Friday, May 14, 2021

Weekly Commentary: Un-Anchored

A big week on the inflation front.

April CPI was reported up 0.8% versus estimates of 0.2%. And while the 4.2% y-o-y increase was partly a function of the year ago negative CPI prints, it’s worth noting CPI was up 2.1% over just the past four months. “Core” CPI increased a much stronger than expected 0.9% for the month and was up 3.0% year-over-year. Used car and truck prices surged 10.0%, with air fares up 10.2%. The CPI’s Housing component increased 0.5% for the month, while gaining only 2.6% y-o-y.

Producer Prices were also stronger than expected. At 0.6%, April’s increase was double estimates. The 6.2% y-o-y increase was above the 5.8% estimate - and the strongest price advance in the data series dating back to November 2010. Producer Prices surged a notable 3.4% over the past four months.

April Import Prices were reported up 0.7% for the month. This pushed the y-o-y price increase to 10.6%, up from March’s 7.0% - to the strongest import price inflation since October 2011. Prices for Industrial Supplies jumped another 1.7%, this following March’s 5.2% surge.

The University of Michigan consumer survey’s One-Year Inflation Expectations component jumped to 4.6% from April’s 3.4%. Inflation Expectations have not been higher since June 2008’s 5.1%. It’s worth noting WTI Crude surged to $140 back in June ‘08, as aggressive Fed rate cuts (3.25 percentage points over eight months to 2.0%) fueled myriad speculative Bubble blow-offs. This month's UofM survey’s Five-Year Inflation Expectations jumped from 2.7% to 3.1%, the high since March 2011.

“Higher Inflation Prompts Sharp Drop in Michigan Sentiment,” read the Bloomberg headline. Unexpectedly, Consumer Sentiment dropped to 82.8 in May from April’s 88.3, the weakest reading since February. The Current Economic Conditions component sank 6.4 points to 90.8. Elsewhere, April Retail Sales badly missed estimates.

May 11 – Bloomberg (Payne Lubbers): “Optimism among U.S. small businesses rose in April to a five-month high… Still, a record 44% respondents said they were unable to fill open positions, stunting potential sales growth, the group said. Some 31% of firms said they boosted worker compensation, the largest share in more than a year. ‘Finding qualified employees remains the biggest challenge for small businesses and is slowing economic growth,’ Bill Dunkelberg, chief economist at the NFIB, said… ‘Owners are raising compensation, offering bonuses and benefits to attract the right employees.” In addition, commodities have been soaring, helping explain a 10 percentage point increase in the share of small-business owners raising prices. That was the largest reading since the 1980s…”

The Treasury five-year “breakeven inflation rate” traded up to 2.75% in Wednesday trading - the high since September 2005 – before ending the week up slightly to 2.71%.

The Treasury reported a fiscal deficit of $226 billion for the month of April, almost 10% above estimates. Washington borrowed 34 cents of every dollar spent. After seven months of the fiscal year, the deficit reached $1.932 TN, 30% ahead of comparable 2020 ($1.481 TN). Year-to-date expenditures were up 22.5%, while receipts rose 16.1%. Forty-six cents of every dollar spent so far in the fiscal year have been borrowed. Washington is on pace for back-to-back $3 TN plus annual deficits.

Curiously, 10-year Treasury yields rose a meager five bps this week to 1.63%, reversing the previous week’s drop but remaining 11 bps below the March 31st high. German 10-year bund yields surged nine bps this week to a two-year-high negative 0.13%. French yields rose nine bps to a 14-month high of 0.26%. Italian yields surged 11 bps to a 10-month high 1.07%.

It’s now only a few weeks until the ECB’s June meeting. Bloomberg headline: “ECB Officials Expect Heated June Decision on Crisis Program.” And Friday from Reuters: “ECB sets stage for crucial June decision on emergency bond buys.” Eurozone yields could certainly be rising in anticipation of an ECB taper announcement.

May 14 – Bloomberg (Catarina Saraiva): “The Federal Reserve’s policy is in a good place right now, said Cleveland Fed President Loretta Mester, while playing down signals from data that she warns will be volatile as the economy reopens… ‘I think we’re in a good place right now with our policy and we’re going to adjust it as appropriate depending on how the actual recovery progresses,’ Mester said. ‘This is not the time to be adjusting anything on policy. It really is a time for watchful waiting, seeing how the recovery evolves.’”

How could $120 billion monthly QE and zero rates be “in a good place”? At least for now, if the Fed is not concerned with inflation risk, the Treasury market will apparently not be bothered either. But I can’t help but contemplate the possibility that factors are supporting Treasury bond prices beyond Fed dovishness. Between September 2007 and March 2008, Crude prices surged from $74 to $110 (Bloomberg Commodities Index up 30% over this period), while 10-year Treasury bond yields dropped about 120 bps to 3.30%. The Bond market completely disregarded the inflationary surge, anticipating big trouble on the horizon. Is a similar dynamic at play these days? What might the bond market be sniffing out?

Chinese Credit growth slowed markedly in April. Aggregate Financing expanded $287 billion during the month, down sharply from March’s $523 billion and almost 20% below estimates. April’s growth was 40% below that from April 2020. Aggregate Financing has expanded $1.882 TN y-t-d, down 15% from comparable 2020, but up 18% from comparable 2019. Over the past 16 months, Aggregate Financing surged $7.284 TN, up 45% from the previous comparable period.

China’s New Loans expanded $228 billion, down from March’s $424 billion and about 8% below estimates. April Loans were 14% below April 2020. At $1.419 TN, y-t-d New Loan growth was 4% ahead of comparable 2020 and 34% above comparable 2019.

Chinese Consumer lending had been booming. But at $82 billion, Consumer Loans were less than half March’s $178 billion and 21% below April 2020. Yet y-t-d growth of $480 billion was still 65% ahead of comparable 2020. Outstanding Consumer Loans jumped 15.9% over the past year, 32% over two years, 55% in three years and 131% over five years.

Corporate Loan growth also slowed notably. At $117 billion, April Corporate Loans were less than half March’s $249 billion and 21% below April 2020. Year-to-date growth of $948 billion was about 13% below comparable 2020. Corporate Loans expanded 10.9% over the past year, 25% over two years, 39% in four years and 65% over five years.

China’s M2 money supply aggregate contracted $223 billion during April, this following March’s record $628 billion expansion. At 8.1%, y-o-y M2 growth was the slowest since July 2019. The $1.169 TN y-t-d growth was 30% below comparable 2020 - while 30% ahead of 2019. M2 inflated $4.28 TN, or 13.6%, over the past 16 months. M2 was up 20% in two years, 30% in three and 57% over five years.

Reported quarterly, Total Bank Assets expanded $1.528 TN during Q1 to a record $51.177 TN. This was second only to Q1 2020’s blistering $1.924 quarterly growth. Chinese Bank Assets surged $4.222 TN over the past year, or 9.0%. Bank Assets jumped 20% over two years, 29% over three years, and 58% in five years. In one of history’s great lending booms, Bank Assets have inflated 10-fold over 16 years.

One month does not a trend make. Yet Chinese officials have been pressing for slower lending, and a slowdown was apparent in April data. A system inflated by years of such incredible Credit excess will not respond well to tighter conditions. We need to be on guard for a long-overdue Chinese Credit downturn.

May 12 – Bloomberg (Rebecca Choong Wilkins and Ailing Tan): “Chinese corporations are defaulting on local bonds at the fastest pace on record, as authorities ramp up efforts to introduce more financial discipline and transparency in the world’s second-largest debt market. Firms so far this year have failed to make payments on 99.8 billion yuan ($15.5bn) of onshore bonds… While 2021 is set to be the fourth straight year the 100 billion yuan level has been topped, it previously hadn’t happened before September… Missed payments are running at a record pace this year, following the late 2020 defaults of some state-linked firms which affirmed convictions that authorities in China are increasingly willing to not bail out weak firms.”

May 14 – Bloomberg: “A sharp drop in one of China Huarong Asset Management Co.’s lightly traded onshore bonds left investors puzzled as they searched for potential catalysts. The embattled financial conglomerate’s 19 billion yuan ($2.95bn) local bond maturing in 2022 plunged by 12.4 yuan Thursday to a record low of 86.15 yuan…”

It seems we haven’t heard the last of the Huarong saga. China Huarong International CDS surged 178 bps this week to an almost three-week high of 958 bps. Beyond mounting Credit problems, Chinese officials have their own inflation worries. Chinese April PPI was reported at a stronger-than-expected 6.8% y-o-y.

May 12 – Reuters (Lusha Zhang, Kevin Yao and Tom Daly): “China will monitor changes in overseas and domestic markets and effectively cope with a fast increase in commodity prices, the state council said… China will step up coordination between monetary policy and other policies to maintain stable economic operations, the cabinet also said… Prices for commodities such as copper, coal and steelmaking raw material iron ore extended recent rallies to hit all-time highs this week on concerns a post-coronavirus pandemic demand rebound in China is outpacing supply. China is the world’s biggest market for copper, coal and iron ore and consumers face much higher costs as some analysts expect a commodities ‘super-cycle’. The cabinet did not say how it would cope with the rise in commodity prices.”

Chinese officials have been talking tightening measures. Perhaps spiking commodities prices are providing them some teeth. In the midst of spectacular global commodities price surge and inflation focus, little attention is being paid to the possibility of a momentous change in China’s monetary backdrop.

The industrial metals reversed sharply lower this week. Iron Ore dropped 2.5%, Copper 2.0%, Aluminum 3.0%, Nickel 3.0%, Zinc 2.6% and Lead 3.6%. In the agriculture commodities, Corn sank 12.1% and Wheat fell 7.2%.

China’s historic Bubble has been inflating for so long everyone assumes it will inflate indefinitely. Perhaps the Treasury market discerns Bubble fragility from China to the U.S. Friday afternoon from Bloomberg: “Dip-Buyers Report to Duty to Save Stocks From Worst Week of 2021.” While the late-week rally had traders feeling pretty good about things, the bottom line is Monday through Wednesday market action was rather ugly. It looked about as one would expect from faltering Bubbles – from tech stocks to crypto to ARK.

Unsettled by mounting inflationary pressures, the Treasury market finds peace from global Bubble fragilities. And I actually believe the Fed is on the same page. Officials will resolutely dismiss inflation risk - because they’re scared to death of collapsing Bubbles. At this point, they must believe it’s best to just let the Bubbles and manias run their course.

The Fed and market pundits stick blindly to the assertion “inflation expectations will remain well anchored” – assuring the bond market, dovish Fed policies and the great bull market are all equally well anchored. Yet this is not an environment where we should expect anything to be securely anchored.

We live in a period of acute disorder – monetary and otherwise. Society has been rocked off its foundation. The insecurity that comes with a once-in-a-century pandemic – our health, our economy, our institutions and our social cohesion. Hurricanes, floods, drought, devastating fires - the frightening uncertainties associated with global climate change. Power outages. Water shortages. Shootings. A ransomware hack that takes down a major U.S. pipeline and leaves millions fearing they won’t be able to fill their tanks. Who and what next? The Fed “printing” Trillions – seemingly blind to inflation and Bubble risks. Multi-Trillion dollar deficits. Wealth redistribution. Traditions and political institutions in disarray.

It was an unnerving week. Things seem particularly Un-Anchored.

For the Week:

The S&P500 fell 1.4% (up 11.1% y-t-d), and the Dow lost 1.1% (up 12.3%). The Utilities slipped 0.4% (up 4.3%). The Banks gained 0.7% (up 36.5%), and the Broker/Dealers added 0.4% (up 24.1%). The Transports dipped 0.2% (up 27.3%). The S&P 400 Midcaps fell 1.7% (up 18.0%), and the small cap Russell 2000 dropped 2.1% (up 12.6%). The Nasdaq100 slumped 2.4% (up 3.9%). The Semiconductors sank 4.2% (up 6.7%). The Biotechs increased 0.5% (down 3.0%). With bullion up $12, the HUI gold index rose 1.6% (up 2.3%).

Three-month Treasury bill rates ended the week at negative 0.0025%. Two-year government yields were unchanged at 0.15% (up 3bps y-t-d). Five-year T-note yields rose four bps to 0.81% (up 45bps). Ten-year Treasury yields gained five bps to 1.63% (up 71bps). Long bond yields rose six bps to 2.34% (up 70bps). Benchmark Fannie Mae MBS yields gained five bps to 1.86% (up 52bps).

Greek 10-year yields rose seven bps to 1.06% (up 44bps y-t-d). Ten-year Portuguese yields gained nine bps to 0.59% (up 56bps). Italian 10-year yields surged 11 bps to 1.07% (up 44bps). Spain's 10-year yields jumped 10 bps to 0.59% (up 54bps). German bund yields rose nine bps to negative 0.13% (up 44bps). French yields jumped nine bps to 0.26% (up 60bps). The French to German 10-year bond spread was little changed at 39 bps. U.K. 10-year gilt yields rose eight bps to 0.86% (up 66bps). U.K.'s FTSE equities index declined 1.2% (up 9.0% y-t-d).

Japan's Nikkei Equities Index sank 4.3% (up 2.3% y-t-d). Japanese 10-year "JGB" yields were unchanged at 0.09% (up 7bps y-t-d). France's CAC40 was unchanged (up 15.0%). The German DAX equities index was little changed (up 12.4%). Spain's IBEX 35 equities index gained 1.0% (up 13.3%). Italy's FTSE MIB index added 0.6% (up 11.4%). EM equities were mostly lower. Brazil's Bovespa index was about unchanged (up 2.4%), and Mexico's Bolsa was little changed (up 11.7%). South Korea's Kospi index fell 1.4% (up 9.7%). India's Sensex equities index declined 1.0% (up 2.1%). China's Shanghai Exchange rallied 2.1% (up 0.5%). Turkey's Borsa Istanbul National 100 index was unchanged (down 2.4%). Russia's MICEX equities index fell 1.2% (up 10.6%).

Investment-grade bond funds saw inflows of $1.837 billion, while junk bond funds posted outflows of $672 million (from Lipper).

Federal Reserve Credit last week expanded $31.5bn to a record $7.784 TN. Over the past 87 weeks, Fed Credit expanded $4.057 TN, or 109%. Fed Credit inflated $4.973 Trillion, or 177%, over the past 444 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week declined $2.3bn to $3.541 TN. "Custody holdings" were up $174bn, or 5.2%, y-o-y.

Total money market fund assets added $3.4bn to $4.516 TN. Total money funds dropped $272bn y-o-y, or 5.7%.

Total Commercial Paper fell $13.1bn to $1.193 TN. CP was up $132bn, or 12.4%, year-over-year.

Freddie Mac 30-year fixed mortgage rates slipped two bps to 2.94% (down 34bps y-o-y). Fifteen-year rates fell four bps to 2.26% (down 46bps). Five-year hybrid ARM rates dropped 11 bps to 2.59% (down 59bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down two bps to 3.07% (down 60bps).

Currency Watch:

For the week, the U.S. dollar index increased 0.1% to 90.32 (up 0.4% y-t-d). For the week on the upside, the British pound increased 0.8%, the Mexican peso 0.3%, and the Canadian dollar 0.2%. On the downside, the Australian dollar declined 0.9%, the Japanese yen 0.7%, the Brazilian real 0.7%, the South Korean won 0.7%, the Singapore dollar 0.6%, the South African rand 0.5%, the New Zealand dollar 0.4%, the Swedish krona 0.3%, the euro 0.2%, the Norwegian krone 0.1% and the Swiss franc 0.1%. The Chinese renminbi declined 0.06% versus the dollar this week (up 1.40% y-t-d).

Commodities Watch:

May 12 – Financial Times (Neil Hume and Emiko Terazono): “It’s been a decade since the last commodity market boom, triggered by China’s emergence as a global economic powerhouse, finally ran out of steam. But a wide-ranging rally that has propelled the price of key raw materials including copper, lumber and iron ore to all-time highs and also boosted agricultural commodities is fuelling expectations that a new commodities ‘supercycle’ has arrived.”

May 12 – Wall Street Journal (Joe Wallace): “High demand for consumer electronics and difficulties shipping metal out of Asia have created a shortage of tin, pushing prices for the metal close to records for the first time in a decade. On the London Metal Exchange, the price of tin to be delivered in three months has soared 46% this year to $29,785 a metric ton… Tin’s advance is one of the biggest moves in commodity markets that have ripped higher, feeding expectations among investors that inflation will accelerate, at least temporarily.”

May 11 – Bloomberg: “Iron ore’s stunning surge won’t fade anytime soon because buyers remain nervous about being caught short as global demand accelerates amid lingering supply threats, according to a veteran commodities trader. The steelmaking material soared past $230 a ton Wednesday to a fresh record… While steel demand and production are strengthening, many analysts argue market fundamentals alone don’t justify such high prices. That won’t halt further gains, according to Andrew Glass, …founder of Avatar Commodities Ltd. ‘Logic dictates that these are ridiculous prices but fear will continue to keep the scramble going,’ said Glass…, who has traded commodities since the 1990s. ‘There is fear of not being able to secure the logistics and the resources you need -- $220 is expensive, but it’s much more expensive if you have to shut down a mill because you can’t get material.’”

The Bloomberg Commodities Index dropped 1.9% (up 17.8% y-t-d). Spot Gold increased 0.7% to $1,843 (down 2.9%). Silver was little changed at $27.42 (up 3.9%). WTI crude gained 47 cents to $65.37 (up 35%). Gasoline was unchanged (up 51%), and Natural Gas was little changed (up 17%). Copper fell 2.0% (up 32%). Wheat sank 7.2% (up 10%). Corn dropped 12.1% (up 33%). Bitcoin fell $7,120, or 12.5%, this week to $50,021 (up 72%).

Coronavirus Watch:

May 12 – Associated Press (Aniruddha Ghosal and Krutika Pathi): “A potentially worrisome variant of the coronavirus detected in India may spread more easily. But the country is behind in doing the kind of testing needed to track it and understand it better. On Monday, the World Health Organization designated the new version of the virus a ‘variant of concern’ based on preliminary research, alongside those that were first detected in Britain, South Africa and Brazil but have spread to other countries.”

Market Mania Watch:

May 9 – Wall Street Journal (Greg Ip): “To veterans of financial bubbles, there is plenty familiar about the present. Stock valuations are their richest since the dot-com bubble in 2000. Home prices are back to their pre-financial crisis peak. Risky companies can borrow at the lowest rates on record. Individual investors are pouring money into green energy and cryptocurrency. This boom has some legitimate explanations, from the advances in digital commerce to fiscally greased growth that will likely be the strongest since 1983. But there is one driver above all: the Federal Reserve. Easy monetary policy has regularly fueled financial booms, and it is exceptionally easy now. The Fed has kept interest rates near zero for the past year and signaled rates won't change for at least two more years. It is buying hundreds of billions of dollars of bonds. As a result, the 10-year Treasury bond yield is well below inflation -- that is, real yields are deeply negative -- for only the second time in 40 years.”

May 10 – Financial Times (Robin Wigglesworth): “Assets under management in exchange traded funds are eclipsing traditional index-tracking mutual funds for the first time, after the global passive investment industry vaulted past $15tn in assets last year. ETFs stood at $7.71tn under management at the end of last year — narrowly behind index mutual funds at $7.76tn… Since then, ETFs are likely to have nosed ahead thanks to powerful inflows this year. Comprehensive global data comes with a lag, but consultancy ETFGI calculates that assets under management in ETFs stood at $8.33tn at the end of March.”

May 11 – Bloomberg (Sam Potter): “Cathie Wood’s miserable month continued on Tuesday, as her flagship exchange-traded fund extended declines and its assets dropped below $20 billion to the lowest since January. The Ark Innovation ETF slid 1% as of 9:47 a.m. in New York. Caught in a broad tech selloff, the product has fallen for nine of the past 10 sessions, a retreat that accelerated on Monday in the biggest slide in about seven weeks.”

May 7 – Reuters (Kanishka Singh): “Celebrity stockpicker and Ark Invest Chief Executive Cathie Wood told CNBC… that hedge fund veteran Bill Hwang had provided seed capital for Ark’s first four exchange-traded funds. Wood said she had held discussions with Hwang about U.S. stocks and, in particular, the media sector back in 2013. ‘He did provide the seed for our first four ETFs and we were very grateful to him. It was at a time where market makers were sick of seeding new strategies,’ she said…”

Market Instability Watch:

May 11 – CNBC (Jeff Cox): “Federal Reserve policies aimed at keeping markets and the economy afloat during the pandemic could end up threatening the long-term health of the U.S. dollar, investing magnate Stanley Druckenmiller told CNBC… The chairman and CEO of Duquesne Family Office said the Fed’s insistence on holding interest rates down and buying trillions in bonds even though markets are thriving and the economy is booming is a long-term risk. ‘I can’t find any period in history where monetary and fiscal policy were this out of step with the economic circumstances, not one,’ Druckenmiller said…”

May 12 – Bloomberg (Katherine Greifeld): “ETF traders are increasingly wary of the corporate bond market as inflation anxiety boils over. Short interest in the $41 billion iShares iBoxx $ Investment Grade Corporate Bond exchange-traded fund (ticker LQD) is now 21.5% of shares outstanding, the highest on record, according to… IHS Markit Ltd.”

May 12 – Bloomberg (Lu Wang): “As chipmakers head for their worst month since the pandemic outbreak, options traders are betting the selloff has further to go. The bearishness was evident in the Direxion Daily Semiconductors Bear 3x Shares (SOXS), an exchange-traded fund that pays three times the inverse return of the Philadelphia Semiconductor Index. As the benchmark tumbled as much as 3.2% Tuesday, call options on the ETF, which amount to wagers against chip stocks, saw volume exploding to a record 164,000 contracts.”

May 13 – Wall Street Journal (Phred Dvorak): “SoftBank Group Corp. is pulling back from an investment unit it set up last year whose bets on publicly traded technology stocks were so large they earned the Japanese investor the nickname ‘Nasdaq whale.’ The unit, named SB Northstar, had been investing billions of dollars in stocks like Facebook Inc. and Inc., sometimes using derivatives… to increase the size of its bets. For a time, SoftBank Chief Executive Masayoshi Son personally directed the trades himself, using a $20 billion pot of cash. But the unit ended up losing money... During the fiscal year ended in March, it lost the equivalent of $5.6 billion on its derivatives transactions…”

May 12 – Yahoo Finance (Javier E. David): “Elon Musk sent Bitcoin reeling on Wednesday, after he announced that Tesla would stop accepting it for car purchases — even though the company continues to hold the digital coin on its books. In a Twitter post, Musk cited the environmental impact of Bitcoin mining, which has been cited by critics for being energy intensive and a detriment to the climate. The move took cryptocurrency enthusiasts by surprise, and drove down the price of Bitcoin after hours, with the volatile digital currency shedding over 13%. Other major crypto units followed suit…”

Inflation Watch:

May 12 – CNBC (Jeff Cox): “Inflation in April accelerated at its fastest pace in more than 12 years as the U.S. economic recovery kicked into gear and energy prices jumped higher… The Consumer Price Index, which measures a basket of goods as well as energy and housing costs, rose 4.2% from a year earlier. A Dow Jones survey had expected a 3.6% increase. The month-to-month gain was 0.8%, against the expected 0.2%. Excluding volatile food and energy prices, the core CPI increased 3% from the same period in 2020 and 0.9% on a monthly basis.”

May 10 – Bloomberg (Benjamin Purvis and Elizabeth Stanton): “Bond market expectations for the pace of consumer price inflation over the coming half decade surged on Monday to the highest level since 2006. The five-year breakeven rate, a measure based on the yield gap between inflation-linked debt and non-inflation securities, climbed as much as 3.4 bps to 2.7327%, eclipsing a high from 2008.”

May 12 – Bloomberg (Liz Capo McCormick and Kriti Gupta): “Over and over again, Federal Reserve officials have advised that any pickup in inflation this year was bound to be transitory. Traders in financial markets, however, aren’t so sure. Even before the faster-than-forecast rise in U.S. consumer prices reported Wednesday, investors had become fixated on widespread signs of cost pressures as commodities like copper and lumber surged to records and the bond market’s expectation for inflation over the next decade climbed to an eight-year high. The focus is shaking up the stock market, sending the Cboe Volatility Index to the highest since March. The most-recent round of U.S. corporate earnings calls showed the word inflation was back in vogue, with its usage rising 800% from a year ago, according to Bank of America Corp.”

May 9 – Wall Street Journal (Jaewon Kang): “Americans accustomed to years of low inflation are beginning to pay sharply higher prices for goods and services as the economy strains to rev back up and the pandemic wanes. Price tags on consumer goods from processed meat to dishwashing products have risen by double-digit percentages from a year ago, according to NielsenIQ. Whirlpool Corp. freezers and dishwashers and Scotts Miracle-Gro Co. lawn and garden products are also getting costlier, the companies say… Costs are rising at every step in the production of many goods. Prices for oil, crops and other commodities have shot up this year. Trucking companies are paying scarce drivers more to take those materials to factories and construction sites. As a result, companies are charging more for foods and consumer products…”

May 13 – Associated Press (Martin Crutsinger): “Wholesale prices, driven by escalating costs for services and food, jumped 0.6% in April, surprising economists and providing more evidence that inflation pressures are starting to mount… The increase in the producer price index, which measures inflationary pressures before they reach consumers, was double the 0.3% gain that economists had been expecting… Over the past 12 months, wholesale prices are up 6.2%, the largest advance since the data was first calculated in 2010. Food prices shot up 2.1% in April…”

May 10 – Reuters: “U.S. consumers expect housing prices and other costs to rise in the near term as the economy recovers from the crisis caused by the coronavirus pandemic, but they don't expect the inflation bump to last, according to a survey… by the Federal Reserve Bank of New York. Consumers surveyed in April said they expect inflation to rise by a median of 3.4% over the next year - the highest level since September 2013. Expectations for inflation over the next three years were unchanged at 3.1%.”

May 10 – Bloomberg (Reade Pickert and Vince Golle): “Inflation continues to brew in America’s industrial heartland as growing materials shortages cascade into record-long delivery times and leave manufacturers struggling to keep pace with an energized economy. As producers attempt to navigate supply-chain pitfalls for the commodities necessary to produce their wares, wage growth is beginning to percolate. A recent Labor Department report showed the largest quarterly increase in worker pay at companies since 2003.”

May 12 – Bloomberg (Javier Blas and Brian Wingfield): “U.S. national average retail gasoline prices have risen above $3 a gallon for the first time since 2014, after a cyberattack shut operations at Colonial Pipeline, the main supply link for the East Coast. The nation’s average retail price is now at $3.008 a gallon… The pipeline’s shutdown has caused shortages at fuel stations around the Southeast.”

May 11 – Financial Times (Harry Dempsey and Neil Hume): “Rates for ships carrying commodities that fuel global industries and keep the world fed have soared… Roaring Chinese demand for iron ore, a key steel ingredient, a return to strength for manufacturing in the rest of the world and under-investment in new vessels in recent years have powered a sharp increase in prices for dry bulk carriers, which transport unpackaged raw materials in large holds. The Baltic Dry index, which tracks rates for the three largest classes of ships, has risen to its highest level in more than a decade, soaring over 700% since April 2020. Capesize vessels… are fetching $41,500 a day for immediate hire, close to double of a month ago and almost eight times last year’s average, according to Clarksons Platou Securities.”

May 10 – Wall Street Journal (Ryan Dezember and Kirk Maltais): “America’s biggest cash crop has rarely been more expensive. Corn prices have risen roughly 50% in 2021 and a bushel costs more than twice what it did a year ago. Corn has been one of the sharpest risers in the broad rally in raw materials that is prompting companies to boost prices for goods and fueling concern among investors that inflation could hobble the post-pandemic economic recovery.”

May 11 – Bloomberg (Bre Bradham): “Soybean futures touched $16 on Tuesday for the first time since 2012 as concerns mount over a supply crunch. Surging Chinese demand and bad weather in key global-growing areas are stoking fears of grain shortages. China’s expanding hog herds need soybean meal, so the Asian nation has been buying massive amounts of the oilseed off global markets.”

May 10 – Bloomberg: “Iron ore futures surged more than 10% and copper extended its record run amid increasing bets they’ll be among the biggest winners from a commodities boom that’s stoking concerns about inflation around the world.”

May 10 – Bloomberg (Michael Hirtzer): “Tyson Foods Inc. warned it’s struggling to meet rebounding chicken demand because of a worker shortage and slow hatchings, even as a strong beef market will boost overall sales. The biggest U.S. meat company is seeing robust demand as the world economy mends from the pandemic, and it’s raising prices across businesses to pass through higher animal-feed costs and other expenses.”

May 11 – Bloomberg (Daniela Sirtori-Cortina): “Add sulfuric acid to the list of challenges facing copper miners as the world clamors for more of the wiring metal. The compound, used to extract copper from ore, is getting harder to come by. A slowdown in oil refining during the pandemic has resulted in less availability of sulfur, a key input for the acid. At the same time, more acid made in Asia is being used locally as industries there rebound. At least one copper mine in top-producer Chile has already been impacted and spot prices have surged.”

May 12 – Bloomberg (David Welch): “An unprecedented surge in prices for used cars was the biggest contributor to the surprise jump in U.S. inflation last month. The cost of previously owned sedans, pickups and sport-utility vehicles soared 10% in April…, the fastest climb ever in data that go back to 1953…. With fewer new cars being made amid a shortage in critical semiconductors, both retail consumers and rental car companies have gone to the used-vehicle market to get the wheels they need. Wholesale prices have soared as a result, up 54% in April from a year earlier at Manheim, the nation’s largest vehicle auction house.”

May 13 – Wall Street Journal (Mike Colias, Ben Foldy and Nora Naughton): “Americans are shopping for cars in near-record numbers, but the world’s computer-chip shortage has left dealers with the fewest offerings in decades. The market mismatch is driving up prices, and many buyers expecting to drive new cars off the lot have to wait weeks or months for their vehicles to arrive. Some showroom models sell for thousands of dollars over the sticker price. ‘We may just be in the greatest new-car market of our existence,’ Philadelphia-area car dealer David Kelleher said, ‘and we’re doing it with no cars.’”

May 10 – Wall Street Journal (Nora Naughton): “A monthslong rise in used-car sales has left bargain-hunters with increasingly limited options on lots across the U.S. The average price paid for a preowned vehicle hit a record of $25,463 in April, about $2,800 higher than in the same month last year, according to… J.D. Power… The climb, which began last year, has surprised some dealers who say they don’t see the trend ending soon… The average price paid for a new model climbed to a near record of $37,572 per vehicle in April, up about 7% from a year earlier, according to J.D. Power.”

May 13 – Yahoo Finance (Michael B. Kelley): “McDonald’s will raise hourly wages ‘by an average of 10%’ for more than 36,500 employees at more than 660 U.S. restaurants. ‘These increases, which have already begun, will be rolled out over the next several months and include shifting the entry level range for crew to at least $11-$17 an hour,’ the fast food giant said…, adding that shift managers would be paid at least $15 an hour.”

May 12 – Bloomberg: “The meteoric rise in palm oil prices is poised to inflate costs for everyone from restaurants to confectionery and cosmetic manufacturers, and could potentially change consumption patterns. The world’s most consumed edible oil has surged more than 120% in the past year and burst through 4,500 ringgit ($1,091) a ton to a record... The tropical oil, which is found in products as diverse as chocolate, pastries, soaps, lipstick and biofuel…”

Biden Administration Watch:

May 13 – New York Times (Alan Rappeport and Glenn Thrush): “Lawmakers have unleashed more than $5 trillion in relief aid over the past year to help businesses and individuals through the pandemic downturn. But the scale of that effort is placing serious strain on a patchwork oversight network created to ferret out waste and fraud. The Biden administration has taken steps to improve accountability and oversight safeguards spurned by the Trump administration… But policing the money has been complicated by long-running turf battles; the lack of a centralized, fully functional system to track how funds are being spent; and the speed with which the government has tried to disburse aid.”

Federal Reserve Watch:

May 12 – Bloomberg (Rich Miller): “Federal Reserve Vice Chairman Richard Clarida acknowledged that he was surprised by April’s jump in consumer prices but argued that the rise in inflation was likely to be prove largely transitory. ‘Readings on inflation on a year-over-year basis have recently increased and are likely to rise somewhat further before moderating later this year,’ he told a meeting of the National Association for Business Economics... However, ‘I expect inflation to return to -- or perhaps run somewhat above -- our 2% longer-run goal in 2022 and 2023… We have pent-up demand in the economy,” he said “It may take some time for supply to rise up to demand… If we saw evidence that there was a risk of a persistent upward drift in inflation expectations we would not hesitate to use our tools to offset that,’ he said.”

May 11 – Financial Times (James Politi and Colby Smith): “A senior Federal Reserve official has called on the US central bank to be ‘patient’ in pursuing its ultra-loose monetary policy, dismissing inflation worries and highlighting ‘uneven’ improvements in the labour market. The comments by Lael Brainard, a Fed governor, suggest the US central bank is not ready to begin contemplating removing its support for the pandemic-hit US economy, even as growth picks up and consumer prices begin to rise. They also indicate that senior Fed officials viewed last week’s weak jobs report for April as reinforcing their concerns that the acceleration in the US recovery this year remains uneven and fraught with uncertainty.”

May 13 – Reuters (Howard Schneider): “U.S. economic output will hit a new high by the end of June, a return to the pre-pandemic peak far ahead of the dire predictions of last year, St. Louis Federal Reserve president James Bullard said… ‘The ‘keep households whole’ fiscal strategy has been successful well beyond initial hopes,’ Bullard told the Greater Memphis Chamber, with national income ‘as high as it ever was and...poised to grow at an above-trend rate.’”

May 13 – Bloomberg (Catarina Saraiva and Steve Matthews): “Christopher Waller… became the latest Federal Reserve governor to try and dampen expectations for central bank action to curb rising prices that he sees as ‘temporary.’ Waller… said that while inflation above the Fed’s 2% goal may last through 2022, it’s unlikely to be sustained. The comments echo those by Lael Brainard… and Vice Chair Richard Clarida… as Americans vex over rising prices. Several regional Fed presidents have delivered a similar message, including Richmond’s Thomas Barkin… ‘Despite the unexpectedly high CPI inflation report yesterday, the factors putting upward pressure on inflation are temporary, and an accommodative monetary policy continues to have an important role to play in supporting the recovery,’ Waller told a virtual event… ‘We will not overreact to temporary overshoots of inflation.’”

May 10 – Bloomberg (Matthew Boesler): “It will probably take ‘quite some time’ for Federal Reserve officials to conclude the economy has made substantial progress following Friday’s disappointing jobs report, Chicago Fed President Charles Evans said. ‘I think we are going to have to see more strong employment numbers, and we’re going to have to see inflation,’ Evans said… ‘And it will be delicate. We’ll see transitory inflation that’s going to look like it’s -- it is above 2%. Is it going to be relative prices, or is it something more sustainable?’ Evans said. ‘So, I think it’s going to take quite some time for us to actually see it in the data, assess it.’”

U.S. Bubble Watch:

May 12 – Wall Street Journal (Kate Davidson): “The U.S. budget gap widened in the first seven months of the fiscal year… The government ran a $1.9 trillion deficit from October through April, a record for the seven-month period and a 30% increase from a year earlier… Outlays rose 22%, to a record $4.1 trillion, driven by higher safety-net spending such as jobless benefits and nutrition assistance, as well as Covid-19 relief programs including emergency small business loans and stimulus checks. Tax revenue rose 16%, to $2.1 trillion, primarily due to higher receipts from individuals and corporations…”

May 13 – Associated Press (Christopher Rugaber): “The number of Americans seeking unemployment benefits fell last week to 473,000, a new pandemic low and the latest evidence that fewer employers are cutting jobs as consumers ramp up spending and more businesses reopen.”

May 11 – Reuters (Lucia Mutikani): “U.S. job openings surged to a record high in March, further evidence that a shortage of workers was hampering job growth, even as nearly 10 million Americans are looking for employment. The Labor Department's monthly Job Openings and Labor Turnover Survey, or JOLTS report… also showed layoffs dropping to a record low in March… Job openings, a measure of labor demand, jumped 597,000 to 8.1 million on the last day of March, the highest since the series began in December 2000. The surge was led by the accommodation and food services sector, with 185,000 vacancies opening up.”

May 11 - Wall Street Journal (Xavier Fontdegloria): “Optimism among small-business owners in the U.S. continued to rise in April on the reopening of the economy, with firms struggling to find workers to fill job openings and increasingly raising selling prices. The NFIB Small Business Optimism Index came in at 99.8 in April, up 1.6 points from the previous month, data from… the National Federation of Independent Business showed… The index increased for the third successive month and stands over its long-term average. However, it is still below the 104.5 level registered in February 2020… ‘Small business owners are seeing a growth in sales but are stunted by not having enough workers,’ said NFIB Chief Economist Bill Dunkelberg.”

May 12 – CNBC (Pippa Stevens): “Colonial Pipeline restarted operations Wednesday at approximately 5 p.m. ET after a ransomware attack last week forced the entire system offline on Friday evening. The company did warn, however, that its pipeline would not be fully functional immediately. ‘Following this restart it will take several days for the product delivery supply chain to return to normal,’ Colonial said…”

May 12 – Bloomberg (Alexandre Tanzi): “Americans increased their borrowing to a record of $14.6 trillion in March, driven by home and auto loans. But the growth masked what Federal Reserve Bank of New York researchers called a ‘confounding’ decline in credit-card balances during a quarter when retail sales soared and travel resumed. The New York Fed report… shows that mortgage, auto and student loan balances have continued to increase.”

May 11 – Wall Street Journal (Nicole Friedman): “U.S. home prices rose nearly everywhere in the first quarter, a rapid price appreciation that shows little sign of fading soon with limited housing inventory and robust demand. The median sales price for existing single-family homes was higher in the quarter compared with a year earlier for 182 of the 183 metro areas tracked by the National Association of Realtors... In 89% of those metro areas, median prices rose by more than 10% from a year earlier… The housing boom has been unusually widespread, with low mortgage rates fueling strong buyer interest across the U.S., especially for high-end properties… Mortgage-finance company Fannie Mae is forecasting median existing-home prices to rise 11.5% in 2021, then slow to a 4% increase in 2022.”

May 11 – Bloomberg (Prashant Gopal): “The median price for a single-family home in the U.S. rose the most on record in the first quarter, as buyers fought over a dearth of inventory, according to the National Association of Realtors. Prices jumped 16.2% from a year earlier to a record high of $319,200. The growth eclipsed the 14.8% rate in the fourth quarter, which was the highest in data going back to 1989… ‘The record-high home prices are happening across nearly all markets, big and small, even in those metros that have long been considered off-the-radar in prior years for many home-seekers,’ said Lawrence Yun, the group’s chief economist.”

May 12 – Wall Street Journal (Ben Eisen): “The red-hot U.S. housing market is giving an extra boost to the cheapest houses, including many in historically stagnant neighborhoods that have suffered from a lack of investment. It is pushing forward efforts to revive the local economies of Detroit, Cleveland, Youngstown, Ohio, and other areas where homes can sell for as little as a few thousand dollars but typically require a lot of work to fix up… U.S. ZIP Codes where the median home cost less than $100,000 in early 2018 have had a 42% rise in prices in the three years since then, according to a CoreLogic Inc. analysis…”

May 13 – Bloomberg (Romy Varghese): “California Governor Gavin Newsom began the week touting a situation that any governor would envy: He has an extra $100 billion to spend on his priorities. The Democrat who’s facing a rare recall election later this year then blasted out a fundraising email trumpeting his promise to send $600 checks to millions of Californians in what he has called the biggest state tax rebate in history.”

May 10 – Dow Jones (Katherine Clarke and Candace Taylor): “A Montana ranch featured in the 1992 Robert Redford movie ‘A River Runs Through It’ is in contract, less than a week after the listing was made public… The property, known as the Climbing Arrow Ranch, sold for around its $136.25 million asking price following a bidding war, according to two other people familiar with the deal.”

Fixed Income Watch:

May 11 – Bloomberg (Lisa Lee): “Junk-bond investors are so ravenous for the debt that they’re caving when issuers zap protections that historically distinguished the securities from leveraged loans, blurring the line between these once-distinct markets. Bonds feature fixed interest payments while loans usually float, but that’s among the last differences. Borrowers in the past have often shunned bonds in favor of loans because they’re easier to refinance. But investors are so eager to buy bonds that they’re letting issuers omit a safeguard known as a make-whole, which requires borrowers to compensate investors for future missed interest payments if they decide to retire the debt early.”

May 10 – Bloomberg (Alex Wittenberg): “U.S. high-yield credit investors expect spread tightening in the next few months, while their investment-grade counterparts turn bearish amid growing concerns about inflation and an accelerating economy, according to a Bank of America report. An environment of speedy economic growth and high inflation and interest-rate risk is ‘better for HY than IG returns,’ Bank of America strategists led by Hans Mikkelsen said. High-yield investors have built the biggest overweight positioning since November 2014 and expect tightening over the next six months, the strategists wrote…”

May 9 – Wall Street Journal (Sebastian Pellejero): “Investors in search of higher returns and lower taxes are scooping up debt sold by state and local governments, pushing borrowing costs to near-record lows and boosting coffers from California to Connecticut. Investors have poured a net $39 billion into municipal-bond mutual funds this year…, the most over the same period since 2008. Returns on the debt… have beaten those of corporate bonds and Treasurys. Demand is so intense that Illinois, the only state to tap the Federal Reserve’s pandemic emergency-lending facility, recently sold three-year bonds at yields near 1%.”

China Watch:

May 11 – Bloomberg: “China’s factory-gate prices surged more than expected in April, fueled by rapid gains in commodity prices, adding to global inflation concerns. The producer price index rose 6.8% from a year earlier, its fastest pace since October 2017… The commodities boom, fueled by rising global demand and supply shortages, has stoked concerns about inflation around the world. With China being the world’s biggest exporter, its rising cost pressures for the nation’s factories pose another risk to global inflation as manufacturers start passing on higher prices to retailers.”

May 12 – Wall Street Journal (Josh Zumbrun): “U.S. tariffs have led to a sharp decline in Chinese imports and significant changes in the types of goods Americans buy from China, new data show, with purchases of telecommunications gear, furniture, apparel and other goods shifting to other countries. Nearly two-thirds of all imports from China—or roughly $370 billion in annual goods—were covered by tariffs imposed by the U.S. in 2018 and 2019. Tariffs now cover just half of Chinese exports to the U.S…, as U.S. companies buy more from other countries, according to a Wall Street Journal analysis…”

Global Bubble Watch:

May 12 – Bloomberg (Sofia Horta e Costa): “Taiwan stocks sank for a third day in volatile trading, extending a rout that’s triggered the fastest liquidation of leveraged positions since 2018. The Taiex closed 1.5% lower at 15,670.10 points, taking its decline from the April 27 peak to 11%... Over the past four days, the benchmark lost 9.3%... Forced selling has compounded this week’s losses, with the level of margin debt falling by a net NT$12.9 billion ($461 million) on Wednesday… That takes the two-day drop in leverage to NT$25.6 billion, showing traders faced margin calls by brokers to cover losses in their stock accounts.”

May 12 – Financial Times (Joshua Oliver): “Trying to decide whether Canada’s real estate market has peaked has long been a national pastime. And, last year, even the country’s housing agency gave a steer: it warned that a Covid-led correction was imminent and prices could fall by as much as 18%. But the market had other ideas. Nationally, average selling prices hit a record high in March 2021, up 31% year-on-year, to more than C$715,000 ($575,000)… This double-digit price growth has put pressure on lawmakers to take action, as home ownership shoots out of reach of many Canadians.”

Central Banker Watch:

May 9 – Bloomberg (Simon Lee): “The European Central Bank should change its policy and accept an overshoot of its inflation target to make up for years of sluggish price growth, the Financial Times reported, citing Bank of Finland Governor Olli Rehn, who is also a member of the ECB Governing Council. Changes in the euro area’s labor market and world economy had weakened wage inflation pressures, and it ‘makes sense’ to accept a certain period of overshooting while taking into account the history of undershooting, Rehn said…”

May 11 – Financial Times (Martin Arnold): “Isabel Schnabel, an executive director at the European Central Bank, has sought to soothe concerns about an expected increase in German inflation above 3% this year, saying such a rise was unlikely to cause a tightening of monetary policy. ‘Our monetary policy strategy is medium-term and that means we look through all of these short-term fluctuations,’ Schnabel told broadcaster RTL… Schnabel was appointed by Berlin to join the ECB’s executive board at the start of 2020. Her comments reflect an intensifying debate inside the central bank about whether it should slow its emergency bond purchases at its next monetary policy meeting on June 10…”

Europe Watch:

May 13 – Reuters (Danilo Masoni, Dhara Ranasinghe and Yoruk Bahceli): “It’s rare for German elections to be exciting, market-moving events but the one on Sept. 26 may prove the exception if its outcome completes the transformation of a nation long wedded to austerity into a big spender. The election will end Angela Merkel's 16-year stint at the helm of Europe's biggest economy, and the Greens have a chance to become the leading party in national government for the first time in their 40-year history. The implications could range from more environment-focused spending to greater euro zone cohesion. German bond yields have risen since the Greens nominated their first candidate for chancellor…”

May 10 – Bloomberg (Ania Nussbaum and William Horobin): “When Benedicte Peyrol, a lawmaker in President Emmanuel Macron’s party, meets constituents in central France, she says there’s one issue worrying them above others: a massive pile of public debt. ‘Frankly, I was surprised,’ says Peyrol, who’s 30 and trained as a tax lawyer. ‘It’s a rural area, debt isn’t necessarily an issue in day-to-day life, and yet people are very apprehensive about how we’ll pay it back.’ Such worries are more often associated with voters in Germany than in France… But French attitudes to debt are changing after an unprecedented spending splurge… With debt reaching 116% of Gross Domestic Product — a level not seen in the post-war era — that makes Finance Minister Bruno Le Maire’s talk this week of yet more stimulus a risky political strategy.”

EM Watch:

May 12 – Bloomberg (Sydney Maki): “Sovereign bond defaults have piled up at a dizzying clip in Latin America since the pandemic began. First, it was Ecuador’s turn, then came Argentina, followed by Suriname, then Belize, then Suriname again and Suriname one more time. In all, more than $80 billion of foreign bonds have been restructured. And there’s more pain to come. Traders are almost certain three of those countries will default yet again, bond prices suggest, and the fourth, Ecuador, is far from financial stability. Then there’s the case of Venezuela, which has been mired in default for so many years that creditors have resigned themselves to recouping just a tiny fraction of their money, if anything. All of which makes the current moment feel a bit like a flashback to the Lost Decade of the 1980s, when Latin America’s heavily indebted countries sank into default one after another…”

Leveraged Speculation Watch:

May 11 – Bloomberg (Yakob Peterseil and Katherine Greifeld): “Inflation, valuations, rising rates -- all are being suggested as causes for this week’s tech implosion, but a less-publicized catalyst may be the market for stock options. This alternate theory has it that Wall Street derivatives dealers are exacerbating market swings through hedging their books to offset brisk demand for protection against a selloff, through what’s known as gamma hedging. That’s when options market makers buy or sell an underlying stock to manage their risk as the price of the shares moves. An academic study last year found evidence that options dealers indeed contribute to intraday volatility as they balance their exposures in this way. The volatility has been on full display lately, with the Nasdaq 100 slumping as much as 2% Tuesday before erasing most of the loss. It ended lower for a second day after Monday’s rout, sending a measure of implied volatility for the gauge to the highest since March.”

May 10 – Wall Street Journal (Anna Hirtenstein): “European governments are acting to limit hedge funds' participation in the market for new sovereign bond issuance, following a surge in demand from the firms. The pushback was prompted by unusually large orders placed by hedge funds for new bonds, which can then potentially be sold -- sometimes within hours -- to the European Central Bank for a profit… Order books… have ballooned since hedge funds began to pile into this trade. The debt-management offices of Spain and Italy have placed caps ranging from 500 million euros to 1 billion euros, equivalent to $608 million to $1.2 billion, on orders from hedge funds for bonds directly issued by countries in the primary market, according to bankers who worked on the deals. France has also limited order sizes, an official said.”

Social, Political, Environmental, Cybersecurity Instability Watch:

May 13 – Bloomberg (Naureen Malik, David R Baker and Mark Chediak): “First they struck California, then Texas. Now blackouts are threatening the entire U.S. West as nearly a dozen states head into summer with too little electricity. From New Mexico to Washington, power grids are being strained by forces years in the making — some of them fueled by climate change, others by the fight against it. If a heat wave strikes the whole region at once, the rolling outages that darkened Southern California and Silicon Valley last August will have been previews, not flukes. ‘It’s really the same case in different parts of the West,’ said Elliot Mainzer, chief executive officer of the California Independent System Operator… ‘It’s revealed competition for scarce resources that we haven’t seen for some time.’”

May 12 – Bloomberg (Ari Natter): “The federal agency charged with protecting the nation’s pipelines hasn’t imposed any mandatory cybersecurity requirements since its creation in wake of the Sept. 11, 2001 terrorist attacks -- despite dire warnings from the intelligence community about vulnerability to hackers. Instead, the U.S. Transportation Security Administration’s Pipeline Security Branch, which oversees nearly three million miles of pipelines, has relied on voluntary best practices and self-reporting by the industry to secure the operations. Those measures have alarmed pipeline safety advocates and been criticized as inadequate by government regulators and lawmakers.”

Geopolitical Watch:

May 13 – Reuters (Nidal Al-mughrabi and Jeffrey Heller): “Palestinian militants fired more rockets into Israel's commercial heartland on Thursday as Israel kept up a punishing bombing campaign in the Gaza Strip and massed tanks and troops on the enclave's border. Four days of cross-border fighting showed no sign of abating, and Israeli Prime Minister Benjamin Netanyahu said the campaign ‘will take more time’. Israeli officials said Gaza's ruling Hamas group must be dealt a strong deterring blow before any ceasefire. Violence has also spread to mixed communities of Jews and Arabs in Israel, a new front in the long conflict. Synagogues were attacked and fighting broke out on the streets of some towns, prompting Israel's president to warn of civil war.”

May 12 – Associated Press (Fares Akram and Josef Federman): “Israel on Wednesday pressed ahead with a fierce military offensive in the Gaza Strip, killing as many as 10 senior Hamas military figures and toppling a pair of high-rise towers housing Hamas facilities in a series of airstrikes. The Islamic militant group showed no signs of backing down and fired hundreds of rockets at Israeli cities. In just three days, this latest round of fighting between the bitter enemies has already begun to resemble — and even exceed — a devastating 50-day war in 2014. Like that previous war, neither side appears to have an exit strategy. But there are key differences. The fighting has triggered the worst Jewish-Arab violence inside Israel in decades. And looming in the background is an international war crimes investigation.”

May 10 – Financial Times (Gideon Rachman): “Old ideas are like old clothes — wait long enough and they will come back into fashion. Thirty years ago, ‘industrial policy’ was about as fashionable as a bowler hat. But now governments all over the world, from Washington to Beijing and New Delhi to London, are rediscovering the joy of subsidies and singing the praises of economic self-reliance and ‘strategic’ investment. The significance of this development goes well beyond economics. The international embrace of free markets and globalisation in the 1990s went hand in hand with declining geopolitical tension. The cold war was over and governments were competing to attract investment rather than to dominate territory. Now the resurgence of geopolitical rivalry is driving the new fashion for state intervention in the economy. As trust declines between the US and China, so each has begun to see reliance on the other for any vital commodity — whether semiconductors or rare-earth minerals — as a dangerous vulnerability. Domestic production and security of supply are the new watchwords.”

May 9 – Reuters: “President Vladimir Putin reviewed Russia’s traditional World War Two victory parade on Sunday, a patriotic display of raw military power that this year coincides with soaring tensions with the West. The parade on Moscow's Red Square commemorating the 76th anniversary of the Soviet Union's victory over Nazi Germany… featured over 12,000 troops and more than 190 pieces of military hardware, including intercontinental ballistic missile launchers… ‘Unfortunately there are once again attempts to deploy many things from the ideology of the Nazis, those who were obsessed with a delusional theory on their exclusiveness. And not only (by) all sorts of radicals and international terrorist groups,’ Putin said in what appeared to be a common denunciation of the West but what the Kremlin said was aimed at the rise of neo-Nazism in Europe.”

May 10 – Bloomberg (Stephen Stapczynski): “At least two of China’s smaller liquefied natural gas importers have been told to avoid buying new cargoes from Australia, a further example of the impact on trade from souring ties between the two countries. The firms have received verbal orders from government officials to avoid purchasing additional LNG from Australia for delivery over the next year, according to people with knowledge…”