The Fed aggressively loosened monetary policy with financial conditions already exceptionally loose, following a “tightening” cycle where financial conditions remained loose throughout. Some headlines: “Risk Appetites Rage as Powell Proves Hero in High-Priced Markets.” “Credit Market Demand Juiced, Spreads Squeezed by Big Fed Cut.” “Muni Borrowers Set to ‘Shatter’ Bond Sales Records by Year-End.” “Junk Headed for Seventh Weekly Gain.” “Fed Is Amplifying Liquidity’s Relentless Rise.” “Leveraged Loan Sprint Takes Issuance to Highest Since 2017.” “Companies have sold more than $1.2 trillion of high-grade corporate bonds this year, up nearly 30% from the same point in 2023.”
Marketwatch’s Greg Robb: “I was wondering if you could go through, you said just at the beginning that coming into the blackout there was like an open thought of 25 or 50, the Fed could move either 25 or 50. I would sort of argue that when we had those two last speeches by Governor Waller and New York Fed president, John Williams, that they were sort of saying that maybe a gradual approach was going to win the day… Could you talk - would you have cut rates by 50 bps if the market had been pricing in like low odds of a 50 bps move like they were last Wednesday - after the CPI number came out? It was a really small probability of a 50 bps cut, does that play in your consideration at all?”
Chair Powell: “We’re always going to try to do what we think is the right thing for the economy at that time. That’s what we’ll do. And that’s what we did today.”
Powell and the FOMC missed a good opportunity to deliver a subtle message to overbearing financial markets: “We will not always succumb to market pressure.”
Powell: “This decision reflects our growing confidence that, with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%.”
Fine, it’s time to “recalibrate.” But for a self-described “data-dependent” central bank, it’s a stretch to assert that recent data supported an aggressive cut. Instead, committee members were likely rattled by August 5th (the week following the July 31st “hold” meeting) market instability. Suffering self-doubt from habitual missteps, this Fed is keen to avoid blame for a market accident.
It would have been prudent to launch an easing cycle with 25 bps, though my overarching concern continues to be the Fed’s flawed analytical and policy frameworks. Powell: “Longer-term inflation expectations appear to remain well anchored…” That’s arguably the case for consumer price inflation, but expectations for ongoing asset price inflation are deeply ingrained. Faith that the Fed will backstop the markets has crystallized. Truth be told, asset inflation and Bubbles pose greater risk to financial, economic, social, and geopolitical stability than rising consumer prices. After all, the “GFC”/“great recession” and Great Depression were the fallout from major Bubble collapses. China’s deepening crisis is also the consequence of Credit and asset Bubbles that inflated in an environment of well-contained consumer price inflation.
I’m troubled that the Fed continues to send the message that it will do whatever it takes to suppress market instability and prevent recession. Efforts to thwart market, economic and Credit cycles are doomed to fail. It may appear a successful strategy for a while, but the process ensures deep structural maladjustment. Repeatedly postponing corrections and adjustment comes with a steep cost to financial and economic stability.
I was reminded Wednesday that the Fed succumbed to Wall Street pressure and began reflating its balance sheet in September 2019, a quarter where GDP growth accelerated to 4.6%, and system “repo” assets surged $309 billion. By year-end, Fed assets had expanded $400 billion, administering additional propellant to already overheated leveraged speculation. An intense bout of de-risking/deleveraging required a speculator community (including the big “basis trade” players) bailout as the Fed launched its March 2020 pandemic crisis response.
Circling the wagons around its maximum employment and stable prices “dual mandate,” the Fed’s traditional overarching responsibility for safeguarding financial stability could be showcased on an episode of “Mysteries of the Abandoned.”
The S&P500 ended the week with a 20.8% y-t-d return. The NYSE Computer Technology Index has returned 33.7% so far in 2024, the Philadelphia Utility Index 29.9%, the KBW Bank Index 22.7%, and the Nasdaq Composite 20.2%.
It’s worth noting that high yield CDS prices closed the week (309 bps) at the lows back to January 2022, when the policy rate was near zero. Investment-grade CDS traded down Thursday to September 2021 levels (47.5). JPMorgan CDS traded at October 2021 levels. Junk bond yields are down 95 bps q-t-d to 6.96%, the low back to April 2022. Investment-grade yields have dropped 81 bps to a two-year low of 4.67%.
The Fed had no way to know that its 2019 QE restart would exacerbate fragilities going right into a global pandemic. But our central bank should be sensitive to stoking leverage and speculative excess in the current environment of highly elevated risk, including political and geopolitical.
September 19 – Bloomberg (Christopher Condon): “Federal Reserve Governor Michelle Bowman said cutting interest rates by a half percentage point this week risked signaling the US central bank was declaring victory over inflation too early. ‘The committee’s larger policy action could be interpreted as a premature declaration of victory on our price stability mandate,’ Bowman said… ‘I believe that moving at a measured pace toward a more neutral policy stance will ensure further progress in bringing inflation down to our 2% target.’ Bowman became the first Fed governor to dissent against an interest-rate move since 2005, when she voted against her colleagues’ decision to lower rates by 50 bps…”
Brief comments on all the inflation happy talk: Inflation’s significant retreat from peak 2022 levels has been a global phenomenon. Supply chain normalization has certainly helped. Faltering Chinese domestic demand and booming exports are playing a significant role in weakened goods prices.
But focusing more on domestic factors, services inflation remains sticky. August Services PMI Prices Paid rose to (a 29-month high) 55.7 and ISM Services Prices increased to 57.3. Shelter price pressures have also been persistent, with the recent drop in mortgage borrowing costs likely to support home prices.
An aggressive Fed elicited an interesting global bond reaction. Ten-year Treasury yields rose nine bps to 3.74%. Perhaps it was coincidental, but deficit-challenged UK and France bonds led to the downside. Gilt yields surged 14 bps to 3.90% (BOE holds rates steady), with French yield up 13 bps to 2.97%.
Few discuss the most salient inflation dynamic: today’s elevated risk to price shocks. There is a remarkable confluence of potential inflationary shocks, including tariffs, trade wars, actual military wars, and climate change, to name the most obvious. Labor markets remain tight, with ongoing upward wage pressures underestimated. There is also newfound dollar weakness that could underpin higher import prices, along with the potential for inflationary shock therapy for China’s deflating Bubble.
Speculative markets are notoriously short-term fixated. So there’s little surprise that mounting geopolitical risks are now disregarded. And with our economy no longer critically dependent on Gulf oil, Middle East developments these days garner scant market concern. The media is so focused on domestic politics that this week’s troubling events barely made the news.
September 20 – New York Times (Liam Stack, Euan Ward, Aaron Boxerman and Michael Levenson): “Israeli fighter jets bombed an apartment building in Beirut’s densely populated southern suburbs on Friday in what the military called an attack on Hezbollah militants, including a senior commander who was wanted in the deadly 1983 bombings of the U.S. embassy and U.S. Marine Corps barracks in Beirut. The Israeli military’s chief spokesman, Rear Adm. Daniel Hagari, said the senior commander, Ibrahim Aqeel, had been killed, along with ‘around’ 10 others from Hezbollah’s elite Radwan unit, who were meeting underneath the residential building… The strike marked an escalation in Israel’s bloody conflict with the militia and fueled fears among Lebanese, Israelis and diplomats that Israel is driving closer to a full-blown war with Hezbollah, even as it continues to fight Hamas in Gaza.”
September 20 – New York Times (Patrick Kingsley): “Exploding pagers on Tuesday. Detonating walkie-talkies on Wednesday. An unusually intense barrage of bombs on Thursday. And a huge strike on southern Beirut on Friday. Israeli attacks on Hezbollah… this week constitute a significant escalation in the 11-month war between the two sides. For nearly a year, Israel and Hezbollah have fought a low-level conflict, mostly along the Israeli-Lebanese border, that has gradually gathered force without ever exploding into an all-out war. Now, Israel is attempting a riskier playbook. It has markedly increased the intensity of its attacks in an attempt to force Hezbollah to back down, while raising the chances of the opposite outcome: a more aggressive response from Hezbollah that devolves into an unbridled land war.”
The U.S. is at the cusp of being pulled into a regional conflict that could easily spiral out of control. Meanwhile, loose conditions have created heightened shock vulnerabilities.
Gold jumped $44 this week to an all-time high $2,622, and Silver rose 1.5% to $31.18. What important messages are the appropriately named precious metals sending, with Gold up 27% y-t-d and Silver rising 31%? Seems reasonable to assume they’re warning of looming inflationary surprises. The metals market recognizes that the Fed and global central bankers are trapped by Bubble fragilities, performing as they should when the Fed aggressively eases monetary policy despite financial conditions being loose, Credit growth strong, and markets precariously speculative.
Likely more than inflation, Gold and Silver are discounting the increasing likelihood of acute market instability – perhaps an unfolding crisis of confidence in financial assets. I don’t think we’ve seen the end of “AI/tech” Bubble vulnerability, or de-risking/deleveraging generally. As the Fed stoked market excess, the BIS – the central bank to central banks - weighed in this week with their September Quarterly Review, “Carry On, Carry Off.”
September 19 – Bloomberg (Alice Atkins): “The Bank for International Settlements is warning the financial system is prone to repeat episodes of volatility like the one that rippled across markets this summer when a popular hedge fund strategy collapsed. As central banks across the world withdraw liquidity, investors will be forced to reduce leverage and review risk strategies, the BIS said in a report... The unwinding of so-called carry trades is the most recent example of the potential consequences of that transition. ‘We should be under no illusion. This is not the first and will not be the last turbulence in markets,’ said Claudio Borio, head of the monetary and economics department at the BIS... ‘It is part of the bigger picture, the inevitable withdrawal symptoms that markets suffer as they transition away from the extraordinary period of exceptionally low interest rates and ample liquidity.’”
For the Week:
The S&P500 gained 1.4% (up 19.6% y-t-d), and the Dow added 1.6% (up 11.6%). The Utilities increased 1.5% (up 26.6%). The Banks surged 4.7% (up 19.7%), and the Broker/Dealers rose 2.7% (up 23.8%). The Transports increased 0.2% (down 0.9%). The S&P 400 Midcaps rose 2.3% (up 11.6%), and the small cap Russell 2000 advanced 2.1% (up 99%). The Nasdaq100 gained 1.4% (up 17.6%). The Semiconductors increased 0.4% (up 19.7%). The Biotechs gained 0.5% (up 9.1%). While bullion jumped $44, the HUI gold index was unchanged (up 35.1%).
Three-month Treasury bill rates ended the week at 4.54%. Two-year government yields added a basis point to 3.59% (down 66bps y-t-d). Five-year T-note yields rose seven bps to 3.50% (down 35bps). Ten-year Treasury yields gained nine bps to 3.74% (down 14bps). Long bond yields jumped 10 bps to 4.09% (up 6bps). Benchmark Fannie Mae MBS yields rose seven bps to 4.86% (down 41bps).
Italian yields gained five bps to 3.56% (down 15bps y-t-d). Greek 10-year yields rose eight bps to 3.19% (up 14bps). Spain's 10-year yields increased six bps to 3.00% (unchanged). German bund yields gained six bps to 2.21% (up 18bps). French yields jumped 13 bps to 2.97% (up 41bps). The French to German 10-year bond spread widened seven to 76 bps. U.K. 10-year gilt yields surged 14 bps to 3.90% (up 37bps). U.K.'s FTSE equities index dipped 0.5% (up 6.4% y-t-d).
Japan's Nikkei Equities Index rallied 3.1% (up 12.7% y-t-d). Japanese 10-year "JGB" yields were unchanged at 0.85% (up 24bps y-t-d). France's CAC40 increased 0.5% (down 0.6%). The German DAX equities index was little changed (up 11.8%). Spain's IBEX 35 equities index rose 1.8% (up 16.3%). Italy's FTSE MIB index increased 0.6% (up 11.2%). EM equities were mostly higher. Brazil's Bovespa index dropped 2.8% (down 2.3%), while Mexico's Bolsa index increased 0.3% (down 9.1%). South Korea's Kospi index gained 0.7% (down 2.3%). India's Sensex equities index rose 2.0% (up 17.0%). China's Shanghai Exchange Index rallied 1.2% (down 8.0%). Turkey's Borsa Istanbul National 100 index jumped 2.2% (up 32.5%).
Federal Reserve Credit declined $0.7 billion last week to $7.071 TN. Fed Credit was down $1.818 TN from the June 22, 2022, peak. Over the past 262 weeks, Fed Credit expanded $3.345 TN, or 90%. Fed Credit inflated $4.261 TN, or 152%, over the past 619 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt increased $0.6 billion last week to $3.315 TN. "Custody holdings" were down $120 billion y-o-y, or 2.9%.
Total money market fund assets declined $20 billion to $6.304 TN. Money funds were up $417 billion y-t-d, or 9.7% annualized, and $659 billion, or 11.7%, y-o-y.
Total Commercial Paper dropped $46.5 billion to $1.191 TN. CP was up $7 billion, or 0.6%, over the past year.
Freddie Mac 30-year fixed mortgage rates dropped 11 bps to a two-year low 6.09% (down 114bps y-o-y). Fifteen-year rates fell 12 bps to 5.15% (down 153bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down six bps to 6.66% (down 96bps).
Currency Watch:
For the week, the U.S. Dollar Index declined 0.4% to 100.723 (down 0.6% y-t-d). For the week on the upside, the South African rand increased 1.7%, the Norwegian krone 1.7%, the Australian dollar 1.5%, the British pound 1.5%, the New Zealand dollar 1.3%, the Brazilian real 1.0%, the euro 0.8%, the Swedish krona 0.6%, the Singapore dollar 0.6%, and the Canadian dollar 0.1%. On the downside, the Japanese yen declined 2.1%, the Mexican peso 1.1%, the Swiss franc 0.1%, and the South Korean won 0.1%. The Chinese (onshore) renminbi gained 0.71% versus the dollar (up 0.75% y-t-d).
Commodities Watch:
The Bloomberg Commodities Index jumped 2.0% (down 0.5% y-t-d). Spot Gold rose 1.7% to $2,622 (up 27.1%). Silver gained 1.5% to $31.1775 (up 31.0%). WTI crude recovered $2.35, or 3.4%, to $71.00 (down 1%). Gasoline rallied 5.5% (down 3%), and Natural Gas jumped 5.6% to $2.434 (down 3%). Copper rose 2.5% (up 12%). Wheat slipped 0.5% (down 10%), while Corn rallied 2.8% (down 15%). Bitcoin surged $2,570, or 4.3%, to $63,115 (up 48.5%).
Middle East War Watch:
September 17 – Bloomberg (Marc Champion): “In what must count as one of the more extraordinary acts of sabotage of all time, as many as 2,800 people, including hundreds of Hezbollah officials, were injured and several killed across Lebanon on Tuesday… Somebody transformed the devices into bombs before their distribution, and the Iranian ambassador to Lebanon was among those wounded… This looks very much like a decapitation strike, putting Hezbollah’s top command out of action at a moment when speculation is rife that Prime Minister Benjamin Netanyahu may be planning to expand the war into Lebanon.”
September 19 – Reuters (Laila Bassam and Maya Gebeily): “Deadly Israeli attacks that blew up Hezbollah radios and pagers crossed all red lines, the leader of the heavily armed Lebanese movement said…, in a speech broadcast as sonic booms from Israeli warplanes shook buildings in Beirut. Lebanon and Hezbollah have blamed Israel for attacks on Hezbollah's communications equipment that killed 37 people and wounded around 3,000, overwhelming Lebanese hospitals and wreaking bloody havoc on Hezbollah. ‘There is no doubt that we have been subjected to a major security and military blow that is unprecedented in the history of the resistance and unprecedented in the history of Lebanon,’ Hezbollah leader Hassan Nasrallah said in his TV address… ‘This type of killing, targeting and crime may be unprecedented in the world… The attacks ‘crossed all red lines’, he said. ‘The enemy went beyond all controls, laws and morals…’ adding the attacks ‘could be considered war crimes or a declaration or war, they could be called anything and they deserve to be called anything. Of course that was the intention of the enemy.’”
September 19 – Wall Street Journal (Alexander Ward, Nancy A. Youssef and Lara Seligman): “A wave of deadly explosions of pagers and other electronic devices carried by militants in Lebanon has sharply heightened Pentagon concern about a potential ground war erupting in southern Lebanon… Even before the… widely dispersed detonations…, U.S. Defense Secretary Lloyd Austin told other senior Pentagon officials in a Monday meeting that he feared Israel could soon launch an offensive… U.S. alarm about a possible invasion has intensified since the brazen attacks in Lebanon. ‘I am very concerned about this spiraling out of control,’ a senior defense official said, echoing comments… by other Pentagon aides. Israel’s military moved a division of commando and paratrooper soldiers to the north in recent days from the southern part of the country, after it had operated for months in Gaza, according to a person familiar with the matter. The division consists of thousands of soldiers.”
September 17 – Associated Press (Josef Federman and Julia Frankel): “Israel said… halting Hezbollah’s attacks in the country’s north to allow residents to return to their homes is now an official war goal, as it considers a wider military operation in Lebanon that could ignite an all-out conflict. Israeli officials have repeatedly threatened to take heavier military action to halt the near-daily attacks, which began shortly after the outbreak of the nearly yearlong Israel-Hamas war in Gaza. Israel has regularly launched airstrikes on Lebanon in response and has targeted and killed senior Hezbollah commanders.”
September 17 – Financial Times (Neri Zilber): “Israel has expanded the objectives of its almost year-long campaign in Gaza to include securing the northern front against Hizbollah, increasing fears of an escalation of its conflict with the Lebanese militant group. Prime Minister Benjamin Netanyahu’s security cabinet voted early on Tuesday to add ‘returning the residents of the north securely to their homes’ to the goals of the war, Netanyahu’s office said. ‘Israel will continue to act to implement this objective.’ The decision is seen by analysts as a statement of intent, marking a shift in priorities for the Israel Defense Forces amid the continuing war against Hamas militants in Gaza.”
September 16 – Wall Street Journal (Shayndi Raice and Carrie Keller-Lynn): “A top U.S. envoy warned Israel over escalating the fight with Hezbollah in Lebanon, while Israel’s defense minister said military action is becoming the only way to return Israelis evacuated from northern border areas back to their homes. The U.S. message, delivered in meetings top Biden administration diplomat Amos Hochstein held with Israeli Prime Minister Benjamin Netanyahu and Israeli Defense Minister Yoav Gallant in Tel Aviv on Monday, reflect growing U.S. concern that the conflict in Gaza could spread.”
Ukraine War Watch:
September 17 – Wall Street Journal (Bojan Pancevski): “The number of Ukrainians and Russians killed or wounded in the grinding 2½-year war has reached roughly one million, a staggering toll that two countries struggling with shrinking prewar populations will pay far into the future. Determining the exact number of dead and wounded in the conflict has been difficult, with Russia and Ukraine declining to release official estimates or, at times, putting out figures that are widely mistrusted. A confidential Ukrainian estimate from earlier this year put the number of dead Ukrainian troops at 80,000 and the wounded at 400,000… Western intelligence estimates of Russian casualties vary, with some putting the number of dead as high as nearly 200,000 and wounded at around 400,000.”
September 18 – Reuters (Lucy Papachristou and Lidia Kelly): “A large-scale Ukrainian drone attack on Russia triggered an earthquake-sized blast at a major arsenal in the Tver region on Wednesday, forcing the evacuation of a nearby town… Unverified video and images on social media showed a huge ball of flame blasting into the night sky and multiple detonations thundering across a lake about 240 miles west of Moscow. NASA satellites picked up intense heat sources emanating from an area of about 5 square miles at the site in the early hours and earthquake monitoring stations noted what sensors thought was a small earthquake, opens new tab in the area.”
September 16 – Reuters (Andrew Osborn): “President Vladimir Putin… ordered the regular size of the Russian army to be increased by 180,000 troops to 1.5 million active servicemen in a move that would make it the second largest in the world after China's. In a decree…, Putin ordered the overall size of the armed forces to be increased to 2.38 million people, of which he said 1.5 million should be active servicemen.”
September 15 – Reuters (Anastasiia Malenko): “Ukraine's spy chief said… Russia's increased production of guided bombs as well as artillery ammunition deliveries from North Korea present major problems for Ukrainian forces on the battlefield. The head of Ukraine's military intelligence agency GUR, Kyrylo Budanov, said North Korean military aid to Russia presented the biggest concern compared to support provided by Moscow's other allies.”
September 14 – Politico (Jones Hayden): “Moscow on Saturday threatened to reduce Kyiv to a ‘giant melted spo’ if Ukraine is allowed by its allies to use Western long-range missiles to strike targets deep inside Russia. The threat by Dmitry Medvedev, deputy chairman of Russia’s Security Council, came as the U.S. and the U.K. are deliberating giving Kyiv permission to use Western weapons to attack strategic targets farther into Russian territory. Medvedev, who likes to rattle nuclear sabers, said the Kremlin already has ‘formal’ grounds to use nuclear weapons after Ukraine's cross-border incursion into Russia's Kursk region, but could instead utilize newer technologies to create a ‘giant melted spot’ on the site of the Ukrainian capital.”
Taiwan Watch:
September 19 – Reuters (Joe Cash): “U.S. arms sales to Taiwan have seriously violated China's ‘One China Principle’ and provisions of joint communiques between China and the U.S., Zhang Xiaogang, a spokesperson for China's defence ministry said… China has lodged solemn representations with the U.S. side over the matter, Zhang said.”
September 20 – Financial Times (Kathrin Hille): “Taiwan and the US are looking to kick-start co-operation between their drone companies as part of efforts to build supply chains that do not rely on China. Executives from 26 US makers of uncrewed systems or anti-drone systems will arrive in Taipei on Sunday for three days of meetings with Taiwanese industry counterparts, military officials in charge of weapons procurement and development, and other researchers and engineers. The US group also includes officials from the commerce department, the Pentagon’s Defense Innovation Unit and Dev Shenoy, who leads the defence department’s microelectronics research and engineering.”
September 18 – Financial Times (Kathrin Hille): “Taiwan’s defence minister has warned that China’s growing military activity will make it more difficult to spot harbingers of an attack on his country. Wellington Koo said Taiwan needed to test its ability to respond to ‘a potential sudden contingency’ and that his country’s reaction time to an emergency ‘cannot be as long as we would have imagined in the past’. ‘We have to think about how we differentiate between peacetime and wartime,’ Koo told reporters. ‘The scale of [China’s military] activity is getting larger and larger, and so it is harder to discern when they might be shifting from training to a large exercise, and from an exercise to war.’”
September 14 – Bloomberg (Yian Lee and Arne Delfs): “Germany sent its first warship through the Taiwan Strait in 22 years, defying China’s warnings as relations between the two sides fray over trade and Russia’s war in Ukraine. The Baden-Württemberg frigate and a support vessel sailed through the strait…, Defense Minister Boris Pistorius said... ‘International waters are international waters,’ Pistorius told reporters. ‘It is the shortest and, given the weather conditions, also the safest route,’ he added.”
Election Watch:
September 17 – Wall Street Journal (William A. Galston): “Despite intensifying polarization, the Republican and Democratic parties are alike in one important respect: Both now behave as though budget deficits don’t matter. Red and blue politicians alike seem to think we can increase spending, cut taxes indefinitely, and borrow whatever we need to close the gap while running up the national debt—all without paying a price. Why not make everyone happy by eliminating taxes altogether and borrowing everything? The answer is obvious: No prospective lenders would believe that they’d be repaid in full. They would thus demand ever-higher rates of interest on debt. Eventually, the merry-go-round would grind to a halt, triggering a crisis the likes of which the U.S. has never faced. Our current course—beset with rising net interest outlays and stagnant revenue—could also halt the merry-go-round, though in slow motion. At some point, the volume of debt needed to finance our deficits would exceed lenders’ willingness to lend their cash reserves on terms that wouldn’t ruin the economy.”
September 19 – Wall Street Journal (Alexander Ward): “After months of saying a cease-fire and a hostage-release deal was close at hand, senior U.S. officials are now privately acknowledging they don’t expect Israel and Hamas to reach an agreement before the end of President Biden’s term. The administration won’t stop its pursuit of an agreement, seeing it as the only way to end the war in Gaza and stop a rapidly escalating conflict between Israel and Lebanese Hezbollah.”
Market Instability Watch:
September 16 – Bloomberg (Alice Atkins): “The Bank for International Settlements is warning the financial system is prone to repeat episodes of volatility like the one that rippled across markets this summer when a popular hedge fund strategy collapsed. As central banks across the world withdraw liquidity, investors will be forced to reduce leverage and review risk strategies, the BIS said... The unwinding of so-called carry trades is the most recent example of the potential consequences of that transition. ‘We should be under no illusion. This is not the first and will not be the last turbulence in markets,’ said Claudio Borio, head of the monetary and economics department at the BIS... ‘It is part of the bigger picture, the inevitable withdrawal symptoms that markets suffer as they transition away from the extraordinary period of exceptionally low interest rates and ample liquidity.’”
September 18 – Wall Street Journal (Katy Stech Ferek): “An initial proposal by House Speaker Mike Johnson (R., La.) to fund the government was voted down Wednesday, underscoring the divisions within the Republican Party but potentially setting the stage for talks with Democrats on avoiding a partial shutdown at the end of the month… Some GOP figures, including Republican presidential nominee Donald Trump, are demanding that Republicans leverage the specter of a shutdown to strike a hard bargain with Democrats to tighten voter-ID rules, while others say such an effort would be futile and wrongheaded just ahead of the November elections.”
September 17 – Bloomberg (Edward Bolingbroke and Carter Johnson): “Traders who are locked into record wagers tied to the Federal Reserve’s expected interest-rate cut Wednesday are risking sharp losses if officials opt for a standard-sized reduction. Activity in October fed funds futures, which investors are using to bet on this week’s policy meeting, has jumped to the most extreme level of any such contract since the derivative’s inception in 1988… The bulk of these new bets are targeting an outsized half-point cut, including a surge of positions put in place this week…”
Global Credit Bubble Watch:
September 18 – Bloomberg (Jessica Nix): “Companies taking advantage of lower financing costs to win better terms on existing debt or to push out maturities have borrowed the most from the US leveraged loan market in seven years. At least $866 billion of leveraged loans have priced so far this year, trailing just the $980 billion of transactions done for all of 2017… While riskier transactions have hit the market recently, a record $608 billion — or 70% — of loan issuance this year comes from companies lowering margins on debt through repricing.”
September 19 – Bloomberg (Dan Wilchins): “J. Crew is famous for hosing its existing debt investors when it got a loan in 2016. This month, it was able to sell a $450 million new loan anyway, and demand was strong enough during the sales process for the preppy clothing retailer to lower the pricing it was offering. It’s not just J. Crew that’s finding intense investor demand now. At least $866 billion of leveraged loans have priced so far this year, putting sales on track to be the highest since at least 2017, when there were $980 billion of sales for the full year.”
September 17 – Bloomberg (Sri Taylor): “US state and local governments are poised to sell record levels of debt this year as borrowers continue to flood the market while conditions remain attractive. ‘This year has a momentum that’s extraordinary,’ said Paul Creedon, head of national infrastructure at Janney Montgomery Scott... ‘It’s probably going to shatter a lot of records.’ Municipal borrowers have sold nearly $350 billion of bonds over the last nine months, a figure that is running 38% above last year’s volume and poised to be the largest amount in at least a decade…”
September 16 – Bloomberg (Danielle Moran and Martin Z. Braun): “Municipal bond buyers scooped up an abundance of debt sales last week, eager to lock in higher yields before the Federal Reserve is widely expected to lower interest rates for the first time in more than four years. States and local governments sold more than $14 billion of debt in the week ended Friday, one of the largest weekly amounts of the year and 79% more than the five-year weekly average…”
September 16 – Bloomberg (Carmen Arroyo): “Payment company Cherry Technologies is sounding out investors for a bond that would be tied to ‘buy- now, pay-later’ loans for cosmetic surgery and other aesthetic treatments, as demand for medical debt surges, according to people with knowledge…. The… startup is working with Barclays Plc on a potential health care asset-backed deal in the broadly syndicated market and has started lining up investor meetings for the coming weeks…”
September 19 – Bloomberg (David Ramli and Bei Hu): “Easy profits in private credit are nearing an end as competition intensifies and defaults rise, some of the biggest participants in the industry said at the Milken Institute Asia Summit… The ‘illiquidity premium’ for providers was once as much as 350 bps, said Matthieu Boulanger, head of Europe at HPS Investment Partners. ‘Right now, it’s more like 1%-1.5%’… Defaults in private credit are nearing 3%-5%, partly due to covenant breaches and modifications and ‘kicking the can down the road between borrower and lender,’ Co-Deputy Managing Partner of Davidson Kempner Capital Management Patrick Dennis said.”
September 16 – Bloomberg (Silla Brush and Sridhar Natarajan): “BlackRock Inc. is overhauling its private credit business as the world’s largest asset manager races to catch up to competitors in the booming market. The firm is setting up a new division, Global Direct Lending, appointing Stephan Caron, head of the European middle- market private debt business, to lead it… While BlackRock oversees $10.6 trillion, it sits outside the top bucket in the booming private-credit markets…”
September 18 – Bloomberg (Eleanor Duncan and Kat Hidalgo): “Wall Street banks were burned two years ago when they backed big corporate buyouts and ended up with tens of billions of dollars of ‘hung debt’ they struggled to get rid of. Now they’re back for more. Some investment bankers are ready to underwrite as much of 100% of the debt for European leveraged buyouts… Terms on offer have been so generous at times that even private equity sponsors are asking whether banks are being too optimistic about the prospects for selling the debt on to other parties, a scenario that would drive up financing costs on future deals… Undaunted, large banks are once again making aggressive moves.”
September 16 – Reuters (Gaurav Dogra and Patturaja Murugaboopathy): “Asian bonds attracted foreign inflows for a fourth successive month in August on optimism that the U.S. Federal Reserve will start easing interest rates in September. Overseas investors made substantial purchases of regional bonds in Indonesia, India, Malaysia, South Korea and Thailand, totalling a net $14.06 billion in August - the largest monthly net purchases since at least 2019…”
September 17 – Bloomberg (Denitsa Tsekova and Isabelle Lee): “DoubleLine Capital’s Jeffrey Gundlach joined the growing ranks of those wagering that the Federal Reserve will kick off its interest-rate cutting cycle with a half-percentage-point move… ‘I think they’re going to cut 50 — they seem so out of line’... ‘The Fed is way behind the curve and they should get their act together’… He said he gives the Fed a letter grade of F, adding that they should have cut rates sooner. ‘We are in a recession already,’ Gundlach said. ‘I see an awful lot of layoffs announcements.’”
AI Bubble Watch:
September 20 – Bloomberg (Will Wade and Dina Bass): “The owner of the shuttered Three Mile Island nuclear plant in Pennsylvania will invest $1.6 billion to revive it, agreeing to sell all the output to Microsoft Corp. as the tech titan seeks carbon-free electricity for data centers to power the artificial intelligence boom. Constellation Energy Corp., the biggest US operator of reactors, expects Three Mile Island to go back into service in 2028…”
September 15 – Financial Times (Leslie Hook): “The growth of artificial intelligence will exacerbate a looming shortage of copper, a metal vital for the clean energy transition, miner BHP has warned. The rise of data centres and AI, which requires more energy-intensive computing, could boost global copper demand by 3.4mn tonnes a year by 2050, BHP’s chief financial officer Vandita Pant told the Financial Times. ‘Today, data centres are less than 1% of copper demand, but that is expected to be 6 to 7% by 2050… There is a lot of copper in data centres.’ BHP, the world’s largest mining company…, expects global copper demand will rise to 52.5mn tonnes a year by 2050, up from 30.4mn tonnes in 2021 — a 72% increase.”
Bubble and Mania Watch:
September 20 – Wall Street Journal (Telis Demos): “It has been a historic couple of years for annuity sales… For eight years through 2021, sales of U.S. annuity policies averaged around $230 billion a year, according to Limra, an insurance industry-funded research firm. In 2022, when the Fed began raising rates aggressively, they surged to $313 billion. They hit $385 billion in 2023. And sales in the first half of this year were 19% ahead of where they were the first half of last year… As sales have boomed, so have the shares of many big sellers of annuity policies, including the private-equity and alternative asset giants that have acquired retirement companies in recent years.”
U.S./Russia/China/Europe Watch:
September 15 – Associated Press (Lolita C. Baldor): “The head of NATO’s military committee said… Ukraine has the solid legal and military right to strike deep inside Russia to gain combat advantage — reflecting the beliefs of a number of U.S. allies — even as the Biden administration balks at allowing Kyiv to do so using American-made weapons. ‘Every nation that is attacked has the right to defend itself. And that right doesn’t stop at the border of your own nation,’ said Adm. Rob Bauer, speaking at the close of the committee’s annual meeting, also attended by U.S. Gen. CQ Brown, chairman of the Joint Chiefs of Staff.”
September 16 – Financial Times (Gideon Rachman): “American and Chinese foreign policy sometimes feel like mirror images. The Americans are obsessed by containing Chinese power. The Chinese are obsessed by containing American power. But the mirroring stops when it comes to how these policies are executed. Washington and Beijing bring different strengths to their battle for power and influence. As a result, they are pursuing different strategies. America’s singular strength is its military might and its willingness to offer security guarantees to its allies. The US has collective defence agreements with 56 countries around the world, in Europe, Asia and the Americas. It also provides crucial military aid to other countries, such as Israel and Ukraine, that are not formal treaty allies. China, by contrast, has a mutual defence treaty with just one country — North Korea. Unlike the US, it also has territorial disputes with many of its neighbours, which tends to push them in the direction of America. But when it comes to economic relations, China has the advantage.”
September 19 – Reuters (Karen Lema and Poppy Mcpherson): “The United States has no immediate plans to withdraw a mid-range missile system deployed in the Philippines, despite Chinese demands, and is testing the feasibility of its use in a regional conflict, sources with knowledge of the matter said. The Typhon system, which can be equipped with cruise missiles capable of striking Chinese targets, was brought in for joint exercises earlier this year, both countries said at the time, but has remained there.”
De-globalization and Iron Curtain Watch:
September 16 – Financial Times (Demetri Sevastopulo and Leo Lewis): “The US and Japan are close to a deal to curb tech exports to China’s chip industry despite alarm in Tokyo about Beijing’s threat to retaliate against Japanese companies. The White House wants to unveil new export controls before November’s presidential election, including a measure forcing non-US companies to get licences to sell products to China that would help its tech sector. Biden administration officials have spent months in intense talks with their counterparts in Japan — and the Netherlands — to establish complementary export control regimes that would mean Japanese and Dutch companies are not targeted by the US ‘foreign direct product rule’.”
September 18 – Associated Press: “China… announced sanctions on American companies selling arms to the self-ruled island of Taiwan, which Beijing claims as its own territory and threatens to annex by force. Chinese state media made the announcement, citing the Foreign Ministry, but gave no details on the companies involved. Taiwan is awaiting deliveries of F-16 fighter jets, Abrams tanks and a range of missiles from the U.S.”
September 17 – Wall Street Journal (Lingling Wei): “A group of senior U.S. officials is traveling to Beijing this week for a round of high-level meetings intended to underscore Washington’s concerns over a wave of Chinese goods flooding world markets. The American officials… will hold discussions with their Chinese counterparts on Thursday and Friday… The planned meetings are the fifth gathering of an economic working group formed by both governments last year to enhance communication at a time of heightened competition between the world’s two largest economies. The group also includes Federal Reserve officials.”
September 17 – Bloomberg: “A couple hours outside Houston, in a remote field near a Dow Chemical Co. plant, America’s bid to undercut China’s grip on the global supply of rare earth minerals critical to high technology has yet to break ground. Even when it does, China’s dominance of the market — it controls about 70% of output and more than 90% of refining — means that goal will likely remain out of reach. The Texas plant, to be built by Australia-based Lynas Rare Earths Ltd., represents a fraction of billions of dollars in subsidies and loans promised for the production and refining of the minerals in the US and its key allies.”
Inflation Watch:
September 19 – CNBC (Lori Ann LaRocco): “Port of New York/New Jersey executives tell CNBC they have begun preparations for a potential complete work stoppage by the International Longshoremen’s Association, the largest North American union for maritime workers. The ILA represents over 85,000 longshoremen and a strike would shut down five of the 10 busiest ports in North America, and a total of 36 ports along the East and Gulf Coasts, on October 1. Between 43%-49% of all U.S. imports and billions of dollars in trade monthly are at stake as the union moves closer to the Oct. 1 deadline for a new contract.”
September 18 – Reuters (Utkarsh Shetti and Nora Eckert): “The United Auto Workers (UAW) union said… it has set a strike deadline at Ford’s tool and die unit in the River Rouge Complex over local contract issues. Ford's Rouge Complex - which employs about 6,000 - has more than 500 workers in the tool and die unit… The union said it will go on strike on Sept. 26 if local contract issues are not resolved, adding that core issues in negotiations included job security, wage parity and work rules.”
Federal Reserve Watch:
September 18 – New York Times (Jeanna Smialek): “The Federal Reserve cut interest rates… by half a percentage point. Here are some takeaways from the decision and from remarks by the Fed chair, Jerome H. Powell. The Fed’s decision lowers rates to about 4.9%, down from a more than two-decade high. Fed officials lowered interest rates because they are confident that inflation is coming back down to their 2% goal, and now they want to prevent the job market from softening further. Central bankers expect to cut interest rates more in the months to come, but they are not on a preset path, Mr. Powell said. They could speed up if the economy is weak and slow down if it’s strong. The Fed is keeping a wary eye on the uptick in unemployment, but for now it thinks the economy is basically strong.”
September 19 – Reuters (Jamie McGeever): “Beyond the immediate headlines generated by the Fed's 50 bps interest rate cut, it is policymakers' revised outlook for the fed funds rate's eventual destination, and how soon it takes to get there, that matters more. Broadly speaking, the Fed indicated… it will emerge from its restrictive policy stance a little sooner than previously indicated, and the eventual ‘neutral’ level of policy will be slightly higher… The Fed lowered its fed funds target range to 4.75-5.00%, the midpoint being 4.875%. It also raised its median projection for the longer run fed funds rate to 2.9% from 2.8% in June. That’s a small change, but 2.9% is the highest since 2018 and significantly up from 2.5% in December where it had been virtually unchanged for years.”
U.S. Economic Bubble Watch:
September 19 – Reuters (Lucia Mutikani): “The U.S. current account deficit widened sharply in the second quarter, reaching its highest level in more than two years amid a surge in imports of goods. The… the current account deficit, which measures the flow of goods, services and investments into and out of the country, increased $25.8 billion, or 10.7%, to $266.8 billion last quarter. That was the highest level since the first quarter of 2022. Economists… had forecast the current account deficit at $260.0 billion. The current account gap represented 3.7% of gross domestic product, the highest since the second quarter of 2022…”
September 19 – Reuters (Lucia Mutikani): “The number of Americans filing new applications for unemployment benefits dropped to a four-month low last week, pointing to solid job growth in September and offering confirmation that the economy continued to expand in the third quarter… Initial claims for state unemployment benefits dropped 12,000 last week to a seasonally adjusted 219,000 for the week ended Sept. 14, the lowest level since the middle of May…”
September 17 – Associated Press (Christopher Rugaber and Anne D’Innocenzio): “Americans spent a bit more at retailers last month… Retail sales ticked up 0.1% from July to August, after jumping the most in a year and a half the previous month… Online retailers, sporting goods stores, and home and garden stores all reported higher sales. The data indicate that consumers are still able and willing to spend more despite the cumulative impact of three years of excess inflation… Average paychecks, particularly for lower-income Americans, have also risen sharply since the pandemic, which has allowed many Americans to continue spending even as many necessities became more expensive.”
September 18 – Reuters (Ann Saphir): “The interest rate for the most popular U.S. home loan fell last week to its lowest level in two years, on anticipation the Federal Reserve will start cutting interest rates on Wednesday, potentially by as much as a half of a percentage point. The average contract rate on a 30-year fixed-rate mortgage dropped 14 bps in the week ended Sept. 13, to 6.15%, the Mortgage Bankers Association said... That was the lowest rate since Sept 2022, and followed a 14-basis-point drop the previous week.”
September 18 – CNBC (Diana Olick): “Total mortgage application volume rose 14.2% last week compared with the previous week… ‘Application activity was up significantly last week, as market expectations of a rate cut from the Fed pulled mortgage rates lower,’ said Joel Kan, an economist with the Mortgage Bankers Association… Applications for a mortgage to purchase a home increased 5% for the week but were still 0.4% lower than the same week one year ago.”
September 19 – CNBC (Diana Olick): “Sales of previously owned homes fell 2.5% in August from July, to a seasonally adjusted annualized rate of 3.86 million units… That is slightly lower than what analysts expected. Sales were 4.2% lower than August 2023. It marks three straight months of sales below the 4 million mark, annualized. This count is based on closing… likely signed in late June and July, when mortgage rates started coming down but were not as low as they are today… The inventory of homes for sale is improving slightly. There were 1.35 million units for sale at the end of August. That’s up 0.7% from July and 22.7% year over year. It is still, however, just a 4.2-month supply… Tight supply is keeping the pressure on prices. The median price of an existing home sold in August was $416,700, up 3.1% from the same month in 2023. That is the highest price ever for August.”
September 18 – Reuters (Lucia Mutikani): “U.S. single-family homebuilding rebounded sharply in August, but a moderate increase in building permits suggested that the momentum was unlikely to be sustained against the backdrop of rising supply of new homes on the market… Single-family housing starts… surged 15.8% to a seasonally adjusted annual rate of 992,000 units last month… Single-family starts rose 5.2% from a year ago. Permits for future construction of single-family housing increased 2.8% to a rate of 967,000 units. They were down 0.5% from a year ago… Single-family starts vaulted 18.9% in the densely populated South, where activity was likely weighed down by Hurricane Beryl in July.”
September 17 – Reuters (Lindsay Dunsmuir): “U.S. home builder confidence edged up in September as mortgage rates fell, breaking four months of consecutive declines, but remained at relatively low levels as rising costs continued to impede construction. The NAHB/Wells Fargo Housing Market Index of builder confidence rose to 41 this month from 39 in August, the National Association of Home Builders said…”
September 17 – Reuters (Lucia Mutikani): “Production at U.S. factories surged in August amid a rebound in motor vehicle output… Factory output increased 0.9% last month after a downwardly revised 0.7% drop in July… Motor vehicle and parts output accelerated 9.8% last month after dropping 8.9% in July. Durable manufacturing production increased 2.1% after decreasing 1.5% in July.”
September 14 – Wall Street Journal (Angel Au-Yeung): “Signs that Americans are struggling to keep up with their bills are setting off alarms on Wall Street… On top of soaring prices for groceries and just about everything else, people have been dealing with higher interest rates on their credit cards. The average rate as of May was 21.51%..., up from around 15% in 2019. That helps explain why some are finding it harder to keep up with payments… Around 9.1% of credit-card balances turned delinquent over the past year, the highest rate in over a decade, according to an August report from the Federal Reserve Bank of New York.”
September 16 – Wall Street Journal (Sharon Terlep): “Boeing said it would freeze hiring and delay pay increases for its salaried workforce as the jet maker grapples with financial fallout from a strike launched Friday by its largest union. The company announced the cost-saving measures in a memo to staff on Monday… The memo said Boeing also was considering temporary furloughs for employees and executives. A strike could cost the manufacturer some $500 million a week... The company’s operations had been burning about $1 billion a month before the strike, and credit-ratings firms warned they may downgrade Boeing.”
China Watch:
September 14 – Bloomberg: “China’s home prices fell at a slightly faster pace in August, underscoring the waning effect of the latest housing rescue plan. New-home prices in 70 cities… dropped 0.73% from July, following a 0.65% decline a month earlier… Values of used homes fell 0.95%, compared with a 0.8% decline a month earlier… The prolonged slump in property values has deterred homebuyers from forking out money as they wait for further price declines. ‘There is still substantial pressure for new-home prices to keep falling,’ said Chen Wenjing, research director at China Index Holdings. ‘In the busy coming autumn season, only a few big cities are likely to see homebuying activities pick up.’”
September 15 – CNBC (Evelyn Cheng and Anniek Bao): “China’s persistent consumption slowdown traces back to the country’s real estate slump, and its deep ties to local government finances — and debt. The bulk of Chinese household wealth went into real estate in the last two decades... Now, the values of those properties are falling, and developers have reduced land purchases. That’s cutting significantly into local government revenue, especially at the district and county level, according to S&P Global Ratings analysts. They predicted that since June of this year, local government finances will take three to five years to recover to a healthy state. But ‘delays in revenue recovery could prolong attempts to stabilize debt, which continues to rise,’ Wenyin Huang, director at S&P Global Ratings, said…”
September 15 – Bloomberg: “Back in January, Premier Li Qiang trumpeted China’s success in exceeding its 2023 growth goal without resorting to ‘massive stimulus.’ Repeating the same feat this year now looks less likely. Pressure is growing on Chinese authorities to quickly ramp up fiscal and monetary stimulus to hit this year’s growth target of around 5%. Data… showed industrial output marking its longest slowing streak since 2021 last month, while consumption and investment weakened more than expected. Hours before the release, the People’s Bank of China signaled in a rare statement alongside disappointing credit data that fighting deflation would become a higher priority, and indicated more monetary easing ahead.”
September 20 – Bloomberg: “China’s broad budget expenditure shrank at a faster clip amid an unprecedented drop in income earned by local governments from land sales, an alarming sign for an economy desperately in need of fiscal support. The combined spending in the general public budget and the government fund account was about 22.21 trillion yuan ($3.15 trillion) in the first eight months of the year, down 2.9% from the same point in 2023… It deteriorated further from a decrease of 2% in the January-July period. A plunge in revenue from land sales has been a particular drain on budgets. Local governments earned just 245.5 billion yuan from them last month, an annual drop of 41.8% that renewed a record decline booked in July.”
September 20 – Reuters (Ethan Wang, Ellen Zhang and Ryan Woo): “China’s fiscal revenue in the first eight months of 2024 was down 2.6% from a year earlier… Fiscal expenditure grew 1.5% in the January-August period, down from a 2.5% increase in the first seven months. In August alone, fiscal revenue went down 2.8% year-on-year, worsening from the 1.9% decline seen in July. Fiscal spending decreased by 6.7%, a sharp reversal from a 6.6% jump in July…”
September 18 – Bloomberg: “It’s 1 a.m. and Thomas Wu is riding his bike on the empty streets of Shanghai. The 43-year-old insurance executive has had another meltdown. Wu’s pay has been slashed by 20% in a nationwide push to lower salaries at state-owned finance companies. He frets about layoffs and wonders how he’ll find 600,000 yuan ($84,500) to keep his two children in international school — a hallmark of upper-middle-class life in China… ‘What’s the point of driving our kids nuts studying so hard?’ Wu said. ‘The top-tier graduates can’t find a job, those who come back from overseas can’t find a job.’ Pay increases, he says, are no longer tied to effort. ‘My work is meaningless.’ Wu is one of the millions of ambitious Chinese professionals who’ve had their lives upended by President Xi Jinping’s decision to reshape the world’s second-largest economy. Industries such as finance, consumer tech and property — key drivers of China's growth for much of this century — are now out of favor. Instead, the most powerful Communist Party leader since Mao Zedong is funneling resources toward endeavors such as electric vehicles and chip production.”
September 19 – Financial Times (Editorial Board): “Venture capital has been an important spur to China’s emergence as a technological superpower. Not only have VC funds helped foster world class companies such as Alibaba and Tencent, they have also brought expertise, networking opportunities and markets to a host of Chinese ‘unicorns’, start-ups worth more than $1bn. But now, for a variety of reasons, China’s start-up sector is in the doldrums. Some commentary from within the industry is laden with doom. ‘The whole industry has just died before our eyes,’ one executive told the Financial Times. ‘The entrepreneurial spirit is dead. It is very sad to see.’”
September 14 – Reuters (Kevin Yao, Ellen Zhang and Ethan Wang): “China’s industrial output growth slowed to a five-month low in August, while retail sales and new home prices weakened further, bolstering the case for aggressive stimulus to shore up the economy and help it hit its annual growth target… Industrial output in August expanded 4.5% year-on-year, slowing from the 5.1% pace in July and marking the slowest growth since March… That missed expectations for 4.8% growth… Retail sales, a key gauge of consumption, rose only 2.1% in August despite the summer travel peak, decelerating from a 2.7% increase in July…”
September 14 – Reuters (Ellen Zhang and Ryan Woo): “Foreign direct investment into China amounted to 580.19 billion yuan ($81.80bn) in January-August, down 31.5% from the same period last year… The slump was bigger than the 29.6% fall during Jan-July.”
September 16 – Reuters (Kanchana Chakravarty): “Goldman Sachs and Citigroup have lowered their full-year projections for China's economic growth to 4.7%, after the world's second-largest economy's industrial output slowed to a five-month low in August. Weak economic activity in August has ramped up attention on China's slow economic recovery and highlighted the need for further stimulus measures to shore up demand.”
Central Banking Watch:
September 19 – Associated Press (Pan Pylas): “The Bank of England kept its main interest rate unchanged at 5%... despite a big cut from the U.S. Federal Reserve… The decision was widely expected amid ongoing concerns about inflation within the bank’s monetary policy committee, particularly the elevated levels in the crucial services sector, which accounts for around 80% of the British economy.”
September 17 – Reuters (Balazs Koranyi): “Euro zone inflation is still not as low as the European Central Bank would like, so interest rates need to remain sufficiently high to resolve price pressures, Bundesbank President Joachim Nagel said… ‘Inflation is currently not where we want it to be…’ While inflation fell to 2.2% in August and may fall even closer to the ECB's 2% target this month, it will likely rise again towards the end of the year and could end 2024 around 2.5%. A key issue is that wage growth remains rapid and could put upward pressure on private consumption, and thus prices.”
Europe Watch:
September 19 – Bloomberg (William Horobin): “France’s budget deficit could reach 6% of economic output this year without new measures to curb spending or increase tax, Les Echos reported citing new forecasts from the finance ministry. The estimate would mark another deterioration in the country’s fiscal outlook after the government said earlier this month… the gap could rise to 5.6% of gross domestic product without action.”
September 20 – Bloomberg (Andrew Atkinson and Philip Aldrick): “UK government borrowing came in higher than forecast in the first five months of the fiscal year... The deficit totaled £64.1 billion ($85.4bn) between April and August — £6.2 billion more than the Office for Budget Responsibility expected in March. Last month the shortfall was £13.7 billion, £1.1 billion more than economists forecast and the third-highest August on record. The national debt hit 100% of GDP for the first time since 1961.”
Japan Watch:
September 20 – Bloomberg (Toru Fujioka and Sumio Ito): “Bank of Japan Governor Kazuo Ueda pushed the likelihood of an October rate hike further to the sidelines Friday with a cautious message that pointed to ongoing concern over the market meltdown that followed July’s rate increase. Following a decision to leave the policy rate unchanged at around 0.25%, the BOJ chief appeared to pour cold water on the already slim chances of an early move next month. ‘The upside risk to prices does appear to be easing given the recent yen strength,’ said Ueda… ‘There’s some time to confirm certain points when making policy decisions,’ he added, referring to the importance of checking on financial markets and the state of overseas economies.”
September 19 – Reuters (Leika Kihara): “Japan’s core consumer inflation accelerated for the fourth straight month in August and tracked comfortably above the central bank's 2% target… The core consumer price index, which excludes volatile fresh food costs, rose 2.8% in August from a year earlier, matching a median market forecast. It followed a 2.7% rise in July.”
September 17 – Bloomberg (Erica Yokoyama): “Japan’s export growth slowed, with shipments to the US slipping for the first time in almost three years in an outcome underscoring the mixed prospects for Japan’s economic recovery. Exports increased 5.6% in August from a year ago, decelerating from 10.2% in the previous month… The result, which missed the 10.6% consensus estimate from economists, was driven by a 9.9% decline in auto exports… Imports climbed 2.3%, falling short of the 15% gain forecast by economists. The trade deficit widened to ¥695.3 billion ($4.9bn).”
September 15 – Reuters (Leika Kihara): “Sanae Takaichi, Japan’s minister in charge of economic security and a leading candidate in the ruling party's leadership race, said… the central bank should maintain ultra-low interest rates to support the fragile economic recovery. ‘Frankly, it was too early,’ she told a news conference gathering the nine candidates running in the race, when asked about the Bank of Japan's (BOJ) interest rate hikes this year.”
Emerging Market Watch:
September 18 – Bloomberg (Maria Eloisa Capurro): “Brazil’s central bank increased its benchmark interest rate by a quarter-point in the first hike since 2022, as a jump in consumption and above-target inflation expectations forced policymakers to move in the opposite direction of the Federal Reserve and regional peers. Policymakers raised the benchmark Selic to 10.75%...”
Leveraged Speculation Watch:
September 17 – Bloomberg (Nishant Kumar and Katherine Burton): “Steve Cohen has stepped away from the trading floor. While the billionaire hedge fund founder remains Point72 Asset Management’s co-chief investment officer…, he’s no longer investing clients’ capital. Cohen, 68, is instead focused on driving the firm’s growth and mentoring and developing talent… Cohen has been one of the dominant forces in the industry for more than three decades and rebuilt his hedge fund into one of the world’s biggest after a costly insider-trading scandal.”
Social, Political, Environmental, Cybersecurity Instability Watch:
September 18 – Fortune (Eleanor Pringle): “JPMorgan CEO Jamie Dimon makes a point of focusing on the big picture. It’s why he’s dismissive of individual Fed rate cuts and isn’t sold on a soft landing scenario. Instead, he’s concerned with the major factors influencing the economy over the next century. Dimon has previously warned that geopolitical tensions are the top threat facing the U.S. economy, and his opinion hasn’t changed. In fact, global tensions are now so paramount that they ‘dwarf’ any other issues on the table… ‘The most important thing that dwarfs all other things, that’s… far more important today than it’s been probably since 1945, is this war in Ukraine, what’s going on in Israel, in the Middle East, America’s relations with China… Iran, North Korea and Russia I think you can legitimately call them [an] evil axis.’”
September 16 – Wall Street Journal (Katherine Blunt and Jennifer Hiller): “Extreme heat shattered temperature records and pushed electricity demand to new highs this summer. The U.S. power grid has held up, but in many places the margin for error is shrinking. Across the U.S., a combination of new power sources and luck has helped grid operators avoid calling for rolling blackouts. States such as California and Texas that in recent years have bet big on renewable energy and battery storage easily met electricity demand, even as residents cranked their air conditioning to stay cool during punishing heat waves. Elsewhere, swaths of the country are more vulnerable. Grid operators nationwide are warning that the next few years will be difficult. New wind and solar farms are replacing conventional power plants, heightening the need for large-scale batteries and high-voltage power lines to transfer electricity between regions.”
September 17 – Bloomberg (Andrea Dudik, Natalia Ojewska, Marton Eder and Krystof Chamonikolas): “Deadly floods unleashed destruction across central Europe, with water levels on the River Danube rising further… The heat waves that seared the Mediterranean this summer — raising sea temperatures to record levels — are helping to turbo charge storms across Europe. It’s another sign that climate change is increasing the intensity and frequency of extreme weather events.”
September 18 – Bloomberg (Lauren Rosenthal and Brian K Sullivan): “Severe rains bucketed down on central Europe, Africa, Shanghai and the US Carolinas this week, underscoring the extreme ways in which climate change is altering the weather. Different meteorological phenomena are behind the series of storms, according to climate scientists, though they agree an underlying factor for the supercharged rainfall is global warming writ large. Research has shown that hotter air is capable of carrying more moisture and is more likely to cause intense precipitation.”
September 18 – Reuters (Jorge Silva and Leonardo Benassatto): “The worst drought on record has lowered the water level of the rivers in the Amazon basin to historic lows, in some cases drying up riverbeds that were previously navigable waterways. The Solimoes, one of the main tributaries of the mighty Amazon River whose waters originate in the Peruvian Andes, has fallen to its lowest level on record in Tabatinga, the Brazilian town on the border with Colombia. Downriver in Tefé, a branch of the Solimoes has dried up completely… The nearby Lake Tefé, where more than 200 freshwater dolphins died in last year's drought, has also dried up, depriving the endangered pink mammals of a favorite habitat.”
Geopolitical Watch:
September 19 – Bloomberg: “A 10-year-old Japanese child who was stabbed in southern China has died, a development that could further strain relations between the two countries. On Thursday morning Japan’s Foreign Minister Yoko Kamikawa confirmed the death of the child, adding that the government was asking China to provide details of what happened and do its utmost to ensure the safety of Japanese citizens.”
The S&P500 gained 1.4% (up 19.6% y-t-d), and the Dow added 1.6% (up 11.6%). The Utilities increased 1.5% (up 26.6%). The Banks surged 4.7% (up 19.7%), and the Broker/Dealers rose 2.7% (up 23.8%). The Transports increased 0.2% (down 0.9%). The S&P 400 Midcaps rose 2.3% (up 11.6%), and the small cap Russell 2000 advanced 2.1% (up 99%). The Nasdaq100 gained 1.4% (up 17.6%). The Semiconductors increased 0.4% (up 19.7%). The Biotechs gained 0.5% (up 9.1%). While bullion jumped $44, the HUI gold index was unchanged (up 35.1%).
Three-month Treasury bill rates ended the week at 4.54%. Two-year government yields added a basis point to 3.59% (down 66bps y-t-d). Five-year T-note yields rose seven bps to 3.50% (down 35bps). Ten-year Treasury yields gained nine bps to 3.74% (down 14bps). Long bond yields jumped 10 bps to 4.09% (up 6bps). Benchmark Fannie Mae MBS yields rose seven bps to 4.86% (down 41bps).
Italian yields gained five bps to 3.56% (down 15bps y-t-d). Greek 10-year yields rose eight bps to 3.19% (up 14bps). Spain's 10-year yields increased six bps to 3.00% (unchanged). German bund yields gained six bps to 2.21% (up 18bps). French yields jumped 13 bps to 2.97% (up 41bps). The French to German 10-year bond spread widened seven to 76 bps. U.K. 10-year gilt yields surged 14 bps to 3.90% (up 37bps). U.K.'s FTSE equities index dipped 0.5% (up 6.4% y-t-d).
Japan's Nikkei Equities Index rallied 3.1% (up 12.7% y-t-d). Japanese 10-year "JGB" yields were unchanged at 0.85% (up 24bps y-t-d). France's CAC40 increased 0.5% (down 0.6%). The German DAX equities index was little changed (up 11.8%). Spain's IBEX 35 equities index rose 1.8% (up 16.3%). Italy's FTSE MIB index increased 0.6% (up 11.2%). EM equities were mostly higher. Brazil's Bovespa index dropped 2.8% (down 2.3%), while Mexico's Bolsa index increased 0.3% (down 9.1%). South Korea's Kospi index gained 0.7% (down 2.3%). India's Sensex equities index rose 2.0% (up 17.0%). China's Shanghai Exchange Index rallied 1.2% (down 8.0%). Turkey's Borsa Istanbul National 100 index jumped 2.2% (up 32.5%).
Federal Reserve Credit declined $0.7 billion last week to $7.071 TN. Fed Credit was down $1.818 TN from the June 22, 2022, peak. Over the past 262 weeks, Fed Credit expanded $3.345 TN, or 90%. Fed Credit inflated $4.261 TN, or 152%, over the past 619 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt increased $0.6 billion last week to $3.315 TN. "Custody holdings" were down $120 billion y-o-y, or 2.9%.
Total money market fund assets declined $20 billion to $6.304 TN. Money funds were up $417 billion y-t-d, or 9.7% annualized, and $659 billion, or 11.7%, y-o-y.
Total Commercial Paper dropped $46.5 billion to $1.191 TN. CP was up $7 billion, or 0.6%, over the past year.
Freddie Mac 30-year fixed mortgage rates dropped 11 bps to a two-year low 6.09% (down 114bps y-o-y). Fifteen-year rates fell 12 bps to 5.15% (down 153bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down six bps to 6.66% (down 96bps).
Currency Watch:
For the week, the U.S. Dollar Index declined 0.4% to 100.723 (down 0.6% y-t-d). For the week on the upside, the South African rand increased 1.7%, the Norwegian krone 1.7%, the Australian dollar 1.5%, the British pound 1.5%, the New Zealand dollar 1.3%, the Brazilian real 1.0%, the euro 0.8%, the Swedish krona 0.6%, the Singapore dollar 0.6%, and the Canadian dollar 0.1%. On the downside, the Japanese yen declined 2.1%, the Mexican peso 1.1%, the Swiss franc 0.1%, and the South Korean won 0.1%. The Chinese (onshore) renminbi gained 0.71% versus the dollar (up 0.75% y-t-d).
Commodities Watch:
The Bloomberg Commodities Index jumped 2.0% (down 0.5% y-t-d). Spot Gold rose 1.7% to $2,622 (up 27.1%). Silver gained 1.5% to $31.1775 (up 31.0%). WTI crude recovered $2.35, or 3.4%, to $71.00 (down 1%). Gasoline rallied 5.5% (down 3%), and Natural Gas jumped 5.6% to $2.434 (down 3%). Copper rose 2.5% (up 12%). Wheat slipped 0.5% (down 10%), while Corn rallied 2.8% (down 15%). Bitcoin surged $2,570, or 4.3%, to $63,115 (up 48.5%).
Middle East War Watch:
September 17 – Bloomberg (Marc Champion): “In what must count as one of the more extraordinary acts of sabotage of all time, as many as 2,800 people, including hundreds of Hezbollah officials, were injured and several killed across Lebanon on Tuesday… Somebody transformed the devices into bombs before their distribution, and the Iranian ambassador to Lebanon was among those wounded… This looks very much like a decapitation strike, putting Hezbollah’s top command out of action at a moment when speculation is rife that Prime Minister Benjamin Netanyahu may be planning to expand the war into Lebanon.”
September 19 – Reuters (Laila Bassam and Maya Gebeily): “Deadly Israeli attacks that blew up Hezbollah radios and pagers crossed all red lines, the leader of the heavily armed Lebanese movement said…, in a speech broadcast as sonic booms from Israeli warplanes shook buildings in Beirut. Lebanon and Hezbollah have blamed Israel for attacks on Hezbollah's communications equipment that killed 37 people and wounded around 3,000, overwhelming Lebanese hospitals and wreaking bloody havoc on Hezbollah. ‘There is no doubt that we have been subjected to a major security and military blow that is unprecedented in the history of the resistance and unprecedented in the history of Lebanon,’ Hezbollah leader Hassan Nasrallah said in his TV address… ‘This type of killing, targeting and crime may be unprecedented in the world… The attacks ‘crossed all red lines’, he said. ‘The enemy went beyond all controls, laws and morals…’ adding the attacks ‘could be considered war crimes or a declaration or war, they could be called anything and they deserve to be called anything. Of course that was the intention of the enemy.’”
September 19 – Wall Street Journal (Alexander Ward, Nancy A. Youssef and Lara Seligman): “A wave of deadly explosions of pagers and other electronic devices carried by militants in Lebanon has sharply heightened Pentagon concern about a potential ground war erupting in southern Lebanon… Even before the… widely dispersed detonations…, U.S. Defense Secretary Lloyd Austin told other senior Pentagon officials in a Monday meeting that he feared Israel could soon launch an offensive… U.S. alarm about a possible invasion has intensified since the brazen attacks in Lebanon. ‘I am very concerned about this spiraling out of control,’ a senior defense official said, echoing comments… by other Pentagon aides. Israel’s military moved a division of commando and paratrooper soldiers to the north in recent days from the southern part of the country, after it had operated for months in Gaza, according to a person familiar with the matter. The division consists of thousands of soldiers.”
September 17 – Associated Press (Josef Federman and Julia Frankel): “Israel said… halting Hezbollah’s attacks in the country’s north to allow residents to return to their homes is now an official war goal, as it considers a wider military operation in Lebanon that could ignite an all-out conflict. Israeli officials have repeatedly threatened to take heavier military action to halt the near-daily attacks, which began shortly after the outbreak of the nearly yearlong Israel-Hamas war in Gaza. Israel has regularly launched airstrikes on Lebanon in response and has targeted and killed senior Hezbollah commanders.”
September 17 – Financial Times (Neri Zilber): “Israel has expanded the objectives of its almost year-long campaign in Gaza to include securing the northern front against Hizbollah, increasing fears of an escalation of its conflict with the Lebanese militant group. Prime Minister Benjamin Netanyahu’s security cabinet voted early on Tuesday to add ‘returning the residents of the north securely to their homes’ to the goals of the war, Netanyahu’s office said. ‘Israel will continue to act to implement this objective.’ The decision is seen by analysts as a statement of intent, marking a shift in priorities for the Israel Defense Forces amid the continuing war against Hamas militants in Gaza.”
September 16 – Wall Street Journal (Shayndi Raice and Carrie Keller-Lynn): “A top U.S. envoy warned Israel over escalating the fight with Hezbollah in Lebanon, while Israel’s defense minister said military action is becoming the only way to return Israelis evacuated from northern border areas back to their homes. The U.S. message, delivered in meetings top Biden administration diplomat Amos Hochstein held with Israeli Prime Minister Benjamin Netanyahu and Israeli Defense Minister Yoav Gallant in Tel Aviv on Monday, reflect growing U.S. concern that the conflict in Gaza could spread.”
Ukraine War Watch:
September 17 – Wall Street Journal (Bojan Pancevski): “The number of Ukrainians and Russians killed or wounded in the grinding 2½-year war has reached roughly one million, a staggering toll that two countries struggling with shrinking prewar populations will pay far into the future. Determining the exact number of dead and wounded in the conflict has been difficult, with Russia and Ukraine declining to release official estimates or, at times, putting out figures that are widely mistrusted. A confidential Ukrainian estimate from earlier this year put the number of dead Ukrainian troops at 80,000 and the wounded at 400,000… Western intelligence estimates of Russian casualties vary, with some putting the number of dead as high as nearly 200,000 and wounded at around 400,000.”
September 18 – Reuters (Lucy Papachristou and Lidia Kelly): “A large-scale Ukrainian drone attack on Russia triggered an earthquake-sized blast at a major arsenal in the Tver region on Wednesday, forcing the evacuation of a nearby town… Unverified video and images on social media showed a huge ball of flame blasting into the night sky and multiple detonations thundering across a lake about 240 miles west of Moscow. NASA satellites picked up intense heat sources emanating from an area of about 5 square miles at the site in the early hours and earthquake monitoring stations noted what sensors thought was a small earthquake, opens new tab in the area.”
September 16 – Reuters (Andrew Osborn): “President Vladimir Putin… ordered the regular size of the Russian army to be increased by 180,000 troops to 1.5 million active servicemen in a move that would make it the second largest in the world after China's. In a decree…, Putin ordered the overall size of the armed forces to be increased to 2.38 million people, of which he said 1.5 million should be active servicemen.”
September 15 – Reuters (Anastasiia Malenko): “Ukraine's spy chief said… Russia's increased production of guided bombs as well as artillery ammunition deliveries from North Korea present major problems for Ukrainian forces on the battlefield. The head of Ukraine's military intelligence agency GUR, Kyrylo Budanov, said North Korean military aid to Russia presented the biggest concern compared to support provided by Moscow's other allies.”
September 14 – Politico (Jones Hayden): “Moscow on Saturday threatened to reduce Kyiv to a ‘giant melted spo’ if Ukraine is allowed by its allies to use Western long-range missiles to strike targets deep inside Russia. The threat by Dmitry Medvedev, deputy chairman of Russia’s Security Council, came as the U.S. and the U.K. are deliberating giving Kyiv permission to use Western weapons to attack strategic targets farther into Russian territory. Medvedev, who likes to rattle nuclear sabers, said the Kremlin already has ‘formal’ grounds to use nuclear weapons after Ukraine's cross-border incursion into Russia's Kursk region, but could instead utilize newer technologies to create a ‘giant melted spot’ on the site of the Ukrainian capital.”
Taiwan Watch:
September 19 – Reuters (Joe Cash): “U.S. arms sales to Taiwan have seriously violated China's ‘One China Principle’ and provisions of joint communiques between China and the U.S., Zhang Xiaogang, a spokesperson for China's defence ministry said… China has lodged solemn representations with the U.S. side over the matter, Zhang said.”
September 20 – Financial Times (Kathrin Hille): “Taiwan and the US are looking to kick-start co-operation between their drone companies as part of efforts to build supply chains that do not rely on China. Executives from 26 US makers of uncrewed systems or anti-drone systems will arrive in Taipei on Sunday for three days of meetings with Taiwanese industry counterparts, military officials in charge of weapons procurement and development, and other researchers and engineers. The US group also includes officials from the commerce department, the Pentagon’s Defense Innovation Unit and Dev Shenoy, who leads the defence department’s microelectronics research and engineering.”
September 18 – Financial Times (Kathrin Hille): “Taiwan’s defence minister has warned that China’s growing military activity will make it more difficult to spot harbingers of an attack on his country. Wellington Koo said Taiwan needed to test its ability to respond to ‘a potential sudden contingency’ and that his country’s reaction time to an emergency ‘cannot be as long as we would have imagined in the past’. ‘We have to think about how we differentiate between peacetime and wartime,’ Koo told reporters. ‘The scale of [China’s military] activity is getting larger and larger, and so it is harder to discern when they might be shifting from training to a large exercise, and from an exercise to war.’”
September 14 – Bloomberg (Yian Lee and Arne Delfs): “Germany sent its first warship through the Taiwan Strait in 22 years, defying China’s warnings as relations between the two sides fray over trade and Russia’s war in Ukraine. The Baden-Württemberg frigate and a support vessel sailed through the strait…, Defense Minister Boris Pistorius said... ‘International waters are international waters,’ Pistorius told reporters. ‘It is the shortest and, given the weather conditions, also the safest route,’ he added.”
Election Watch:
September 17 – Wall Street Journal (William A. Galston): “Despite intensifying polarization, the Republican and Democratic parties are alike in one important respect: Both now behave as though budget deficits don’t matter. Red and blue politicians alike seem to think we can increase spending, cut taxes indefinitely, and borrow whatever we need to close the gap while running up the national debt—all without paying a price. Why not make everyone happy by eliminating taxes altogether and borrowing everything? The answer is obvious: No prospective lenders would believe that they’d be repaid in full. They would thus demand ever-higher rates of interest on debt. Eventually, the merry-go-round would grind to a halt, triggering a crisis the likes of which the U.S. has never faced. Our current course—beset with rising net interest outlays and stagnant revenue—could also halt the merry-go-round, though in slow motion. At some point, the volume of debt needed to finance our deficits would exceed lenders’ willingness to lend their cash reserves on terms that wouldn’t ruin the economy.”
September 19 – Wall Street Journal (Alexander Ward): “After months of saying a cease-fire and a hostage-release deal was close at hand, senior U.S. officials are now privately acknowledging they don’t expect Israel and Hamas to reach an agreement before the end of President Biden’s term. The administration won’t stop its pursuit of an agreement, seeing it as the only way to end the war in Gaza and stop a rapidly escalating conflict between Israel and Lebanese Hezbollah.”
Market Instability Watch:
September 16 – Bloomberg (Alice Atkins): “The Bank for International Settlements is warning the financial system is prone to repeat episodes of volatility like the one that rippled across markets this summer when a popular hedge fund strategy collapsed. As central banks across the world withdraw liquidity, investors will be forced to reduce leverage and review risk strategies, the BIS said... The unwinding of so-called carry trades is the most recent example of the potential consequences of that transition. ‘We should be under no illusion. This is not the first and will not be the last turbulence in markets,’ said Claudio Borio, head of the monetary and economics department at the BIS... ‘It is part of the bigger picture, the inevitable withdrawal symptoms that markets suffer as they transition away from the extraordinary period of exceptionally low interest rates and ample liquidity.’”
September 18 – Wall Street Journal (Katy Stech Ferek): “An initial proposal by House Speaker Mike Johnson (R., La.) to fund the government was voted down Wednesday, underscoring the divisions within the Republican Party but potentially setting the stage for talks with Democrats on avoiding a partial shutdown at the end of the month… Some GOP figures, including Republican presidential nominee Donald Trump, are demanding that Republicans leverage the specter of a shutdown to strike a hard bargain with Democrats to tighten voter-ID rules, while others say such an effort would be futile and wrongheaded just ahead of the November elections.”
September 17 – Bloomberg (Edward Bolingbroke and Carter Johnson): “Traders who are locked into record wagers tied to the Federal Reserve’s expected interest-rate cut Wednesday are risking sharp losses if officials opt for a standard-sized reduction. Activity in October fed funds futures, which investors are using to bet on this week’s policy meeting, has jumped to the most extreme level of any such contract since the derivative’s inception in 1988… The bulk of these new bets are targeting an outsized half-point cut, including a surge of positions put in place this week…”
Global Credit Bubble Watch:
September 18 – Bloomberg (Jessica Nix): “Companies taking advantage of lower financing costs to win better terms on existing debt or to push out maturities have borrowed the most from the US leveraged loan market in seven years. At least $866 billion of leveraged loans have priced so far this year, trailing just the $980 billion of transactions done for all of 2017… While riskier transactions have hit the market recently, a record $608 billion — or 70% — of loan issuance this year comes from companies lowering margins on debt through repricing.”
September 19 – Bloomberg (Dan Wilchins): “J. Crew is famous for hosing its existing debt investors when it got a loan in 2016. This month, it was able to sell a $450 million new loan anyway, and demand was strong enough during the sales process for the preppy clothing retailer to lower the pricing it was offering. It’s not just J. Crew that’s finding intense investor demand now. At least $866 billion of leveraged loans have priced so far this year, putting sales on track to be the highest since at least 2017, when there were $980 billion of sales for the full year.”
September 17 – Bloomberg (Sri Taylor): “US state and local governments are poised to sell record levels of debt this year as borrowers continue to flood the market while conditions remain attractive. ‘This year has a momentum that’s extraordinary,’ said Paul Creedon, head of national infrastructure at Janney Montgomery Scott... ‘It’s probably going to shatter a lot of records.’ Municipal borrowers have sold nearly $350 billion of bonds over the last nine months, a figure that is running 38% above last year’s volume and poised to be the largest amount in at least a decade…”
September 16 – Bloomberg (Danielle Moran and Martin Z. Braun): “Municipal bond buyers scooped up an abundance of debt sales last week, eager to lock in higher yields before the Federal Reserve is widely expected to lower interest rates for the first time in more than four years. States and local governments sold more than $14 billion of debt in the week ended Friday, one of the largest weekly amounts of the year and 79% more than the five-year weekly average…”
September 16 – Bloomberg (Carmen Arroyo): “Payment company Cherry Technologies is sounding out investors for a bond that would be tied to ‘buy- now, pay-later’ loans for cosmetic surgery and other aesthetic treatments, as demand for medical debt surges, according to people with knowledge…. The… startup is working with Barclays Plc on a potential health care asset-backed deal in the broadly syndicated market and has started lining up investor meetings for the coming weeks…”
September 19 – Bloomberg (David Ramli and Bei Hu): “Easy profits in private credit are nearing an end as competition intensifies and defaults rise, some of the biggest participants in the industry said at the Milken Institute Asia Summit… The ‘illiquidity premium’ for providers was once as much as 350 bps, said Matthieu Boulanger, head of Europe at HPS Investment Partners. ‘Right now, it’s more like 1%-1.5%’… Defaults in private credit are nearing 3%-5%, partly due to covenant breaches and modifications and ‘kicking the can down the road between borrower and lender,’ Co-Deputy Managing Partner of Davidson Kempner Capital Management Patrick Dennis said.”
September 16 – Bloomberg (Silla Brush and Sridhar Natarajan): “BlackRock Inc. is overhauling its private credit business as the world’s largest asset manager races to catch up to competitors in the booming market. The firm is setting up a new division, Global Direct Lending, appointing Stephan Caron, head of the European middle- market private debt business, to lead it… While BlackRock oversees $10.6 trillion, it sits outside the top bucket in the booming private-credit markets…”
September 18 – Bloomberg (Eleanor Duncan and Kat Hidalgo): “Wall Street banks were burned two years ago when they backed big corporate buyouts and ended up with tens of billions of dollars of ‘hung debt’ they struggled to get rid of. Now they’re back for more. Some investment bankers are ready to underwrite as much of 100% of the debt for European leveraged buyouts… Terms on offer have been so generous at times that even private equity sponsors are asking whether banks are being too optimistic about the prospects for selling the debt on to other parties, a scenario that would drive up financing costs on future deals… Undaunted, large banks are once again making aggressive moves.”
September 16 – Reuters (Gaurav Dogra and Patturaja Murugaboopathy): “Asian bonds attracted foreign inflows for a fourth successive month in August on optimism that the U.S. Federal Reserve will start easing interest rates in September. Overseas investors made substantial purchases of regional bonds in Indonesia, India, Malaysia, South Korea and Thailand, totalling a net $14.06 billion in August - the largest monthly net purchases since at least 2019…”
September 17 – Bloomberg (Denitsa Tsekova and Isabelle Lee): “DoubleLine Capital’s Jeffrey Gundlach joined the growing ranks of those wagering that the Federal Reserve will kick off its interest-rate cutting cycle with a half-percentage-point move… ‘I think they’re going to cut 50 — they seem so out of line’... ‘The Fed is way behind the curve and they should get their act together’… He said he gives the Fed a letter grade of F, adding that they should have cut rates sooner. ‘We are in a recession already,’ Gundlach said. ‘I see an awful lot of layoffs announcements.’”
AI Bubble Watch:
September 20 – Bloomberg (Will Wade and Dina Bass): “The owner of the shuttered Three Mile Island nuclear plant in Pennsylvania will invest $1.6 billion to revive it, agreeing to sell all the output to Microsoft Corp. as the tech titan seeks carbon-free electricity for data centers to power the artificial intelligence boom. Constellation Energy Corp., the biggest US operator of reactors, expects Three Mile Island to go back into service in 2028…”
September 15 – Financial Times (Leslie Hook): “The growth of artificial intelligence will exacerbate a looming shortage of copper, a metal vital for the clean energy transition, miner BHP has warned. The rise of data centres and AI, which requires more energy-intensive computing, could boost global copper demand by 3.4mn tonnes a year by 2050, BHP’s chief financial officer Vandita Pant told the Financial Times. ‘Today, data centres are less than 1% of copper demand, but that is expected to be 6 to 7% by 2050… There is a lot of copper in data centres.’ BHP, the world’s largest mining company…, expects global copper demand will rise to 52.5mn tonnes a year by 2050, up from 30.4mn tonnes in 2021 — a 72% increase.”
Bubble and Mania Watch:
September 20 – Wall Street Journal (Telis Demos): “It has been a historic couple of years for annuity sales… For eight years through 2021, sales of U.S. annuity policies averaged around $230 billion a year, according to Limra, an insurance industry-funded research firm. In 2022, when the Fed began raising rates aggressively, they surged to $313 billion. They hit $385 billion in 2023. And sales in the first half of this year were 19% ahead of where they were the first half of last year… As sales have boomed, so have the shares of many big sellers of annuity policies, including the private-equity and alternative asset giants that have acquired retirement companies in recent years.”
U.S./Russia/China/Europe Watch:
September 15 – Associated Press (Lolita C. Baldor): “The head of NATO’s military committee said… Ukraine has the solid legal and military right to strike deep inside Russia to gain combat advantage — reflecting the beliefs of a number of U.S. allies — even as the Biden administration balks at allowing Kyiv to do so using American-made weapons. ‘Every nation that is attacked has the right to defend itself. And that right doesn’t stop at the border of your own nation,’ said Adm. Rob Bauer, speaking at the close of the committee’s annual meeting, also attended by U.S. Gen. CQ Brown, chairman of the Joint Chiefs of Staff.”
September 16 – Financial Times (Gideon Rachman): “American and Chinese foreign policy sometimes feel like mirror images. The Americans are obsessed by containing Chinese power. The Chinese are obsessed by containing American power. But the mirroring stops when it comes to how these policies are executed. Washington and Beijing bring different strengths to their battle for power and influence. As a result, they are pursuing different strategies. America’s singular strength is its military might and its willingness to offer security guarantees to its allies. The US has collective defence agreements with 56 countries around the world, in Europe, Asia and the Americas. It also provides crucial military aid to other countries, such as Israel and Ukraine, that are not formal treaty allies. China, by contrast, has a mutual defence treaty with just one country — North Korea. Unlike the US, it also has territorial disputes with many of its neighbours, which tends to push them in the direction of America. But when it comes to economic relations, China has the advantage.”
September 19 – Reuters (Karen Lema and Poppy Mcpherson): “The United States has no immediate plans to withdraw a mid-range missile system deployed in the Philippines, despite Chinese demands, and is testing the feasibility of its use in a regional conflict, sources with knowledge of the matter said. The Typhon system, which can be equipped with cruise missiles capable of striking Chinese targets, was brought in for joint exercises earlier this year, both countries said at the time, but has remained there.”
De-globalization and Iron Curtain Watch:
September 16 – Financial Times (Demetri Sevastopulo and Leo Lewis): “The US and Japan are close to a deal to curb tech exports to China’s chip industry despite alarm in Tokyo about Beijing’s threat to retaliate against Japanese companies. The White House wants to unveil new export controls before November’s presidential election, including a measure forcing non-US companies to get licences to sell products to China that would help its tech sector. Biden administration officials have spent months in intense talks with their counterparts in Japan — and the Netherlands — to establish complementary export control regimes that would mean Japanese and Dutch companies are not targeted by the US ‘foreign direct product rule’.”
September 18 – Associated Press: “China… announced sanctions on American companies selling arms to the self-ruled island of Taiwan, which Beijing claims as its own territory and threatens to annex by force. Chinese state media made the announcement, citing the Foreign Ministry, but gave no details on the companies involved. Taiwan is awaiting deliveries of F-16 fighter jets, Abrams tanks and a range of missiles from the U.S.”
September 17 – Wall Street Journal (Lingling Wei): “A group of senior U.S. officials is traveling to Beijing this week for a round of high-level meetings intended to underscore Washington’s concerns over a wave of Chinese goods flooding world markets. The American officials… will hold discussions with their Chinese counterparts on Thursday and Friday… The planned meetings are the fifth gathering of an economic working group formed by both governments last year to enhance communication at a time of heightened competition between the world’s two largest economies. The group also includes Federal Reserve officials.”
September 17 – Bloomberg: “A couple hours outside Houston, in a remote field near a Dow Chemical Co. plant, America’s bid to undercut China’s grip on the global supply of rare earth minerals critical to high technology has yet to break ground. Even when it does, China’s dominance of the market — it controls about 70% of output and more than 90% of refining — means that goal will likely remain out of reach. The Texas plant, to be built by Australia-based Lynas Rare Earths Ltd., represents a fraction of billions of dollars in subsidies and loans promised for the production and refining of the minerals in the US and its key allies.”
Inflation Watch:
September 19 – CNBC (Lori Ann LaRocco): “Port of New York/New Jersey executives tell CNBC they have begun preparations for a potential complete work stoppage by the International Longshoremen’s Association, the largest North American union for maritime workers. The ILA represents over 85,000 longshoremen and a strike would shut down five of the 10 busiest ports in North America, and a total of 36 ports along the East and Gulf Coasts, on October 1. Between 43%-49% of all U.S. imports and billions of dollars in trade monthly are at stake as the union moves closer to the Oct. 1 deadline for a new contract.”
September 18 – Reuters (Utkarsh Shetti and Nora Eckert): “The United Auto Workers (UAW) union said… it has set a strike deadline at Ford’s tool and die unit in the River Rouge Complex over local contract issues. Ford's Rouge Complex - which employs about 6,000 - has more than 500 workers in the tool and die unit… The union said it will go on strike on Sept. 26 if local contract issues are not resolved, adding that core issues in negotiations included job security, wage parity and work rules.”
Federal Reserve Watch:
September 18 – New York Times (Jeanna Smialek): “The Federal Reserve cut interest rates… by half a percentage point. Here are some takeaways from the decision and from remarks by the Fed chair, Jerome H. Powell. The Fed’s decision lowers rates to about 4.9%, down from a more than two-decade high. Fed officials lowered interest rates because they are confident that inflation is coming back down to their 2% goal, and now they want to prevent the job market from softening further. Central bankers expect to cut interest rates more in the months to come, but they are not on a preset path, Mr. Powell said. They could speed up if the economy is weak and slow down if it’s strong. The Fed is keeping a wary eye on the uptick in unemployment, but for now it thinks the economy is basically strong.”
September 19 – Reuters (Jamie McGeever): “Beyond the immediate headlines generated by the Fed's 50 bps interest rate cut, it is policymakers' revised outlook for the fed funds rate's eventual destination, and how soon it takes to get there, that matters more. Broadly speaking, the Fed indicated… it will emerge from its restrictive policy stance a little sooner than previously indicated, and the eventual ‘neutral’ level of policy will be slightly higher… The Fed lowered its fed funds target range to 4.75-5.00%, the midpoint being 4.875%. It also raised its median projection for the longer run fed funds rate to 2.9% from 2.8% in June. That’s a small change, but 2.9% is the highest since 2018 and significantly up from 2.5% in December where it had been virtually unchanged for years.”
U.S. Economic Bubble Watch:
September 19 – Reuters (Lucia Mutikani): “The U.S. current account deficit widened sharply in the second quarter, reaching its highest level in more than two years amid a surge in imports of goods. The… the current account deficit, which measures the flow of goods, services and investments into and out of the country, increased $25.8 billion, or 10.7%, to $266.8 billion last quarter. That was the highest level since the first quarter of 2022. Economists… had forecast the current account deficit at $260.0 billion. The current account gap represented 3.7% of gross domestic product, the highest since the second quarter of 2022…”
September 19 – Reuters (Lucia Mutikani): “The number of Americans filing new applications for unemployment benefits dropped to a four-month low last week, pointing to solid job growth in September and offering confirmation that the economy continued to expand in the third quarter… Initial claims for state unemployment benefits dropped 12,000 last week to a seasonally adjusted 219,000 for the week ended Sept. 14, the lowest level since the middle of May…”
September 17 – Associated Press (Christopher Rugaber and Anne D’Innocenzio): “Americans spent a bit more at retailers last month… Retail sales ticked up 0.1% from July to August, after jumping the most in a year and a half the previous month… Online retailers, sporting goods stores, and home and garden stores all reported higher sales. The data indicate that consumers are still able and willing to spend more despite the cumulative impact of three years of excess inflation… Average paychecks, particularly for lower-income Americans, have also risen sharply since the pandemic, which has allowed many Americans to continue spending even as many necessities became more expensive.”
September 18 – Reuters (Ann Saphir): “The interest rate for the most popular U.S. home loan fell last week to its lowest level in two years, on anticipation the Federal Reserve will start cutting interest rates on Wednesday, potentially by as much as a half of a percentage point. The average contract rate on a 30-year fixed-rate mortgage dropped 14 bps in the week ended Sept. 13, to 6.15%, the Mortgage Bankers Association said... That was the lowest rate since Sept 2022, and followed a 14-basis-point drop the previous week.”
September 18 – CNBC (Diana Olick): “Total mortgage application volume rose 14.2% last week compared with the previous week… ‘Application activity was up significantly last week, as market expectations of a rate cut from the Fed pulled mortgage rates lower,’ said Joel Kan, an economist with the Mortgage Bankers Association… Applications for a mortgage to purchase a home increased 5% for the week but were still 0.4% lower than the same week one year ago.”
September 19 – CNBC (Diana Olick): “Sales of previously owned homes fell 2.5% in August from July, to a seasonally adjusted annualized rate of 3.86 million units… That is slightly lower than what analysts expected. Sales were 4.2% lower than August 2023. It marks three straight months of sales below the 4 million mark, annualized. This count is based on closing… likely signed in late June and July, when mortgage rates started coming down but were not as low as they are today… The inventory of homes for sale is improving slightly. There were 1.35 million units for sale at the end of August. That’s up 0.7% from July and 22.7% year over year. It is still, however, just a 4.2-month supply… Tight supply is keeping the pressure on prices. The median price of an existing home sold in August was $416,700, up 3.1% from the same month in 2023. That is the highest price ever for August.”
September 18 – Reuters (Lucia Mutikani): “U.S. single-family homebuilding rebounded sharply in August, but a moderate increase in building permits suggested that the momentum was unlikely to be sustained against the backdrop of rising supply of new homes on the market… Single-family housing starts… surged 15.8% to a seasonally adjusted annual rate of 992,000 units last month… Single-family starts rose 5.2% from a year ago. Permits for future construction of single-family housing increased 2.8% to a rate of 967,000 units. They were down 0.5% from a year ago… Single-family starts vaulted 18.9% in the densely populated South, where activity was likely weighed down by Hurricane Beryl in July.”
September 17 – Reuters (Lindsay Dunsmuir): “U.S. home builder confidence edged up in September as mortgage rates fell, breaking four months of consecutive declines, but remained at relatively low levels as rising costs continued to impede construction. The NAHB/Wells Fargo Housing Market Index of builder confidence rose to 41 this month from 39 in August, the National Association of Home Builders said…”
September 17 – Reuters (Lucia Mutikani): “Production at U.S. factories surged in August amid a rebound in motor vehicle output… Factory output increased 0.9% last month after a downwardly revised 0.7% drop in July… Motor vehicle and parts output accelerated 9.8% last month after dropping 8.9% in July. Durable manufacturing production increased 2.1% after decreasing 1.5% in July.”
September 14 – Wall Street Journal (Angel Au-Yeung): “Signs that Americans are struggling to keep up with their bills are setting off alarms on Wall Street… On top of soaring prices for groceries and just about everything else, people have been dealing with higher interest rates on their credit cards. The average rate as of May was 21.51%..., up from around 15% in 2019. That helps explain why some are finding it harder to keep up with payments… Around 9.1% of credit-card balances turned delinquent over the past year, the highest rate in over a decade, according to an August report from the Federal Reserve Bank of New York.”
September 16 – Wall Street Journal (Sharon Terlep): “Boeing said it would freeze hiring and delay pay increases for its salaried workforce as the jet maker grapples with financial fallout from a strike launched Friday by its largest union. The company announced the cost-saving measures in a memo to staff on Monday… The memo said Boeing also was considering temporary furloughs for employees and executives. A strike could cost the manufacturer some $500 million a week... The company’s operations had been burning about $1 billion a month before the strike, and credit-ratings firms warned they may downgrade Boeing.”
China Watch:
September 14 – Bloomberg: “China’s home prices fell at a slightly faster pace in August, underscoring the waning effect of the latest housing rescue plan. New-home prices in 70 cities… dropped 0.73% from July, following a 0.65% decline a month earlier… Values of used homes fell 0.95%, compared with a 0.8% decline a month earlier… The prolonged slump in property values has deterred homebuyers from forking out money as they wait for further price declines. ‘There is still substantial pressure for new-home prices to keep falling,’ said Chen Wenjing, research director at China Index Holdings. ‘In the busy coming autumn season, only a few big cities are likely to see homebuying activities pick up.’”
September 15 – CNBC (Evelyn Cheng and Anniek Bao): “China’s persistent consumption slowdown traces back to the country’s real estate slump, and its deep ties to local government finances — and debt. The bulk of Chinese household wealth went into real estate in the last two decades... Now, the values of those properties are falling, and developers have reduced land purchases. That’s cutting significantly into local government revenue, especially at the district and county level, according to S&P Global Ratings analysts. They predicted that since June of this year, local government finances will take three to five years to recover to a healthy state. But ‘delays in revenue recovery could prolong attempts to stabilize debt, which continues to rise,’ Wenyin Huang, director at S&P Global Ratings, said…”
September 15 – Bloomberg: “Back in January, Premier Li Qiang trumpeted China’s success in exceeding its 2023 growth goal without resorting to ‘massive stimulus.’ Repeating the same feat this year now looks less likely. Pressure is growing on Chinese authorities to quickly ramp up fiscal and monetary stimulus to hit this year’s growth target of around 5%. Data… showed industrial output marking its longest slowing streak since 2021 last month, while consumption and investment weakened more than expected. Hours before the release, the People’s Bank of China signaled in a rare statement alongside disappointing credit data that fighting deflation would become a higher priority, and indicated more monetary easing ahead.”
September 20 – Bloomberg: “China’s broad budget expenditure shrank at a faster clip amid an unprecedented drop in income earned by local governments from land sales, an alarming sign for an economy desperately in need of fiscal support. The combined spending in the general public budget and the government fund account was about 22.21 trillion yuan ($3.15 trillion) in the first eight months of the year, down 2.9% from the same point in 2023… It deteriorated further from a decrease of 2% in the January-July period. A plunge in revenue from land sales has been a particular drain on budgets. Local governments earned just 245.5 billion yuan from them last month, an annual drop of 41.8% that renewed a record decline booked in July.”
September 20 – Reuters (Ethan Wang, Ellen Zhang and Ryan Woo): “China’s fiscal revenue in the first eight months of 2024 was down 2.6% from a year earlier… Fiscal expenditure grew 1.5% in the January-August period, down from a 2.5% increase in the first seven months. In August alone, fiscal revenue went down 2.8% year-on-year, worsening from the 1.9% decline seen in July. Fiscal spending decreased by 6.7%, a sharp reversal from a 6.6% jump in July…”
September 18 – Bloomberg: “It’s 1 a.m. and Thomas Wu is riding his bike on the empty streets of Shanghai. The 43-year-old insurance executive has had another meltdown. Wu’s pay has been slashed by 20% in a nationwide push to lower salaries at state-owned finance companies. He frets about layoffs and wonders how he’ll find 600,000 yuan ($84,500) to keep his two children in international school — a hallmark of upper-middle-class life in China… ‘What’s the point of driving our kids nuts studying so hard?’ Wu said. ‘The top-tier graduates can’t find a job, those who come back from overseas can’t find a job.’ Pay increases, he says, are no longer tied to effort. ‘My work is meaningless.’ Wu is one of the millions of ambitious Chinese professionals who’ve had their lives upended by President Xi Jinping’s decision to reshape the world’s second-largest economy. Industries such as finance, consumer tech and property — key drivers of China's growth for much of this century — are now out of favor. Instead, the most powerful Communist Party leader since Mao Zedong is funneling resources toward endeavors such as electric vehicles and chip production.”
September 19 – Financial Times (Editorial Board): “Venture capital has been an important spur to China’s emergence as a technological superpower. Not only have VC funds helped foster world class companies such as Alibaba and Tencent, they have also brought expertise, networking opportunities and markets to a host of Chinese ‘unicorns’, start-ups worth more than $1bn. But now, for a variety of reasons, China’s start-up sector is in the doldrums. Some commentary from within the industry is laden with doom. ‘The whole industry has just died before our eyes,’ one executive told the Financial Times. ‘The entrepreneurial spirit is dead. It is very sad to see.’”
September 14 – Reuters (Kevin Yao, Ellen Zhang and Ethan Wang): “China’s industrial output growth slowed to a five-month low in August, while retail sales and new home prices weakened further, bolstering the case for aggressive stimulus to shore up the economy and help it hit its annual growth target… Industrial output in August expanded 4.5% year-on-year, slowing from the 5.1% pace in July and marking the slowest growth since March… That missed expectations for 4.8% growth… Retail sales, a key gauge of consumption, rose only 2.1% in August despite the summer travel peak, decelerating from a 2.7% increase in July…”
September 14 – Reuters (Ellen Zhang and Ryan Woo): “Foreign direct investment into China amounted to 580.19 billion yuan ($81.80bn) in January-August, down 31.5% from the same period last year… The slump was bigger than the 29.6% fall during Jan-July.”
September 16 – Reuters (Kanchana Chakravarty): “Goldman Sachs and Citigroup have lowered their full-year projections for China's economic growth to 4.7%, after the world's second-largest economy's industrial output slowed to a five-month low in August. Weak economic activity in August has ramped up attention on China's slow economic recovery and highlighted the need for further stimulus measures to shore up demand.”
Central Banking Watch:
September 19 – Associated Press (Pan Pylas): “The Bank of England kept its main interest rate unchanged at 5%... despite a big cut from the U.S. Federal Reserve… The decision was widely expected amid ongoing concerns about inflation within the bank’s monetary policy committee, particularly the elevated levels in the crucial services sector, which accounts for around 80% of the British economy.”
September 17 – Reuters (Balazs Koranyi): “Euro zone inflation is still not as low as the European Central Bank would like, so interest rates need to remain sufficiently high to resolve price pressures, Bundesbank President Joachim Nagel said… ‘Inflation is currently not where we want it to be…’ While inflation fell to 2.2% in August and may fall even closer to the ECB's 2% target this month, it will likely rise again towards the end of the year and could end 2024 around 2.5%. A key issue is that wage growth remains rapid and could put upward pressure on private consumption, and thus prices.”
Europe Watch:
September 19 – Bloomberg (William Horobin): “France’s budget deficit could reach 6% of economic output this year without new measures to curb spending or increase tax, Les Echos reported citing new forecasts from the finance ministry. The estimate would mark another deterioration in the country’s fiscal outlook after the government said earlier this month… the gap could rise to 5.6% of gross domestic product without action.”
September 20 – Bloomberg (Andrew Atkinson and Philip Aldrick): “UK government borrowing came in higher than forecast in the first five months of the fiscal year... The deficit totaled £64.1 billion ($85.4bn) between April and August — £6.2 billion more than the Office for Budget Responsibility expected in March. Last month the shortfall was £13.7 billion, £1.1 billion more than economists forecast and the third-highest August on record. The national debt hit 100% of GDP for the first time since 1961.”
Japan Watch:
September 20 – Bloomberg (Toru Fujioka and Sumio Ito): “Bank of Japan Governor Kazuo Ueda pushed the likelihood of an October rate hike further to the sidelines Friday with a cautious message that pointed to ongoing concern over the market meltdown that followed July’s rate increase. Following a decision to leave the policy rate unchanged at around 0.25%, the BOJ chief appeared to pour cold water on the already slim chances of an early move next month. ‘The upside risk to prices does appear to be easing given the recent yen strength,’ said Ueda… ‘There’s some time to confirm certain points when making policy decisions,’ he added, referring to the importance of checking on financial markets and the state of overseas economies.”
September 19 – Reuters (Leika Kihara): “Japan’s core consumer inflation accelerated for the fourth straight month in August and tracked comfortably above the central bank's 2% target… The core consumer price index, which excludes volatile fresh food costs, rose 2.8% in August from a year earlier, matching a median market forecast. It followed a 2.7% rise in July.”
September 17 – Bloomberg (Erica Yokoyama): “Japan’s export growth slowed, with shipments to the US slipping for the first time in almost three years in an outcome underscoring the mixed prospects for Japan’s economic recovery. Exports increased 5.6% in August from a year ago, decelerating from 10.2% in the previous month… The result, which missed the 10.6% consensus estimate from economists, was driven by a 9.9% decline in auto exports… Imports climbed 2.3%, falling short of the 15% gain forecast by economists. The trade deficit widened to ¥695.3 billion ($4.9bn).”
September 15 – Reuters (Leika Kihara): “Sanae Takaichi, Japan’s minister in charge of economic security and a leading candidate in the ruling party's leadership race, said… the central bank should maintain ultra-low interest rates to support the fragile economic recovery. ‘Frankly, it was too early,’ she told a news conference gathering the nine candidates running in the race, when asked about the Bank of Japan's (BOJ) interest rate hikes this year.”
Emerging Market Watch:
September 18 – Bloomberg (Maria Eloisa Capurro): “Brazil’s central bank increased its benchmark interest rate by a quarter-point in the first hike since 2022, as a jump in consumption and above-target inflation expectations forced policymakers to move in the opposite direction of the Federal Reserve and regional peers. Policymakers raised the benchmark Selic to 10.75%...”
Leveraged Speculation Watch:
September 17 – Bloomberg (Nishant Kumar and Katherine Burton): “Steve Cohen has stepped away from the trading floor. While the billionaire hedge fund founder remains Point72 Asset Management’s co-chief investment officer…, he’s no longer investing clients’ capital. Cohen, 68, is instead focused on driving the firm’s growth and mentoring and developing talent… Cohen has been one of the dominant forces in the industry for more than three decades and rebuilt his hedge fund into one of the world’s biggest after a costly insider-trading scandal.”
Social, Political, Environmental, Cybersecurity Instability Watch:
September 18 – Fortune (Eleanor Pringle): “JPMorgan CEO Jamie Dimon makes a point of focusing on the big picture. It’s why he’s dismissive of individual Fed rate cuts and isn’t sold on a soft landing scenario. Instead, he’s concerned with the major factors influencing the economy over the next century. Dimon has previously warned that geopolitical tensions are the top threat facing the U.S. economy, and his opinion hasn’t changed. In fact, global tensions are now so paramount that they ‘dwarf’ any other issues on the table… ‘The most important thing that dwarfs all other things, that’s… far more important today than it’s been probably since 1945, is this war in Ukraine, what’s going on in Israel, in the Middle East, America’s relations with China… Iran, North Korea and Russia I think you can legitimately call them [an] evil axis.’”
September 16 – Wall Street Journal (Katherine Blunt and Jennifer Hiller): “Extreme heat shattered temperature records and pushed electricity demand to new highs this summer. The U.S. power grid has held up, but in many places the margin for error is shrinking. Across the U.S., a combination of new power sources and luck has helped grid operators avoid calling for rolling blackouts. States such as California and Texas that in recent years have bet big on renewable energy and battery storage easily met electricity demand, even as residents cranked their air conditioning to stay cool during punishing heat waves. Elsewhere, swaths of the country are more vulnerable. Grid operators nationwide are warning that the next few years will be difficult. New wind and solar farms are replacing conventional power plants, heightening the need for large-scale batteries and high-voltage power lines to transfer electricity between regions.”
September 17 – Bloomberg (Andrea Dudik, Natalia Ojewska, Marton Eder and Krystof Chamonikolas): “Deadly floods unleashed destruction across central Europe, with water levels on the River Danube rising further… The heat waves that seared the Mediterranean this summer — raising sea temperatures to record levels — are helping to turbo charge storms across Europe. It’s another sign that climate change is increasing the intensity and frequency of extreme weather events.”
September 18 – Bloomberg (Lauren Rosenthal and Brian K Sullivan): “Severe rains bucketed down on central Europe, Africa, Shanghai and the US Carolinas this week, underscoring the extreme ways in which climate change is altering the weather. Different meteorological phenomena are behind the series of storms, according to climate scientists, though they agree an underlying factor for the supercharged rainfall is global warming writ large. Research has shown that hotter air is capable of carrying more moisture and is more likely to cause intense precipitation.”
September 18 – Reuters (Jorge Silva and Leonardo Benassatto): “The worst drought on record has lowered the water level of the rivers in the Amazon basin to historic lows, in some cases drying up riverbeds that were previously navigable waterways. The Solimoes, one of the main tributaries of the mighty Amazon River whose waters originate in the Peruvian Andes, has fallen to its lowest level on record in Tabatinga, the Brazilian town on the border with Colombia. Downriver in Tefé, a branch of the Solimoes has dried up completely… The nearby Lake Tefé, where more than 200 freshwater dolphins died in last year's drought, has also dried up, depriving the endangered pink mammals of a favorite habitat.”
Geopolitical Watch:
September 19 – Bloomberg: “A 10-year-old Japanese child who was stabbed in southern China has died, a development that could further strain relations between the two countries. On Thursday morning Japan’s Foreign Minister Yoko Kamikawa confirmed the death of the child, adding that the government was asking China to provide details of what happened and do its utmost to ensure the safety of Japanese citizens.”
