Credit Bubble Bulletin

Chair Powell’s post-meeting press conferences always leave me wanting for some probing questions. It’s as if journalists abide by an unwritten rule to avoid anything contentious. I found Thursday’s Q&A session sponsored by the Dallas Regional Chamber – and moderated by The Washington Post’s Catherine Rampell – more satisfying and pertinent enough for CBB attention.

Rampell: “In addition to the potential long-term risks that higher deficits and debt present for growth, are there also risks to the functionality of the Treasury market – when shocks hit the market and, if so, how might the Fed respond?”

Chair Powell: “The functioning of the Treasury market is incredibly important, and it does function very well. It’s the most liquid and most important, probably, financial market in the world - certainly one of the most important. At the beginning of the pandemic, the Treasury market lost function. Normally, in an emergency, money flies into the Treasury market. But the pandemic was such an unusual event, people didn’t want to own long-term securities. They only wanted to own, effectively, cash. We had to jump in and support that. I think more broadly than that, it’s just important that the Treasury market remain well-regulated and that companies have an incentive to do intermediation in the Treasury market. It’s relatively low risk. It’s very important for the economy. It’s important that that be the case.”

Rampell: “In the March 2020 episode that you’re referring to, the Fed ultimately had to step in as a lender of last resort. Would the Fed do that if there were similar disruptions in the initial issuance of Treasuries – that was in the secondary market…?”

Powell: “We’re not a fiscal actor. We have a mandate that we share with other agencies to look after financial stability. Part of that is if really important markets break down – and they all kind of broke down at the beginning of the pandemic. They just stopped working. We set up a series of facilities to backstop those markets. But they actually didn’t get used because just the fact that we had the facilities restored credibility and the markets started working on their own. It was remarkable. In the case of a financial stability event like that – or the global financial crisis where really the whole global financial system was at risk given the failure of a number of large financial institutions around the world. In those kinds of things, we can use these emergency tools. But they’re not for every event. They’re really for financial stability events.”

While market attention is understandably fixated on Trump administration nominations and policy focus, there is no more important – and potentially pressing – issue than Treasury market function.

For starters, Powell at least acknowledged the financial stability mandate, the Fed’s overarching responsibility that, especially lately, has been given short shrift to maximum employment and stable prices.

As I’ve written in the past, Powell is a “good man.” I went out of my way to support him early in his chairmanship, expecting the Fed Chair to be tarred and feathered for a big crisis mainly the result of actions and doctrine made by his predecessors Greenspan, Bernanke, and Yellen. But when your central bank prints $5 TN, maintains excessively low rates, disregards monumental financial stability risks (i.e., market Bubbles, manias, egregious leverage), and accommodates spikes in consumer prices and national debt, well, you’ve ensured your place in history.

A Trillion plus Treasury “basis trade” (and multi-Trillion “carry trades” and other speculative leverage) poses a grave threat to financial stability. Today’s unprecedented Treasury market leverage is a direct consequence of the Fed bailing out the “basis trade” players in March 2020. While I guess Powell can claim that the Fed’s backstop facilities “actually didn’t get used” - “it was remarkable,” but surely the Fed Chair hasn’t forgotten that Federal Reserve assets ballooned (a remarkable) almost $3 TN in the first 14 weeks of the pandemic crisis. It was a full-scale market – including Treasuries and “basis trade” leverage – bailout without parallel.

Powell’s answer to the Treasury market function question was telling. He suggests that the breakdown in long-term Treasury market function was because the “pandemic was such an unusual event.” But the critical issue was that Covid hit after a major increase in speculative leverage – “basis trades” and otherwise – following the Fed’s misguided summer of 2019 rate cuts and, importantly, restart of QE in response to “repo” market instability. Speculative leverage creates fragility – and “basis trades,” in particular, are egregiously levered.

Of course, the Fed will do whatever it takes to thwart financial collapse – an issue that takes on great prominence late in the cycle. But at least adopt an aggressive regulatory posture once crisis dynamics have subsided. Powell paid lip service to “well-regulated.” More interestingly, he stated it was important “companies have an incentive to do intermediation in the Treasury market.” Inquisitive minds want to know: Does the Fed see the highly levered “basis trade” players providing an intermediation function?

I’m reminded of how, in the early nineties, Alan Greenspan slashed rates and manipulated the yield curve to help recapitalize an impaired (post-eighties Bubble) banking system. An unusually steep yield curve provided a windfall for the fledgling leveraged speculating community. Essentially, Greenspan realized that hedge fund and Wall Street speculative leverage provided powerful impetus to Credit growth, asset inflation, and economic activity.

Incredibly powerful forces were unleashed that would go on to propagate three decades of serial boom and bust dynamics, with each bursting Bubble triggering only more powerful reflationary measures. It seemed so beneficial – and innocuous – such a pragmatic expedient. “Free markets” just needed some occasional support. Central banker souls were sold: inflationism.

Rampell: “Do we get to a point where deficits and debt get so high that it makes your job harder essentially – that it makes it harder for the Fed to achieve its goals?”

Powell: “We’re not at that point now. I want to be clear. We’re not in anyway taking into account fiscal issues when we… Let me say it this way, the debt issue is not an issue that is guiding our judgements… As I’ve often said, and as all of my predecessors have noted, the U.S. federal government budget is on an unsustainable path. It’s not that the debt we have is at an unsustainable level. It’s not. It’s that we’re on a path that’s not going to be unsustainable.”

Quickly could be. Questions regarding the sustainability of federal debt become a pressing issue come the next serious bout of de-risking/deleveraging and unwind of “basis trade” leverage. Levered “basis trade” funding of deficit spending is not only unsustainable, but it also creates major systemic vulnerability. The current extraordinary backdrop argues loudly against complacency.

November 14 – Wall Street Journal (Peggy Noonan): “The first wave of nominees to the Trump administration announced this week included normal Republicans… But the second wave—it is impossible to tell if Mr. Trump is announcing appointments or trolling his enemies. Pete Hegseth as defense secretary? This is unserious and deeply alarming… As for Matt Gaetz being nominated as attorney general—well, this is just straight-out trolling, right?... The choice obviously isn’t meant to reassure anyone outside the MAGA base—or even those within it who are intelligent. It is an insolent appointment, guaranteed to cause trouble and meant to cause friction.”

This is such a critical juncture. As an analyst, I much prefer to focus on markets and avoid politics. It’s just not possible; much too intertwined at this point. President Trump, of course, has every right to choose his nominations. Gaetz, Hegseth, Gabbard, RFK Jr. Is this how it’s going to go? “Trolling enemies” takes precedence over the issue of a deeply fractured nation?

“Trump is Already Testing Congress and Daring Republicans to Oppose Him.” An empowered President-Elect is clearly hankering for a fight – and its starts with Senate Republicans. “By and with the Advice and Consent of the Senate” - or not. Prospects for endless trolling, fighting and turmoil caught up to a frothy stock market late in the week.

November 15 – Bloomberg (Angel Adegbesan and Joe Easton): “Health stocks slumped on Friday as Wall Street weighed the impact that prominent vaccine skeptic Robert F. Kennedy Jr. could have on the industry after President-elect Donald Trump nominated him to lead the nation’s health and medical research agencies… Shares of health-care companies in the US fell, with the S&P 500 Health Care Index dropping 1.9% to its lowest level since May. Kennedy’s selection ‘could have far-reaching and difficult-to-project implications for the biotechnology sector, adding a considerable layer of uncertainty and challenging investability,’ according to Brian Abrahams, an analyst at RBC Capital Markets… Shares of biotechnology companies also tumbled with the SPDR S&P Biotech ETF (XBI) dropping 5.3%, the most since June 2022.”

November 15 – Reuters (Caroline Valetkevitch, Lance Tupper and Lewis Krauskopf): “Shares of defense companies and government contractors were lower on Friday, extending recent losses amid uncertainty surrounding President-elect Donald Trump's proposed Department of Government Efficiency… Among defense contractors, shares of General Dynamics fell 1.5% on Friday, while… Northrop Grumman was down 1.3%... Shares of government contractors also continued their recent slide on Friday, including Leidos Holdings, which was down 4.4%; Science Applications International, which was down 2.8%; and Booz Allen Hamilton, which fell 3%. General Dynamics was down about 7% for the week, while Leidos fell 19%. Both stocks suffered their biggest weekly percentage drops in more than four years.”

November 14 – Axios (Ivana Saric): “As President-elect Trump rolls out his Cabinet picks, he has called on the Senate to allow for recess appointments — a process that would allow him to install officials without congressional approval… By demanding recess appointments, Trump is asking the Senate to surrender its advise-and-consent role for Cabinet confirmations, a key lever in the system of checks and balances against presidential power. Trump could use this power in an unprecedented way, potentially forcing Congress into a recess, then using it to make unilateral appointments, Charles Cameron, a professor of politics and public affairs at Princeton University, told Axios... Trump’s ‘gambit would be a gigantic delivery of power to the President,’ the professor said.”

“Wall Street Risk Fanatics Cool Down on Fed, Trump Trade Rethink.” There’s more to the fledgling rethink than Fed rate cuts and trade policy. Markets must now confront the prospect of a powerful President eager to gamble for virtually unchecked power – the so-called “Trump 2.0 without guardrails.” Trump is girding to play hardball in a manner unknown in modern American politics. There will be disruption, upheaval, and a resolve to crush the existing order – all in the name of an election mandate. And it's difficult to see how all the associated uncertainty is bullish for markets.

Peggy Noonan (from above) concluded: “People say they fear authoritarianism from Mr. Trump, latent or overt fascism, a reign of intolerance. My fears are in the area of foreign policy. Mr. Trump no doubt believes he’s ready for a major foreign crisis, but he’s never had one… He tends to think foreign affairs comes down to personal relationships, but it doesn’t. Xi Jinping, ‘Little Rocket Man’—he had them all wary in his first term. Who is this guy? Better not push him. But now they know him—how he operates, what he wants. He isn’t a mystery to them anymore. He isn’t a mystery to anyone. That will have some impact on things going forward.”

We’ll see if President Trump can overpower the Senate - along with Washington checks and balances. But hopefully he is under no illusion that his extraordinary domestic power will translate internationally. Putin, of course, will embrace negotiations to end the Ukraine War. But why would he give an inch? Xi will welcome trade talks – ready to counter Trump with a show of strength and resolve. They know him, and the process is now underway.

November 15 – Bloomberg (Archie Hunter and Jack Ryan): “Aluminum jumped on Friday after China said it would cancel a tax rebate that’s helped fuel a decades-long boom in exports and shielded an industry prone to overcapacity. Futures… jumped as much as 8.5% following the announcement from the country’s Ministry of Finance. China’s aluminum industry historically has exported significant amounts of the metal as semi-finished products… The shipments of the metal used in everything from beer cans to automobiles have been a trigger point for trade battles with the US and Europe in the past… ‘This could be seen as a strategic move in the context of trade tensions following Trump’s win in the US presidential elections,’ said ING Bank NV commodity strategist Ewa Manthey.”

November 15 – Bloomberg (Jonathan Tirone, Ari Natter and Will Wade): “Russia is temporarily limiting exports of enriched uranium to the US, creating potential supply risks to utilities operating American reactors that generate almost a fifth of the nation’s electricity. The Russian government didn’t provide details of the restrictions or their duration in a Friday statement…”

And on the topic of adversaries that know him: Did the adversarial relationship between the Trump administration and the Treasury market get started this week? Just think of the size of deficits created by a divided Congress and hamstrung executive branch. The Treasury market will be nervously monitoring the President’s powerplays. Ten-year Treasury yields jumped 14 bps this week to a 20-week high of 4.44%. Long-bond yields traded this week to the high (4.65%) since May.

The market ended the week pricing a 58% probability of a 25 bps cut at the December 18th FOMC meeting. The expected rate for December 2025 rose another six bps this week to 3.83%, implying only 75 bps of rate reduction over the next 13 months. This compares to the 163 bps priced at the end of September. More strong data this week (NFIB Small Business Optimism, Unemployment Claims, Retail Sales, Empire Manufacturing), along with comments from Powell: “The economy is not sending any signals that we need to be in a hurry to lower rates.”

November 14 – Bloomberg (Alexandra Harris): “A rise in funding costs is spilling into the market for repurchase agreements backed by equities, a phenomenon that’s unlikely to abate, according to JPMorgan… The amount of equity collateral that dealers need to finance the repo market has swelled, driven by the benchmark S&P 500 Index rallying to new highs and robust investor demand for leverage equity exposure, said strategists Teresa Ho, Pankaj Vohra and Bram Kaplan in a note... As a result, the total amount of primary-dealer equity financing in repos has hit the highest level since April 2013…”

The equities market melt-up has surely been fueled by a surge in leverage, some margin debt and an enormous amount of derivatives-related leverage. For one, those forced to hedge call options that had been sold before the rally use the “repo” market to finance the purchase of the underlying stocks and ETFs. Not surprisingly, the crazy inflation of money market fund (the key “repo” market lender) assets runs unabated. Total money fund assets surged another $81.6 billion the past week to a record $6.667 TN. Demonstrating “blowoff” monetary inflation dynamics, money fund assets have surged an incredible $533 billion over the past 15 weeks, a blistering 30% annualized rate.

We’ll look back and ponder how conspicuous signs of peak speculative excess were ignored. The Power of Manias.

November 15 – Financial Times (Harriet Clarfelt and Nicholas Megaw): “Corporate borrowers are rushing to tap the US bond market, taking advantage of ‘eye-poppingly’ buoyant conditions after Donald Trump’s election victory. Companies… have raised more than $50bn this week, according to LSEG data. That total is far above bankers’ expectations and the busiest week since a burst of activity in September, when companies typically return to the market after a summer lull. Credit and equity markets have rallied since Trump’s win last week, pushing corporate borrowing costs relative to US Treasuries to their lowest level in decades, as investors bet that tax cuts will boost profits.”

November 15 – Reuters (Gaurav Dogra and Patturaja Murugaboopathy): “U.S. equity funds witnessed a significant boost in investor demand in the week through Nov. 13… According to LSEG data, investors acquired a massive $37.37 billion worth of U.S. equity funds in their largest weekly net purchase since at least January 2014. The small-cap equity funds segment saw robust demand, securing the largest weekly inflow in four months at $7.43 billion net. Meanwhile, the large-cap segment attracted $18.89 billion…”

November 15 – Bloomberg (Isabelle Lee): “This year was already a landmark one for exchange-traded funds, but as of Friday the ETF universe can add another superlative: biggest annual inflows on record. The insatiable appetite for the investor-friendly wrapper, an all-time high number of product launches and a relentless bull market fueled by Donald Trump’s presidential victory have helped push total net inflows into US ETFs past $913 billion… That beats 2021’s record haul with still one more month to go. Further signs of the markets ebullience: total US ETF assets hit the $10 trillion mark for the first time in September, more than 600 new products have debuted since the start of the year and nearly all ETFs in the US posted positive 12-month returns…”

All signs point to peak Bubble excess. Now a highly levered Treasury market will confront an administration ready to slam through its pricey agenda – including an aggressive tariff regime. Understandably, the Fed is signaling a more cautious approach to rate cuts. Meanwhile, rising bond yields threaten the President Trump’s wrath coming down on Powell’s head. Things could turn messy. The new administration appears hellbent on imposing new power structures. It will be fascinating to see if highly levered and fragile markets prove the ultimate power broker.

For the Week:

The S&P500 slumped 2.1% (up 23.1% y-t-d), and the Dow declined 1.2% (up 15.3%). The Utilities slipped 0.3% (up 22.2%). The Banks rose 2.3% (up 40.4%), and the Broker/Dealers added 0.8% (up 48.9%). The Transports dipped 0.7% (up 8.4%). The S&P 400 Midcaps fell 2.7% (up 15.3%), and the small cap Russell 2000 dropped 4.0% (up 13.7%). The Nasdaq100 lost 3.4% (up 21.2%). The Semiconductors sank 8.6% (up 15.8%). The Biotechs were hammered 9.4% (up 2.9%). With bullion falling $122, the HUI gold index sank 8.6% (up 17.2%).

Three-month Treasury bill rates ended the week at 4.3825%. Two-year government yields added five bps to 4.30% (up 5bps y-t-d). Five-year T-note yields rose 12 bps to 4.31% (up 46bps). Ten-year Treasury yields jumped 14 bps to 4.44% (up 56bps). Long bond yields gained 15 bps to 4.62% (up 59bps). Benchmark Fannie Mae MBS yields surged 18 bps to 5.80% (up 53bps).

Italian 10-year yields dropped 10 bps to 3.55% (down 15bps y-t-d). Greek 10-year yields declined seven bps to 3.19% (up 14bps). Spain's 10-year yields dipped five bps to 3.06% (up 6bps). German bund yields slipped a basis point to 2.36% (up 33bps). French yields declined four bps to 3.09% (up 53bps). The French to German 10-year bond spread narrowed three bps to 73 bps. U.K. 10-year gilt yields rose four bps to 4.47% (up 93bps). U.K.'s FTSE equities index was little changed (up 4.3% y-t-d).

Japan's Nikkei 225 Equities Index fell 2.2% (up 15.5% y-t-d). Japanese 10-year "JGB" yields jumped six bps to 1.07% (up 46bps y-t-d). France's CAC40 declined 0.9% (down 3.6%). The German DAX equities index was little changed (up 14.7%). Spain's IBEX 35 equities index added 0.7% (up 15.2%). Italy's FTSE MIB index gained 1.1% (up 12.7%). EM equities were mixed. Brazil's Bovespa index was about unchanged (down 4.8%), while Mexico's Bolsa index slumped 2.7% (down 12.1%). South Korea's Kospi sank 5.6% (down 9.0%). India's Sensex equities index fell 2.4% (up 7.4%). China's Shanghai Exchange Index dropped 3.5% (up 12.0%). Turkey's Borsa Istanbul National 100 index rallied 2.2% (up 25.7%).

Federal Reserve Credit declined $21.3 billion last week to $6.932 TN. Fed Credit was down $1.958 TN from the June 22, 2022, peak. Over the past 270 weeks, Fed Credit expanded $3.205 TN, or 86%. Fed Credit inflated $4.121 TN, or 147%, over the past 627 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt dropped $5.7 billion last week to $3.328 TN. "Custody holdings" were down $102 billion y-o-y, or 3.0%.

Total money market fund assets surged another $81.6 billion to a record $6.667 TN. Money funds were up $533 billion over 15 weeks (30% annualized), $781 billion y-t-d (15.0% ann.), and $933 billion, or 16.3%, y-o-y.

Total Commercial Paper declined $11.3 billion to $1.1589 TN. CP was down $84 billion, or 6.7%, over the past year.

Freddie Mac 30-year fixed mortgage slipped a basis point this week to 6.78% (down 47bps y-o-y). Fifteen-year rates dipped one basis point to 5.99% (down 72bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates up 12 bps to 7.38% (down 39bps).

Currency Watch:

November 13 – Bloomberg: “China moved to support the under-pressure yuan for a second day, through its daily reference rate for the managed currency. The People’s Bank of China set the so-called yuan fixing at 7.1966 per dollar, about 359 pips stronger than the average estimate… On Wednesday, the gap between the fixing and estimate was 445 pips, the widest since early August. The yuan has come under pressure alongside global peers as Donald Trump’s US election victory bolstered the dollar to its highest in two years.”

For the week, the U.S. Dollar Index gained 1.6% to a four-month high 106.687 (up 5.3% y-t-d). For the week on the downside, the South African rand declined 3.2%, the British pound 2.4%, the Australian dollar 1.8%, the New Zealand dollar 1.7%, the euro 1.7%, the Swedish krona 1.4%, the Swiss franc 1.4%, the Canadian dollar 1.3%, the Singapore dollar 1.2%, the Japanese yen 1.1%, the Brazilian real 1.1%, the Mexican peso 0.8%, the Norwegian krone 0.8%, and the South Korean won 0.2%. The Chinese (onshore) renminbi declined 0.63% versus the dollar (down 1.79% y-t-d).

Commodities Watch:

November 15 – Bloomberg (Archie Hunter and Jack Ryan): “Aluminum soared as China announced it was removing a tax rebate that covers over 5 million tons of exports of the metal. Futures in London jumped as much as 8.5% following the announcement from the country’s Ministry of Finance… China’s aluminum industry historically has exported significant amounts of the metal as semi-finished products…”

The Bloomberg Commodities Index fell 2.1% (down 2.6% y-t-d). Spot Gold slumped 4.5% to $2,563 (up 24.2%). Silver declined 3.3% to $30.27 (up 27.2%). WTI crude fell $3.36 , or 4.8%, to $67.02 (down 7%). Gasoline lost 3.1% (down 8%), while Natural Gas rose 5.8% to $2.82 (up 12%). Copper dropped 4.6% (up 6%). Wheat sank 6.3% (down 15%), and Corn declined 1.6% (down 10%). Bitcoin surged $14,800, or 19.3%, to $91,325 (up 115%).

Trump Administration Watch:

November 12 – Reuters (Ted Hesson): “Donald Trump is expected to take a slew of executive actions on his first day as president to ramp up immigration enforcement and roll back signature Biden legal entry programs, a sweeping effort that will be led by incoming ‘border czar’ Tom Homan and other Republican immigration hardliners, three sources familiar with the matter told Reuters. The executive actions would give federal immigration officers more latitude to arrest people with no criminal records, surge troops to the U.S.-Mexico border and restart construction of the border wall, the sources said.”

November 12 – Financial Times (Lauren Fedor): “When Donald Trump returns to Washington on Wednesday, the president-elect will receive a hero’s welcome from fellow Republicans on Capitol Hill. ‘We are going to raise an ‘America First’ banner above this place,’ Republican Speaker of the House Mike Johnson told reporters… ‘This leadership will hit the ground running to deliver President Trump’s agenda in the 119th Congress.’ Johnson is one of Trump’s fiercest allies in Congress and will be pivotal for his radical agenda. The Republican president-elect wants to slash taxes and regulation, overhaul American healthcare, carry out ‘mass deportations’ of undocumented migrants and slap steep tariffs on foreign goods.”

November 14 – Axios (Sareen Habeshian): “President-elect Trump has vowed to impose sweeping tariffs with or without the support of Congress… While setting tariffs is a power typically afforded to Congress, the executive branch can also do so without congressional approval under special circumstances… The constitutional authority to tax is mostly given to Congress. But there are three exceptions particularly pertinent that the Trump administration may try to draw from, said Kimberly Clausing, professor of tax law and policy at UCLA School of Law. Section 232 of the Trade Expansion Act of 1962 gives the president the power to adjust imports that are deemed to threaten national security. Section 301 of the Trade Act of 1974 allows the president to take appropriate action, including tariff-based, to address any unfair act, policy, or practice of a foreign government burdening U.S. commerce. The International Emergency Economic Powers Act (IEEPA) authorizes the president to regulate international commerce and economic transactions during a national emergency… ‘These three give the executive branch authority to put on tariffs if they think there’s big national security issues, if there are national emergencies, or if they think unfair trade practices have happened abroad,’ Clausing said.”

November 9 – Wall Street Journal (Amrith Ramkumar and Scott Patterson): “Donald Trump’s victory puts a skeptic of global warming back in the White House, triggering an about-face on climate policy that threatens to derail billions of dollars in clean-energy investment and slow a reduction in the nation’s emissions… Clean-energy companies are vulnerable because Trump has said he wants to repeal a 2022 Biden administration climate law that promised to channel several hundred billion dollars of tax incentives, loans and grants into the sector. The subsidies triggered a surge in manufacturing and jobs, most in Republican congressional districts. Trump and some Republicans say the subsidies are wasteful government overreach. Trump also aims to rip up environmental regulations, which he says will unleash oil and gas production that is already at record levels.”

November 12 – Bloomberg (Ari Natter): “Activists who dispute the severity of climate change enjoyed cachet in Donald Trump’s first administration and salivated over the prospect of his return to the White House. Now that he’s won, they’ve delivered a wish list to his transition team. At the top of their agenda: Terminating federal science advisory boards, reviewing air-quality regulations issued by the Environmental Protection Agency and repealing President Joe Biden’s ‘anti-coal regulatory actions,’ as well as promoting coal as ‘a preferred means of electricity.’ Groups behind the memo include the… Heartland Institute, an Illinois-based think tank that has argued global warming is beneficial; the Energy & Environment Legal Institute…; and the Committee for a Constructive Tomorrow…”

November 12 – Financial Times (Demetri Sevastopulo): “Donald Trump has signalled a tough new stance on China with hawkish appointments to top foreign policy roles, according to experts in Washington… Trump… named Mike Waltz, a Florida congressman and former Army Special Forces officer who has called China an ‘existential’ threat, as his security adviser. He is expected to nominate senator Marco Rubio, another leading China hawk, as his secretary of state. The president-elect’s pick for ambassador to the UN, representative Elise Stefanik, has also been extremely critical of Beijing. Foreign policy experts who believe the US should take a tougher line on China than that pursued by President Joe Biden welcomed the personnel moves. ‘This is like Christmas morning for China hawks,’ said Eric Sayers, managing director at the Beacon Global Strategies consultancy.”

November 12 – Bloomberg: “US President-elect Donald Trump is poised to pick two men with track records of harshly criticizing China for key posts in his administration, a sign ties between the superpowers may deteriorate further in coming years. Senator Marco Rubio — who has taken an aggressive stance on China’s emergence as an economic power — is set to become the first sitting secretary of state to have been sanctioned by Beijing… Florida Representative Mike Waltz, who in 2021 declared America was in ‘a Cold War with the Chinese Communist Party,’ is in line to become national security adviser.”

November 12 – Financial Times (Evan Medeiros): “No one knows what the future holds for US-China ties, maybe not even Donald Trump himself. The president-elect’s views on China are myriad and contradictory. There is the Xi Jinping-loving Trump who wants to do big deals with strong leaders. And there is Trump the strategic competitor who felt cheated by China on Covid and the bilateral trade deal. He also knows that being tough on China is reliably great politics. Will Trump the dealmaker or Trump the competitor step forward?... During the first few years of his first term, Trump was laser focused on the Phase One trade deal and enthusiastically used tariffs as leverage... In his final year, feeling wronged over Covid, Trump let his advisers loose, especially by embracing Taiwan.”

November 11 – CNBC (Lee Ying Shan): “Donald Trump’s victory in the U.S. elections has raised the specter of higher tariffs on China — but it may not be the only Asian country that faces this predicament, according to Goldman Sachs. While the U.S. bilateral trade deficit with China has decreased somewhat since the Trump administration, deficits with other Asian exporters have risen significantly and may come under increased scrutiny, Andrew Tilton, Goldman’s chief Asia-Pacific economist, said… ‘With Trump and some likely appointees focused on reducing bilateral deficits, there is a risk that — in a sort of ‘whack-a-mole’ manner--burgeoning bilateral deficits could eventually prompt U.S. tariffs on other Asian economies,’ he said.”

November 8 – Wall Street Journal (Michelle Hackman and Andrew Restuccia): “Advisers to President-elect Donald Trump are drawing up plans to carry out his mass deportation pledge, including discussing how to pay for it and weighing a national emergency declaration that would allow the incoming administration to repurpose military assets to detain and remove migrants. The behind-the-scenes discussions, which started months before the election and have picked up in the days since Trump’s victory, include policy changes required to increase deportations, according to people working on the presidential transition, members of Congress and others close to the president-elect.”

November 14 – Bloomberg (Jarrett Renshaw and Chris Kirkham): “President-elect Donald Trump's transition team is planning to kill the $7,500 consumer tax credit for electric-vehicle purchases as part of broader tax-reform legislation, two sources… of the matter told Reuters. Ending the tax credit could have grave implications for an already stalling U.S. EV transition. And yet representatives of Tesla… have told a Trump-transition committee they support ending the subsidy…”

Election Watch:

November 13 – Bloomberg (Billy House): “Republicans held on to their narrow majority in the US House, giving Donald Trump and his party unified control of the elected branches of government and limiting potential curbs on the incoming president’s power. The Republican sweep… sharply diminishes any hope for Democrats to curtail Trump’s sway over next year’s big fights over trillions of dollars in expiring tax provisions. Trump wants to extend cuts approved during his first term and add new ones he promised on the campaign trail.”

Middle East War Watch:

November 15 – Associated Press (Bassem Mroue and David Rising): “A top Iranian official pledged his country’s unwavering support for Lebanon after talks Friday with Lebanese leaders on the ongoing war between Israel and Hezbollah... Ali Larijani, an adviser to Iran’s supreme leader, Ali Khamenei, said that he hoped circumstances would soon improve in Lebanon so that displaced people could return home. ‘The main aim of our visit is to loudly say that we will stand by Lebanon’s government and people,’ Larijani told reporters…”

Ukraine War Watch:

November 10 – Wall Street Journal (Thomas Grove): “The war between Russia and Ukraine is escalating. The neighbors this weekend launched their largest drone attacks against each other since the start of the war nearly three years ago. Russia last week began a fresh effort to oust Ukrainian forces from its Kursk region after amassing more than 50,000 troops, including some 10,000 soldiers from North Korea. And Russian troops, while advancing steadily in Ukraine’s east, are incurring record numbers of dead and injured, according to the British military’s top commander. The surge in fighting comes as President-elect Donald Trump is promising to end the war but has yet to say how. Russian President Vladimir Putin has said he is ready for peace talks but only if his earlier demands for Ukraine to submit to Russia’s control are met.”

November 13 – Reuters (Pavel Polityuk and Tom Balmforth): “Blasts boomed across Kyiv on Wednesday morning after officials said Russia launched its first missile attack on the Ukrainian capital since August, forcing elderly women and small children to take shelter in an underground metro station. Ukrainians have been waiting for a big missile attack for months, worried that it could deal a new blow to the hobbled energy system and cause long blackouts as winter sets in.”

November 11 – Reuters (Tom Balmforth and Yuliia Dysa): “Ukraine said… its hard-pressed military was battling 50,000 troops in Russia's Kursk region to its north, while also scrambling to reinforce two besieged fronts in the east and bracing to meet an infantry assault in the south. The escalating fighting along a more than 1,000-km front line is stretching Ukraine's already outnumbered troops at a critical moment after Donald Trump won the U.S. election, raising the prospect of possible talks with Russia.”

November 9 – Reuters (Yurii Kovalenko and Olena Harmash): “EU foreign policy chief Josep Borrell sought to reassure Ukraine of Europe's unwavering support…, days after Donald Trump's election win cast uncertainty over its war effort. Borrell, the first top EU official to visit Kyiv since Trump's win, said that the purpose of his visit was to stress EU support for Ukraine… The European Union has already provided 122 billion euros ($131bn) in military and financial support to Ukraine and trained about 60,000 Ukrainian soldiers, said Borrell, adding that the bloc aimed to reach 75,000 by the end of the winter.”

Taiwan Watch:

November 10 – Financial Times (Demetri Sevastopulo and Kathrin Hille): “Taiwan is considering buying a big package of US weapons, including the Aegis destroyer, to show the incoming administration of Donald Trump that it is serious about boosting its own defences against China. Several people familiar with the situation said Taipei would probably request the Lockheed Martin vessels and Northrop Grumman’s E-2D Advanced Hawkeye, an airborne radar system. It also wants more Patriot missiles and may request F-35 fighter jets, which would be controversial in Washington. ‘Taiwan is thinking about a package to show that they are serious,’ said one former Trump administration official.”

November 13 – Reuters (Faith Hung, Liang-sa Loh and Ben Blanchard): “Taiwan's central bank warned… that it sees peril in the proposed trade policies of the incoming administration of U.S. President-elect Donald Trump. In a report to parliament ahead of governor Yang Chin-long taking questions from legislators on Thursday, the central bank said that if Trump follows through on his policy promises, it would escalate trade conflicts throughout the world, and stifle competition in the tech industry.”

Market Instability Watch:

November 13 – Reuters (Sarupya Ganguly): “Donald Trump's presidential election win has forced bond strategists to make a material change in their outlook towards higher longer-dated Treasury yields, a Reuters poll found, as the risk of a U.S. inflation resurgence escalates. Since Trump's victory, the benchmark U.S. 10-year Treasury yield has risen nearly 15 bps. That stems from expectations of his proposed policies of tax cuts and tariffs, which, according to estimates from the Committee for a Responsible Federal Budget, could push up U.S. fiscal debt by $7.75 trillion over the next decade.”

November 9 – Financial Times (Ian Smith): “A closely watched bond market indicator is pointing to rising price pressures in the US, in anticipation of policies from president-elect Donald Trump that are seen as likely to fuel inflation. So-called break-evens on US sovereign debt — a proxy for investors’ inflation expectations — have risen steadily in recent weeks, prompted by economic data pointing to stickier than expected price pressures and Trump’s rising electoral chances. The two-year break-even… has moved up by one percentage point since September to 2.6%. The rate moved up as markets more broadly began to price in a potential Trump presidency, and then jumped following his emphatic win this week.”

November 15 – Bloomberg (Jeran Wittenstein and Ryan Vlastelica): “Big Tech stocks have had a relatively muted reaction to Donald Trump’s election victory as investors parse how his second term might play out. So far, many are reserving judgment. There’s a multitude of new risks to consider. Tariffs on products from China and elsewhere could lead to a resurgence of inflation or disrupt supply chains for the likes of Apple Inc., while anti-immigration policies could potentially disrupt companies that use skilled worker visas. Trump’s personal dislike of Meta Platforms Inc. and Alphabet Inc. is also something investors… are worried about. But there’s also a possible benefit for tech giants in a friendlier regulatory climate — especially those currently under antitrust pressure.”

Global Credit Bubble Watch:

November 12 – Bloomberg (Gowri Gurumurthy): “US junk bond spreads dropped to levels not seen since before the Great Financial Crisis (GFC) to close at 256 bps, down 19 bps in just five sessions, the most since September. Spreads are the tightest since June, 2007. Yields dropped to a five-week low of 7.12%... Risk premium plunged across ratings in the US high yield market. BB spreads tumbled to 152 bps, down 17 bps in five sessions and the lowest in almost two decades.”

November 13 – Reuters (Matt Tracy): “Banks raised $23.5 billion by issuing investment-grade bonds on Tuesday, the biggest debt issuance by financial institutions in a single day since the beginning of 2016, as they anticipate potentially higher interest rates next year. The $23.5 billion in debt issued by financial institutions accounted for 78% of Tuesday's total $30.15 billion in high-grade bond sales, which was the fifth-largest day of overall issuance in 2024…”

November 13 – Bloomberg (Lorretta Chen and Ameya Karve): “China, which recently unveiled plans to support its ailing economy, got more than $40 billion of bids for its first dollar bond issuance since 2021. That’s 20-times the bonds on offer and helped drive the yields that will be paid by China to as little as one basis point more than what the US pays for a Treasury of similar duration.”

November 14 – Bloomberg (Emma Sanchez): “The rise of private credit has had a surprising side effect: it’s made borrowing cheaper for companies in other high-yield markets, and has probably made a key barometer of credit risk less accurate, according to a professor who has spent decades studying junk and distressed debt. The $1.6 trillion private credit market has brought a flood of capital to junk-rated companies, allowing them to borrow less in public markets than they might have otherwise. Since those corporations are selling less debt in public markets, junk bond valuations have surged, signaling there is little risk of delinquencies or defaults, according to Edward Altman, finance professor emeritus at New York University’s Stern School of Business.”

November 12 – Bloomberg (Isabelle Lee, Caleb Mutua and Jeannine Amodeo): “Investors are piling into US leveraged loan ETFs, betting that President-elect Donald Trump’s policies will potentially boost inflation and push the Federal Reserve to cut interest rates less than expected. The Invesco Senior Loan ETF (ticker BKLN) — the largest fund tracking floating-rate debt — garnered $576 million in the past week. That’s its biggest weekly haul in more than a year. The SPDR Blackstone Senior Loan ETF (SRLN), meanwhile, snapped two weeks of outflows to gain $464 million… In another sign of exuberance, the primary market for leveraged loans is flooded with at least eight offerings on Tuesday.”

AI Bubble Watch:

November 10 – Wall Street Journal (Jennifer Hiller and Katherine Blunt): “At a small gathering for CEOs last year, OpenAI co-founder Sam Altman made a stunning pronouncement: Future data centers for some artificial-intelligence models would require as much power as a large city. Among those taken aback in the group gathered at Microsoft’s headquarters was Joe Dominguez, the chief executive of Constellation Energy, which produces more than a fifth of U.S. nuclear power. ‘My first reaction is, ‘Wow, these guys are going to be in for a rude awakening about how much power is actually going to be available,’’ he said. ‘It was like a lightning bolt hit me.’ Dominguez returned to Baltimore after the May 2023 meeting with an audacious idea: What if his company restarted the undamaged reactor at Three Mile Island, the site of the country’s most infamous nuclear-power accident?”

Bubble and Mania Watch:

November 15 – Bloomberg (Silla Brush): “Larry Fink turned to big deals to get BlackRock Inc. out in front of a decade of money gushing into index funds. Now he’s doing the same to make sure his firm isn’t left behind in the stampede into private assets. The longtime BlackRock boss has plunked down roughly $16 billion this year to become the world’s second-biggest infrastructure investor and acquire the data needed to, as he put it, ‘index the private markets.’ Now his firm is in advanced talks to buy HPS Investment Partners — one of the biggest players in private credit — and discussing taking a stake in Izzy Englander’s Millennium Management, one of the world’s preeminent hedge funds.”

November 10 – Bloomberg (Ryan Weeks and Suvashree Ghosh): “A bevy of smaller cryptocurrencies outperformed market-leader Bitcoin in recent days as enthusiasm about the sector’s prospects under President-elect Donald Trump encouraged a wave of speculative bets. Among the leaders are Shiba Inu-themed digital token Dogecoin, a meme-crowd darling promoted by Trump supporter Elon Musk. Also known as Doge, the coin is up about 50% in the past five days… At the top of the pile is ADA from the Cardano blockchain, up more than 60%...”

November 8 – Financial Times (Nikou Asgari, Owen Walker and Will Schmitt): “Binance’s chief executive has hailed Donald Trump’s US presidential win as the start of a ‘golden era’, as the crypto industry’s confidence soars that the election result marks a turning point in its acceptance in America. Trump’s success marked a ‘big win for crypto’ that would result in an influx of new US regulators open to digital currencies, Richard Teng told the Financial Times. Bullish executives anticipate a radical shift in policy in Washington, cheering the end of the Democrat administration which was perceived as more openly hostile to crypto.”

November 13 – Bloomberg (Esha Dey): “Tesla Inc.’s post-election surge, powered by Elon Musk’s full-throated support for Donald Trump, has added almost $250 billion to the carmaker’s value, a staggering sum that now has some on Wall Street urging caution. Shares in the electric vehicle maker have soared 34% since Trump’s decisive win, leaving analysts’ price targets in the dust.”

November 14 – Bloomberg (Alex Harris): “US money-market funds now have more than $7 trillion in assets under management, a milestone for an industry that’s skyrocketed in popularity among investors… The total rose by roughly $91 billion in the week through Wednesday, putting it at a fresh record, according to Crane Data… The $7 trillion mark follows months of consecutive records in money-market assets, offering a rebuttal to questions over whether the industry could remain in vogue as Federal Reserve officials pulled interest rates down from a two-decade high.”

U.S./Russia/China/Europe Watch:

November 10 – Bloomberg: “China’s trade surplus is on track to hit a fresh record this year, increasingly leaving it on a collision course with some of the world’s biggest economies… The difference between Chinese exports and imports is set to reach almost $1 trillion if it continues to widen at the same pace as it has in the year to date… The goods trade surplus soared to $785 billion in the first 10 months…, the highest on record for that period and an increase of almost 16% from 2023. ‘With Chinese export prices still falling, export volume growth was enormous,’ Brad Setser, senior fellow at the Council on Foreign Relations, said... ‘The overall story is of an economy that is again growing off exports.’”

November 11 – New York Times (Peter S. Goodman): “Eight years ago, when a newly elected Donald J. Trump promised to apply the powers of the Oval Office to start a trade war with China, the target of his ire was widely viewed as a juggernaut. China was the indispensable factory floor to the world and a swiftly developing market for goods and services. As Mr. Trump now prepares for his second stint in the White House, he is vowing to intensify trade hostilities… He is pressuring a country that has been chastened by a powerful combination of overlapping forces: the calamitous end of a real estate investment binge, incalculable losses in the banking system, a local government debt crisis, flagging economic growth and chronically low prices — a potential harbinger of long-term stagnation. The decline of fortunes at home has made Chinese companies especially focused on sales abroad. And that makes the country vulnerable to any threat to its export growth, a weakness that would enhance the expected pressure from the Trump administration…”

November 9 – Wall Street Journal (Chun Han Wong): “The Chinese intelligence agency accused of likely steering vast cyberattacks on the U.S. has made rapid gains in power and profile, driven by leader Xi Jinping and the protégé he put in charge of China’s espionage efforts against the West. In the two years since Xi installed Chen Yixin at the helm of the Ministry of State Security, a secretive organization whose mandate includes intelligence gathering and counterespionage, Chinese spying has swelled to what Western officials describe as a formidable threat. The expansive effort, officials say, has mobilized security agencies, private firms and civilians to amass troves of information.”

November 11 – Reuters (Lidia Kelly): “A Russian Navy frigate equipped with new generation hypersonic cruise missiles has conducted drills in the English Channel and is carrying out tasks in the Atlantic Ocean, Russian news agencies reported… The crew of the frigate, equipped with Zircon (Tsirkon) hypersonic anti-ship missiles, conducted counter-terrorism drills, repelling air and sea drone attacks of a mock enemy, Russian state agencies reported.”

De-globalization Watch:

November 13 – Financial Times (Edward White and Joe Leahy): “China has prepared powerful countermeasures to retaliate against US companies if president-elect Donald Trump reignites a smouldering trade war between the world’s two biggest economies, according to Beijing advisers and international risk analysts. Chinese leader Xi Jinping’s government was caught off-guard by Trump’s 2016 election victory and the subsequent imposition of higher tariffs, tighter controls over investments and sanctions on Chinese companies… ‘This is a two-way process. China will of course try to engage with President Trump in whatever way, try to negotiate,’ said Wang Dong, executive director of Peking University’s Institute for Global Cooperation and Understanding. ‘But if, as happened in 2018, nothing can be achieved through talks and we have to fight, we will resolutely defend China’s rights and interests.’”

November 13 – Financial Times (Alan Beattie): “When Joe Biden departs the White House and Donald Trump re-enters, America’s trading partners fear the US will distort commerce with high import tariffs, treat World Trade Organization rules with open contempt and use threats of trade restrictions to force them to follow the US lead. ‘No change there’ would be an exaggeration, but not a grotesque one. The standard view is that recent years have seen the decay of a US-led postwar order in which world trade was governed by a rules-based legal and political framework. The decline, the story goes, rapidly accelerated under the first Trump administration and only slightly recovered under Joe Biden. In reality, that’s too positive about the state of grace before the Trumpian fall. You can make a pretty good case that, adapting Mahatma Gandhi’s observation about western civilisation, the thing about a multilateralist trading order anchored by Washington is that it would have been a very good idea.”

November 12 – New York Times (Simon Romero and Emiliano Rodríguez Mega): “Mexico’s government… signaled that it planned to hit back with trade restrictions of its own if President-elect Donald J. Trump followed through on his threats to impose sky-high tariffs on Mexican exports to the United States. ‘If you put 25% tariffs on me, I have to react with tariffs,’ Marcelo Ebrard, Mexico’s economy minister, told a radio interviewer... ‘Structurally, we have the conditions to play in Mexico’s favor,’ he added. The disclosure by Mr. Ebrard, who is poised to be one of Mexico’s top negotiators with the Trump administration, showcases the rising tensions between the countries in the aftermath of the U.S. presidential election.”

Inflation Watch:

November 13 – CNBC (Jeff Cox): “Inflation perked up in October though pretty much in line with Wall Street expectations… The consumer price index, which measures costs across a spectrum of goods and services, increased 0.2% for the month. That took the 12-month inflation rate to 2.6%, up 0.2 percentage point from September… Excluding food and energy, the move was even more pronounced. The core CPI accelerated 0.3% for the month and was at 3.3% annually, also meeting forecasts.”

November 13 – Yahoo Finance (Dani Romero): “The latest Consumer Price Index (CPI) report… showed that housing costs accelerated in October, posing a lingering challenge to the Federal Reserve's inflation fight… Shelter costs, the largest component of CPI, ticked up 0.4% compared to the previous month in October. This was higher than September’s 0.2% increase and accounted for over half of October's overall monthly increase. On an annual basis, shelter costs rose 4.9% in October, matching September’s year-over-year gain of 4.9%. ‘Falling inflation hit a snag in October, with the usual culprits — rising shelter and food costs — joined by higher used vehicles prices,’ Robert Frick, corporate economist with Navy Federal Credit Union, wrote… ‘Given food, transportation and shelter are the top three pain points for consumers, this report didn’t ease the burden of high prices.’”

November 14 – Associated Press (Paul Wiseman): “Wholesale prices in the United States rose last month, remaining low but suggesting that the American economy has yet to completely vanquish inflationary pressure. Thursday’s report… rose 0.2% from September to October, up from a 0.1% gain the month before. Compared with a year earlier, wholesale prices were up 2.4%, accelerating from a year-over-year gain 1.9% in September. An increase in services prices drove the October increase. Excluding food and energy prices, which tend to bounce around from month to month, so-called core wholesale prices rose 0.3 from September and 3.1% from a year earlier.”

November 10 – Financial Times (Sam Fleming, Valentina Romei, Olaf Storbeck and Ilya Gridneff): “Lingering consumer anger over high prices is hurting governments in advanced economies even though inflation is subsiding to normal levels… Discontent over the economy was a key motivator for Republican voters in last week’s US election, exit polling suggested… Incumbents in countries including the UK and Japan have also suffered in elections this year, partly because of anger at high living costs. Polling suggests the legacy of inflation will also play a role in national elections next year, including in Germany and Canada. ‘It takes time for a spike in prices to work its way through the electoral digestive system,’ said Robert Ford, professor of political science at the University of Manchester. ‘Inflation is really only over for normal voters when they get used to the new price levels… We have not arrived at that point yet.’”

November 12 – Bloomberg (Dani Burger): “Scott Kleinman, co-president at Apollo Global Management Inc., has warned markets not to get too comfortable with the current trajectory of inflation and interest rates. ‘Inflation is not tamed,’ Kleinman said… ‘The Fed can say what it wants. You just have to open your eyes and look around’… Kleinman said that, aside from any potential impact from Trump’s policies, inflationary pressures are already established because of global megatrends like the build out of digital infrastructure and decarbonization. ‘We’re going to have to live with a higher rate environment for a lot longer,’ Kleinman said.”

Federal Reserve Watch:

November 14 – Bloomberg (Craig Torres and Catarina Saraiva): “Federal Reserve Chair Jerome Powell said the recent performance of the US economy has been ‘remarkably good,’ giving central bankers room to lower interest rates at a careful pace. ‘The economy is not sending any signals that we need to be in a hurry to lower rates,’ Powell said… ‘The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.’”

November 13 – Reuters (Howard Schneider): “The Federal Reserve is in the ‘last mile’ of its inflation fight, with price pressures converging towards the U.S. central bank's 2% target, though recent data have raised the risk that progress may slow or reverse, St. Louis Fed President Alberto Musalem said… ‘In my baseline scenario, based on current information, I expect inflation to converge toward 2% over the medium term,’ Musalem said… But ‘recent information suggests to me that the risk of inflation ceasing to converge toward 2%, or moving higher, has risen, while the risk of an unwelcome deterioration in the labor market has remained unchanged or possibly fallen,’ Musalem said…”

November 11 – New York Times (Andrew Ross Sorkin, Ravi Mattu, Bernhard Warner, Sarah Kessler, Michael J. de la Merced and Lauren Hirsch): “Donald Trump’s threat to exert more say over the Fed or even fire Jay Powell… has alarmed some on Wall Street. But the president-elect’s effort took on added weight in recent days, after Elon Musk endorsed a push to erode the Fed’s independence. The fight shows how the future of the Fed could remain high on the agenda, and how far Musk’s influence… could extend across government. The Fed has its foes. Senator Mike Lee, Republican of Utah, introduced a bill in June to abolish the central bank, accusing it of being an ‘economic manipulator that has directly contributed to the financial instability many Americans face today.’ Lee said on X that he wants to see the Fed under the president’s control — a view that Musk backed.”

November 12 – Reuters (Ann Saphir): “The Federal Reserve’s policy rate continues to act as a brake on the resilient labor market and on inflation that is still above the 2% target, two U.S. central bankers said…, a view that appears to argue for more interest rate cuts, even as both signaled they were not ready to judge how fast or by how much. ‘In my judgment we are still in a modestly contractionary stance, but ultimately the economy will guide us, in terms of how far we are needing to go’ in cutting the Fed's benchmark for short-term borrowing costs, Minneapolis Fed President Neel Kashkari said…”

November 12 – Reuters (Ann Saphir): “Minneapolis Federal Reserve Bank President Neel Kashkari said he feels U.S. monetary policy is currently ‘modestly restrictive,’ with short-term borrowing costs continuing to slow inflation and the economy, but not by a lot. ‘The U.S. economy is in a good place,’ Kashkari said… ‘In my judgment we are still at a modestly contractionary stance, but ultimately the economy will guide us, in terms of how far we are needing to go’ in cutting interest rates further.”

November 12 – Bloomberg (Jonnelle Marte): “Federal Reserve Bank of Philadelphia President Patrick Harker says the US central bank must closely monitor developments in financial technology to make sure regulations and other policies are appropriate. ‘As the nation’s central bank and securer of a strong and responsive financial system, fintech is something we must watch very closely,’ Harker says… ‘And as new technologies come online, we need to understand their potential impacts so we can make the appropriate adjustments to public policy,’ he says…”

November 15 – Bloomberg (Catarina Saraiva): “Federal Reserve Bank of Chicago Austan Goolsbee said as long as inflation continues down toward the central bank’s 2% goal, interest rates will be ‘a lot’ lower over the next 12-18 months. But Goolsbee agreed with Fed Chair Jerome Powell, noting policymakers are not in a hurry to lower borrowing costs. ‘As long we keep making progress toward the 2% inflation goal, over the next 12 to 18 months rates will be a lot lower than where they are now,’ Goolsbee said…”

U.S. Economic Bubble Watch:

November 13 – Bloomberg (Alex Tanzi and Jonnelle Marte): “US household debt climbed to a fresh high last quarter, with rising incomes leaving many consumers able to manage the burden, but lower-income groups showing signs of financial strain. Higher debt levels for mortgages, auto loans, credit cards and student loans last quarter drove overall consumer debt to a new record of $17.9 trillion… For the 10th consecutive quarter, more homeowners borrowed against the equity in their homes, as home equity lines of credit rose to $387 billion. Credit-card balances increased by $24 billion to $1.17 trillion as a record 600 million accounts are now open. Auto-loan balances rose $18 billion to $1.64 trillion. Further, student loan balances grew by $21 billion to a record $1.61 trillion. Mortgages, which are the largest share of household debt, rose to a record $12.6 trillion.”

November 15 – Bloomberg (Mark Niquette and Augusta Saraiva): “US retail sales advanced in October, boosted by a jump in autos purchases, while other categories signaled some momentum entering heading into the holiday season. The value of retail purchases… increased 0.4% after an upwardly revised 0.8% gain in September... Excluding autos, sales edged up 0.1%. Eight of the report’s 13 categories posted increases, led by electronics and appliance stores. Auto sales posted the strongest advance in three months.”

November 14 – Associated Press (Matt Ott): “The number of Americans applying for unemployment benefits fell to their lowest level in six months last week as layoffs remain at relatively healthy levels… Jobless claim applications fell by 4,000 to 217,000 for the week of Nov. 9… The four-week average of weekly claims, which evens out some of the weekly ups and downs, fell by 6,250 to 221,000… Continuing claims, the total number of Americans collecting jobless benefits, fell to 1.87 million for the week of Nov. 2, in line with analysts’ expectations.”

November 12 – Bloomberg (Jarrell Dillard): “US small-business optimism rose in October on brighter views for the economy in the lead-up to the election. The National Federation of Independent Business sentiment index rose 2.2 points to 93.7, matching the highest reading since early 2022. The group’s uncertainty index climbed to a fresh record… Nine of the 10 components that make up the sentiment gauge increased in October, led by a 7-point improvement in the outlook for business conditions. That metric is now close to turning positive for the first time since Donald Trump was in office…”

November 12 – Reuters (Dan Burns): “U.S. banks saw weaker demand for a key category of business loans during the third quarter, while the demand picture for consumer credit card and auto loans also softened, according to a Federal Reserve survey… The net share of banks seeing stronger demand for commercial and industrial loans from large and medium business clients during the third quarter fell to negative 21.3% from zero in the second quarter and from small firms slid to negative 18.6% from zero… On the consumer front, the net share of banks reporting stronger demand for credit card loans fell to negative 2.1% from a positive 2.0% in the second quarter. For auto loans, it fell to minus 12.8% from minus 10.4%. Banks on balance left lending terms unchanged for their larger business clients but more of them tightened terms for small businesses.”

November 13 – Bloomberg (Michael Sasso): “US mortgage rates continued to rise, building on a recent run-up after Donald Trump won the presidential election. The contract rate on a 30-year fixed mortgage rose 5 bps to 6.86% in the week ended Nov. 8, the highest since July… The rate has climbed 72 bps in the past six weeks, the most in two years.”

November 15 – Bloomberg (Chris Collins): “The Empire survey showed manufacturing activity in the New York region surged in early November, driven by significant increases in new orders and shipments. Empire is the first regional Fed survey to at least partially reflect how the election outcome will impact the manufacturing outlook, though many respondents likely submitted their replies before the election results were known.”

China Watch:

November 10 – Reuters: “China unveiled a 10 trillion yuan ($1.4 trillion) debt package… to ease local government financing strains and stabilise flagging economic growth, but officials refrained from announcing direct economic stimulus. Authorities increased the amount of debt local governments are allowed to raise through special bonds by 6 trillion yuan ($836bn) over the next three years… The finance ministry estimates ‘hidden debt’ was at 14.3 trillion yuan at the end of 2023. Authorities plan to trim that to 2.3 trillion yuan by 2028… The International Monetary Fund, however, estimates LGFV debt amounted to 60 trillion yuan at the end of 2023, or 47.6% of gross domestic product.”

November 11 – Financial Times (Joe Leahy and Cheng Leng): “Chinese authorities have unveiled their biggest fiscal package in recent years in their latest effort to jump-start economic growth as they battle trade tensions and the threat of sweeping new tariffs from Donald Trump. The highly anticipated Rmb10tn ($1.4tn) plan, which followed a monetary policy package in September, was focused on clearing up billions of dollars in local government debt that has dragged on growth. But it stopped short of supporting household spending and tackling a property sector slowdown… China’s finance minister Lan Fo’an… announced a sweeping plan to restructure local governments’ ‘hidden’ debt... Lan said officials were ‘studying’ additional steps to recapitalise big banks, buy up unfinished properties and strengthen consumption.”

November 11 – Bloomberg: “China’s credit expansion slowed more than expected in October, as a surge in government bond sales far exceeded growth in lending during a traditionally slow month for financing activity. Aggregate financing, a broad measure of credit, increased 1.4 trillion yuan ($195bn)… That compares with a median forecast of 1.5 trillion yuan…, and an increase of 1.8 trillion yuan in the same month a year ago. Government bond sales accounted for more three-quarters of all new financing and exceeded 1 trillion yuan for a third month. The stock of total credit grew at the slowest pace since comparable data begins in 2017. ‘October credit data indicated credit demand of private sectors remained weak,’ Goldman Sachs… analysts led by Xinquan Chen said…”

November 15 – Reuters (Liangping Gao and Ryan Woo): “China’s new home prices fell the most year-on-year in October since 2015, but a narrowing monthly rate of declines suggested the property sector was beginning to stabilise with a barrage of support from the government. In annual terms, new home prices slid 5.9% in October, in their 16th consecutive month of declines, after a 5.8% drop in September. However, month-on-month, new home prices were down 0.5% in their slowest decline since March, after dipping 0.7% in September…”

November 13 – Reuters (Liangping Gao, Ella Cao and Ryan Woo): “China unveiled tax incentives on home and land transactions…, aiming to support the crisis-hit property market by increasing demand and easing developers' financial difficulties… The ministry will expand the eligibility for the 1% deed tax to include apartments up to 140 square metres, up from the previous 90 square metres…, effective from Dec. 1.”

November 12 – Financial Times (Kathrin Hille and Humza Jilani): “Chinese leader Xi Jinping is under heightened pressure to better secure his country’s interests in volatile regions around the world after a bomb attack by Pakistan separatists last month claimed the lives of two Chinese engineers. With total Chinese investments estimated at US$62bn, the China Pakistan Economic Corridor is the largest cluster of projects under Xi’s Belt and Road Initiative but a spike of violence by the Balochistan Liberation Army is putting that commitment at risk and fuelling debate over Beijing’s failure to get to grips with the problem.”

November 14 – Bloomberg: “China entered the fourth quarter with a more balanced economy as consumption growth nearly caught up to factory output, in an upswing that now depends on how much more stimulus Beijing may deploy in the event of a tariff shock when Donald Trump returns to the White House in 2025. Retail sales expanded at the fastest in eight months in October… Industrial production increased at a slightly slower pace from the previous month but hovered above a level critical to achieving the government’s 2024 growth target of around 5%.”

November 13 – Bloomberg: “By Wednesday afternoon, an eerie quiet hung over the site of China’s deadliest known act of civilian violence in years. As traffic flowed freely past the now-deserted Zhuhai Sports Center Stadium, a yellow-and-black-clad Meituan courier pulled up on his motorbike. The driver opened his delivery box… and took out a bouquet of flowers. He placed them on a ledge, snapped a photograph and left. Three minutes later, a man in plain clothes appeared and removed them, part of a constant process to erase traces of the carnage, after 35 people were deliberately mowed down by a motorist just days earlier. A veil of silence around the attack — which had lifted briefly — was descending again.”

November 12 – New York Times (Alexandra Stevenson): “One by one, tycoons who built their wealth on China’s economic rise have been giving up their trophy homes in Hong Kong. Two apartments in a Frank Gehry glass-and-steel tower that twists out of the mountainside. Three European-style mansions with turrets and swimming pools. Four white villas sitting in a row. All but two of the properties have already sold for tens of millions of dollars each. And while it might be hard to believe, each one was a steal — snatched up for discounts of one-third to more than half of the previous values… For nearly 20 years, property prices have climbed higher and higher, turning it into one of the most unaffordable cities in the world…”

Global Bubble Watch:

November 14 – Wall Street Journal (Eliot Brown): “The giant futuristic planned city of Neom is proving a headache for Saudi Arabia. Costs are up, schedules are delayed and in recent days the world’s largest construction project replaced its chief executive… The world’s largest oil exporter is strapped for cash. Despite its reputation for deep pockets, Saudi Arabia can’t afford the laundry list of glitzy megaprojects and economic initiatives tied to Vision 2030, Crown Prince Mohammed bin Salman’s plan to pivot the economy away from oil… Critics inside of Neom say money has been wasted on unnecessary groundworks. At the Line—a pair of horizontal skyscrapers to run longer than the distance from New York to Philadelphia—contractors dug out 60 miles of sand. That is despite the first phase of the project only running 10 miles, which was later downsized to 1.5 miles. Neom isn’t alone. Projects around the kingdom are poised for a similar dynamic, with builders facing massive funding needs as they transition from low-cost early work to building out the bulk of the projects.”

Europe Watch:

November 12 – New York Times (Patricia Cohen): “The outlook for Europe’s economy has been disappointing. Last week… it got worse. Deep uncertainty about the Trump administration’s policies on trade, technology, Ukraine, climate change and more is expected to chill investment and hamstring growth. The launch of a possible tariff war by the United States, the biggest trading partner and closest ally of the European Union and Britain, would hammer major industries like automobiles, pharmaceuticals and machinery. And the need to raise military spending because of doubts about America’s guarantees in Europe would further strain national budgets and increase deficits. In addition, the president-elect’s more confrontational attitude toward China could pressure Europe to pick sides or face retribution.”

November 12 – Bloomberg (Michael Nienaber): “German Chancellor Olaf Scholz’s Social Democrats agreed with opposition lawmakers to hold an early election in February, setting up a showdown between the SPD and the conservatives led by Friedrich Merz. The agreement means the national ballot is set to be held on Feb. 23, seven months earlier than scheduled… Europe’s largest economy was tipped into political crisis last week after Scholz fired Finance Minister Christian Lindner of the Free Democratic Party in a dispute over budget policy. That spelled the end of the three-party governing coalition, which included the Greens, and deprived it of a majority in the lower house of parliament.”

November 14 – Financial Times (Shotaro Tani): “European gas prices hit their highest levels in a year on Thursday after Austrian group OMV warned of a potential disruption to supplies from Russia. Futures on the European benchmark, TTF, rose as much as 5% to €46 euros per megawatt hour… The surge came after OMV warned… of a ‘potential halt of gas supply’ from Russia, after the Viennese energy and chemicals group was awarded €230mn from an arbitration ruling against Gazprom.”

Japan Watch:

November 10 – Bloomberg (Toru Fujioka): “Bank of Japan board members discussed the need for caution on raising its benchmark rate and offered no clear hint of a move next month, a summary of opinions from its October policy meeting showed. ‘It cannot be judged at this point that markets are stabilizing,’ one of the nine board members said… The central bank left interest rates untouched at the meeting held shortly before the US presidential election. ‘As the bank has been expecting to raise the policy interest rate at a moderate pace, it has time to monitor the future course of the US economy, including that after the presidential election,’ the same member said.”

November 11 – Bloomberg (Alastair Gale and Yoshiaki Nohara): “Japan’s Prime Minister Shigeru Ishiba received some rare good news as parliament backed him to stay in the job ahead of an expected high-stakes meeting with US President-elect Donald Trump. With the vote, Ishiba managed to avoid becoming Japan’s shortest-serving postwar premier. He will now be looking to shore up his leadership by putting together an economic stimulus package that meets some of the demands from those within and outside the ruling Liberal Democratic Party who could destabilize his minority government.”

November 13 – Bloomberg (Masaki Kondo and Daisuke Sakai): “Brisk capital outflows from a slow-growing Japanese economy are deepening depreciation pressure on the yen. Many yen watchers see the still-wide interest-rate gap between the nation and the US as explaining the currency’s persistent weakness, especially given likely inflationary policies from President-elect Donald Trump. Less visible… are trade and investment flows in and out of Japan. Japan reported a ¥8.97 trillion ($57.5bn) current-account surplus in the third quarter, but this was outweighed by direct and portfolio investment outflows.”

Emerging Markets Watch:

November 14 – Bloomberg (Maria Elena Vizcaino and Vinícius Andrade): “Mexico’s credit outlook was lowered to negative from stable by Moody’s…, which said recent constitutional changes risk hurting Latin America’s second-biggest economy. The ratings company affirmed Mexico’s rating at Baa2, two notches above junk, it said… Moody’s said fiscal consolidation is challenging for the country amid worsening debt affordability and a wider deficit in 2024. ‘The constitutional overhaul risks eroding checks and balances of the country’s judiciary system, with potential negative impact to Mexico’s economic and fiscal strength,’ Moody’s said…”

November 11 – Reuters (Luana Maria Benedito): “Brazil's president vowed to beat the ‘speculative greed’ of financial markets in an interview… and urged Congress to set an example by cutting spending as the government readies new fiscal measures. Leftist leader Luiz Inacio Lula da Silva told broadcaster RedeTV! ‘I beat them once and I will win again,’ after market jitters over the sustainability of Brazil's public finances sent the local currency tumbling and interest rate futures soaring.”

November 12 – Bloomberg (Maria Eloisa Capurro): “Brazil’s central bank warned that additional deterioration of inflation expectations could lead to a more protracted tightening cycle, days after policymakers doubled the pace of their interest rate hikes. ‘A further deterioration in expectations could lead to a more prolonged monetary policy tightening cycle,’ central bankers wrote in minutes to their Nov. 5-6 meeting, when they raised the benchmark Selic by 50 bps to 11.25%.”

Leveraged Speculation Watch:

November 14 – Bloomberg (Kat Hidalgo and Laura Benitez): “Private equity’s recent splurge of piling ever more debt onto already highly leveraged bets has sparked fears about financial-system risks. Banks, however, are positioning themselves to take advantage. As buyout firms have struggled to sell companies in a difficult M&A market, many have turned to ‘net asset value’ loans, where they borrow money from specialist funds or banks secured against a portfolio of their holdings — often at very high interest rates. It’s been a controversial way to avoid booking losses on asset sales while hoping for a better environment for making deals. Now, a corner of the banking industry is being tapped to help finance funds that do NAV lending, a sign of the growing maturity of this type of financial engineering.”

Social, Political, Environmental, Cybersecurity Instability Watch:

November 14 – Bloomberg (Leslie Kaufman): “President-elect Donald Trump has been crystal clear: His second term will be an assault on climate policy. On the campaign trail, he vowed to ‘drill, baby, drill’ for more oil and gas and inveighed against offshore wind farms. He attacked President Joe Biden’s Inflation Reduction Act, the largest climate investment in history, as the ‘green new scam.’ And he pledged to withdraw the US once again from the Paris climate agreement. Abroad, it’s feared that the incoming administration will ‘take a wrecking ball to climate diplomacy,’ says Rachel Cleetus, climate and energy policy director at the Union of Concerned Scientists.”

November 11 – Wall Street Journal (Matthew Dalton): “With Donald Trump’s election victory, the U.S. is headed again for the exits of the Paris accord, the international climate agreement signed nearly a decade ago, and toward an energy policy inspired by Trump’s campaign mantra ‘drill, baby, drill.’ China, on the other hand, appears more committed to the agreement than ever. It has vaulted to global leadership in renewable-energy deployment and is spending billions on green-energy projects across the developing world. Poorer nations increasingly look to Beijing for help shifting away from fossil fuels. The sharp divergence between the two leading superpowers is expected to loom over the annual United Nations climate conference, known as COP29…”

November 10 – CNN (Samantha Delouya): “Last month, two major storms, Hurricane Helene and Hurricane Milton, caused a total of between $51.5 billion and $81.5 billion of property damage, mostly to Southeastern US states, according to estimates from CoreLogic. That’s a lot of damage – but it’s only a small fraction of what climate change has cost people around the world. A new report is flashing a warning signal about climate change and natural disasters, finding that their total economic damage has skyrocketed into the trillions. The report from the International Chamber of Commerce… estimated that the total cost of damage from climate-related extreme weather events globally was approximately $2 trillion between 2014 and 2023 – roughly in line with the economic toll of the 2008 global financial crisis.”

November 11 – Axios (Rebecca Falconer): “Climate-related extreme weather events cost the global economy more than $2 trillion over the past decade and the U.S. was the worst-affected nation, per a report published as leaders gather for the COP29 summit in Azerbaijan… The report’s researchers examined nearly 4,000 events that occurred over the 10-year period which impacted 1.6 billion people… In the last two full years of the report alone, global economic damages reached $451 billion. That's a 19% rise compared to the previous eight years of the decade, according to the researchers. The U.S. had the greatest economic losses over the period from 2014-2023 ($934.7bn), followed by China at $267.9 billion and India ($112bn).”

November 14 – Bloomberg (Jamie Tarabay, Kelcee Griffis and Katrina Manson): “Chinese state-sponsored hackers perpetrated a ‘broad and significant cyber-espionage campaign’ in which they breached multiple telecommunications companies, US officials said…, confirming additional details about cyberattacks with major national security implications. The hackers infiltrated the networks of multiple telecommunications companies to steal customer call records and compromise the communications belonging to a ‘limited number’ of people in government and politics, officials said.”

November 14 – Bloomberg (Naureen S. Malik): “The entire US Northeast faces an elevated threat of electricity shortages this winter during extreme cold weather, in part due to limited capacity on natural gas pipelines that supply power plants. All US regions have sufficient electricity supplies to meet their needs in normal weather conditions, the North American Electric Reliability Corp. said… in its annual winter reliability assessment. But harsh weather could threaten energy reserves across a broad swath of the country, from the Northeast to the Midwest and Texas.”

Geopolitical Watch:

November 11 – Reuters (Hyonhee Shin): “North Korea has ratified a mutual defence treaty with Russia signed by the two countries' leaders in June, which calls for each side to come to the other's aid in case of an armed attack, state media KCNA said… The report came amid international criticism over increasing military cooperation between the two countries, with North Korea having sent tens of thousands of troops to Russia to support its war against Ukraine.”

Credit Bubble Bulletin

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Weekly Commentary: Power