: have an Opposite Day.
April 26 – Bloomberg (Simon White): “Gold trading in China has exploded and stocks of copper have risen sharply prompting speculation that policymakers are on the brink of a yuan devaluation. Even though it’s still a tail-risk, it’s one requiring greater vigilance as the economy becomes increasingly deflationary, redoubling capital outflow pressures. The yuan has been steadily falling versus the dollar this year. So far the decline has been measured, but activity in commodities has prompted conjecture that China is about to orchestrate a significant one-off yuan devaluation. Futures gold trading in China has moved sharply higher, and the net long position has been rising. Also, there has been a sharp rise in China’s copper stocks. Copper as well as other commodities is used as a source of collateral in China.”
April 25 – Bloomberg (Tania Chen and Ruth Carson): “In the scenario that China devalues its currency, it could prompt other exporter countries in the region to follow suit, according to Jefferies LLC. ‘If China were to devalue by 5% or 10%, then we would see currencies in the region follow suit to the tune of say 3% or 7%, respectively,’ wrote Brad Bechtel global head of foreign-exchange wrote... ‘This would force a more substantial response by everyone in the region.”
April 26 – Reuters: “China’s sliding yuan has been hitting the weak end of the band in so-called cash settlement transactions this week, making it challenging for banks and businesses on the mainland to transact, traders say. Under unrelenting pressure from rising U.S. yields and outflows from China, the yuan is at five-month lows against the dollar and has been declining to near its 2% policy band limit each day. The yuan’s decline to the weak end of the permissible band underscores the heavy demand for dollars and rising depreciation pressures on the currency. Short-term swap markets show deeply skewed demand-supply conditions for the yuan, which could potentially lead to panic and spillovers to bond and equity markets.”
I remember the summer of 1987, watching spiking bond yields and increasingly disorderly currency markets – along with a crazy equities speculative melt-up. There was the 1994 Fed tightening and bond market dislocation that triggered tesobonos deleveraging and currency collapse in Mexico. Then in 1997, after Thailand burned through their international reserves, the collapse of the Thai baht peg ignited a catastrophic domino Asian Tiger collapse. The next year it was Russia and LTCM. The CBB chronicled the acute fragility of Argentina’s dollar currency regime up to its devastating 2002 collapse.
Currency crises are destabilizing and horrible. The current setup is the most alarming I’ve witnessed during my career. It’s not today unreasonable to contemplate China stockpiling gold and commodities ahead of a currency devaluation. Seems reasonable for Asian economies, and EM more generally, to build inventories while they have the liquidity to do so. Reasonable and inflationary. And as financial asset Bubbles turn increasingly vulnerable, a shift towards hard assets becomes all the more compelling. It has the feel of a major cycle in transition. Every reason to expect volatility is here for the duration.
For the Week:
The S&P500 rallied 2.7% (up 6.9% y-t-d), and the Dow gained 0.7% (up 1.5%). The Utilities added 1.2% (up 5.4%). The Banks jumped 2.6% (up 6.9%), and the Broker/Dealers rose 3.5% (up 7.6%). The Transports increased 0.6% (down 4.6%). The S&P 400 Midcaps recovered 2.1% (up 4.1%), and the small cap Russell 2000 rallied 2.8% (down 1.2%). The Nasdaq100 jumped 4.0% (up 5.3%). The Semiconductors surged 9.9% (up 13.4%). The Biotechs recovered 1.5% (down 8.9%). While bullion declined $54, the HUI gold index gained 2.4% (up 10.6%).
Three-month Treasury bill rates ended the week at 5.2375%. Two-year government yields added a basis point this week to 4.99% (up 74bps y-t-d). Five-year T-note yields increased two bps to 4.69% (up 84bps). Ten-year Treasury yields gained four bps to 4.66% (up 78bps). Long bond yields added six bps to 4.78% (up 75bps). Benchmark Fannie Mae MBS yields were little changed (5-wk rise of 55bps) to 6.15% (up 88bps).
Italian yields slipped a basis point to 3.93% (up 23bps y-t-d). Greek 10-year yields gained three bps to 3.58% (up 53bps). Spain's 10-year yields rose five bps to 3.36% (up 37bps). German bund yields jumped eight bps to 2.58% (up 55bps). French yields increased five bps to 3.07% (up 51bps). The French to German 10-year bond spread narrowed about three to 49 bps. U.K. 10-year gilt yields jumped nine bps to 4.32% (up 79bps). U.K.'s FTSE equities index jumped 3.1% (up 5.3% y-t-d).
Japan's Nikkei Equities Index recovered 2.3% (up 13.4% y-t-d). Japanese 10-year "JGB" yields gained four bps to 0.89% (up 28bps y-t-d). France's CAC40 increased 0.8% (up 7.2%). The German DAX equities index rallied 2.4% (up 8.4%). Spain's IBEX 35 equities index surged 4.0% (up 10.4%). Italy's FTSE MIB index added 1.0% (up 12.8%). EM equities rallied. Brazil's Bovespa index increased 1.1% (down 5.7%), and Mexico's Bolsa index jumped 3.5% (up 0.8%). South Korea's Kospi index rose 2.5% (unchanged). India's Sensex equities index increased 0.9% (up 2.1%). China's Shanghai Exchange Index gained 0.8% (up 3.8%). Turkey's Borsa Istanbul National 100 index rose 2.3% (up 32.7%). Russia's MICEX equities index slipped 0.6% (up 11.3%).
Federal Reserve Credit declined $20.2bn last week to $7.368 TN. Fed Credit was down $1.522 TN from the June 22nd, 2022, peak. Over the past 241 weeks, Fed Credit expanded $3.641 TN, or 98%. Fed Credit inflated $4.557 TN, or 162%, over the past 598 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt dropped $14.4bn last week to $3.355 TN. "Custody holdings" were down $15.8 billion y-o-y, or 0.5%.
Total money market fund assets increased $9.1bn to $5.977 TN. Money funds were up $769 billion, or 14.8%, y-o-y.
Total Commercial Paper slipped $2.3bn to $1.310 TN. CP was up $161bn, or 14.0%, over the past year.
Freddie Mac 30-year fixed mortgage rates gained seven bps to a five-month high 7.17% (up 83bps y-o-y). Fifteen-year rates rose five bps to a 21-week high 6.44% (up 71bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates up 15 bps to 7.62% (up 68bps) - the high since November 30th.
Currency Watch:
April 22 – Reuters (Leika Kihara and Makiko Yamazaki): “Japanese Finance Minister Shunichi Suzuki said last week's meeting with his U.S. and South Korean counterparts has laid the groundwork for Tokyo to act against excessive yen moves, issuing the strongest warning to date on the chance of intervention. ‘I voiced strong concern on how a weak yen pushes up import costs. Our view was shared not just in a meeting with my South Korean counterpart, but at the trilateral meeting that included the United States,’ Suzuki told parliament…”
April 24 – Bloomberg (Suttinee Yuvejwattana): “Thailand’s central bank said its decision to keep interest rates steady earlier this month provides policymakers options to deal with unexpected global and domestic challenges. Maintaining the benchmark one-day repurchase rate at a decade-high 2.5% gives the monetary authority ‘policy optionality’ to cope with currency volatility and uncertainties stemming from US Federal Reserve policy and geopolitical developments, the Bank of Thailand said…”
For the week, the U.S. Dollar Index slipped 0.2% to 105.94 (up 4.5% y-t-d). For the week on the upside, the Australian dollar increased 1.8%, the Brazilian real 1.7%, the South African rand 1.6%, the British pound 1.0%, the New Zealand dollar 0.9%, the Canadian dollar 0.6%, the South Korean won 0.5%, and the euro 0.4%. On the downside, the Japanese yen declined 2.3%, the Swiss franc 0.4%, the Mexican peso 0.4%, the Norwegian krone 0.1%, the Singapore dollar 0.1%, and the Swedish krona 0.1%. The Chinese (onshore) renminbi declined 0.1% versus the dollar (down 2.02% y-t-d).
Commodities Watch:
April 26 – Wall Street Journal: “Chinese buyers, spooked by a protracted property slump and a recent stock-market rout, are rushing toward gold as economic uncertainty looms… Gold consumption in China rose 5.94% from a year earlier to 308.91 tons in the first quarter, the state-backed China Gold Association said... Meanwhile, China’s imports of gold raw materials surged 78% in the same period, helping the country’s total gold output to jump 21.16%... In January-March, Chinese buyers’ purchase of gold bars and coins rose 26.77% to 106.32 tons, amounting to around a third of total consumption.”
April 22 – Bloomberg: “Copper traded near $10,000 a ton, hitting a new two-year high on its way, as investors continue to pile in on a bet that miners will struggle to service a surge in demand for the bellwether industrial metal. Base metals have posted broad gains in recent weeks, and copper opened Monday with a fresh advance to $9,988 a ton. Signs of improvement in manufacturing activity from the US to China have buoyed metals…”
April 24 – Bloomberg (Pratik Parija and Dayanne Sousa): “Cocoa resumed gains in New York, with prices the most volatile in almost five decades amid uncertainty over a historic crunch and as traders pull out of the market. Futures have soared about 160% already this year as poor West African harvests leave the world desperately short of beans.”
The Bloomberg Commodities Index was little changed (up 4.3% y-t-d). Spot Gold declined 2.3% to $2,338 (up 13.3%). Silver retreated 5.2% to $27.206 (up 14.3%). WTI crude added 54 cents, or 0.6%, to $83.85 (up 17%). Gasoline rallied 1.9% (up 31%), and Natural Gas recovered 9.0% to $1.92 (down 24%). Copper gained 1.2% (up 18%). Wheat surged 9.5% (down 4%), and Corn gained 1.5% (down 7%). Bitcoin declined $375, or 0.6%, to $63,755 (up 50%).
Middle East War Watch:
April 24 – Newsweek (Jon Jackson): “The head of the United Nations' nuclear watchdog said Monday that Iran's recent nuclear activity ‘raises eyebrows,’ adding that Tehran could produce a nuclear bomb within weeks. International Atomic Energy Agency (IAEA) chief Rafael Mariano Grossi made the comments during an interview… The IAEA previously said in a December report that Iran had tripled its uranium enrichment level to 60%. The agency noted that the level was not far away from the weapons-grade threshold of 90%... ‘I have been telling my Iranian counterparts time and again...this [nuclear] activity raises eyebrows and compounded with the fact that we are not getting the necessary degree of access and visibility that I believe should be necessary,’ Grossi told DW.”
April 25 – Bloomberg (Galit Altstein): “Israel is stepping up preparations for a potential all-out war with Hezbollah, as the risk of a devastating new phase in the country’s conflict with Iran and its proxy militias grows more acute. Israeli forces have been exchanging cross-border fire with the Lebanon-based group almost daily since the start of the campaign against Hamas in October, and is now putting in place measures that would enable an escalation of hostilities — if required. Those include additional military exercises for ground, naval and aerial forces in the north of the country… Local leaders in the area have been briefed ‘on the processes to accelerate readiness for continued fighting, the IDF said... Additional storage facilities are being installed to enable a quick and broad mobilization of IDF troops to the front line, the armed forces said.”
April 24 – Financial Times (James Shotter, Neri Zilber, Henry Foy and Felicia Schwartz): “Israel has begun preparations to evacuate civilians from Rafah ahead of a long-expected assault on the city in southern Gaza where the bulk of Hamas’s remaining forces and more than 1mn displaced people are concentrated. Prime Minister Benjamin Netanyahu has repeatedly insisted Israel will launch a ground offensive in Rafah, arguing that it would be impossible to fulfil his country’s goal of destroying Hamas without doing so. However, his government has come under international pressure over its plans, with the US warning that a big operation in Rafah would be a ‘mistake’ and insisting civilians must be moved from the city before any military operation is launched.”
April 24 – Reuters (Dan Williams): “Israel's military is poised to evacuate Palestinian civilians from Rafah and assault Hamas hold-outs in the southern Gaza Strip city, a senior Israeli defence official said…, despite international warnings of humanitarian catastrophe. A spokesperson for Prime Minister Benjamin Netanyahu's government said Israel was ‘moving ahead’ with a ground operation, but gave no timeline. The defence official said Israel's Defence Ministry had bought 40,000 tents, each with the capacity for 10 to 12 people, to house Palestinians relocated from Rafah in advance of an assault.”
Ukraine War Watch:
April 24 – Associated Press (Mary Clare Jalonick, Stephen Groves and Farnoush Amiri): “The Senate has passed $95 billion in war aid to Ukraine, Israel and Taiwan, sending the legislation to President Joe Biden after months of delays and contentious debate over how involved the United States should be in foreign wars. The bill passed the Senate on an overwhelming 79-18 vote… after the House had approved the package Saturday. Biden… said in a statement immediately after passage that he will sign it Wednesday and start the process of sending weapons to Ukraine, which has been struggling to hold its front lines against Russia.”
April 24 – Financial Times (Felicia Schwartz): “The US secretly agreed to send a long-range missile system to Ukraine in February, reversing a decision to withhold the weapons that some in the White House feared could dangerously escalate the war with Russia. President Joe Biden’s decision to reverse course was influenced in part by Russia’s increased attacks on Ukraine’s civilian infrastructure in recent months, as well as the Kremlin’s use of North Korean ballistic missiles, according to Jake Sullivan, the US national security adviser. Other US officials said the Army Tactical Missile System, or Atacms, arrived in Ukraine last week. The Ukrainian military immediately used the system to attack an airfield in Crimea and a Russian troop position.”
April 23 – Financial Times (Max Seddon and Christopher Miller): “Russia has threatened to step up its attacks on logistics centres and storage facilities for western weapons in Ukraine, in Moscow’s first direct response to the passage of US military aid for Kyiv. Russian defence minister Sergei Shoigu said… his country had ‘dispelled the myth of the superiority of western weaponry’ as his forces held the initiative along the frontline and were advancing against outmanned and outgunned Ukrainian forces. ‘Our high combat potential allows us to constantly rain fire on the enemy and stop him from holding the line of defence,’ Shoigu said…”
April 24 – Reuters (Tom Balmforth): “Drones sent by Ukraine's SBU security service struck two Rosneft-owned oil depots in Russia's Smolensk region in an overnight attack… ‘The SBU continues to effectively destroy military infrastructure and logistics that provide fuel to the Russian army in Ukraine,’ the source said. ‘These facilities are and will remain our absolutely legitimate targets.’”
Taiwan Watch:
April 24 – Reuters (Ben Blanchard and Liz Lee): “Taiwan President Tsai Ing-wen said… she was happy the U.S. Congress had passed a sweeping foreign aid package which includes arms support for the island, as China urged Washington to stop selling weapons to Taipei. The United States is Taiwan's most important international backer and arms supplier even in the absence of formal diplomatic ties. China… has repeatedly demanded arms sales stop… In Beijing, China's Taiwan Affairs Office expressed anger at the bills… The bills ‘send the wrong signal to Taiwan independence separatist forces, and we are resolutely opposed to it’, spokesperson Zhu Fenglian told reporters. ‘We urge the United States to take concrete actions to fulfil its commitment not to support Taiwan independence and to stop arming Taiwan in any way,’ she added.”
Market Instability Watch:
April 22 – Reuters (Nell Mackenzie): “Global hedge fund borrowing rose to a five-year high in the week to April 19, a Goldman Sachs note showed, as hedge funds ramped up trading to take advantage of the first sharp dip in U.S. and European stocks this year. Banks give hedge funds leverage, essentially a loan to fund investing, which amplifies hedge fund returns but can also increase losses. Gross leverage, or total borrowing, reached 270% after rising 2.6 points from the prior week, Goldman said…”
April 22 – Bloomberg (Carolina Mandl): “The global hedge fund industry ended the first quarter with a record $4.3 trillion in assets, data provider HFR said… The industry added $190 billion in assets in the first quarter, the sixth consecutive quarter of growth... Hedge funds' performance was the main driver of asset growth, as funds went up 4.52% in the first quarter, according to the HFRI Fund Weighted Composite index. The industry also added $16.6 billion in net new money in the quarter, especially to equity and event-driven hedge fund strategies.”
April 22 – Bloomberg (Finbarr Flynn): “South Korea is emerging as a closely watched weak link in the $63 trillion world of shadow banking. Real estate exposure has been showing cracks at home and abroad after interest rates rose, prompting financial firms… to express concern about stress in shadow loans to the sector. Delinquency rates at one key group of Korean lenders nearly doubled to 6.55% last year, while economists at Citigroup Inc. estimate 111 trillion won ($80bn) of project-finance debt is ‘troubled.’ Korean shadow-bank financing to the real estate sector rose to a record 926 trillion won last year, over four times the level a decade ago… Policymakers have stemmed contagion risks by expanding certain loan guarantees…”
Global Credit Bubble Watch:
April 22 – Financial Times (Huw van Steenis): “Private credit firms have enjoyed a ‘golden moment’, as Blackstone president Jonathan Gray put it last year, while banks have been on the back foot from the sharpest increase in interest rates in 45 years. In 2023, these non-bank lenders funded a whopping 86% of leveraged loans, up from 61% in 2019, according to PitchBook LCD. But one year on from the failures of Silicon Valley Bank and Credit Suisse, the strongest banks are ramping up their lending into the broadly syndicated bank loan markets… In the first quarter, 28 companies arranged bank loans to refinance $11.8bn of debt that was previously provided by private credit firms, according to PitchBook... Put another way, banks have been able to claw back just over half of the $20bn that shifted in favour of private credit firms in 2023.”
April 24 – Bloomberg (Allison McNeely and Marion Halftermeyer): “Private equity firms are attempting to get blanket permission to borrow against their funds’ assets — a trend that’s exasperating some investors. Stone Point Capital, which is raising money for its 10th buyout fund, is one such firm. It included language in its fund agreement allowing it to borrow against the vehicle’s assets at any time…”
April 24 – Bloomberg (Hannah Benjamin-Cook): “Investors clamoring for yield before central banks start cutting rates have placed strong bids for a new 30-year bond from Greece. Orders for the sovereign’s €3 billion ($3.2bn) syndicated sale of June 2054 notes topped €33 billion… That’s just short of a previous record of €35 billion of orders reached on… 10-year notes in January…”
Bubble and Mania Watch:
April 22 – Wall Street Journal (Matt Wirz): “Giant investment companies are taking over the financial system. Top firms now control sums rivaling the economies of many large countries. They are pushing into new business areas, blurring the lines that define who does what on Wall Street and nudging once-dominant banks toward the sidelines. Today, traditional and alternative asset managers control twice as many assets as U.S. banks, giving them increasing control over the purse strings of the U.S. economy. The firms—such as Blackstone, Franklin Templeton, BlackRock and KKR—are becoming more complex and more similar to one another all at once. Investors say this creates risks that markets have never encountered before… In 2008, U.S. banks and fund managers were roughly neck and neck at about $12 trillion of assets. Today, traditional asset managers, private-fund managers and hedge funds control about $43.5 trillion, nearly twice the banks’ $23 trillion…”
April 24 – Financial Times (Joshua Franklin): “JPMorgan… chief executive Jamie Dimon said the US economy was ‘booming’ but warned that he was ‘on the cautious side’ of there being a soft landing. In a wide-ranging interview on Tuesday at the Economic Club of New York, Dimon said the state of the US economy was ‘unbelievable’ and had been ‘booming for a while’… He cited a saying from his early days on Wall Street, ‘something like, ‘The markets will do whatever they have to do to hurt the most people.’ This may be one of those set-ups.’”
April 24 – Bloomberg (Junyi Wu): “Tesla’s consumers in China can buy Model 3 with zero down payment with special interest rate, the company says in a Weibo post.”
April 24 – Bloomberg (Miranda Davis and Shruti Date Singh): “Chicago Bears officials alongside Mayor Brandon Johnson unveiled plans for a $4.7 billion project to build a publicly owned, enclosed stadium and enhanced lakefront area. The proposal involves erecting a new stadium that would cost about $3.2 billion. The stadium will have a translucent roof and massive windows showcasing the Chicago skyline.”
April 23 – Wall Street Journal (Jack Pitcher): “Cathie Wood’s investors are jumping ship. They rushed into her funds and won big during the pandemic, when the star fund manager became a social-media sensation by making bold bets on disruptive technology stocks such as Tesla, Zoom Video Communications and Roku… Investors have pulled a net $2.2 billion from the six actively managed exchange-traded funds at her ARK Investment Management this year…”
AI Bubble Watch:
April 21 – Financial Times (Christian Davies): “Outside the town of Yongin, 40 kilometres south of Seoul, an army of diggers is preparing for what South Korea’s president has described as a global ‘semiconductor war’. The diggers are moving 40,000 cubic metres of earth a day, cutting a mountain in half as they lay the foundations for a new cluster of chipmaking facilities that will include the world’s largest three-storey fabrication plant. The 1,000-acre site, a $91bn investment by chipmaker SK Hynix, will itself only be one part of a $471bn ‘mega cluster’ at Yongin that will include an investment of 300tn won ($220bn) by Samsung Electronics. The development is being overseen by the government amid growing anxiety that the country’s leading export industry will be usurped by rivals across Asia and the west.”
April 20 – Financial Times (Tom Wilson and Malcolm Moore): “The world’s largest commodity traders are investing heavily in data processing and analysis in a race to develop a technological edge over rivals. Groups such as Vitol and Trafigura, which traditionally relied on political connections, handshakes and logistical skill to move natural resources from remote locations to willing buyers, are increasingly focused on how to apply artificial intelligence in the most physical of industries. ‘In a way it’s an arms race,’ Russell Hardy, chief executive of Vitol, the world’s biggest oil trader, told the FT Commodities Global Summit...”
April 23 – Reuters (Sourasis Bose): “A spike in power usage from artificial intelligence (AI) data centers could significantly boost natural gas demand in the second half of the decade, analysts at investment banker Tudor Pickering Holt & Co said… As much as 8.5 billion cubic feet per day of natural gas could be required additionally to match the rise in demand, the report added.”
Bank Watch:
April 26 – Bloomberg (Bre Bradham): “Republic First Bank became the latest smaller lender to succumb to pressures of higher interest rates on Friday when it was closed by regulators — with most of its deposits and assets acquired by Fulton Bank… Republic First… had about $6 billion of assets and $4 billion of deposits at the end of January. The Philadelphia-based bank had struggled with similar issues as other regional lenders: high interest rates that translated into unrealized losses on loans and securities, leading to the collapse last year of Silicon Valley Bank, Signature Bank and First Republic.”
U.S./Russia/China/Europe Watch:
April 26 – Reuters (Simon Lewis): “U.S. Secretary of State Antony Blinken raised concerns… about China's support for Russia's military, one of the many issues threatening to sour the recent improvement in relations between the world’s biggest economies. Blinken raised the matter during five-and-a-half hours of talks with China’s top diplomat Wang Yi in Beijing… ‘I reiterated our serious concern about the PRC providing components that are powering Russia's brutal war of aggression against Ukraine… China is the top supplier of machine tools, microelectronics, nitrocellulose, which is critical to making munitions and rocket propellants, and other dual-use items that Moscow is using to ramp up its defence industrial base.’”
April 22 – CNBC (Holly Ellyatt): “Russia warned Monday that the risk of a ‘direct military clash’ between Russia and nuclear powers in the West is rising. ‘Westerners are dangerously balancing on the brink of a direct military clash between nuclear powers, which is fraught with catastrophic consequences,’ Russian Foreign Minister Sergey Lavrov said… The comments come after Russia reacted angrily to the U.S. House of Representatives passing a $61 billion foreign aid package for Kyiv…”
April 25 – Financial Times (Joe Leahy): “China has warned the US that Washington and Beijing must choose between ‘confrontation or co-operation’ as secretary of state Antony Blinken began an official visit during which he is expected to deliver an ultimatum over the war in Ukraine. Blinken met the powerful Shanghai Communist party boss Chen Jining…, ahead of talks with China’s central leadership including foreign minister Wang Yi in Beijing over the next two days. ‘Whether China and the US choose co-operation or confrontation, it affects the wellbeing of both peoples, of nations and also the future of humanity,’ said Chen.”
April 23 – Bloomberg (Ben Westcott): “China needs to take a stand over Russia’s invasion of Ukraine and rein in its enormous trade surplus with the European Union if it is committed to improving relations, the bloc’s top diplomat in Asia said. China’s ongoing support for Russia after it attacked Ukraine is a ‘big issue’ in tensions between Brussels and Beijing, Niclas Kvarnstrom, managing director for Asia at the European External Action Service, said… ‘It’s not something that we can ignore in any of our relationships,’ Kvarnstrom said. ‘As a geopolitical actor, we have to stand up for ourselves, and that’s what we are doing on the economic imbalances and on our own security.’”
April 23 – Bloomberg: “Russia’s Security Council Secretary Nikolai Patrushev and China’s security chief Chen Wenqing discussed strengthening ties between the special services and law enforcement agencies of their two countries at talks on Tuesday. Patrushev and Chen, the Chinese Communist Party Politburo member in charge of security and law enforcement agencies, met in St. Petersburg on the sidelines of an international conference of intelligence chiefs… Iran’s National Security Council chief, Ali Akbar Ahmadian, has also arrived in St. Petersburg for the conference and is due to hold talks with Patrushev, as well as with representatives of Brazil, South Africa, China, India and Iraq…”
April 23 – Bloomberg (Iain Marlow): “Russia’s ‘complete embrace’ of North Korea could increase Kim Jong Un’s appetite for risk when it comes to threatening South Korea and exporting weapons abroad, as well as helping Pyongyang ignore Washington’s call to return to nuclear talks, a senior Biden administration official said. As North Korea ships weapons to help power President Vladimir Putin’s war in Ukraine, Pyongyang has benefited from the ‘whole gamut’ of improved diplomatic ties with Russia… ‘This could lend this once-isolated country the luster of legitimacy that it does not deserve, and it should not have,’ Pak said. ‘We’re concerned about what that might do to make Kim think that his leash is longer than it really is, and how that might figure into Kim’s risk calculus.’”
April 23 – Reuters (Andrew Hayley): “Russia remained China’s top oil supplier in March…, as refiners snapped up stranded Sokol shipments. China's imports from Russia, including supplies via pipelines and sea-borne shipments, jumped 12.5% on the year to 10.81 million metric tons, or 2.55 million barrels per day (bpd) last month… That was quite close to the previous monthly record of 2.56 million bpd in June 2023.”
April 25 – Reuters (Michael Martina, David Brunnstrom, Antoni Slodkowski, and Guy Faulconbridge): “China is providing moorage for a U.S.-sanctioned Russian cargo ship implicated in North Korean arms transfers to Russia, according to satellite images…, as U.S. concerns grow over Beijing's support for Moscow's war in Ukraine. Britain's Royal United Services Institute (RUSI) think tank said the Russian vessel Angara, which since August 2023 has moved to Russian ports thousands of containers believed to contain North Korean munitions, has been anchored at a Chinese shipyard in eastern Zhejiang province...”
De-globalization and Iron Curtain Watch:
April 24 – Wall Street Journal (Ian Talley and Alan Cullison): “The U.S. is drafting sanctions that threaten to cut some Chinese banks off from the global financial system, arming Washington’s top envoy with diplomatic leverage that officials hope will stop Beijing’s commercial support of Russia’s military production… But as Secretary of State Antony Blinken heads to Beijing on Tuesday, the question is whether even the threat of the U.S. using one of its most potent tools of financial coercion can put a dent in complex and burgeoning trade between Beijing and Moscow that has allowed the Kremlin to rebuild a military badly mauled by more than two years of fighting in Ukraine.”
Inflation Watch:
April 26 – CNBC (Jeff Cox): “Inflation showed little signs of letting up in March, with a key barometer the Federal Reserve watches closely showing that price pressures remain elevated. The personal consumption expenditures price index excluding food and energy increased 2.8% from a year ago in March… That was above the 2.7% estimate… Including food and energy, the all-items PCE price gauge increased 2.7%... On a monthly basis, both measures increased 0.3%, as expected and equaling the increase from February… Personal spending rose 0.8% on the month… Personal income increased 0.5%, in line with expectations and higher than the 0.3% increase the previous month. The personal saving rate fell to 3.2%, down 0.4 percentage points from February and 2 full percentage points from a year ago as households dipped into savings to keep spending afloat.”
April 25 – Financial Times (Susannah Savage): “Energy and other commodity prices are unlikely to continue to be a major deflationary force in the coming years, according to the World Bank, hampering central banks in their efforts to cut interest rates. The multilateral lender said… that the sharp decline in commodity prices over the past two years had come to a halt, as geopolitical tensions tighten supplies and demand for industrial metals and those used in the energy transition continues to grow… ‘Global inflation remains undefeated,’ said Indermit Gill, the World Bank Group’s chief economist and senior vice-president. ‘A key force for disinflation — falling commodity prices — has essentially hit a wall. That means interest rates could remain higher than currently expected this year and next. The world is at a vulnerable moment: a major energy shock could undermine much of the progress in reducing inflation over the past two years,’ he added.”
Federal Reserve Watch:
April 25 – Bloomberg (Reade Pickert): “The central bank has to ‘recalibrate’ after a string of higher-than-hoped inflation data, Federal Reserve Bank of Chicago President Austan Goolsbee said… ‘I always say, one month is no months, but three months — that’s at least one real month,’ Goolsbee told the Wall Street Journal. ‘Now that we’re seeing — after six, seven months of very strong improvement and close-to-2% inflation — something that’s well above that, we have to recalibrate, and we have to wait and see.’”
Biden Administration Watch:
April 22 – Reuters (Alessandra Galloni and David Lawder): “The Biden administration is not taking any options off the table to respond to China's excess industrial capacity, which is a top concern for the U.S. and its allies, U.S. Treasury Secretary Janet Yellen told Reuters… China exporting its way to full employment is not acceptable to the rest of the world, Yellen said… Yellen added that the problem will not be resolved ‘in a day or a week.’ ‘So it’s important that China recognize the concern and begin to act to address it… But we don't want our industry wiped out in the meantime, so I wouldn't want to take anything off the table.’”
U.S. Economic Bubble Watch:
April 25 – CNBC (Jeff Cox): “U.S. economic growth was much weaker than expected to start the year, and prices rose at a faster pace… Gross domestic product…, in the January-through-March period, increased at a 1.6% annualized pace when adjusted for seasonality and inflation… There was some bad news on the inflation front as well. The personal consumption expenditures price index, a key inflation variable for the Federal Reserve, rose at a 3.4% annualized pace for the quarter, its biggest gain in a year and up from 1.8% in the fourth quarter. Excluding food and energy, core PCE prices rose at a 3.7% rate, both well above the Fed’s 2% target.”
April 25 – Associated Press (Matt Ott): “Fewer Americans applied for unemployment benefits last week… The Labor Department reported Thursday that unemployment claims for the week ending April 20 fell by 5,000 to 207,000 from 212,000 the previous week. That's the fewest since mid-February… In total, 1.78 million Americans were collecting jobless benefits during the week that ended April 13. That's 15,000 fewer than the previous week.”
April 24 – CNBC (Diana Olick): “Mortgage rates rose for the third straight week last week, hitting the highest level since November… The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) increased to 7.24% from 7.13%... Applications for a mortgage to purchase a home fell 1% for the week and were 15% lower than the same week one year ago. As home prices rise along with interest rates, potential buyers’ purchasing power are suffering a double whammy.”
April 23 – Reuters (Lindsay Dunsmuir): “U.S. business activity cooled in April to a four-month low due to weaker demand, while rates of inflation eased slightly even as input prices rose sharply… S&P Global said… its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, fell to 50.9 this month from 52.1 in March… The S&P Global survey's measure of new orders received by private businesses dropped to 48.4 from 51.7 in March, the first decline in six months, while its measure of prices paid for inputs declined to 56.5, off the six-month high of 58.7 reached in March... The output prices gauge fell to 54.1, off the ten-month high of 56.4 recorded in March…”
April 23 – Bloomberg (Michael Sasso): “Sales of new homes in the US bounced back broadly in March as an abundance of inventory helped drive prices lower. New single-family home sales increased 8.8% to a 693,000 annual pace last month, the fastest since September… Sales rose in all four regions, and the rate of purchases exceeded most estimates… While the resale market is struggling with a lack of inventory, builders are stepping in to fill the void. The supply of new homes for purchase rose to 477,000 in the month, the highest since 2008. Of those, the number of completed homes jumped to the highest since 2010.”
April 22 – Reuters (Nupur Anand): “U.S. borrowers on lower incomes are increasingly struggling to keep up with their loan payments, according to recent data and bank executives, prompting banks to become more cautious about dishing out credit cards and car loans. A growing number of Americans have seen their savings dwindle as rising prices squeeze budgets while interest rates stay high, bankers and economists said. The deterioration in household finances for those earning less than $45,000 contrasts with financial resilience among those on higher incomes.”
April 23 – Yahoo Finance (Dani Romero): “Homebuilder PulteGroup (PHM) said… a chronic housing shortage in the US presents the company with an opportunity to grow its market share. ‘After more than a decade of underbuilding, it is estimated that our country has a structural shortage of several million homes,’ PulteGroup CEO Ryan Marshall said…”
Fixed Income Watch:
April 24 – Bloomberg (Immanual John Milton and Carmen Arroyo): “As investors seeking safer bets clamor for asset-backed securities, Wall Street is turning to increasingly unconventional debt to package into the bonds, including art loans and internet addresses. Esoteric ABS deals — backed by collateral other than student, auto, credit card and equipment loans — have risen to about 31% of the ABS market from 9% over the last decade, according to Barclays… A number of esoteric ABS transactions have been seen in the past few weeks. Global internet provider Cogent Communications is offering a $206 million bond backed by internet protocol addresses… Auction house Sotheby’s recently sold $700 million of bonds backed by personal loans made to art collectors, and investors also snapped up $570 million of notes backed by fitness franchise royalty payments. The last two transactions were upsized during marketing, stoked by investor appetite for the non-traditional debt.”
April 26 – Bloomberg (Scott Carpenter): “Commercial real estate was one of the scariest assets in the US last year. This year, investors are warming to it once again — and that’s helped revive a key property debt market. Investors have snapped up about $24.6 billion of new commercial mortgage backed securities so far in 2024, 170% more than the same period in 2023… Spreads on the riskiest portions of CMBS deals have been among the top performers compared to other widely traded types of credit.”
China Watch:
April 23 – Bloomberg: “China’s sovereign wealth fund likely bought at least $43 billion of onshore exchange-traded funds in the first quarter, Bloomberg’s analysis shows, shedding light on the extent of state rescue to stem a market tailspin… The first-quarter buying is more than six times the estimated $6.8 billion purchase by the National Team in the second half of 2023, when state funds were just beginning to prop up stocks. The large-scale buying gives investors a sense of how far the government is willing to go to rescue markets in times of panic… The CSI 300 Index has rebounded about 10% since a February trough, partly aided by the state measures.”
April 22 – Bloomberg (Lorretta Chen and Pearl Liu): “A Chinese tycoon who had snapped up mansions and offices in Hong Kong and London faces demands from banks to repay more than $200 million of loans for which he and his family had provided personal guarantees… Nanyang Commercial Bank Ltd. has demanded payment from Chen Hongtian, chairman of Hong Kong-based investment company Cheung Kei Group, and his wife, Chen Li Ni Yao… Each has provided personal guarantees for the loans…”
April 23 – CNN (Nectar Gan, Hassan Tayir and Martha Zhou): “Multiple days of heavy rains have lashed southern China, unleashing deadly floods and threatening to upend the lives of tens of millions of people as rescuers rush to evacuate residents trapped by rising waters. Guangdong province, an economic powerhouse home to 127 million people, has seen widespread flooding that has forced more than 110,000 people to be relocated… Since April 16, sustained torrential rains have pounded the Pearl River Delta, China’s manufacturing heartland and one of the country’s most populated regions, with four weather stations in Guangdong registering record rainfall for April.”
April 26 – Bloomberg (Linda Lew): “China will give a one-time subsidy of as much as 10,000 yuan ($1,380) to consumers who trade in their old vehicles and buy a newer model. Drivers who trade in electric vehicles or hybrids registered before 2018, or gasoline cars that don’t comply with China’s 2007 emissions standards, and purchase a new qualifying vehicle will get 10,000 yuan, the Ministry of Commerce said…”
Central Banker Watch:
April 22 – Reuters (Francesco Canepa): “European Central Bank officials are sticking to plans to cut interest rates multiple times this year, even as higher U.S. inflation delays a pivot to looser policy by the U.S. Federal Reserve and tensions in the Middle East keep oil prices high. Investors are rethinking what they expected to be a global easing cycle after stubbornly strong U.S. price growth slowed the Fed's plan to start lowering borrowing costs, which had been seen as the starting gun for other central banks.”
April 24 – Reuters (Balazs Koranyi): “Euro zone inflation could still prove stubborn so a European Central Bank rate cut in June will not necessarily be followed by further policy easing, Bundesbank President Joachim Nagel said… The ECB has essentially promised a rate cut at its next policy meeting on June 6 but policymakers are still debating the rate path beyond that and signals from the U.S Federal Reserve that its own easing could be delayed clouds the outlook further… ‘Such a step would not necessarily be followed by a series of rate cuts," Nagel said... ‘Given the current uncertainty, we cannot pre-commit to a particular rate path.’”
April 26 – Bloomberg (Bastian Benrath): “Global events continue to threaten Switzerland’s price stability despite the country’s strong record on inflation, Swiss National Bank President Thomas Jordan warned. ‘In the current environment uncertainty remains elevated, and new shocks can occur at any time… We will therefore monitor the ongoing development of inflation closely and adjust our monetary policy again if necessary.’”
Global Bubble Watch:
April 23 – Reuters (Stella Qiu): “Australian consumer price inflation slowed less than expected in the first quarter as service cost pressures stayed stubbornly high, a disappointing result for policymakers that led markets to abandon hopes for any rate cuts this year… Spooked markets even moved to price in a minimal chance - about 4% - of a rate hike by August, while pricing out almost any bet of a rate cut this year.”
Europe Watch:
April 23 – Bloomberg (Alexander Weber and Zoe Schneeweiss): “Euro-area private-sector activity advanced to the highest level in almost a year, driven by a buoyant services sector and Germany’s return to growth… S&P Global’s purchasing managers’ index increased to 51.4 in April, stronger than the 50.7 predicted by economists… Germany was above that key mark for the first time since June…”
April 24 – Bloomberg (Mark Schroers and Alexander Weber): “German business sentiment improved to its highest level in a year — reinforcing recent signs that Europe’s largest economy is exiting two years of struggles. An expectations gauge by the Ifo institute rose to 89.9. in April from a revised 87.7 the previous month... ‘Sentiment has improved at companies in Germany,’ Ifo President Clemens Fuest said.”
April 24 – Bloomberg (Eamon Akil Farhat): “Grid limitations in parts of France are constraining power exports, pushing up prices in neighboring countries. The capacity for transmitting electricity to Belgium, Germany, Switzerland and Italy has been reduced since early March, according to French power-grid operator RTE. That’s depriving those nations of exports of cheaper French nuclear power and boosting wholesale prices across the region. The constraints should be resolved by early May, according to RTE, but more curbs are likely from mid-August.”
April 24 – Financial Times (Joshua Oliver): “European commercial real estate deal making fell to a 13-year low at the start of 2024, as fading hopes of imminent interest rate cuts prolonged the slump in property markets. Transaction volumes of €34.5bn in the first quarter were 26% lower than the already depressed levels in the same period last year, the seventh successive quarter of declines… Fewer offices buildings changed hands than in any quarter on record.”
Japan Watch:
April 26 – Bloomberg (Toru Fujioka and Sumio Ito): “The Bank of Japan held interest rates steady and simplified its language on bond-buying and policy, an outcome that pushed the yen down to a fresh 34-year low and stirred up market jitters. The BOJ Friday kept the range for its benchmark rate between 0% and 0.1% as widely expected by economists at the conclusion of its meeting, according to a pared-back statement with only a few lines. The central bank didn’t signal a reduction of its bond purchases, saying instead it would buy them in line with its March decision.”
April 26 – Bloomberg (Shoko Oda): “The yen’s relentless decline risks pushing power prices higher for Japan’s households and businesses. Japan buys its fuel in US dollars, and the weak yen makes it more expensive. That will exacerbate an already expected increase in power prices over the next few months, as the government removes subsidies and increases a surcharge to support green energy. ‘Fuel costs are reflected in power bills, so a weak yen isn’t good for customers,’ said Takeshi Hayashi, the vice manager of the Tokyo branch for Shikoku Electric Power Co. Japan imports roughly all of its fossil fuels, and costs are automatically passed onto the consumer.”
EM Watch:
April 25 – Bloomberg (Marcus Wong): “Emerging Asia’s worst-performing sovereign bonds are at risk of further declines as the Philippine central bank looks to delay monetary easing due to inflation fears and a weak peso. The Bangko Sentral ng Pilipinas has said interest-rate cuts may be pushed back, given higher consumer prices and the Federal Reserve’s less-dovish pivot. The BSP has had to contend with the country’s history of intense price pressures, and Barclays Bank Plc calls it the region’s most ‘inflation-sensitive’ central bank.”
April 26 – Reuters: “India’s foreign exchange reserves fell for a second consecutive week and stood at a six-week low of $640.33 billion as of April 19… The reserves fell by $2.83 billion in the reporting week, adding to the previous week's $5.4 billion drop. The Reserve Bank of India (RBI) intervenes in the foreign exchange market to curb excess volatility in the rupee.”
April 22 – Bloomberg (Tania Chen and Betty Hou): “Taiwan’s government bonds are falling out of favor as traders fear stubborn inflation amid a solid economic outlook may pressure policymakers to hike interest rates again. Bearish sentiment peaked Monday as five-year government bonds were auctioned at a yield of 1.63%, the highest level since 2008. The yield on the island’s benchmark 10-year notes has risen 46 bps this year, with a spike in March as the central bank unexpectedly raised borrowing costs to combat price pressure.”
Leveraged Speculation Watch:
April 22 – Bloomberg (Justina Lee): “It was an irresistible pitch. Give us your money, executives at Ray Dalio’s Bridgewater Associates and other hedge funds said, and we’ll funnel it into a money-minting, sure-thing strategy for the long haul. But now, after five years of sub-par returns, many of the institutional investors who sunk large sums into risk-parity funds, as they’re known, are demanding the money back. Investors including public pensions in New Mexico, Oregon and Ohio have yanked out cash, slashing the size of the funds by an estimated $70 billion from their peak three years ago.”
April 26 – Bloomberg (Kerim Karakaya): “Emerging-market currencies will be attractive for carry traders as hawkishness has been spreading from the Federal Reserve to many developing central banks, according to strategists from Citigroup Inc. and JPMorgan... ‘We have made the case in the past that emerging-market carry was historically high but would likely have normalized by mid-2024. This now looks less likely, keeping the carry baskets more attractive,’ Citi strategists… said... ‘Hawkishness has been spreading from the Fed to many EM central banks, which is not atypical in a strong dollar environment.’”
April 24 – Financial Times (Costas Mourselas): “Computer-driven hedge funds that bet on trends in financial markets are enjoying strong returns as bets on soaring cocoa prices and a sinking Japanese yen have borne fruit. Quantitative funds have gained 12% for the year to the end of March, according to… Société Générale, with names such as Man Group, Aspect Capital and Winton among those profiting.”
Social, Political, Environmental, Cybersecurity Instability Watch:
April 23 – Axios (Erica Pandey): “All eyes are on America’s college campuses as simmering tensions over the Israel-Hamas war boil over into outright confrontation… The growing intensity of pro-Palestinian protests has been met with an aggressive crackdown from school administrators and police — leading to a wave of arrests, suspensions and class cancellations. The spreading protests come as the death toll in Gaza rises past 34,000… Student protesters are calling for administrators to divest from companies with ties to Israel and support a ceasefire. Jewish students on several campuses say criticism of Israel has veered into antisemitism and made them feel unsafe... The scale of the unrest is beyond anything universities have experienced since the latest Israeli-Palestinian turmoil began in the wake of Oct. 7.”
April 24 – Axios (Andrew Freedman): “A hotter-than-usual summer is likely to occur in the U.S. and many other parts of the globe, according to new forecasts and scientific research… Extreme heat is a major public health threat and plays a role in droughts and wildfires. Hot weather, particularly when it occurs during prolonged heat waves, also threatens the reliability of the nation's increasingly strained electricity grid… An ongoing El Niño event in the tropical Pacific Ocean is quickly fading… A La Niña climate cycle is expected to take shape, which features cooler-than-average tropical Pacific Ocean temperatures, later this summer. Some studies show that these transitions are associated with hotter-than-average summertime conditions across large parts of the U.S., centered across the Midwest. The transition will also influence conditions around the globe, as the planet nears its 11th straight month with record warm temperatures.”
April 24 – Bloomberg (Leslie Kaufman): “Seven property insurers in Florida went bankrupt in 2021 and 2022. The bankruptcies left thousands of homeowners scrambling to get new coverage, which often came with a big increase in cost. Worse, many had outstanding claims for hurricane damage that had not been addressed… In fact, nearly 20% of the companies doing business in Florida that Demotech rated as financially stable went insolvent during the period 2009 to 2022…”
April 23 – Financial Times (Attracta Mooney): “Intense heatwaves in India, Thailand and Bangladesh and fatal floods in China and Pakistan this week have coincided with the latest UN weather agency warning that climate change is causing major repercussions across Asia. More than 100,000 people have been evacuated from Guangdong province in China in recent days as heavy rainfall led to flooding. Pakistan has also experienced heavier rainfall than usual in recent weeks, with officials warning of a heavy loss of life. At the same time, in India temperatures are forecast to exceed 40C in many parts, while temperatures were already more than 40C in areas of Bangladesh, Thailand, Laos, Philippines, Myanmar and Indonesia.”
Geopolitical Watch:
April 22 – Reuters (Anna Ringstrom): “Global military expenditure grew 7% to $2.43 trillion in 2023, the steepest annual rise since 2009 as international peace and security deteriorated, a leading think-tank said…, The Stockholm International Peace Research Institute NATO (SIPRI) said… the United States, China and Russia were the top spenders in 2023. Nan Tian, senior researcher at SIPRI's Military Expenditure and Arms Production Programme, said: ‘States are prioritising military strength but they risk an action–reaction spiral in the increasingly volatile geopolitical and security landscape.’”
April 24 – Bloomberg (Soo-Hyang Choi and Jon Herskovitz): “North Korea sent its highest-level delegation to Iran in about five years as the US raised concerns that arms sales from Pyongyang and Tehran have helped fuel conflicts in the Middle East and Russia’s war in Ukraine. In a rare public report of the trip, the official Korean Central News Agency said… the North Korean delegation led by External Economic Relations Minister Yun Jong Ho left Pyongyang for Tehran on Tuesday. Yun had traveled to Russia earlier in April and has featured prominently in state media as a key player… between Pyongyang and Moscow.”
The S&P500 rallied 2.7% (up 6.9% y-t-d), and the Dow gained 0.7% (up 1.5%). The Utilities added 1.2% (up 5.4%). The Banks jumped 2.6% (up 6.9%), and the Broker/Dealers rose 3.5% (up 7.6%). The Transports increased 0.6% (down 4.6%). The S&P 400 Midcaps recovered 2.1% (up 4.1%), and the small cap Russell 2000 rallied 2.8% (down 1.2%). The Nasdaq100 jumped 4.0% (up 5.3%). The Semiconductors surged 9.9% (up 13.4%). The Biotechs recovered 1.5% (down 8.9%). While bullion declined $54, the HUI gold index gained 2.4% (up 10.6%).
Three-month Treasury bill rates ended the week at 5.2375%. Two-year government yields added a basis point this week to 4.99% (up 74bps y-t-d). Five-year T-note yields increased two bps to 4.69% (up 84bps). Ten-year Treasury yields gained four bps to 4.66% (up 78bps). Long bond yields added six bps to 4.78% (up 75bps). Benchmark Fannie Mae MBS yields were little changed (5-wk rise of 55bps) to 6.15% (up 88bps).
Italian yields slipped a basis point to 3.93% (up 23bps y-t-d). Greek 10-year yields gained three bps to 3.58% (up 53bps). Spain's 10-year yields rose five bps to 3.36% (up 37bps). German bund yields jumped eight bps to 2.58% (up 55bps). French yields increased five bps to 3.07% (up 51bps). The French to German 10-year bond spread narrowed about three to 49 bps. U.K. 10-year gilt yields jumped nine bps to 4.32% (up 79bps). U.K.'s FTSE equities index jumped 3.1% (up 5.3% y-t-d).
Japan's Nikkei Equities Index recovered 2.3% (up 13.4% y-t-d). Japanese 10-year "JGB" yields gained four bps to 0.89% (up 28bps y-t-d). France's CAC40 increased 0.8% (up 7.2%). The German DAX equities index rallied 2.4% (up 8.4%). Spain's IBEX 35 equities index surged 4.0% (up 10.4%). Italy's FTSE MIB index added 1.0% (up 12.8%). EM equities rallied. Brazil's Bovespa index increased 1.1% (down 5.7%), and Mexico's Bolsa index jumped 3.5% (up 0.8%). South Korea's Kospi index rose 2.5% (unchanged). India's Sensex equities index increased 0.9% (up 2.1%). China's Shanghai Exchange Index gained 0.8% (up 3.8%). Turkey's Borsa Istanbul National 100 index rose 2.3% (up 32.7%). Russia's MICEX equities index slipped 0.6% (up 11.3%).
Federal Reserve Credit declined $20.2bn last week to $7.368 TN. Fed Credit was down $1.522 TN from the June 22nd, 2022, peak. Over the past 241 weeks, Fed Credit expanded $3.641 TN, or 98%. Fed Credit inflated $4.557 TN, or 162%, over the past 598 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt dropped $14.4bn last week to $3.355 TN. "Custody holdings" were down $15.8 billion y-o-y, or 0.5%.
Total money market fund assets increased $9.1bn to $5.977 TN. Money funds were up $769 billion, or 14.8%, y-o-y.
Total Commercial Paper slipped $2.3bn to $1.310 TN. CP was up $161bn, or 14.0%, over the past year.
Freddie Mac 30-year fixed mortgage rates gained seven bps to a five-month high 7.17% (up 83bps y-o-y). Fifteen-year rates rose five bps to a 21-week high 6.44% (up 71bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates up 15 bps to 7.62% (up 68bps) - the high since November 30th.
Currency Watch:
April 22 – Reuters (Leika Kihara and Makiko Yamazaki): “Japanese Finance Minister Shunichi Suzuki said last week's meeting with his U.S. and South Korean counterparts has laid the groundwork for Tokyo to act against excessive yen moves, issuing the strongest warning to date on the chance of intervention. ‘I voiced strong concern on how a weak yen pushes up import costs. Our view was shared not just in a meeting with my South Korean counterpart, but at the trilateral meeting that included the United States,’ Suzuki told parliament…”
April 24 – Bloomberg (Suttinee Yuvejwattana): “Thailand’s central bank said its decision to keep interest rates steady earlier this month provides policymakers options to deal with unexpected global and domestic challenges. Maintaining the benchmark one-day repurchase rate at a decade-high 2.5% gives the monetary authority ‘policy optionality’ to cope with currency volatility and uncertainties stemming from US Federal Reserve policy and geopolitical developments, the Bank of Thailand said…”
For the week, the U.S. Dollar Index slipped 0.2% to 105.94 (up 4.5% y-t-d). For the week on the upside, the Australian dollar increased 1.8%, the Brazilian real 1.7%, the South African rand 1.6%, the British pound 1.0%, the New Zealand dollar 0.9%, the Canadian dollar 0.6%, the South Korean won 0.5%, and the euro 0.4%. On the downside, the Japanese yen declined 2.3%, the Swiss franc 0.4%, the Mexican peso 0.4%, the Norwegian krone 0.1%, the Singapore dollar 0.1%, and the Swedish krona 0.1%. The Chinese (onshore) renminbi declined 0.1% versus the dollar (down 2.02% y-t-d).
Commodities Watch:
April 26 – Wall Street Journal: “Chinese buyers, spooked by a protracted property slump and a recent stock-market rout, are rushing toward gold as economic uncertainty looms… Gold consumption in China rose 5.94% from a year earlier to 308.91 tons in the first quarter, the state-backed China Gold Association said... Meanwhile, China’s imports of gold raw materials surged 78% in the same period, helping the country’s total gold output to jump 21.16%... In January-March, Chinese buyers’ purchase of gold bars and coins rose 26.77% to 106.32 tons, amounting to around a third of total consumption.”
April 22 – Bloomberg: “Copper traded near $10,000 a ton, hitting a new two-year high on its way, as investors continue to pile in on a bet that miners will struggle to service a surge in demand for the bellwether industrial metal. Base metals have posted broad gains in recent weeks, and copper opened Monday with a fresh advance to $9,988 a ton. Signs of improvement in manufacturing activity from the US to China have buoyed metals…”
April 24 – Bloomberg (Pratik Parija and Dayanne Sousa): “Cocoa resumed gains in New York, with prices the most volatile in almost five decades amid uncertainty over a historic crunch and as traders pull out of the market. Futures have soared about 160% already this year as poor West African harvests leave the world desperately short of beans.”
The Bloomberg Commodities Index was little changed (up 4.3% y-t-d). Spot Gold declined 2.3% to $2,338 (up 13.3%). Silver retreated 5.2% to $27.206 (up 14.3%). WTI crude added 54 cents, or 0.6%, to $83.85 (up 17%). Gasoline rallied 1.9% (up 31%), and Natural Gas recovered 9.0% to $1.92 (down 24%). Copper gained 1.2% (up 18%). Wheat surged 9.5% (down 4%), and Corn gained 1.5% (down 7%). Bitcoin declined $375, or 0.6%, to $63,755 (up 50%).
Middle East War Watch:
April 24 – Newsweek (Jon Jackson): “The head of the United Nations' nuclear watchdog said Monday that Iran's recent nuclear activity ‘raises eyebrows,’ adding that Tehran could produce a nuclear bomb within weeks. International Atomic Energy Agency (IAEA) chief Rafael Mariano Grossi made the comments during an interview… The IAEA previously said in a December report that Iran had tripled its uranium enrichment level to 60%. The agency noted that the level was not far away from the weapons-grade threshold of 90%... ‘I have been telling my Iranian counterparts time and again...this [nuclear] activity raises eyebrows and compounded with the fact that we are not getting the necessary degree of access and visibility that I believe should be necessary,’ Grossi told DW.”
April 25 – Bloomberg (Galit Altstein): “Israel is stepping up preparations for a potential all-out war with Hezbollah, as the risk of a devastating new phase in the country’s conflict with Iran and its proxy militias grows more acute. Israeli forces have been exchanging cross-border fire with the Lebanon-based group almost daily since the start of the campaign against Hamas in October, and is now putting in place measures that would enable an escalation of hostilities — if required. Those include additional military exercises for ground, naval and aerial forces in the north of the country… Local leaders in the area have been briefed ‘on the processes to accelerate readiness for continued fighting, the IDF said... Additional storage facilities are being installed to enable a quick and broad mobilization of IDF troops to the front line, the armed forces said.”
April 24 – Financial Times (James Shotter, Neri Zilber, Henry Foy and Felicia Schwartz): “Israel has begun preparations to evacuate civilians from Rafah ahead of a long-expected assault on the city in southern Gaza where the bulk of Hamas’s remaining forces and more than 1mn displaced people are concentrated. Prime Minister Benjamin Netanyahu has repeatedly insisted Israel will launch a ground offensive in Rafah, arguing that it would be impossible to fulfil his country’s goal of destroying Hamas without doing so. However, his government has come under international pressure over its plans, with the US warning that a big operation in Rafah would be a ‘mistake’ and insisting civilians must be moved from the city before any military operation is launched.”
April 24 – Reuters (Dan Williams): “Israel's military is poised to evacuate Palestinian civilians from Rafah and assault Hamas hold-outs in the southern Gaza Strip city, a senior Israeli defence official said…, despite international warnings of humanitarian catastrophe. A spokesperson for Prime Minister Benjamin Netanyahu's government said Israel was ‘moving ahead’ with a ground operation, but gave no timeline. The defence official said Israel's Defence Ministry had bought 40,000 tents, each with the capacity for 10 to 12 people, to house Palestinians relocated from Rafah in advance of an assault.”
Ukraine War Watch:
April 24 – Associated Press (Mary Clare Jalonick, Stephen Groves and Farnoush Amiri): “The Senate has passed $95 billion in war aid to Ukraine, Israel and Taiwan, sending the legislation to President Joe Biden after months of delays and contentious debate over how involved the United States should be in foreign wars. The bill passed the Senate on an overwhelming 79-18 vote… after the House had approved the package Saturday. Biden… said in a statement immediately after passage that he will sign it Wednesday and start the process of sending weapons to Ukraine, which has been struggling to hold its front lines against Russia.”
April 24 – Financial Times (Felicia Schwartz): “The US secretly agreed to send a long-range missile system to Ukraine in February, reversing a decision to withhold the weapons that some in the White House feared could dangerously escalate the war with Russia. President Joe Biden’s decision to reverse course was influenced in part by Russia’s increased attacks on Ukraine’s civilian infrastructure in recent months, as well as the Kremlin’s use of North Korean ballistic missiles, according to Jake Sullivan, the US national security adviser. Other US officials said the Army Tactical Missile System, or Atacms, arrived in Ukraine last week. The Ukrainian military immediately used the system to attack an airfield in Crimea and a Russian troop position.”
April 23 – Financial Times (Max Seddon and Christopher Miller): “Russia has threatened to step up its attacks on logistics centres and storage facilities for western weapons in Ukraine, in Moscow’s first direct response to the passage of US military aid for Kyiv. Russian defence minister Sergei Shoigu said… his country had ‘dispelled the myth of the superiority of western weaponry’ as his forces held the initiative along the frontline and were advancing against outmanned and outgunned Ukrainian forces. ‘Our high combat potential allows us to constantly rain fire on the enemy and stop him from holding the line of defence,’ Shoigu said…”
April 24 – Reuters (Tom Balmforth): “Drones sent by Ukraine's SBU security service struck two Rosneft-owned oil depots in Russia's Smolensk region in an overnight attack… ‘The SBU continues to effectively destroy military infrastructure and logistics that provide fuel to the Russian army in Ukraine,’ the source said. ‘These facilities are and will remain our absolutely legitimate targets.’”
Taiwan Watch:
April 24 – Reuters (Ben Blanchard and Liz Lee): “Taiwan President Tsai Ing-wen said… she was happy the U.S. Congress had passed a sweeping foreign aid package which includes arms support for the island, as China urged Washington to stop selling weapons to Taipei. The United States is Taiwan's most important international backer and arms supplier even in the absence of formal diplomatic ties. China… has repeatedly demanded arms sales stop… In Beijing, China's Taiwan Affairs Office expressed anger at the bills… The bills ‘send the wrong signal to Taiwan independence separatist forces, and we are resolutely opposed to it’, spokesperson Zhu Fenglian told reporters. ‘We urge the United States to take concrete actions to fulfil its commitment not to support Taiwan independence and to stop arming Taiwan in any way,’ she added.”
Market Instability Watch:
April 22 – Reuters (Nell Mackenzie): “Global hedge fund borrowing rose to a five-year high in the week to April 19, a Goldman Sachs note showed, as hedge funds ramped up trading to take advantage of the first sharp dip in U.S. and European stocks this year. Banks give hedge funds leverage, essentially a loan to fund investing, which amplifies hedge fund returns but can also increase losses. Gross leverage, or total borrowing, reached 270% after rising 2.6 points from the prior week, Goldman said…”
April 22 – Bloomberg (Carolina Mandl): “The global hedge fund industry ended the first quarter with a record $4.3 trillion in assets, data provider HFR said… The industry added $190 billion in assets in the first quarter, the sixth consecutive quarter of growth... Hedge funds' performance was the main driver of asset growth, as funds went up 4.52% in the first quarter, according to the HFRI Fund Weighted Composite index. The industry also added $16.6 billion in net new money in the quarter, especially to equity and event-driven hedge fund strategies.”
April 22 – Bloomberg (Finbarr Flynn): “South Korea is emerging as a closely watched weak link in the $63 trillion world of shadow banking. Real estate exposure has been showing cracks at home and abroad after interest rates rose, prompting financial firms… to express concern about stress in shadow loans to the sector. Delinquency rates at one key group of Korean lenders nearly doubled to 6.55% last year, while economists at Citigroup Inc. estimate 111 trillion won ($80bn) of project-finance debt is ‘troubled.’ Korean shadow-bank financing to the real estate sector rose to a record 926 trillion won last year, over four times the level a decade ago… Policymakers have stemmed contagion risks by expanding certain loan guarantees…”
Global Credit Bubble Watch:
April 22 – Financial Times (Huw van Steenis): “Private credit firms have enjoyed a ‘golden moment’, as Blackstone president Jonathan Gray put it last year, while banks have been on the back foot from the sharpest increase in interest rates in 45 years. In 2023, these non-bank lenders funded a whopping 86% of leveraged loans, up from 61% in 2019, according to PitchBook LCD. But one year on from the failures of Silicon Valley Bank and Credit Suisse, the strongest banks are ramping up their lending into the broadly syndicated bank loan markets… In the first quarter, 28 companies arranged bank loans to refinance $11.8bn of debt that was previously provided by private credit firms, according to PitchBook... Put another way, banks have been able to claw back just over half of the $20bn that shifted in favour of private credit firms in 2023.”
April 24 – Bloomberg (Allison McNeely and Marion Halftermeyer): “Private equity firms are attempting to get blanket permission to borrow against their funds’ assets — a trend that’s exasperating some investors. Stone Point Capital, which is raising money for its 10th buyout fund, is one such firm. It included language in its fund agreement allowing it to borrow against the vehicle’s assets at any time…”
April 24 – Bloomberg (Hannah Benjamin-Cook): “Investors clamoring for yield before central banks start cutting rates have placed strong bids for a new 30-year bond from Greece. Orders for the sovereign’s €3 billion ($3.2bn) syndicated sale of June 2054 notes topped €33 billion… That’s just short of a previous record of €35 billion of orders reached on… 10-year notes in January…”
Bubble and Mania Watch:
April 22 – Wall Street Journal (Matt Wirz): “Giant investment companies are taking over the financial system. Top firms now control sums rivaling the economies of many large countries. They are pushing into new business areas, blurring the lines that define who does what on Wall Street and nudging once-dominant banks toward the sidelines. Today, traditional and alternative asset managers control twice as many assets as U.S. banks, giving them increasing control over the purse strings of the U.S. economy. The firms—such as Blackstone, Franklin Templeton, BlackRock and KKR—are becoming more complex and more similar to one another all at once. Investors say this creates risks that markets have never encountered before… In 2008, U.S. banks and fund managers were roughly neck and neck at about $12 trillion of assets. Today, traditional asset managers, private-fund managers and hedge funds control about $43.5 trillion, nearly twice the banks’ $23 trillion…”
April 24 – Financial Times (Joshua Franklin): “JPMorgan… chief executive Jamie Dimon said the US economy was ‘booming’ but warned that he was ‘on the cautious side’ of there being a soft landing. In a wide-ranging interview on Tuesday at the Economic Club of New York, Dimon said the state of the US economy was ‘unbelievable’ and had been ‘booming for a while’… He cited a saying from his early days on Wall Street, ‘something like, ‘The markets will do whatever they have to do to hurt the most people.’ This may be one of those set-ups.’”
April 24 – Bloomberg (Junyi Wu): “Tesla’s consumers in China can buy Model 3 with zero down payment with special interest rate, the company says in a Weibo post.”
April 24 – Bloomberg (Miranda Davis and Shruti Date Singh): “Chicago Bears officials alongside Mayor Brandon Johnson unveiled plans for a $4.7 billion project to build a publicly owned, enclosed stadium and enhanced lakefront area. The proposal involves erecting a new stadium that would cost about $3.2 billion. The stadium will have a translucent roof and massive windows showcasing the Chicago skyline.”
April 23 – Wall Street Journal (Jack Pitcher): “Cathie Wood’s investors are jumping ship. They rushed into her funds and won big during the pandemic, when the star fund manager became a social-media sensation by making bold bets on disruptive technology stocks such as Tesla, Zoom Video Communications and Roku… Investors have pulled a net $2.2 billion from the six actively managed exchange-traded funds at her ARK Investment Management this year…”
AI Bubble Watch:
April 21 – Financial Times (Christian Davies): “Outside the town of Yongin, 40 kilometres south of Seoul, an army of diggers is preparing for what South Korea’s president has described as a global ‘semiconductor war’. The diggers are moving 40,000 cubic metres of earth a day, cutting a mountain in half as they lay the foundations for a new cluster of chipmaking facilities that will include the world’s largest three-storey fabrication plant. The 1,000-acre site, a $91bn investment by chipmaker SK Hynix, will itself only be one part of a $471bn ‘mega cluster’ at Yongin that will include an investment of 300tn won ($220bn) by Samsung Electronics. The development is being overseen by the government amid growing anxiety that the country’s leading export industry will be usurped by rivals across Asia and the west.”
April 20 – Financial Times (Tom Wilson and Malcolm Moore): “The world’s largest commodity traders are investing heavily in data processing and analysis in a race to develop a technological edge over rivals. Groups such as Vitol and Trafigura, which traditionally relied on political connections, handshakes and logistical skill to move natural resources from remote locations to willing buyers, are increasingly focused on how to apply artificial intelligence in the most physical of industries. ‘In a way it’s an arms race,’ Russell Hardy, chief executive of Vitol, the world’s biggest oil trader, told the FT Commodities Global Summit...”
April 23 – Reuters (Sourasis Bose): “A spike in power usage from artificial intelligence (AI) data centers could significantly boost natural gas demand in the second half of the decade, analysts at investment banker Tudor Pickering Holt & Co said… As much as 8.5 billion cubic feet per day of natural gas could be required additionally to match the rise in demand, the report added.”
Bank Watch:
April 26 – Bloomberg (Bre Bradham): “Republic First Bank became the latest smaller lender to succumb to pressures of higher interest rates on Friday when it was closed by regulators — with most of its deposits and assets acquired by Fulton Bank… Republic First… had about $6 billion of assets and $4 billion of deposits at the end of January. The Philadelphia-based bank had struggled with similar issues as other regional lenders: high interest rates that translated into unrealized losses on loans and securities, leading to the collapse last year of Silicon Valley Bank, Signature Bank and First Republic.”
U.S./Russia/China/Europe Watch:
April 26 – Reuters (Simon Lewis): “U.S. Secretary of State Antony Blinken raised concerns… about China's support for Russia's military, one of the many issues threatening to sour the recent improvement in relations between the world’s biggest economies. Blinken raised the matter during five-and-a-half hours of talks with China’s top diplomat Wang Yi in Beijing… ‘I reiterated our serious concern about the PRC providing components that are powering Russia's brutal war of aggression against Ukraine… China is the top supplier of machine tools, microelectronics, nitrocellulose, which is critical to making munitions and rocket propellants, and other dual-use items that Moscow is using to ramp up its defence industrial base.’”
April 22 – CNBC (Holly Ellyatt): “Russia warned Monday that the risk of a ‘direct military clash’ between Russia and nuclear powers in the West is rising. ‘Westerners are dangerously balancing on the brink of a direct military clash between nuclear powers, which is fraught with catastrophic consequences,’ Russian Foreign Minister Sergey Lavrov said… The comments come after Russia reacted angrily to the U.S. House of Representatives passing a $61 billion foreign aid package for Kyiv…”
April 25 – Financial Times (Joe Leahy): “China has warned the US that Washington and Beijing must choose between ‘confrontation or co-operation’ as secretary of state Antony Blinken began an official visit during which he is expected to deliver an ultimatum over the war in Ukraine. Blinken met the powerful Shanghai Communist party boss Chen Jining…, ahead of talks with China’s central leadership including foreign minister Wang Yi in Beijing over the next two days. ‘Whether China and the US choose co-operation or confrontation, it affects the wellbeing of both peoples, of nations and also the future of humanity,’ said Chen.”
April 23 – Bloomberg (Ben Westcott): “China needs to take a stand over Russia’s invasion of Ukraine and rein in its enormous trade surplus with the European Union if it is committed to improving relations, the bloc’s top diplomat in Asia said. China’s ongoing support for Russia after it attacked Ukraine is a ‘big issue’ in tensions between Brussels and Beijing, Niclas Kvarnstrom, managing director for Asia at the European External Action Service, said… ‘It’s not something that we can ignore in any of our relationships,’ Kvarnstrom said. ‘As a geopolitical actor, we have to stand up for ourselves, and that’s what we are doing on the economic imbalances and on our own security.’”
April 23 – Bloomberg: “Russia’s Security Council Secretary Nikolai Patrushev and China’s security chief Chen Wenqing discussed strengthening ties between the special services and law enforcement agencies of their two countries at talks on Tuesday. Patrushev and Chen, the Chinese Communist Party Politburo member in charge of security and law enforcement agencies, met in St. Petersburg on the sidelines of an international conference of intelligence chiefs… Iran’s National Security Council chief, Ali Akbar Ahmadian, has also arrived in St. Petersburg for the conference and is due to hold talks with Patrushev, as well as with representatives of Brazil, South Africa, China, India and Iraq…”
April 23 – Bloomberg (Iain Marlow): “Russia’s ‘complete embrace’ of North Korea could increase Kim Jong Un’s appetite for risk when it comes to threatening South Korea and exporting weapons abroad, as well as helping Pyongyang ignore Washington’s call to return to nuclear talks, a senior Biden administration official said. As North Korea ships weapons to help power President Vladimir Putin’s war in Ukraine, Pyongyang has benefited from the ‘whole gamut’ of improved diplomatic ties with Russia… ‘This could lend this once-isolated country the luster of legitimacy that it does not deserve, and it should not have,’ Pak said. ‘We’re concerned about what that might do to make Kim think that his leash is longer than it really is, and how that might figure into Kim’s risk calculus.’”
April 23 – Reuters (Andrew Hayley): “Russia remained China’s top oil supplier in March…, as refiners snapped up stranded Sokol shipments. China's imports from Russia, including supplies via pipelines and sea-borne shipments, jumped 12.5% on the year to 10.81 million metric tons, or 2.55 million barrels per day (bpd) last month… That was quite close to the previous monthly record of 2.56 million bpd in June 2023.”
April 25 – Reuters (Michael Martina, David Brunnstrom, Antoni Slodkowski, and Guy Faulconbridge): “China is providing moorage for a U.S.-sanctioned Russian cargo ship implicated in North Korean arms transfers to Russia, according to satellite images…, as U.S. concerns grow over Beijing's support for Moscow's war in Ukraine. Britain's Royal United Services Institute (RUSI) think tank said the Russian vessel Angara, which since August 2023 has moved to Russian ports thousands of containers believed to contain North Korean munitions, has been anchored at a Chinese shipyard in eastern Zhejiang province...”
De-globalization and Iron Curtain Watch:
April 24 – Wall Street Journal (Ian Talley and Alan Cullison): “The U.S. is drafting sanctions that threaten to cut some Chinese banks off from the global financial system, arming Washington’s top envoy with diplomatic leverage that officials hope will stop Beijing’s commercial support of Russia’s military production… But as Secretary of State Antony Blinken heads to Beijing on Tuesday, the question is whether even the threat of the U.S. using one of its most potent tools of financial coercion can put a dent in complex and burgeoning trade between Beijing and Moscow that has allowed the Kremlin to rebuild a military badly mauled by more than two years of fighting in Ukraine.”
Inflation Watch:
April 26 – CNBC (Jeff Cox): “Inflation showed little signs of letting up in March, with a key barometer the Federal Reserve watches closely showing that price pressures remain elevated. The personal consumption expenditures price index excluding food and energy increased 2.8% from a year ago in March… That was above the 2.7% estimate… Including food and energy, the all-items PCE price gauge increased 2.7%... On a monthly basis, both measures increased 0.3%, as expected and equaling the increase from February… Personal spending rose 0.8% on the month… Personal income increased 0.5%, in line with expectations and higher than the 0.3% increase the previous month. The personal saving rate fell to 3.2%, down 0.4 percentage points from February and 2 full percentage points from a year ago as households dipped into savings to keep spending afloat.”
April 25 – Financial Times (Susannah Savage): “Energy and other commodity prices are unlikely to continue to be a major deflationary force in the coming years, according to the World Bank, hampering central banks in their efforts to cut interest rates. The multilateral lender said… that the sharp decline in commodity prices over the past two years had come to a halt, as geopolitical tensions tighten supplies and demand for industrial metals and those used in the energy transition continues to grow… ‘Global inflation remains undefeated,’ said Indermit Gill, the World Bank Group’s chief economist and senior vice-president. ‘A key force for disinflation — falling commodity prices — has essentially hit a wall. That means interest rates could remain higher than currently expected this year and next. The world is at a vulnerable moment: a major energy shock could undermine much of the progress in reducing inflation over the past two years,’ he added.”
Federal Reserve Watch:
April 25 – Bloomberg (Reade Pickert): “The central bank has to ‘recalibrate’ after a string of higher-than-hoped inflation data, Federal Reserve Bank of Chicago President Austan Goolsbee said… ‘I always say, one month is no months, but three months — that’s at least one real month,’ Goolsbee told the Wall Street Journal. ‘Now that we’re seeing — after six, seven months of very strong improvement and close-to-2% inflation — something that’s well above that, we have to recalibrate, and we have to wait and see.’”
Biden Administration Watch:
April 22 – Reuters (Alessandra Galloni and David Lawder): “The Biden administration is not taking any options off the table to respond to China's excess industrial capacity, which is a top concern for the U.S. and its allies, U.S. Treasury Secretary Janet Yellen told Reuters… China exporting its way to full employment is not acceptable to the rest of the world, Yellen said… Yellen added that the problem will not be resolved ‘in a day or a week.’ ‘So it’s important that China recognize the concern and begin to act to address it… But we don't want our industry wiped out in the meantime, so I wouldn't want to take anything off the table.’”
U.S. Economic Bubble Watch:
April 25 – CNBC (Jeff Cox): “U.S. economic growth was much weaker than expected to start the year, and prices rose at a faster pace… Gross domestic product…, in the January-through-March period, increased at a 1.6% annualized pace when adjusted for seasonality and inflation… There was some bad news on the inflation front as well. The personal consumption expenditures price index, a key inflation variable for the Federal Reserve, rose at a 3.4% annualized pace for the quarter, its biggest gain in a year and up from 1.8% in the fourth quarter. Excluding food and energy, core PCE prices rose at a 3.7% rate, both well above the Fed’s 2% target.”
April 25 – Associated Press (Matt Ott): “Fewer Americans applied for unemployment benefits last week… The Labor Department reported Thursday that unemployment claims for the week ending April 20 fell by 5,000 to 207,000 from 212,000 the previous week. That's the fewest since mid-February… In total, 1.78 million Americans were collecting jobless benefits during the week that ended April 13. That's 15,000 fewer than the previous week.”
April 24 – CNBC (Diana Olick): “Mortgage rates rose for the third straight week last week, hitting the highest level since November… The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) increased to 7.24% from 7.13%... Applications for a mortgage to purchase a home fell 1% for the week and were 15% lower than the same week one year ago. As home prices rise along with interest rates, potential buyers’ purchasing power are suffering a double whammy.”
April 23 – Reuters (Lindsay Dunsmuir): “U.S. business activity cooled in April to a four-month low due to weaker demand, while rates of inflation eased slightly even as input prices rose sharply… S&P Global said… its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, fell to 50.9 this month from 52.1 in March… The S&P Global survey's measure of new orders received by private businesses dropped to 48.4 from 51.7 in March, the first decline in six months, while its measure of prices paid for inputs declined to 56.5, off the six-month high of 58.7 reached in March... The output prices gauge fell to 54.1, off the ten-month high of 56.4 recorded in March…”
April 23 – Bloomberg (Michael Sasso): “Sales of new homes in the US bounced back broadly in March as an abundance of inventory helped drive prices lower. New single-family home sales increased 8.8% to a 693,000 annual pace last month, the fastest since September… Sales rose in all four regions, and the rate of purchases exceeded most estimates… While the resale market is struggling with a lack of inventory, builders are stepping in to fill the void. The supply of new homes for purchase rose to 477,000 in the month, the highest since 2008. Of those, the number of completed homes jumped to the highest since 2010.”
April 22 – Reuters (Nupur Anand): “U.S. borrowers on lower incomes are increasingly struggling to keep up with their loan payments, according to recent data and bank executives, prompting banks to become more cautious about dishing out credit cards and car loans. A growing number of Americans have seen their savings dwindle as rising prices squeeze budgets while interest rates stay high, bankers and economists said. The deterioration in household finances for those earning less than $45,000 contrasts with financial resilience among those on higher incomes.”
April 23 – Yahoo Finance (Dani Romero): “Homebuilder PulteGroup (PHM) said… a chronic housing shortage in the US presents the company with an opportunity to grow its market share. ‘After more than a decade of underbuilding, it is estimated that our country has a structural shortage of several million homes,’ PulteGroup CEO Ryan Marshall said…”
Fixed Income Watch:
April 24 – Bloomberg (Immanual John Milton and Carmen Arroyo): “As investors seeking safer bets clamor for asset-backed securities, Wall Street is turning to increasingly unconventional debt to package into the bonds, including art loans and internet addresses. Esoteric ABS deals — backed by collateral other than student, auto, credit card and equipment loans — have risen to about 31% of the ABS market from 9% over the last decade, according to Barclays… A number of esoteric ABS transactions have been seen in the past few weeks. Global internet provider Cogent Communications is offering a $206 million bond backed by internet protocol addresses… Auction house Sotheby’s recently sold $700 million of bonds backed by personal loans made to art collectors, and investors also snapped up $570 million of notes backed by fitness franchise royalty payments. The last two transactions were upsized during marketing, stoked by investor appetite for the non-traditional debt.”
April 26 – Bloomberg (Scott Carpenter): “Commercial real estate was one of the scariest assets in the US last year. This year, investors are warming to it once again — and that’s helped revive a key property debt market. Investors have snapped up about $24.6 billion of new commercial mortgage backed securities so far in 2024, 170% more than the same period in 2023… Spreads on the riskiest portions of CMBS deals have been among the top performers compared to other widely traded types of credit.”
China Watch:
April 23 – Bloomberg: “China’s sovereign wealth fund likely bought at least $43 billion of onshore exchange-traded funds in the first quarter, Bloomberg’s analysis shows, shedding light on the extent of state rescue to stem a market tailspin… The first-quarter buying is more than six times the estimated $6.8 billion purchase by the National Team in the second half of 2023, when state funds were just beginning to prop up stocks. The large-scale buying gives investors a sense of how far the government is willing to go to rescue markets in times of panic… The CSI 300 Index has rebounded about 10% since a February trough, partly aided by the state measures.”
April 22 – Bloomberg (Lorretta Chen and Pearl Liu): “A Chinese tycoon who had snapped up mansions and offices in Hong Kong and London faces demands from banks to repay more than $200 million of loans for which he and his family had provided personal guarantees… Nanyang Commercial Bank Ltd. has demanded payment from Chen Hongtian, chairman of Hong Kong-based investment company Cheung Kei Group, and his wife, Chen Li Ni Yao… Each has provided personal guarantees for the loans…”
April 23 – CNN (Nectar Gan, Hassan Tayir and Martha Zhou): “Multiple days of heavy rains have lashed southern China, unleashing deadly floods and threatening to upend the lives of tens of millions of people as rescuers rush to evacuate residents trapped by rising waters. Guangdong province, an economic powerhouse home to 127 million people, has seen widespread flooding that has forced more than 110,000 people to be relocated… Since April 16, sustained torrential rains have pounded the Pearl River Delta, China’s manufacturing heartland and one of the country’s most populated regions, with four weather stations in Guangdong registering record rainfall for April.”
April 26 – Bloomberg (Linda Lew): “China will give a one-time subsidy of as much as 10,000 yuan ($1,380) to consumers who trade in their old vehicles and buy a newer model. Drivers who trade in electric vehicles or hybrids registered before 2018, or gasoline cars that don’t comply with China’s 2007 emissions standards, and purchase a new qualifying vehicle will get 10,000 yuan, the Ministry of Commerce said…”
Central Banker Watch:
April 22 – Reuters (Francesco Canepa): “European Central Bank officials are sticking to plans to cut interest rates multiple times this year, even as higher U.S. inflation delays a pivot to looser policy by the U.S. Federal Reserve and tensions in the Middle East keep oil prices high. Investors are rethinking what they expected to be a global easing cycle after stubbornly strong U.S. price growth slowed the Fed's plan to start lowering borrowing costs, which had been seen as the starting gun for other central banks.”
April 24 – Reuters (Balazs Koranyi): “Euro zone inflation could still prove stubborn so a European Central Bank rate cut in June will not necessarily be followed by further policy easing, Bundesbank President Joachim Nagel said… The ECB has essentially promised a rate cut at its next policy meeting on June 6 but policymakers are still debating the rate path beyond that and signals from the U.S Federal Reserve that its own easing could be delayed clouds the outlook further… ‘Such a step would not necessarily be followed by a series of rate cuts," Nagel said... ‘Given the current uncertainty, we cannot pre-commit to a particular rate path.’”
April 26 – Bloomberg (Bastian Benrath): “Global events continue to threaten Switzerland’s price stability despite the country’s strong record on inflation, Swiss National Bank President Thomas Jordan warned. ‘In the current environment uncertainty remains elevated, and new shocks can occur at any time… We will therefore monitor the ongoing development of inflation closely and adjust our monetary policy again if necessary.’”
Global Bubble Watch:
April 23 – Reuters (Stella Qiu): “Australian consumer price inflation slowed less than expected in the first quarter as service cost pressures stayed stubbornly high, a disappointing result for policymakers that led markets to abandon hopes for any rate cuts this year… Spooked markets even moved to price in a minimal chance - about 4% - of a rate hike by August, while pricing out almost any bet of a rate cut this year.”
Europe Watch:
April 23 – Bloomberg (Alexander Weber and Zoe Schneeweiss): “Euro-area private-sector activity advanced to the highest level in almost a year, driven by a buoyant services sector and Germany’s return to growth… S&P Global’s purchasing managers’ index increased to 51.4 in April, stronger than the 50.7 predicted by economists… Germany was above that key mark for the first time since June…”
April 24 – Bloomberg (Mark Schroers and Alexander Weber): “German business sentiment improved to its highest level in a year — reinforcing recent signs that Europe’s largest economy is exiting two years of struggles. An expectations gauge by the Ifo institute rose to 89.9. in April from a revised 87.7 the previous month... ‘Sentiment has improved at companies in Germany,’ Ifo President Clemens Fuest said.”
April 24 – Bloomberg (Eamon Akil Farhat): “Grid limitations in parts of France are constraining power exports, pushing up prices in neighboring countries. The capacity for transmitting electricity to Belgium, Germany, Switzerland and Italy has been reduced since early March, according to French power-grid operator RTE. That’s depriving those nations of exports of cheaper French nuclear power and boosting wholesale prices across the region. The constraints should be resolved by early May, according to RTE, but more curbs are likely from mid-August.”
April 24 – Financial Times (Joshua Oliver): “European commercial real estate deal making fell to a 13-year low at the start of 2024, as fading hopes of imminent interest rate cuts prolonged the slump in property markets. Transaction volumes of €34.5bn in the first quarter were 26% lower than the already depressed levels in the same period last year, the seventh successive quarter of declines… Fewer offices buildings changed hands than in any quarter on record.”
Japan Watch:
April 26 – Bloomberg (Toru Fujioka and Sumio Ito): “The Bank of Japan held interest rates steady and simplified its language on bond-buying and policy, an outcome that pushed the yen down to a fresh 34-year low and stirred up market jitters. The BOJ Friday kept the range for its benchmark rate between 0% and 0.1% as widely expected by economists at the conclusion of its meeting, according to a pared-back statement with only a few lines. The central bank didn’t signal a reduction of its bond purchases, saying instead it would buy them in line with its March decision.”
April 26 – Bloomberg (Shoko Oda): “The yen’s relentless decline risks pushing power prices higher for Japan’s households and businesses. Japan buys its fuel in US dollars, and the weak yen makes it more expensive. That will exacerbate an already expected increase in power prices over the next few months, as the government removes subsidies and increases a surcharge to support green energy. ‘Fuel costs are reflected in power bills, so a weak yen isn’t good for customers,’ said Takeshi Hayashi, the vice manager of the Tokyo branch for Shikoku Electric Power Co. Japan imports roughly all of its fossil fuels, and costs are automatically passed onto the consumer.”
EM Watch:
April 25 – Bloomberg (Marcus Wong): “Emerging Asia’s worst-performing sovereign bonds are at risk of further declines as the Philippine central bank looks to delay monetary easing due to inflation fears and a weak peso. The Bangko Sentral ng Pilipinas has said interest-rate cuts may be pushed back, given higher consumer prices and the Federal Reserve’s less-dovish pivot. The BSP has had to contend with the country’s history of intense price pressures, and Barclays Bank Plc calls it the region’s most ‘inflation-sensitive’ central bank.”
April 26 – Reuters: “India’s foreign exchange reserves fell for a second consecutive week and stood at a six-week low of $640.33 billion as of April 19… The reserves fell by $2.83 billion in the reporting week, adding to the previous week's $5.4 billion drop. The Reserve Bank of India (RBI) intervenes in the foreign exchange market to curb excess volatility in the rupee.”
April 22 – Bloomberg (Tania Chen and Betty Hou): “Taiwan’s government bonds are falling out of favor as traders fear stubborn inflation amid a solid economic outlook may pressure policymakers to hike interest rates again. Bearish sentiment peaked Monday as five-year government bonds were auctioned at a yield of 1.63%, the highest level since 2008. The yield on the island’s benchmark 10-year notes has risen 46 bps this year, with a spike in March as the central bank unexpectedly raised borrowing costs to combat price pressure.”
Leveraged Speculation Watch:
April 22 – Bloomberg (Justina Lee): “It was an irresistible pitch. Give us your money, executives at Ray Dalio’s Bridgewater Associates and other hedge funds said, and we’ll funnel it into a money-minting, sure-thing strategy for the long haul. But now, after five years of sub-par returns, many of the institutional investors who sunk large sums into risk-parity funds, as they’re known, are demanding the money back. Investors including public pensions in New Mexico, Oregon and Ohio have yanked out cash, slashing the size of the funds by an estimated $70 billion from their peak three years ago.”
April 26 – Bloomberg (Kerim Karakaya): “Emerging-market currencies will be attractive for carry traders as hawkishness has been spreading from the Federal Reserve to many developing central banks, according to strategists from Citigroup Inc. and JPMorgan... ‘We have made the case in the past that emerging-market carry was historically high but would likely have normalized by mid-2024. This now looks less likely, keeping the carry baskets more attractive,’ Citi strategists… said... ‘Hawkishness has been spreading from the Fed to many EM central banks, which is not atypical in a strong dollar environment.’”
April 24 – Financial Times (Costas Mourselas): “Computer-driven hedge funds that bet on trends in financial markets are enjoying strong returns as bets on soaring cocoa prices and a sinking Japanese yen have borne fruit. Quantitative funds have gained 12% for the year to the end of March, according to… Société Générale, with names such as Man Group, Aspect Capital and Winton among those profiting.”
Social, Political, Environmental, Cybersecurity Instability Watch:
April 23 – Axios (Erica Pandey): “All eyes are on America’s college campuses as simmering tensions over the Israel-Hamas war boil over into outright confrontation… The growing intensity of pro-Palestinian protests has been met with an aggressive crackdown from school administrators and police — leading to a wave of arrests, suspensions and class cancellations. The spreading protests come as the death toll in Gaza rises past 34,000… Student protesters are calling for administrators to divest from companies with ties to Israel and support a ceasefire. Jewish students on several campuses say criticism of Israel has veered into antisemitism and made them feel unsafe... The scale of the unrest is beyond anything universities have experienced since the latest Israeli-Palestinian turmoil began in the wake of Oct. 7.”
April 24 – Axios (Andrew Freedman): “A hotter-than-usual summer is likely to occur in the U.S. and many other parts of the globe, according to new forecasts and scientific research… Extreme heat is a major public health threat and plays a role in droughts and wildfires. Hot weather, particularly when it occurs during prolonged heat waves, also threatens the reliability of the nation's increasingly strained electricity grid… An ongoing El Niño event in the tropical Pacific Ocean is quickly fading… A La Niña climate cycle is expected to take shape, which features cooler-than-average tropical Pacific Ocean temperatures, later this summer. Some studies show that these transitions are associated with hotter-than-average summertime conditions across large parts of the U.S., centered across the Midwest. The transition will also influence conditions around the globe, as the planet nears its 11th straight month with record warm temperatures.”
April 24 – Bloomberg (Leslie Kaufman): “Seven property insurers in Florida went bankrupt in 2021 and 2022. The bankruptcies left thousands of homeowners scrambling to get new coverage, which often came with a big increase in cost. Worse, many had outstanding claims for hurricane damage that had not been addressed… In fact, nearly 20% of the companies doing business in Florida that Demotech rated as financially stable went insolvent during the period 2009 to 2022…”
April 23 – Financial Times (Attracta Mooney): “Intense heatwaves in India, Thailand and Bangladesh and fatal floods in China and Pakistan this week have coincided with the latest UN weather agency warning that climate change is causing major repercussions across Asia. More than 100,000 people have been evacuated from Guangdong province in China in recent days as heavy rainfall led to flooding. Pakistan has also experienced heavier rainfall than usual in recent weeks, with officials warning of a heavy loss of life. At the same time, in India temperatures are forecast to exceed 40C in many parts, while temperatures were already more than 40C in areas of Bangladesh, Thailand, Laos, Philippines, Myanmar and Indonesia.”
Geopolitical Watch:
April 22 – Reuters (Anna Ringstrom): “Global military expenditure grew 7% to $2.43 trillion in 2023, the steepest annual rise since 2009 as international peace and security deteriorated, a leading think-tank said…, The Stockholm International Peace Research Institute NATO (SIPRI) said… the United States, China and Russia were the top spenders in 2023. Nan Tian, senior researcher at SIPRI's Military Expenditure and Arms Production Programme, said: ‘States are prioritising military strength but they risk an action–reaction spiral in the increasingly volatile geopolitical and security landscape.’”
April 24 – Bloomberg (Soo-Hyang Choi and Jon Herskovitz): “North Korea sent its highest-level delegation to Iran in about five years as the US raised concerns that arms sales from Pyongyang and Tehran have helped fuel conflicts in the Middle East and Russia’s war in Ukraine. In a rare public report of the trip, the official Korean Central News Agency said… the North Korean delegation led by External Economic Relations Minister Yun Jong Ho left Pyongyang for Tehran on Tuesday. Yun had traveled to Russia earlier in April and has featured prominently in state media as a key player… between Pyongyang and Moscow.”