“Bubbles are self-reinforcing, but inevitably unsustainable inflations.”
“Asset and speculative Bubbles are invariably fueled by underlying Credit expansion.”
“The most systemically dangerous Bubbles are fueled by extraordinary monetary inflations - the expansion of perceived safe and liquid money-like debt instruments that enjoy insatiable demand.”
“Credit inflation/expansion manifests in various forms of inflation, including higher consumer and producer prices, asset inflation and speculative Bubbles, over- and mal-investment, and over-consumption with resulting trade and Current Account Deficits. “
“Things turn ‘crazy’ at the end of cycles.”
“Rapidly expanding growth of debt of deteriorating quality coupled with speculative Bubbles ensures systemic risk rises exponentially during late cycle ‘terminal phase excess’.”
The “periphery and core” and speculative dynamics analytical framework is invaluable in Bubble analysis.
2024 was in so many ways an incredible year. I’ve been at this macro analysis thing for going on four decades. There have been remarkable years: Wildly unstable and speculative markets culminating in 1987’s “Black Monday” stock market crash. 1998, with booming markets narrowly dodging calamity with the Russia and LTCM collapses, was also extraordinary. And, of course, unnerving 2008 was nothing short of phenomenal. But from a Bubble analysis perspective, 2024 is unrivaled.
Bubbles don’t do equilibrium. They burst, or their inflation accelerates. Especially late in the cycle, extending “terminal phase excess” ensures a highly destabilizing intensification of inflation dynamics (increasing the likelihood of a crash scenario).
December 30 – Wall Street Journal (Jack Pitcher): “Investors plowed more than $1 trillion into U.S.-based exchange-traded funds in 2024, shattering the previous record set three years ago… The rebound from last year’s lackluster flows marked a broad embrace of U.S. assets in a year in which the S&P 500 gained around 25%... Total assets in U.S.-based ETFs reached a record $10.6 trillion at the end of November, according to… ETFGI data, an increase of more than 30% from the start of 2024. ‘Investors clearly had their confidence back this year,’ said Brian Hartigan, Invesco’s head of ETFs and index investments. ‘The mood was risk-on’… Invesco’s QQQ, which tracks the tech-heavy Nasdaq-100 Index, followed, attracting more than $27 billion of fresh cash through mid-December. It was an eye-popping figure after QQQ brought in $7.3 billion in 2023…”“Money” everywhere – with individuals, institutions and, definitely, the leveraged speculating community – all playing aggressively with the house’s “money.” The Federal Reserve concluded its short and sweet “tightening” cycle in July 2023. The Fed then commenced easing this past September, despite ongoing loose financial conditions. And our central bank somehow believed it was sound policy to get started with a “shock and awe” 50 bps – having fallen prey to Wall Street’s “Fed is behind the curve (again)” propaganda.
It will be debated for decades, if not generations. To be sure, future history revisionists will be hard at work, as Milton Friedman and Ben Bernanke were for their revisionist view of Fed “tightening” precipitating the 1929 crash and Great Depression.
The Powell Fed committed a historic error in easing monetary policy despite loose conditions and conspicuous speculative excess, including manias in AI, stocks more generally, and crypto. Neglecting its overarching responsibility to safeguard system stability was a dereliction of duty.
For the record: The Fed slashed rates by 50 bps on September 18th. The S&P500 had returned 19.3% y-t-d at the close of September 17th trading (following a 2023 return of 26.3%). The Nasdaq100 (NDX) had returned 16.2% by the 17th, the KBW Bank Index 19.7%, and the NYSE Broker/Dealer Index (XBD) 24.0%. Nvidia enjoyed a 133% y-t-d gain, while bitcoin was up 41%.
Risk premiums had narrowed significantly. Investment-grade spreads to Treasuries were down to 94 bps, from the 136 bps at the start of the Fed’s tightening cycle (3/16/22) and versus the 152 bps 20-year average. At 312 bps, high yield spreads were near lows since early-2022, and down 74 bps since the start of tightening (20-yr avg. 499bps). Credit growth was strong, and debt issuance was booming. Gold was up 24.6% y-t-d, somewhat lagging Silver’s 29.0% advance.
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But make no doubt about it, we’re hundreds of basis points above the neutral rate.” Chicago Fed President Austan Goolsbee, September 23, 2024
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We, therefore, don’t know what the [the Trump administration’s] effects on the economy would be, specifically whether and to what extent those policies would matter for the achievement of our goal variables, maximum employment, and price stability. We don’t guess, we don’t speculate, and we don’t assume.” Chair Powell, November 7, 2024
Cutting rates again on November 7th, the Fed disregarded highly speculative markets which turned only more manic post-election. On November 6th, the S&P500 had returned 25.7%, the NDX 24.3%, the Banks 44.6%, and the Broker/Dealers 49.9%. 2024 gains had surged to 194% for Nvidia and 79% for bitcoin. Investment-grade spreads had collapsed to 77 bps, with high-yield spreads down to 265 bps – both near multi-year lows. Year-to-date gains had increased to 28.9% for Gold and 31.0% for Silver.
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I believe the evidence is strong that policy continues to be significantly restrictive, and that cutting again will only mean that we aren’t pressing on the brake pedal quite as hard.” Fed Governor Christopher Waller, December 2, 2024
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I expect it will be appropriate to continue to move to a more neutral policy setting over time.” New York Fed President John Williams, December 2, 2024
The Fed had slashed rates a full 100 bps in just three months, after its misguided December 18th cut. At the close of trading on the 17th, the SPX had returned 28.6%, the NDX 31.8%, the Banks 40.1%, and the Broker/Dealers 49.4%. At 76 bps, investment-grade spreads were just off lows back to February 2007, with high yield spreads at 270 bps, not much off lows back to October 2007. JPMorgan CDS prices (40.5) were near lows since September 2021. Nvidia y-t-d gains were up to 163%, just ahead of bitcoin’s 150%. Gold and Silver ended the 17th with 2024 gains of 28.3%. Q3 GDP accelerated slightly to 3.1%, while the Current Account Deficit ballooned to a quarterly record of $311 billion.
Non-Financial Debt (NFD - from the Fed’s Z.1) expanded at a seasonally adjusted and annualized (SAAR) $3.342 TN in Q1, $3.471 TN in Q2, and $3.642 TN during Q3. For perspective, NFD expanded $2.534 TN in 2007 - an annual record that held all the way to pandemic 2020’s historic $6.797 TN. As of September 30th, Treasuries had inflated $1.965 TN, or 7.6%, over the previous year; $3.970 TN, or 16.8%, over two years; and $10.957 TN, or 66%, over 19 quarters.
Total (Debt and Equities) Securities inflated $24.447 TN, or 19.0%, over the previous year, and $58.714 TN, or 62%, over 20 quarters – to a record $153.181 TN. Total Securities ended Q3 at 522% of GDP, dwarfing cycle peaks 375% (Q3 2007) and 357% (Q1 2000).
Household Net Worth (Assets less Liabilities) inflated $17.277 TN, or 11.4%, in the 12 months ended September 30th - to a record $168.8 TN. Net Worth inflated $49,873 TN over 17 quarters, or 42%. Household Net Worth ended September at 575% of GDP, above previous cycle peaks 488% (Q1 2007) and 444% (Q1 2000).
December 27 – Financial Times (Harriet Clarfelt): “Global corporate debt sales soared to a record $8tn this year, as companies took advantage of red-hot demand from investors to accelerate their borrowing plans. Issuance of corporate bonds and leveraged loans climbed by more than a third from 2023 to $7.93tn, according to LSEG data…”According to SIFMA data, total 2024 U.S. corporate (“investment grade/high yield, nonconvertible/convertible, callable/noncallable and fixed rate/floating rate”) issuance surged 30.2% to $1.957 TN.
December 30 – Wall Street Journal (Kristin Broughton): “Investment-grade companies issued $1.662 trillion in debt this year through Dec. 10, up 27% from the same period a year earlier and the most since 2020, according to… Dealogic. Excluding financial institutions, companies issued $917.7 billion in debt, up 27% from a year earlier.”January 2 – Bloomberg: “BofA Securities was the top arranger of US leveraged loans in 2024 as the value of deals rose 122%. Companies borrowed $2.22 trillion of loans vs. $1 trillion in 2023.”December 31 - Bond Buyer: “The muni market saw $507.585 billion of debt issued in 2024, up 31.8% from $385.061 in 2023. This surpasses the previous record of $484.601 billion in 2020...”It was yet another year of extraordinary Credit Bubble expansion further inflating asset prices, epic speculative Bubbles, and perceived wealth. The year was further notable for the momentous inflation of perceived safe and liquid money-like instruments. Treasuries dominated system Credit growth, while the historic expansion of money market fund assets (MMFA) ran unabated.
MMFA expanded $873 billion, or 14.6%, in 2024. Even more remarkable, MMFA ballooned at a blistering 27% pace during the final 22 weeks of the year, a period when the Fed aggressively loosened policy. MMFA expanded an incredible $2.289 TN, or 50%, since the Fed began “tightening” in March 2022 – and $3.214 TN, or 88%, since the start of the pandemic (February 2020).
The highly levered Treasury “basis trade” had reportedly surged to a record $1.15 TN (from Bloomberg) by early November. A number of major hedge funds finance levered Treasury holdings in the “repo” market, playing the tiny spread between cash bonds and their Treasury futures short positions. This expansion of “repo” leverage generates new market liquidity intermediated through the money market fund complex, resulting in an expansion of MMFA. Not only does “basis trade” speculation boost system liquidity, but Wall Street alchemy also transforms riskier long-duration Treasuries into perceived safe money fund deposits.
Total system “Repo” Assets inflated $678 billion, or 30% annualized, during the six months ended September 30th - to $7.395 TN. Broker/Dealer Assets surged $341 billion, or 26.3% annualized, during Q3 to a record $5.526 TN (one-year growth of $769 billion, or 16.2%).
Core CPI (y-o-y) ended 2023 at 3.9%, down from 5.7% to close 2022. Core CPI had declined to 3.3% by June, 2024 – only to then flatline during the second half to end the year (November) at 3.3%. Considering the Credit and monetary backdrop, it’s no surprise that inflation improvement stalled meaningfully above the Fed’s 2% target.
Fed officials, including the Chair, have lauded the much-improved inflation backdrop, while admitting that elevated prices remain an ongoing burden for many. This, however, misses crucial Credit Bubble analysis: While inflation has moderated, late-cycle excesses only deepen the deleterious effects of inflationism.
December 31 – Bloomberg (Dylan Sloan and Jack Witzig): “The world’s 500 richest people got vastly richer in 2024, with Elon Musk, Mark Zuckerberg and Jensen Huang leading the group of billionaires to a new milestone: A combined $10 trillion net worth. An indomitable rally in US technology stocks played a key role in turbocharging the trio’s wealth, as well as the fortunes of Larry Ellison, Jeff Bezos, Michael Dell and Google co- founders Larry Page and Sergey Brin. The eight tech titans alone gained more than $600 billion this year, 43% of the $1.5 trillion increase among the 500 richest people tracked by the Bloomberg Billionaires Index.” Prices for most necessities continued to inflate, while Bubble-induced inequality went to new extremes in 2024. Paraphrasing the great economist Charles Kindleberger, nothing causes more angst than watching your neighbors get rich. The year saw manic pursuit of hot stocks (i.e., Nvidia, MicroStrategy), sectors (i.e., tech, financials, utilities), themes (AI), and asset classes (i.e., stocks, crypto, high yield). WSJ’s Gunjan Banerji: “More Men Are Addicted to the ‘Crack Cocaine’ of the Stock Market.” Meanwhile, a new generation of home buyers confronts highly inflated prices, a lack of inventory, and elevated mortgage rates. Fortunate homeowners celebrate their 2 and 3% mortgages, while others bemoaned the inequity of their much higher rates and monthly payments.
December 30 – Associated Press (Jill Lawless): “When voters around the globe had their say in 2024, their message was often: ‘You’re fired.’ Some 70 countries that are home to half the world’s population held elections this year, and in many incumbents were punished. From India and the United States to Japan, France and Britain, voters tired of economic disruption and global instability rejected sitting governments — and sometimes turned to disruptive outsiders. The rocky democratic landscape just seemed to get bumpier as a dramatic year careened toward its end, with mass protests in Mozambique and Georgia, an election annulled in Romania and an attempt to impose martial law in South Korea. Cas Mudde, a professor of international affairs at the University of Georgia…, summed up 2024 in Prospect magazine as ‘a great year for the far right, a terrible year for incumbents and a troublesome year for democracy around the world.’”December 29 – Financial Times (John Burn-Murdoch): “It was heralded as the year of democracy. With more than one and a half billion ballots cast in elections across 73 countries, 2024 offered a rare opportunity to take the social and political temperature of almost half of the world’s population. The results are now in, and they have delivered a damning verdict on holders of public office. The incumbent in every one of the 12 developed western countries that held national elections in 2024 lost vote share at the polls, the first time this has ever happened in almost 120 years of modern democracy. In Asia, even the hegemonic governments of India and Japan were not spared the ill wind. Incumbent or otherwise, centrists were frequently the losers as voters threw in their lot behind radical parties of either flank. The populist right in particular surged forward, fuelled in significant part by a rightward shift among young men.”The year 2024 was noteworthy for the unprecedented global impact of inflationism on elections and democracy.
January 3 – Bloomberg (Shawn Donnan, Nazmul Ahasan, and Alexandre Tanzi): “Donald Trump’s November election victory has often been explained as a reflection of anger about post-pandemic price increases for everything from groceries to housing. But inflation was only part of the economic story. Trump won in the places that have seen the slowest growth since the pandemic… Kamala Harris won by a landslide the counties that are the biggest components of the US economy — places that have on average roared back from the pandemic recession. She took 83 of the 100 largest counties by real GDP… That split largely reflects the urban-rural economic divide in America that has also become a political one… Trump won 1,308 of the 1,463 counties that have a greater reliance on manufacturing than the US as a whole… Across the US, almost 30 million people live in the 650 counties with local economies that had not recovered to their pre-pandemic real GDP... Trump won 576 of them. On average, those slow-recovery counties that went for Trump had economies that were still 6.6% smaller at the end of 2023 than at the end of 2019…”2024: “
It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair.” Charles Dickens, A Tale of Two Cities
A Tale of One Historic Global Bubble’s Late-Cycle Excess: Exuberance and epic market “wealth” creation. Despair at the wretchedness and destructive nature of humans at war. The hope for exciting new technologies, but with agony for the consequences of historic manias and speculative Bubbles. A society becoming increasingly relaxed with gambling, drug use and violence. Assassination attempts on Donald Trump – and the cold-blooded murder of UnitedHealthcare CEO Brian Thompson. And a concerning many were okay with it all.
Bubbles are mechanisms of wealth redistribution and destruction – with detrimental consequences for social and geopolitical stability. Boom periods engender perceptions of an expanding global pie. Cooperation, integration, and alliances are viewed as mutually beneficial. But late in the cycle perceptions shift. Many see the pie stagnant or shrinking. A zero-sum game mentality dominates. Insecurity, animosity, disintegration, fraught alliances, and conflict take hold.
Societies became only more fractured in 2024 – at home and abroad. The world further fragmented. The sordid anti-U.S. alliance – Russia, China, Iran, and North Korea – became more single-minded. Kim Jong Un supported Putin’s despicable war on Ukraine with thousands of missiles and troops. An emboldened Israel wreaked bloody havoc on Hamas and Hezbollah, while blunting Iran’s military capabilities. In December, the five-decade span of the Assad regime collapsed in a few short days. Everything seemed more tenuous and fragile as the year “progressed.”
And the more the world appeared increasingly unhinged, the greater the clarity of “core” “American exceptionalism.” Credit Bubble maxim: When money and Credit are readily available, they will be spent. AI is the proverbial spending black hole, with late-nineties Internet infrastructure and Bubble-period housing construction minuscule in comparison. For AI to take over the world, it will require untold Trillions – semiconductors, computers, data centers, software development, cooling equipment, energy infrastructure, etc. Companies everywhere will need major AI investment programs – at least the public companies that would prefer their stocks not tank.
In any other market environment, no thoughtful analyst would harbor the illusion that markets would be willing and able to finance such a historic spending boom in the face of nebulous prospects. In manic market year 2024, anyone questioning whether this wasn’t perfectly rational was summarily tarred and feathered. An aged, inadequate, and vulnerable power grid won’t be allowed to get in the way. And might as well move full speed ahead with crypto mining.
National Centers for Environmental Information: “
In 2024 (as of 11/1), there have been 24 confirmed weather/climate disaster events with losses exceeding $1 billion each to affect United States. These events included 17 severe storm events, 4 tropical cyclone events, 1 wildfire event, and 2 winter storm events. Overall, these events resulted in the deaths of 418 people and had significant economic effects on the areas impacted. The 1980–2023 annual average is 8.5 events (CPI-adjusted); the annual average for the most recent 5 years (2019–2023) is 20.4 events (CPI-adjusted).”In a year where climate change and weather disasters wreaked such havoc around the globe, the political winds whirled oddly. “Drill, baby, drill!” “New green scam.” When people feel betrayed by the system and are working so hard to make ends meet, the future of humanity slips down the priority list.
Donald Trump’s decisive victory put an exclamation point on an extraordinary year. Democracy at work, with an asterisk. To have the world's richest individual chip in at least $277 million to finance a populist movement isn’t exactly how the founding fathers envisioned our elections. Tesla’s stock skyrocketed 50% in Q4, pushing market capitalization above $1.4 TN (vehicle sales flat y-o-y), with an emboldened Elon ready to impose his will on Washington and the world.
While U.S. exceptionalism was glorified at home at the “core”, instability attained momentum globally – at the “periphery.” “King dollar” took few prisoners. For the year, the Argentine peso declined 21.6%, the Brazilian real 21.4%, the Russian ruble 21.2%, the Mexican peso 18.5%, the Turkish lira 16.5%, the Hungarian forint 12.6%, the Colombian peso 12.5%, and the South Korean won 12.5%.
“Developed” currencies were not immune. The New Zealand dollar fell 11.5%, Norwegian krone 10.7%, Japanese yen 10.3%, Australian dollar 9.2%, the Swedish krona 9.0%, the Canadian dollar 7.9%, the Swiss franc 7.3%, and the euro 6.2%.
A “funny” thing occurred as the Fed began its easing cycle: U.S. and global yields surged higher. Ten-year Treasury yields, closing September 17th at 3.65%, ended the year 92 bps higher at 4.57%. EM bonds were taken out to the woodshed. For the quarter, spikes in dollar-denominated yields included Panama 177 bps, Brazil 137 bps, Mexico 99 bps, Peru 87 bps, Chile 85 bps, Indonesia 83 bps, Philippines 75 bps, Saudi Arabia 71 bps, and Turkey 58 bps. The spike in local currency bond yields was even more dramatic: Brazil 272 bps, Colombia 177 bps, Mexico 109 bps, Turkey 87 bps, Chile 85 bps, Romania 78 bps, Poland 64 bps, Indonesia 54 bps, and the Czech Republic 42 bps.
Any decent summary of 2024 markets must include mention of August 5th instability. An intense bout of de-risking/deleveraging was at the cusp of erupting. A disorderly yen rally (7% in four sessions) triggered “yen carry trade” unwind angst. At intraday lows, the Nasdaq100 and KBW Bank Index were down at least 5%, following the Nikkei 225’s 12% drop and the 9% fall in the South Korean Kospi Index. Bitcoin had intraday losses of almost 14%. The VIX index spiked 42 points to an intraday high of 65.73, with the highest close (38.57) since October 2020.
What others saw as a false alarm, I view as a harbinger of “risk off” de-leveraging. An initial crack hastily patched. Bank of Japan Deputy Governor Shinichi Uchida: “I believe that the bank needs to maintain monetary easing with the current policy interest rate for the time being… There is extreme volatility taking place in financial markets, so we need to be more cautious…” In Jackson Hole a couple weeks later, dovish Chair Powell delivered the news markets had clamored for: “The time has come for policy to adjust. The direction of travel is clear…”
I understand why the less-than-secure Fed was keen to avoid the fallout from “breaking” things. There will never be a good time for deflating a historic Bubble. But to stoke “terminal phase excess” and extend the cycle comes with monumental risks. For those who believe my analysis of 2024 is way too doomy and gloomy, I suspect my forthcoming “Issues 2025” will fall short in brightening the mood.
For the Week:
The S&P500 declined 0.5% (up 1.0% y-t-d), and the Dow slipped 0.6% (up 0.4%). The Utilities gained 0.8% (up 1.3%). The Banks added 0.3% (up 1.1%), and the Broker/Dealers rose 1.0% (up 2.3%). The Transports were little changed (up 0.7%). The S&P 400 Midcaps increased 0.4% (up 1.0%), and the small cap Russell 2000 rose 1.1% (up 1.7%). The Nasdaq100 declined 0.7% (up 1.5%). The Semiconductors gained 0.8% (up 3.7%). The Biotechs increased 0.5% (up 1.3%). With bullion rising $19, the HUI gold index advanced 2.2% (up 3.3%).
Three-month Treasury bill rates ended the week at 4.19%. Two-year government yields fell five bps to 4.28% (up 4bps y-t-d). Five-year T-note yields declined five bps to 4.41% (up 3bps). Ten-year Treasury yields slipped three bps to 4.60% (up 3bps). Long bond yields dipped a basis point to 4.81% (up 3bps). Benchmark Fannie Mae MBS yields declined one basis point to 5.88% (up 4bps).
Italian 10-year yields gained four bps to 3.59% (up 7bps y-t-d). Greek 10-year yields were unchanged at 3.24% (up 2bps). Spain's 10-year yields increased two bps to 3.11% (up 5bps). German bund yields added three bps to 2.43% (up 6bps). French yields jumped seven bps to 3.29% (up 9bps). The French to German 10-year bond spread widened about four to 86 bps. U.K. 10-year gilt yields declined four bps to 4.59% (up 3bps). U.K.'s FTSE equities index gained 0.9% (up 0.6% y-t-d).
Japan's Nikkei 225 Equities Index fell 1.0% (unchanged y-t-d). Japanese 10-year "JGB" yields slipped a basis point to 1.1% (unchanged y-t-d). France's CAC40 declined 1.0% (down 1.3%). The German DAX equities index slipped 0.4% (unchanged). Spain's IBEX 35 equities index rose 1.0% (up 0.5%). Italy's FTSE MIB index was little changed (down 0.2%). EM equities were mixed. Brazil's Bovespa index fell 1.4% (down 1.5%), and Mexico's Bolsa index declined 0.7% (down 1.1%). South Korea's Kospi rallied 1.5% (up 1.8%). India's Sensex equities index increased 0.7% (up 0.9%). China's Shanghai Exchange Index sank 5.6% (down 4.2%). Turkey's Borsa Istanbul National 100 index increased 0.5% (up 2.5%).
Federal Reserve Credit declined $20.9 billion last week to $6.820 TN. Fed Credit was down $2.070 TN from the June 22, 2022, peak. Over the past 277 weeks, Fed Credit expanded $3.092 TN, or 83%. Fed Credit inflated $4.009 TN, or 143%, over the past 634 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt dropped $22.3 billion last week to $3.275 TN - the low back to June, 2017. "Custody holdings" were down $113.6 billion y-o-y, or 3.4%.
Total money market fund assets jumped $42.1 billion to a record $6.848 TN. Money funds were up $713 billion over 22 weeks (27% annualized) and $873 billion y-o-y (14.6%).
Total Commercial Paper dropped $59.9 billion to $1.087 TN. CP was down $127 billion, or 10.5%, over the past year.
Freddie Mac 30-year fixed mortgage rates gained six bps this week to a six-week high 6.91% (up 29bps y-o-y). Fifteen-year rates rose 13 bps to 6.13% (up 24bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down a basis point to 7.32% (up 19bps).
Currency Watch:
January 3 – Bloomberg: “The onshore yuan weakened past a level that China had been defending throughout December, opening up room for the managed currency to drop further amid a sluggish economy. The yuan breached the psychological milestone of 7.3 per dollar for the first time since late 2023, amid concerns over China’s economic struggles and a widening bond yield discount to the US. The move came even as the central bank maintained its support for the currency with its daily reference rate on Friday.”
December 28 – Bloomberg: “China’s ambitious campaign to revive its flagging stock market has made the yuan an unintended casualty, with record dividend payouts leading to outflows. Interim dividends paid by Hong Kong-listed Chinese firms are set to reach $12.9 billion between January and March, a record level for the first quarter… That comes as fourth quarter levels have already topped $16.2 billion, the most ever for the period and up 47% compared with a year ago.”
For the week, the U.S. Dollar Index added 0.9% to 108.952 (up 0.6% y-t-d). For the week on the upside, the Japanese yen gained 0.4%, and the Brazilian real increased 0.1%. On the downside, the Mexican peso declined 1.5%, the British pound 1.2%, the euro 1.1%, the Swedish krona 1.0%, the Singapore dollar 0.9%, the Swiss franc 0.7%, the New Zealand dollar 0.4%, the Canadian dollar 0.2%, the South African rand 0.1%, and the Norwegian krone 0.1%. The Chinese (onshore) renminbi declined 0.35% versus the dollar (down 0.3% y-t-d).
Commodities Watch:
December 30 – Reuters (Anushree Mukherjee): “China's net gold imports via Hong Kong in November more than doubled from October, marking the highest level in seven months… The world's top gold consumer imported a net 33.074 metric tons in November, up 115% from 15.414 tons in October, its highest level since April 2024. Total gold imports via Hong Kong were up 60% at 45.22 metric tons from October…”
The Bloomberg Commodities Index increased 0.3% (down 0.3% y-t-d). Spot Gold gained 0.7% to $2,640 (up 0.6%). Silver rose 0.8% to $29.623 (up 2.5%). WTI crude jumped $3.36, or 4.8%, to $73.93 (up 3.1%). Gasoline surged 4.9% (up 1.5%), while Natural Gas declined 0.9% to $3.354 (down 7.2%). Copper fell 1.2% (up 1.2%). Wheat dropped 3.2% (down 4%), and Corn declined 0.7% (down 1.7%). Bitcoin rose $3,500, or 3.7%, to $97,940 (up 4.5%).
Trump Administration Watch:
December 29 – Wall Street Journal (Sam Goldfarb): “Wall Street investors entered each of the past two years brimming with optimism about U.S. Treasurys and other types of high-quality debt. Each time, they were disappointed. Now, they are far more guarded. In recent weeks, money managers have been dumping Treasurys, while savers have been rushing out of longer-term bond funds. All that selling has pushed Treasury yields to the upper end of their two-year range. Still, investors remain worried that a tough environment for bonds could get even worse if President-elect Donald Trump pursues inflationary policies such as new tariffs. Many are debating whether hiding out in short-term T-bills could again be the smarter play. ‘Cash is yielding 4-plus percent,’ said Ed Al-Hussainy, global interest-rate strategist at Columbia Threadneedle... ‘That’s a pretty tough bogey to beat.’ Such doubts represent a big shift on Wall Street.”
December 27 – Wall Street Journal (Tim Hanrahan): “Treasury Secretary Janet Yellen said the U.S. will hit its borrowing limit in the middle of next month, triggering the use of ‘extraordinary measures’ to keep the federal government from defaulting on its obligations. Congress would then have several months to pass legislation to raise the debt ceiling before the special measures run out. A debt limit deal struck in 2023 suspended the debt ceiling until Jan. 1, 2025, with a new multitrillion-dollar debt-ceiling level being set on Jan. 2. But Yellen said in a letter to congressional leadership… that the scheduled redemption of $54 billion in securities on Jan. 2 would temporarily cause the overall federal debt to decrease and buy the Treasury a few more weeks. ‘Treasury currently expects to reach the new limit between Jan. 14 and Jan. 23, at which time it will be necessary for Treasury to start taking extraordinary measures,’ Yellen said. ‘I respectfully urge Congress to act to protect the full faith and credit of the United States.’”
December 28 – Wall Street Journal (Benoît Morenne): “President-elect Donald Trump wants U.S. oil producers to rekindle their once-frenzied drilling, but the country’s shale patch has changed since his first administration. Wildcatters are mostly gone, replaced by more disciplined oil giants. Wall Street has helped instill that discipline, pushing oil companies to focus more on producing cash for investors. Meanwhile, production in most U.S. crude regions is set to decline as fields mature and sweet spots dwindle. What this means: The oil patch is unlikely to see the kind of breakneck growth it saw in Trump’s first term, when daily crude production shot up from about nine million barrels to roughly 13 million.”
December 30 – Bloomberg (Iain Rogers): “German Chancellor Olaf Scholz and his deputy, Robert Habeck, used their New Year addresses to castigate Elon Musk over his backing for a far-right party in February’s snap election. Musk… has repeatedly praised the anti-immigrant Alternative for Germany in recent weeks on his social media platform X. He expanded on his support for the party, known by its German acronym AfD, in an opinion piece published over the weekend by Welt am Sonntag newspaper.”
Trade War Watch:
January 3 – Axios (Felix Salmon): “If Donald Trump succeeds in significantly reducing the U.S. trade deficit with China, he'll do so against the force of history — and of market expectations. By placing the trade deficit with China at the top of the list of things he wants to slash, Trump is facing off against trillions of dollars’ worth of deeply entrenched global trade patterns. The trade deficit with China… has been larger than $200 billion since 2005. It reached a record high of $418 billion in 2018, Trump's second year in office. The U.S. imports an astonishing array of goods from China, and it exports very little in the other direction. The tariffs imposed on China during the first Trump administration… did relatively little to change that dynamic. During Trump’s first term, when imports fell, exports fell too, blunting the effect on the trade deficit.”
January 3 – Bloomberg: “China is planning tougher scrutiny on exports of technology to make battery materials, as Beijing looks to protect its grip on a crucial supply chain amid rising global trade tensions. The government has proposed adding various technologies — some used for lithium refining and battery chemicals production — to its list of items that are subject to export controls… The plan appears aimed at protecting innovations that China has developed during its rise to dominate global battery and electric-vehicle production.”
January 2 – New York Times (Alexandra Stevenson): “China… singled out dozens of companies from the United States, including Raytheon, Boeing and Lockheed Martin, in a series of punitive trade measures that could ratchet up tensions between the two superpowers. With weeks to go before President-elect Donald J. Trump takes the office with a promise to impose new tariffs and sanctions on China, Beijing is once again showing it is ready to strike back. China’s Ministry of Commerce said it added 28 companies to an export control list to ‘safeguard national security and interests’… And it placed 10 companies on what it calls an ‘unreliable entities list’ related to the sale of arms to Taiwan, preventing them from doing any business in China and prohibiting their executives from entering or living in the country.”
Ukraine War Watch:
December 31 – New York Times (Anatoly Kurmanaev): “A quarter century after assuming power, President Vladimir V. Putin told Russians in his New Year’s Eve address… that their country was overcoming every challenge and moving forward. But he did not say where Russia was going, even as it takes huge casualties in its war in Ukraine, struggles with rising inflation and absorbs diplomatic blows abroad. Much of his short speech was characterized by omissions. While Mr. Putin… honored the country’s ‘fighters and commanders,’ he invoked Russians’ pride in defeating Nazism and declared 2025 ‘the year of the Defender of the Motherland,’ he did not say who the country was fighting or why. It was a conspicuous omission nearly three years after he decided to invade neighboring Ukraine… Nor did Mr. Putin address inflation, the main concern of most ordinary Russians, or a host of other economic challenges... ‘We are certain that everything will be fine,’ he said.”
Taiwan Watch:
December 31 – Reuters: “No one can stop China's ‘reunification’ with Taiwan, Chinese President Xi Jinping said in his New Year's speech…, laying down a clear warning to what Beijing regards as pro-independence forces within and outside of the island of 23 million people. In the past year, Beijing has stepped up military pressure near Taiwan, sending warships and planes almost daily into the waters and air space around the island in what Taiwanese officials view as a creeping effort to ‘normalise’ China's military presence… ‘The people on both sides of the Taiwan Strait are one family. No one can sever our family bonds, and no one can stop the historical trend of national reunification,’ Xi said in a speech…”
Market Instability Watch:
January 1 – CNBC (Jeff Cox): “As if the bond rout in 2024 wasn’t bad enough, fixed income investors face multiple challenges in the year ahead, including one under-the-radar worry about short term notes coming due. Nearly $3 trillion of U.S. debt is expected to hit maturity in 2025, much of it of a short-term nature that the Treasury Department has been issuing in large amounts over the past few years. With the government expected to try to lengthen the duration of that debt when it is time to roll it over, it could provide another headache should the market not be prepared to absorb what already is expected to be massive Treasury issuance as the U.S. finances a nearly $2 trillion budget deficit. ‘If you assume that we’re going to be running trillion-dollar-plus deficits beyond 2025 then eventually, cumulatively, that will overwhelm the T-bill issuance,’ Tom Tzitzouris, head of fixed income at Strategas Research… said… Strategas estimates that there is $2 trillion in ‘excess’ Treasury bills in the $28.2 trillion Treasury market now.”
December 31 – Bloomberg (Alexandra Harris): “Use of the Federal Reserve’s overnight reverse repurchase agreement facility topped $400 billion to the most since June, as year-end dealer balance-sheet constraints shift more cash to the central bank. Some 80 counterparties parked $473.5 billion at the RRP, the highest since June quarter-end, from $260.7 billion the prior session. Usage has risen by about $375 billion since Dec. 20…”
December 30 – Bloomberg (Vinícius Andrade and Giovanna Bellotti Azevedo): “Brazilian assets finished the year lagging all major peers, with the real posting its biggest slump since the pandemic shock of 2020 amid mounting skepticism over President Luiz Inacio Lula da Silva’s commitment to fix a ballooning budget deficit. The real weakened 21% against the US dollar this year, the worst among 31 major currencies alongside Argentina’s tightly controlled peso. Losses accelerated in November after a long-awaited fiscal package underwhelmed investors. Not even a historic intervention by the central bank — spending some $20 billion in reserves in two weeks — has been able to reverse the rout.”
December 31 – Reuters (Noe Torres): “Mexico's peso weakened nearly 23% this year to close the final day of trading at 20.82 pesos per U.S. dollar on Tuesday, the currency's deepest drop against the greenback since the 2008 global financial crisis. The peso's volatile year kicked off with months of steady gains until the days following June's general election, which swept the leftist coalition led by the ruling Morena party to a resounding victory in the presidential race as well as large congressional majorities.”
Global Credit Bubble Watch:
January 2 – Bloomberg (Caleb Mutua): “A slew of blue-chip firms raised a total of $15.1 billion in the US investment-grade primary debt market on Thursday, as underwriters brace for what’s expected to be one of the busiest Januaries for bond sales… High-grade syndicate desks are expecting between $175 billion to $200 billion of bond sales for the month, versus a record $190 billion in January 2024. Full-year forecasts range between $1.4 trillion to as high as $1.9 trillion, compared with $1.5 trillion issued in 2024.”
December 30 – Bloomberg (Michael Mackenzie, Liz Capo McCormick, and Alex Harris): “It was once the club every Wall Street institution wanted to join: the elite network of primary dealers who serve as gatekeepers of the world’s biggest and most influential bond market, US Treasuries. Not so much anymore. Just as America’s debt load is poised to balloon beyond already-record levels, a variety of forces has made membership in this vital cohort less coveted… Those remaining in the ranks warn of mounting pressures in navigating their role… They say it’s getting tougher to fulfill their duty of bidding on new debt at the Treasury’s regular auctions of securities and maintaining an active secondary market.. ‘Issuance has gone up almost threefold in the last 10 years and the anticipation is for it to close to double to $50 trillion outstanding in the next 10 years, whereas dealer balance sheets haven’t grown at that magnitude,’ said Casey Spezzano, head of US customer sales and trading at… NatWest Markets and chair of the Treasury Market Practices Group… ‘You’re trying to put more Treasuries through the same pipes, but those pipes aren’t getting any bigger.’”
AI Bubble Watch:
January 3 – Bloomberg (Brody Ford): “Microsoft Corp. plans to spend $80 billion this fiscal year building out data centers, underscoring the intense capital requirements of artificial intelligence. More than half of this projected spending through June 2025 will be in the US, Microsoft President Brad Smith wrote… Recent AI progress is thanks to ‘large-scale infrastructure investments that serve as the essential foundation of AI innovation and use,’ Smith wrote. Cloud infrastructure providers like Microsoft and Amazon.com Inc. have been racing to expand computing capacity by constructing new data centers.”
Bubble and Mania Watch:
December 31 – Financial Times (Joshua Franklin): “Banks are on course to generate their highest annual trading revenues since 2010, as equity derivatives and credit deals help power the business. The industry is expected to bring in almost $225bn in trading revenues in 2024, according to estimates… from more than 250 global banks by Coalition Greenwich… The figure would narrowly surpass the blockbuster $224bn earned in 2022 when Russia’s full-scale invasion of Ukraine rocked financial markets, and mark the best year for banks’ traders since 2010 when they generated $226bn.”
January 3 – Bloomberg (David Marino and Elena Popina): “Zero-day options on the S&P 500 Index surpassed all other expirations combined in the fourth quarter for the first time ever, the latest milestone to mark the growing dominance of the short-term contracts. Trading in options expiring the same day averaged more than 1.5 million contracts a day in the last three months of 2024, accounting for 51% of the overall S&P 500 Index options volume…, triple the amount from the same period in 2021.”
December 30 – Bloomberg (Sidhartha Shukla): “BlackRock Inc.’s iShares unit offers more than 1,400 exchange-traded funds around the world, yet none of them have performed quite like this. The iShares Bitcoin Trust (ticker IBIT) smashed industry records in its launch year of 2024. In just 11 months, it grew to a behemoth with more than $50 billion in assets. Simply put, no ETF has ever had a better debut.”
December 31 – Bloomberg (Kara Carlson): “For all the exuberance about Tesla Inc. benefiting from Donald Trump’s return to the White House, Wall Street isn’t so sure the carmaker can avoid its first annual sales decline in over a decade. Analysts surveyed… are estimating the company may deliver around 510,400 vehicles in the final three months of the year. That would set a new quarterly record for Tesla, but the company would need to sell about 4,600 more cars to make good on its forecast for slight growth in 2024.”
January 1 – Financial Times (George Hammond): “The number of active venture capital investors has dropped by more than a quarter from a peak in 2021… The tally of VCs investing in US-headquartered companies dropped to 6,175 in 2024 — meaning more than 2,000 have fallen dormant since a peak of 8,315 in 2021, according to… PitchBook. The trend has concentrated power among a small group of mega-firms and has left smaller VCs in a fight for survival. It has also skewed the dynamics of the US venture market, enabling start-ups such as SpaceX, OpenAI, Databricks and Stripe to stay private for far longer, while thinning out funding options for smaller companies.”
December 31 – Bloomberg (John Gittelsohn and Felipe Marques): “A waterfront site in Miami’s financial district is set to be sold for more than $500 million, marking the largest land transaction ever in the Florida city. Apartment Investment & Management Co. agreed to sell 1001 Brickell Bay Drive and 1111 Brickell Bay Drive to an entity managed by Erik Rutter and David Weitz, the founders of Oak Row Equities. The combined 4.25-acre properties are in the heart of a neighborhood that has boomed in recent years, after an influx of financial companies and new residents.”
December 30 – Bloomberg (Natalie Wong and John Gittelsohn): “For the beaten-down US office market, 2024 was a year of diverging fortunes for owners as transactions started to pick up. Office landlords, confronted with the reality of plunging valuations, started to strike deals to sell properties they no longer wanted — often at steep price cuts — while scoring new equity investments on high-quality towers. Overall, US office sales volume for the year through November jumped 17% from the same period a year earlier… The top deals of the year… show how landlords and lenders are grappling with the market’s changes. And it points to how the office market may play out through 2025, with about $300 billion of debt backing those buildings still needing to be refinanced within the next 12 months…”
U.S./Russia/China/Europe Watch:
December 31 – Reuters (Liz Lee): “Chinese President Xi Jinping said China and Russia have always moved forward ‘hand in hand’ on the right path, the official Chinese news agency Xinhua said…, months after the two countries struck a ‘new era strategic partnership’ on key issues… In an exchange of New Year greetings with Russian President Vladimir Putin, Xi lauded the mutual trust and strategic coordination between both countries and expressed his desire to maintain close ties with Putin.”
December 28 – New York Times (Michael Schwirtz): “Western officials have long been concerned about Moscow’s so-called shadow fleet, an assemblage of aged tankers created to covertly carry Russian crude oil around the world… But Russia’s shadow fleet may now present a more pressing danger to the West. This week, Finnish commandos boarded an oil tanker that officials suspect had cut through vital underwater cables in the Baltic Sea, including one that carries electricity between Finland and Estonia. The ship, the Eagle S, bears all the hallmarks of vessels belonging to Russia’s shadow fleet, officials said, and had embarked from a Russian port shortly before the cables were cut.”
December 30 – Financial Times (Chris Cook and Max Seddon): “Russia’s military prepared detailed target lists for a potential war with Japan and South Korea that included nuclear power stations and other civilian infrastructure, according to secret files from 2013-2014 seen by the Financial Times. The strike plans, summarised in a leaked set of Russian military documents, cover 160 sites such as roads, bridges and factories, selected as targets to stop the ‘regrouping of troops in areas of operational purpose’. Moscow’s acute concern about its eastern flank is highlighted in the documents… Russian military planners fear the country’s eastern borders would be exposed in any war with Nato and vulnerable to attack from US assets and regional allies.”
De-globalization Watch:
December 31 – Bloomberg (Anna Shiryaevskaya, Priscila Azevedo Rocha, Daniel Hornak and Ewa Krukowska): “Russian gas flows to Europe via Ukraine stopped as a key transit deal expired, raising the stakes for the continent’s energy security as it draws heavily on reserves. ‘Due to the repeated and explicit refusal of the Ukrainian side’ to extend five-year agreements, Gazprom PJSC ‘was deprived of the technical and legal opportunity to supply gas for transit through the territory of Ukraine from January 1, 2025,’ the Russian gas giant said… For five decades Ukraine has been a key avenue for gas supplies into Europe, even during the nearly three years since Russia’s full-scale invasion of Ukraine.”
December 30 – Bloomberg (Cagan Koc): “China may start selling its products to Europe at discounted rates if the US starts a trade war by imposing new tariffs, according to European Central Bank Governing Council member Klaas Knot. In such a situation, ‘there is a chance that the Chinese will start offering their goods in Europe at lower and lower prices,’ Knot said… ‘We are already seeing that happening in the steel market,’ he said. ‘In this way, China is, as it were, exporting its deflation to us.’
January 3 – CNBC (Arjun Kharpal): “Sales of foreign phone brands in China plunged in November…, underscoring further pressure on Apple, the biggest international handset vendor in the country. In November, foreign mobile phone shipments in China stood at 3.04 million units… That’s a fall of 47.4% from November 2023, and a 51% drop from October last year.”
January 1 – Reuters (Ksenia Orlova): “President Vladimir Putin has ordered Russia's government and the country's biggest bank, Sberbank, to build cooperation with China in artificial intelligence. Putin's instructions were published on the Kremlin's website…, three weeks after he announced that Russia would team up with BRICS partners and other countries to develop AI. He told the government and Sberbank, which is spearheading Russia's AI efforts, to ‘ensure further co-operation with the People's Republic of China in technological research and development in the field of artificial intelligence’.”
Inflation Watch:
January 2 – Bloomberg (Michael Hirtzer): “Cattle futures climbed to a fresh record Thursday as falling temperatures and wintry conditions were set to hit a US beef market already wrestling with tight supplies. Heavy snowfall and bitter cold were predicted in the Plains cattle belt in the coming days… ‘While cattle can tolerate cold weather, extreme cold forces them to expend more energy, directly impacting feed conversion rates and ultimately reducing carcass weights,’ the Daily Livestock Report said…”
January 1 – Wall Street Journal (Patrick Thomas, David Uberti and Elizaveta Galkina): “The most important meal of the day isn’t likely to get cheaper soon. While commodities such as beef and eggs have long been volatile, others such as coffee have jumped in price more recently. Disease and severe weather in growing regions around the world have pushed up orange-juice futures contracts to record levels… Average prices for food at home rose in November by the largest annual pace in a year. Continued pressure on breakfast staples and other foods would hamper President-elect Donald Trump’s pledge to bring down what Americans spend on groceries, highlighting how unpredictable market conditions can hinder policy aims.”
January 3 – Bloomberg (Celia Bergin): “A rebound in global food prices is threatening to add to consumers’ grocery costs this year, just as the agricultural world braces for potential trade disruptions. A United Nations index tracking raw commodity costs of food ended the year up almost 7%, the first annual gain in three.”
December 28 – New York Times (Santul Nerkar): “When it comes to coffee, Thaleon Tremain has always tried to ignore what the market is telling him. As the chief executive and a co-founder of Pachamama Coffee in California, Mr. Tremain sells his specialty beans for more than what the global commodity price might dictate. He wants his customers to think of coffee as a luxury product… But now, Mr. Tremain is worried that coffee is getting more expensive for the wrong reasons. In recent years, repeated droughts and flooding have strained the global supply of coffee, frequently causing prices to soar, as climate change has done for other staples, like cocoa, olive oil and orange juice.”
December 31 – Bloomberg (Celia Bergin): “Cocoa is finishing 2024 as the top-performing major commodity, its massive annual gain driven by supply fears and market volatility. On track for a 175% gain over the past twelve months, cocoa’s tear has been driven by a series of poor harvests in Ivory Coast and Ghana, where the majority of the crop is grown. Dwindling global stockpiles are putting pressure on both buyers and chocolate makers.”
Federal Reserve Watch:
January 3 – Bloomberg (Craig Torres): “Federal Reserve Bank of Richmond President Tom Barkin said there are still upside risks to inflation and growth, underscoring his preference to keep interest rates restrictive for longer. While Barkin said he believes the central bank’s current level of rates is restraining the economy enough to continue lowering inflation in 2025, he remains wary of potential price pressures. ‘I think there is more upside risk than downside risk,’ Barkin said... ‘So I put myself in the camp of wanting to stay restricted for longer.’”
U.S. Economic Bubble Watch:
January 2 – Associated Press (Paul Wiseman): “The number of Americans applying for unemployment checks dropped last week to the lowest level since March… Jobless claims dropped by 9,000 to 211,000 last week… The overall numbers receiving unemployment benefits fell by 52,000 to 1.84 million, the lowest since September.”
December 29 – Financial Times (Stephen Gandel): “Defaults on US credit card loans have hit the highest level since the wake of the 2008 financial crisis, in a sign that lower-income consumers’ financial health is waning after years of high inflation. Credit card lenders wrote off $46bn in seriously delinquent loan balances in the first nine months of 2024, up 50% from the same period in the year prior and the highest level in 14 years… Write-offs… are a closely watched measure of significant loan distress. ‘High-income households are fine, but the bottom third of US consumers are tapped out,’ said Mark Zandi, the head of Moody’s Analytics. ‘Their savings rate right now is zero.’ The sharp rise in defaults is a sign of how consumers’ personal finances are becoming increasingly stretched after years of high inflation…”
December 31 – CNBC (Diana Olick): “There’s good news in the housing market to close out 2024: there’s a lot more supply. The bad news: a lot of that supply is stale, sitting unsold for much longer than usual. Active listings in November were 12.1% higher than they were in November 2023 and hit the highest level since 2020, according to… Redfin. More than half of those homes (54.5%), however, had sat on the market for at least 60 days without going under a contract of sale. That is the highest share for any November since 2019 and is up nearly 50% from the year before… The typical home that did go under contract did so in 43 days…, the slowest November pace since 2019. ‘A lot of listings on the market are either stale or uninhabitable. There’s a lot of inventory, but it doesn’t feel like enough,’ said Redfin agent Meme Loggins…”
December 30 – Bloomberg (Matthew Boesler): “Pending sales of US homes increased for a fourth month in November to the highest level since early 2023 as homebuyers gave up hopes for lower borrowing costs. A National Association of Realtors measure of contract signings rose 2.2% to 79, the highest since February 2023… ‘Consumers appeared to have recalibrated expectations regarding mortgage rates and are taking advantage of more available inventory,’ NAR Chief Economist Lawrence Yun said... ‘Buyers are no longer waiting for or expecting mortgage rates to fall substantially’… Activity declined in the Northeast. Across the US, contract signings climbed 5.6% from a year earlier…”
Fixed Income Watch:
January 2 – Bloomberg (Erin Hudson): “Municipal bonds sold by colleges and charter schools became distressed at record levels in 2024, as the amount of defaulted state and local government debt hit a three-year high… Last year was the ‘worst year for municipal defaults since 2021, breaking a three-year streak of sector-wide credit improvement,’ wrote Matt Fabian and Lisa Washburn at Municipal Market Analytics... Inclusive of the defaults, borrowers recorded 185 impairments…”
China Watch:
December 31 – Bloomberg: “China’s central bank injected 1.7 trillion yuan ($233bn) of cash in December, dialing up liquidity support for the economy and financial markets at year-end. The People’s Bank of China conducted 1.4 trillion yuan in outright reverse repurchase agreements using three- and six-month contracts, aiming to maintain sufficient liquidity in the banking system… This follows injections of 800 billion yuan and 500 billion yuan in the past two months through the new tool introduced in October. The central bank also bought a net 300 billion yuan of treasury bonds this month…”
January 2 – Financial Times (Cheng Leng and Robin Harding): “The People’s Bank of China plans to cut interest rates this year as it makes a historic shift to a more orthodox monetary policy to bring it closer into line with the US Federal Reserve and the European Central Bank… The Chinese central bank said it was likely it would cut interest rates from the current level of 1.5% ‘at an appropriate time’ in 2025. It added that it would prioritise ‘the role of interest rate adjustments’ and move away from ‘quantitative objectives’ for loan growth in what would amount to a transformation of Chinese monetary policy. Most central banks… have only one policy variable, the benchmark interest rate, which they use to influence demand for credit and activity in the economy. The PBoC by contrast not only sets a multitude of different interest rates but also gives unofficial guidance to banks on how much they should expand their loan books.”
January 3 – Reuters (Kevin Yao and Liangping Gao): “China will sharply increase funding from ultra-long treasury bonds in 2025 to spur business investment and consumer-boosting initiatives, a state planner official said…, as Beijing cranks up fiscal stimulus to revitalise the faltering economy. Special treasury bonds will be used to fund large-scale equipment upgrades and consumer goods trade-ins, said Yuan Da, deputy secretary-general of National Development and Reform Commission… ‘The size of ultra-long special government bond funds will be sharply increased this year to intensify and expand the implementation of the two new initiatives,’ Yuan said.”
December 31 – Reuters (Ethan Wang, Ellen Zhang and Ryan Woo): “China's 2024 gross domestic product (GDP) is expected to exceed 130 trillion yuan ($17.8 trillion), President Xi Jinping said…, adding that the country would implement more proactive policies to promote growth in 2025… Xi said China had responded to the impacts of the changing environment at home and abroad and adopted a full range of policies to help it pursue high-quality development in the past year… ‘Current economic operation faces new challenges, including challenges of uncertainties in the external environment and pressure of transformation from old growth drivers to new ones,’ Xi said. ‘But we can prevail with our hard work. As always, we grow in the wind and rain, and we get stronger through hard times,’ he added. ‘We must be confident.’”
January 1 – Wall Street Journal (Jason Douglas and Ming Li): “China’s go-go days are behind it as the world’s second-largest economy struggles with the bursting of the biggest real-estate bubble ever. Now, China’s goal of overtaking the U.S. as the world’s largest economy might take decades longer than Beijing expected… China’s economy today is burdened with excess: Millions of empty or unfinished apartment blocks, trillions of dollars in debt straining local governments and ballooning industrial production driving an export surge that is igniting trade tensions worldwide. China still has strengths: It dominates global manufacturing and has commanding positions in new technologies… Policymakers have proven adept at handling past crises, and are readying bold new stimulus to support the economy. Nonetheless, the scale of the excesses plaguing China’s economy underscores the perilous position Beijing finds itself in as a new trade war looms.”
December 31 – Reuters (Liangping Gao and Ryan Woo): “Prices of new homes in China rose at a slightly faster pace in December, a private survey showed… The average price of new homes across 100 cities edged up 0.37% from a month earlier, compared with the 0.36% rise in November, according to… China Index Academy. On a year-on-year basis, the average price rose 2.68% in December, versus 2.40% growth in the previous month.”
December 30 – Bloomberg: “China’s services activity expanded at the fastest pace in nine months while the manufacturing sector grew for a third straight month, signaling improving domestic demand after Beijing’s stimulus blitz. The official non-manufacturing purchasing managers’ index rose to 52.2 in December, significantly higher than forecast.”
December 30 – Associated Press: “China's factory activity expanded at a slower pace in December, official data showed…, despite recent stimulus measures and in the face of increasing trade risks. The Purchasing Managers’ Index… slipped to 50.1 in December from 50.3 the previous month.”
December 30 – Bloomberg: “China has awarded a range of civil servants across the nation their first significant pay rise in years, according to people familiar with the matter, as policymakers try to boost morale and spur spending. The basic salaries of many government employees have been bolstered by at least 500 yuan ($68.51) per month…”
Central Bank Watch:
December 27 – Bloomberg (Marton Eder): “The European Central Bank could consider waiting longer before its next rate cut if inflation risks from energy prices or a stronger depreciation of the euro materialize, according to Governing Council member Robert Holzmann. ‘It could be the case that we take more time before lowering rates again,’ the Austrian National Bank’s governor said... ‘It’s true, some energy prices are trending upwards again. But there are also other scenarios for how inflation could return, such as a stronger depreciation of the euro.’”
Global Bubble Watch:
December 30 – Bloomberg (Randy Thanthong-Knight): “Canadians are less optimistic about the direction of their economy than they’ve been in more than a year, as Donald Trump’s tariff threats create uncertainty for one of the largest US trading partners. The Bloomberg Nanos Canadian Confidence Index… extended its declines to reach 49.08, the lowest level since November 2023.”
Japan Watch:
December 30 – Bloomberg (Kaori Kaneko): “Japan's factory activity shrank at a slower pace in December as declines in production and new orders eased…, edging closer to stabilisation after recent falls. The final au Jibun Bank Japan manufacturing purchasing managers' index (PMI) rose to 49.6 in December, indicating the softest contraction in three months.”
Emerging Markets Watch:
December 30 – Bloomberg (Maria Eloisa Capurro): “Brazil economists raised their 2025 inflation forecasts further above the top of the central bank’s tolerance range, highlighting the woes facing policymakers as they pledge higher borrowing costs. Consumer price increases will hit 4.96% in December of 2025, up from the prior forecast of 4.84%... It was the 11th straight upward revision to next year’s estimate. Annual inflation will stand at 4.9% this month…”
December 30 – Reuters (Marcela Ayres): “After months of rancor, ties between President Luiz Inacio Lula da Silva and Brazil's central bank look poised for an era of sweetness and light - which is precisely what worries some investors. Gabriel Galipolo, 42, is set to take the reins at the bank on Wednesday. The former deputy finance minister has earned a reputation for economic views that sometimes stray from his predecessor's embrace of free markets but warm the hearts of left-leaning politicians. While that should help quiet months of sniping from a president exasperated with high interest rates, it may test the new formal independence of that institution, six of its former directors told Reuters.”
December 30 – Bloomberg (Soo-Hyang Choi and Heesu Lee): “South Korean investigators sought a warrant… to arrest President Yoon Suk Yeol after the impeached leader repeatedly defied summons to appear for questioning over his martial law declaration. A joint investigation team made the request to a Seoul court a day after Yoon didn’t appear for scheduled questioning by the Corruption Investigation Office for High-ranking Officials for the third time.”
January 3 – Bloomberg (Kevin Simauchi and Manuela Tobias): “Argentina unveiled a $1 billion repurchase agreement with five international lenders that will help replenish foreign reserves at its central bank, a key victory for President Javier Milei as he works to stabilize South America’s second-largest economy. The deal, commonly known as a repo, will be in place for two years and four months, the monetary authority said…, without naming the banks.”
Levered Speculation Watch:
January 2 – Financial Times (Harriet Agnew and Costas Mourselas): “Ken Griffin’s Citadel gained 15.1% in 2024, just ahead of longtime rival Izzy Englander’s Millennium Management, with the two firms beating the wider hedge fund industry in a year dominated by a soaring US stock market. Citadel’s flagship hedge fund Wellington was up 1.7% in December, while Millennium made 2.5% that month… Millennium finished the year up 15%. Citadel has $66bn in assets, while Millennium manages $72.1bn…”
January 2 – Reuters (Nell Mackenzie and Carolina Mandl): “Some of the world's largest hedge funds finished 2024 with comfortable double-digit returns… Hedge fund manager Bridgewater Associates' flagship Pure Alpha 18% volatility fund gained just over 11% in 2024 through Dec. 27… Large U.S. multi-strategy firms also posted double-digit gains. Schonfeld's flagship hedge fund Strategic Partners was up 19.7% in 2024.”
January 3 – Bloomberg (Denitsa Tsekova): “Quant funds that make money surfing the momentum of markets saw a promising year slip away in 2024 when big bouts of volatility lashed everything from Japanese stocks to cocoa futures and Treasuries. After jumping out to the best start to a year since 2008 thanks to concerted rallies in equities and commodities, the trend-chasing cohort saw gains all but vanish as orderly markets turned turbulent. An index compiled by Societe Generale SA tracking the category finished with a 2% rise. Trend-following funds come in all shapes and sizes with various allocation horizons, but the broader universe suffered losses or flat returns in the second half of the year amid reversals in European equities, energy and metals, as well as volatile bond markets.”
Social, Political, Environmental, Cybersecurity Instability Watch:
December 30 – Financial Times (Colby Smith): “A Chinese state-sponsored actor hacked the US Treasury department through a third-party service provider in a ‘major cyber security incident’, the agency said… In a letter to the Senate banking committee seen by the Financial Times, the Treasury department said it had been informed… that a hacker had breached several remote government workstations by obtaining a security key and had in turn gained access to unclassified documents on them. ‘Based on available indicators, the incident has been attributed to a China state-sponsored Advanced Persistent Threat (APT) actor,’ the letter said. ‘In accordance with Treasury policy, intrusions attributable to an APT are considered a major cyber security incident.’”
December 31 – Reuters (Jake Bleiberg): “A growing roster of political figures, US government agencies and companies that provide critical services have one thing in common: They have allegedly been hacked by China. The latest victim is the US Treasury Department, which disclosed… Chinese state-sponsored hackers had breached its network via a third-party provider, accessing some unclassified documents… ‘The Russians get a lot of attention because of the use of disruptive cyberattacks,’ said Adam Segal, director of the Council on Foreign Relations’ Digital and Cyberspace Policy Program… ‘But the Chinese are the longer-term threat because of their technology and the scope and scale of their operations.’”
December 31 – Reuters (Celia Bergin): “Puerto Ricans were without electricity early on New Year's Eve after a grid failure left nearly all of the island without power. Around 90% of clients were without power at 1330 GMT on Tuesday… It will likely take 24 to 48 hours to turn the lights back on, ‘conditions permitting,’ LUMA said…”
December 31 – Reuters (Prakhar Srivastava): “U.S. bank Citigroup said… it is exiting the Net-Zero Banking Alliance (NZBA), a group of global banks that have pledged to curb greenhouse gas emissions. This move makes Citigroup the third major U.S. lender to exit the group after Wells Fargo and Goldman Sachs… Financial firms… have made efforts to incorporate net-zero standards more prominently into their operations. However, they have begun scaling back on some initiatives to avoid irking Republican policymakers who are opposed to limiting the financing of fossil fuels.”
Geopolitical Watch:
December 30 – Financial Times (Kathrin Hille): “Two years of escalating confrontation in the South China Sea have persuaded the Philippines that going head-on against Beijing is not viable as it tries to police one of the world’s largest maritime territories. Direct clashes with the Chinese coastguard — accused of behaving ‘like Vikings’ — threaten to exhaust Manila’s limited resources, according to Philippine government officials. They said the country had to balance securing its western flank, where China is most active, with the need to safeguard the rest of its maritime interests across 7,000 islands where smuggling and piracy are perennial threats.”
