Friday, April 1, 2022

Weekly Commentary: Historic Q1 2022

Historic Q1 2022. Inflation, a Hawkish Fed, Spiking Bond Yields, War, China and Acute Instability. Where to begin?

“Inflation Hits a New 40-year High.” “Bond Market Suffers Worst Quarter in Decades.” “Commodities Finish Best Quarter in 32 Years.” Greatest ever divergence between financial assets and Hard Assets? “China Home Sales Slump Worsens Despite Vows to Support Market.” “China Growth Outlook Worsens as Manufacturing, Home Sales Slump.” “Recession Warning Sign Flashes as Yield Curve Inverts.”

It is only a matter of how profound Q1 developments will shape the future. In the final week of a historic quarter, there was optimism that negotiations were about to bear fruit. Russia stated it was taking steps to “de-escalate.” An understandably skeptical President Zelensky warned Russia was determined to split Ukraine. Obvious enough. But is Putin’s overarching goal to divide the world?

Putin has over the years railed against a U.S.-dominated world. He abhors the dollar-based global financial apparatus. Russia’s dictator repudiates the U.S. as “global cop”, replete with power to dictate the terms of trade and financial relationships, and security alliances, while unilaterally imposing financial and economic sanctions at its discretion. Putin’s tight relationship with fellow autocrat Xi – master of newfound superpower China - provided the backing for his gambit of breaking violently from the existing world order.

March 30 – CBS: “Beijing and Moscow advanced a vision of a new world order… as Russian Foreign Minister Sergey Lavrov made his first visit to key ally China since his country launched its invasion of Ukraine. Moscow’s top diplomat landed in the eastern city of Huangshan early Wednesday for a series of meetings… U.S. officials have accused China of signaling ‘willingness’ to provide military and economic aid to Russia… Lavrov painted a picture of a new ‘world order,’ saying the world was ‘living through a very serious stage in the history of international relations.’ ‘We, together with you, and with our sympathizers will move towards a multipolar, just, democratic world order,’ Lavrov said… A readout from the Chinese foreign ministry quoted Wang Yi as saying ‘China-Russia relations have withstood the new test of the changing international situation, maintained the correct direction of progress and shown tenacious development momentum.’”

I anxiously awaited the narrative from Russian Foreign Minister Lavrov’s trip this week to China. Chinese officials have been guarded with public remarks, refusing to condemn Russia’s invasion while attempting to present a middle ground position as aspiring peacemaker. Would there be a bit of chill in the reception for Lavrov, a fitting signal of at least a modicum of dissatisfaction with the state of affairs – even if only publicly for a wary international audience?

For a government and society that prioritizes stability, would China indicate some apprehension at the prospect of an insecure and rapidly changing global environment? Or might Beijing instead display support and solidarity, shedding the thin veil of neutrality to reveal China’s acquiescence to its partner’s designs for reshaping global power dynamics?

China was notably – and surprisingly - unsubtle. Until proven otherwise, the Chinese clubby homecoming this week for its “partner with no limits” supports the thesis that China is fully on board with a reformulation of the “world order”. From Newsweek: “Chinese Foreign Minister Wang Yi praised Russia for its efforts to ‘prevent a large-scale humanitarian crisis’ in Ukraine.” AFP: “Beijing and Moscow advanced a vision of a new world order… Lavrov painted a picture of a new world order, saying the world was ‘living through a very serious stage in the history of international relations.’ ‘We, together with you, and with our sympathizers will move towards a multipolar, just, democratic world order…” Press Trust India quoted Foreign Minster Wang: “There is no ceiling for China-Russia cooperation, no ceiling for us to strive for peace, no ceiling for us to safeguard security and no ceiling for us to oppose hegemony.”

March 30 – Financial Times (Kathrin Hille): “China has reaffirmed its partnership with Russia and said it wanted to push bilateral relations ‘to a higher level’ as Moscow faces international sanctions and widespread criticism over its invasion of Ukraine. In the first meeting between the countries since Russia started the war a month ago, China’s foreign minister Wang Yi told his Russian counterpart, Sergei Lavrov, that ‘the two sides’ will to develop bilateral ties is even firmer, our confidence in advancing co-operation in various areas even stronger…’ The Chinese readout of the Lavrov-Wang meeting also repeated support for the Russian security concerns that Moscow claims drove it to attack Ukraine. ‘The Ukrainian issue… is not only the outbreak of the long-term accumulation of security conflicts in Europe, but also the result of the cold war mentality and group confrontation,’ Wang said.”

Equities markets, especially when they turn acutely speculative, become fixated on short-term trading dynamics. How bearish is sentiment? How aggressive has short positioning become? What is the scope of outstanding put options and bearish derivatives that would need to be unwound (aka “gamma squeeze”) in the event of a market rally? What is the speculative landscape heading into option expiration? Equities will move on incremental news. When it appeared less likely the War was spiraling out of control, it was time to squeeze the shorts and force an unwind of bearish derivative positions. Longer-term developments – including a momentous reshaping of the “world order” – are essentially irrelevant to stocks.

Meanwhile, bonds tend to have a longer horizon. Why are long-term real (adjusted for inflation) yields remaining so deeply negative – 10-year yields at only 2.39% - with almost 8% y-o-y consumer price inflation and the Fed commencing what is expected to be the most hawkish tightening cycle since 1994? And with the 2-yr/10-yr Treasury yield spread trading negative this week, some interpret this as a signal of looming recession. I would approach the analysis somewhat differently.

I have posited that long-term yields have remained depressed in the face of surging inflation largely because of today’s world of extraordinary Bubble Fragility. China’s historic Bubble is clearly faltering, and the prospect of weakening Chinese demand was cited this week as a factor behind sinking crude and materials prices. In general, global financial markets are at heightened risk of de-risking/deleveraging, along with a crisis of confidence that would likely stop global central bank “tightening” in its tracks.

It has been my long-held concern that a bursting Chinese Bubble would be associated with heightened geopolitical risk. This thesis is coming to fruition. I don’t see the timing of Russia’s invasion as coincidence. China and the world are transitioning from a historic boom and Bubble period. Animosity and conflict are inescapable cycle shift fallout.

March 30 – Bloomberg: “Borrowing by Chinese businesses plunged in the first quarter and interest rates on loans surged to a record despite the central bank’s efforts to encourage more lending, according to China Beige Book International. Only 16% of the companies surveyed by CBBI… applied for loans in the first three months of 2022, the lowest since the quarterly poll began in 2012… The firms also paid for the most costly loans since 2012 even though the People’s Bank of China cut its policy rates early in the year. The average interest rate for bank loans climbed to 8.5% from 6.1% in the fourth quarter of 2021, while those for shadow financing loans surged to 15.1% from 10.7%, according to… CBBI. The survey paints a grimmer picture of credit demand in the corporate sector than the slowdown reflected in the official data.”

Results from the private China Beige Book survey signal a broad-based tightening of financial conditions that should not be disregarded.

March 31 – Bloomberg: “China’s home sales slump deepened in March, keeping pressure on cash-strapped developers even as policy makers vow to support the property market. The 100 biggest companies in China’s debt-ridden property industry saw a 53% drop in sales from a year earlier, according to… China Real Estate Information Corp. That’s the steepest decline this year.”

Beijing’s “Covid zero” policy has pushed a teetering economy over the ledge. Many supportive comments from government officials over recent weeks have done little to bolster general confidence. The rapidly deteriorating backdrop this week elicited the strongest indications yet of imminent stimulus measures. I expect Beijing will face the harsh reality that customary reflationary tactics will prove much less effective in today’s post-Bubble environment.

March 30 – Bloomberg: “China’s central bank vowed to boost confidence and provide more effective support to the economy, amid mounting growth pressure from the country’s worst Covid outbreak since Wuhan. The People’s Bank of China reaffirmed it will step up the magnitude of monetary policy and make it more forward-looking, targeted and autonomous... The central bank will ‘further unclog the transmission mechanism of monetary policy’ and expand the relending program for small and rural businesses, a meeting by the monetary policy committee chaired by Governor Yi Gang concluded…”

April 1 – Bloomberg (Dorothy Ma): “Declines accelerated in the first quarter for China’s high-yield dollar bond market, which is dominated by the country’s developers, as a record pace of defaults persists. Junk-rated notes lost 19% to start this year, the most in at least a decade…”

The Shanghai Composite sank 10.6% during Q1, with the growth-oriented ChiNext Index sinking 19.9%. An index of dollar-denominated high-yield Chinese corporate bonds saw its yield surge to 22.5% (traded as high as 27.9% on 3/16) from 16.8% to begin the year. China’s big four banks posted notable increases in Credit default swap (CDS) prices. China Construction Bank CDS jumped 17 during Q1 to 74 bps, China Development Bank 18 to 72 bps, Industrial & Commercial Bank of China 18 to 76 bps, and Bank of China 17 to 72 bps. China sovereign CDS prices posted an ominous jump during Q1, rising 21 to 62 bps.

Here at home, it was a quarter of extreme volatility. From early-January highs to February 24th lows, the S&P500 dropped 14.6%. The S&P500 had then rallied 12.7% at March 29th trading highs. Over this period, the Nasdaq100 dropped 20.9%, only then to rally 16.8%.

The end-of-quarter equities rally pressured a fragile bond market. After beginning March at 1.73%, 10-year Treasury yields surged 75 bps to peak at 2.48% on March 25th. The Treasury five-year “breakeven” rate of inflation expectations began March at 3.15%, only to trade up to 3.73% on March 25th. On March 1st, the Treasury market was pricing 4.82 25-basis point rate hikes by the FOMC’s December 14th meeting. By March 28th, expectations had spiked to 8.42 hikes.

Surging yields were a global phenomenon. Greek yields spiked 134 bps during the quarter to 2.65%. Italian yields surged 80 bps (2.04%), Portugal 89 bps (1.35%), and Spain 80 bps (1.36%). German 10-year bund yields rose 73 bps to 0.55%. With one day left in the quarter, German two-year yields had surged 65 bps to trade with a positive yield for the first time since 2014. Canadian 10-year yields gained almost 100 bps during the quarter to 2.40%, while Australian yields surged about 120 bps to 2.86%.

March 31 – Wall Street Journal (Sam Goldfarb): “U.S. bonds’ worst quarter in more than 40 years has come to a close… The Bloomberg U.S. Aggregate bond index—largely U.S. Treasurys, highly rated corporate bonds and mortgage-backed securities—returned minus 6% in 2022 through Wednesday, on track for the biggest quarterly loss since 1980. Yields on short to medium-term Treasurys… have logged their biggest quarterly gains in decades, with the two-year yield rising the most since 1984 and the five-year yield the most since 1987.”

The iShares Treasury Bond ETF (TLT) returned negative 10.63% for the quarter. The iShares Investment Grade Corporate Bond ETF (LQD) returned negative 8.38%, and the iShares High Yield Corporate Bond ETF (HYG) returned negative 4.73%. It was a rough quarter generally for fixed-income, but those hedging corporate debt holdings with Treasury short positions successfully mitigated rate risk. Meanwhile, MBS turned bloody. Benchmark MBS yields surged 143 bps during the quarter to 3.49%, trading late in the quarter at the highest yields (3.71%) since December 2018. MBS yields were up another nine bps during Q2’s first session.

“The ‘Yield Curve Inversion’ Is Signaling Something Important.” After beginning the year at 78 bps, the 2-yr/10-yr Treasury yield spread ended the week at negative eight bps. I’ll leave a deeper yield curve discussion for another day. But this week, in particular, had the look of levered yield curve trades blowing up. That would help explain how two-year Treasury yields could spike 19 bps this week to 2.46%, as 10-year yields dropped nine bps to 2.38%. There are more discussions of Treasury market liquidity issues.

April 1 – Bloomberg (Paula Seligson and Josyana Joshua): “The U.S. investment-grade loan market saw a slow start to the year after 2021 volumes hit a record high. Companies raised $238.6 billion of the syndicated corporate loans in the first quarter of 2022, down 21% year-over-year… That compares to $300.2 billion in the first quarter of 2021. The drop-off occurred due to a significant decrease in M&A volume, which fell to only $31.6 billion in the first quarter, a sharp 51% drop year-over-year compared to $64.7 billion in 2021.”

March 31 – Wall Street Journal (Hardika Singh): “Commodities wrapped up their best quarter in more than 30 years after Russia’s invasion of Ukraine supercharged a rally in markets from oil to wheat and nickel… The S&P GSCI, a benchmark tracking the prices of commodities futures from precious metals to livestock, has climbed 29% in the first quarter, notching its biggest gain since 1990.”

WTI Crude traded to $126 (March 7th), before ending the quarter up 33% at $100.28. Gasoline futures jumped 41% during Q1, and Natural Gas surged 51%. Nickel spiked spectacularly and held some of those gains to end Q1 up 55%. Aluminum rose 24%, Iron Ore 39%, and Zinc 18%. The soft commodities were also hot. Wheat was up 77% y-t-d early in the War, before ending Q1 up 34%. Corn jumped 26%, and Soybeans rose 20%. Cotton jumped 23%. Gold gained 6.9%, and Silver rose 6.4%.

The new global Iron Curtain virtually ensures shortages and bouts of panic buying of key commodities over the foreseeable future, perhaps somewhat offset by deteriorating Chinese economic prospects. It’s difficult to envisage a backdrop with greater uncertainty. For starters, how does the War unfold? Would the West be willing to loosen sanctions as part of a peace deal after Russia so brutally pulverized Ukrainian cities? How long might China escape U.S. and European animus for its Russian brotherhood? How significantly does the unfolding new world order hinder financial and economic flows? Moreover, how might central bankers respond to faltering markets in an economic war backdrop where the performance of securities markets will be viewed as indicating relative war success or failure? It was a wild and deeply troubling Q1. Little reason to expect much different for Q2.

For the Week:

The S&P500 (down 4.6% y-t-d) and Dow (down 4.2%) were both little changed. The Utilities surged 3.7% (up 4.5%). The Banks slumped 6.7% (down 7.3%), and the Broker/Dealers lost 2.2% (down 3.5%). The Transports sank 5.3% (down 5.9%). The S&P 400 Midcaps were about unchanged (down 4.6%), while the small cap Russell 2000 rose 0.6% (down 6.9%). The Nasdaq100 increased 0.7% (down 8.9%). The Semiconductors fell 4.5% (down 14.7%). The Biotechs rallied 4.1% (down 5.1%). While bullion was down $32, the HUI gold index gained 2.1% (up 24.1%).

Three-month Treasury bill rates ended the week at 0.5025%. Two-year government yields surged 19 bps to 2.46% (up 173bps y-t-d). Five-year T-note yields added one basis point to 2.56% (up 130bps). Ten-year Treasury yields dropped nine bps to 2.39% (up 87bps). Long bond yields fell 15 bps to 2.43% (up 53bps). Benchmark Fannie Mae MBS yields dropped 12 bps to 3.58% (up 152bps).

Greek 10-year yields dropped 13 bps to 2.66% (up 135bps y-t-d). Ten-year Portuguese yields rose five bps to 1.38% (up 91bps). Italian 10-year yields added a basis point to 2.09% (up 92bps). Spain's 10-year yields gained three bps to 1.47% (up 91bps). German bund yields declined three bps to 0.55% (up 73bps). French yields increased one basis point to 1.02% (up 82bps). The French to German 10-year bond spread widened about four to 47 bps. U.K. 10-year gilt yields dropped nine bps to 1.61% (up 64bps). U.K.'s FTSE equities index added 0.7% (up 2.1% y-t-d).

Japan's Nikkei Equities Index declined 1.7% (down 3.9% y-t-d). Japanese 10-year "JGB" yields slipped about a basis point to 0.225% (up 15bps y-t-d). France's CAC40 rallied 2.0% (down 6.6%). The German DAX equities index recovered 1.0% (down 9.1%). Spain's IBEX 35 equities index rose 2.1% (down 2.4%). Italy's FTSE MIB index jumped 2.5% (down 8.0%). EM equities were mostly higher. Brazil's Bovespa index (up 16.0%) and Mexico's Bolsa index (up 6.3%) both gained 2.1%. South Korea's Kospi index increased 0.4% (down 8.0%). India's Sensex equities index jumped 3.3% (up 1.8%). China's Shanghai Exchange rallied 2.2% (down 9.8%). Turkey's Borsa Istanbul National 100 index jumped 3.5% (up 21.2%). Russia's MICEX equities index surged 11.1% (down 27.1%).

Investment-grade bond funds saw outflows of $2.548 billion, while junk bond funds posted inflows of $1.244 billion (from Lipper).

Federal Reserve Credit last week declined $21.3bn to $8.903 TN. Over the past 133 weeks, Fed Credit expanded $5.176 TN, or 139%. Fed Credit inflated $6.092 Trillion, or 217%, over the past 490 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week rose $13.9bn to $3.464 TN. "Custody holdings" were down $87.4bn, or 2.5%, y-o-y.

Total money market fund assets jumped $29.7bn to $4.590 TN. Total money funds increased $93bn y-o-y, or 2.1%.

Total Commercial Paper gained $12.0bn to $1.062 TN. CP was down $37.7bn, or 3.4%, over the past year.

Freddie Mac 30-year fixed mortgage rates surged 25 bps to 4.67%, the high since December 2018 (up 149bps y-o-y). Fifteen-year rates rose 20 bps to 3.86% (up 138bps). Five-year hybrid ARM rates gained 14 bps to 3.50% (up 66bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates up 39 bps to a decade-high 4.91% (up 162bps).

Currency Watch:

For the week, the U.S. Dollar Index declined 0.2% to 98.63 (up 3.1% y-t-d). For the week on the upside, the Brazilian real increased 1.8%, the Mexican peso 0.9%, the Swedish krona 0.6%, the euro 0.6%, the Swiss franc 0.4%, the South Korean won 0.3%, and the Singapore dollar 0.1%. On the downside, the Norwegian krone declined 1.6%, the South African rand 0.8%, the New Zealand dollar 0.7%, the British pound 0.5%, the Japanese yen 0.4%, the Canadian dollar 0.4%, and the Australian dollar 0.3%. The Chinese renminbi increased 0.05% versus the dollar (down 0.11% y-t-d).

Commodities Watch:

The Bloomberg Commodities Index dropped 4.6% (up 24.9% y-t-d). Spot Gold declined 1.7% to $1,926 (up 5.3%). Silver fell 3.5% to $24.63 (up 5.7%). WTI crude sank $14.63 to $99.27 (up 32%). Gasoline slumped 9.1% (up 42%), while Natural Gas rose 2.7% (up 53%). Copper slipped 0.2% (up 5.0%). Wheat sank 10.7% (up 28%), and Corn fell 2.5% (up 24%). Bitcoin rose $1,900, or 4.3%, this week to $46,297 (down 0.2%).

Russia/Ukraine Watch:

March 27 – Reuters (Pavel Polityuk and Oleksandr Kozhukhar): “Ukraine is willing to become neutral and compromise over the status of the eastern Donbass region as part of a peace deal, President Volodymyr Zelenskiy said…, even as another top Ukrainian official accused Russia of aiming to carve the country in two… Kyrylo Budanov, said Russian President Vladimir Putin was aiming to seize the eastern part of Ukraine. ‘In fact, it is an attempt to create North and South Korea in Ukraine,’ he said, referring to the division of Korea after World War Two.”

March 31 – Reuters (Vitalii Hnidyi and Pavel Polityuk): “Ukrainian forces are preparing for new Russian attacks in the southeast, where Moscow's guns are now trained after its assault on the capital Kyiv was repelled, President Volodymyr Zelenskiy said on Thursday. Five weeks into an invasion that has blasted cities into wastelands and created more than 4 million refugees, U.S. and European officials said Russian president Vladimir Putin was misled by his generals about the dire performance of Russia's military.”

March 30 – Reuters (Vitalii Hnidyi and Sergiy Karazy): “Russian forces bombarded the outskirts of Kyiv and a besieged city in northern Ukraine on Wednesday, a day after promising to scale down operations there in what the West dismissed as a ploy to regroup by invaders suffering heavy losses. Nearly five weeks into an invasion in which it has failed to capture any major cities, Russia had said on Tuesday it would curtail operations near Kyiv and the northern city of Chernihiv ‘to increase mutual trust’ for peace talks.”

March 27 – Wall Street Journal (Thomas Grove): “When Russia unveiled previously secret details of its nuclear-weapons doctrine for the first time in 2020, it confirmed something U.S. war planners had long suspected: Moscow would be willing to use atomic arms to keep from losing a conventional war. Since Russian President Vladimir Putin invaded Ukraine last month, he has repeatedly raised the specter of nuclear war, invoking his country’s atomic arsenal in an effort to deter the U.S. and the North Atlantic Treaty Organization from getting involved in the conflict. But as Mr. Putin’s army has faced fierce resistance from Ukrainian forces strengthened by large infusions of Western weaponry, concerns have grown in Washington and allied capitals that Russia could consider using a so-called tactical nuclear weapon to gain the upper hand on the battlefield.”

March 31 – Reuters: “President Vladimir Putin… signed a decree ordering 134,500 new conscripts into the army as part of Russia's annual spring draft, but the defence ministry said the call-up had nothing to do with the war in Ukraine… Russian Defence Minister Sergei Shoigu said on Tuesday that none of those called up would be sent to any ‘hot spots’.”

Economic War/ Iron Curtain Watch:

March 30 – Associated Press (Paul Wiseman): “For decades, the free flow of trade across much of the world allowed the richest nations to enjoy easy access to low-priced goods and supplies. It meant solid economies and stable markets. And for households and businesses, especially in the United States and Europe, it meant an entire generation of ultra-low inflation. Now, Russia’s invasion of Ukraine has delivered a devastating blow to that system. Prices, which had already been rising, have shot up further. Supply chains, already disrupted by the swift recovery from the pandemic recession, face renewed pressure. The widening rupture between the world’s democracies and its autocracies has further darkened the global picture. The new New World Order leaves multinational corporations in a tricky spot: They’re straining to keep costs low and profits high while halting ties with Russia and facing pressure from consumers troubled by Russian aggression and Chinese human rights abuses.”

March 30 – Reuters (Guy Faulconbridge): “The Kremlin indicated… that all of Russia's energy and commodity exports could be priced in roubles, toughening President Vladimir Putin's attempt to make the West feel the pain of the sanctions it imposed for the invasion of Ukraine. With Russia's economy facing its gravest crisis since the 1991 collapse of the Soviet Union, Putin on March 23 hit back at the West, ordering that Russian gas exports should be paid for in roubles. That move forced Germany, Europe's biggest economy, to declare on Wednesday an ‘early warning’ that it could be heading for a supply emergency. Germany imported 55% of its gas from Russia last year.”

March 27 – Financial Times (Philip Stafford, Tommy Stubbington and Robert Smith): “Sanctions against Russia are disrupting the flow of payments between bond issuers and investors as lawyers at banks and other intermediaries assess the risk of acting on behalf of companies with links to Moscow. Fund managers typically take it for granted that payments on the bonds they own, or regular interest payments, will reach their accounts. But the unprecedented sanctions levelled on Russia since its invasion of Ukraine have disrupted global finance, snarling the firms that shuffle these payments around the world in legal discussions about what obligations they can meet without falling foul of the restrictions.”

March 31 – Bloomberg (Abhinav Ramnarayan): “Investors are bracing for more losses in Russian debt as expulsion from key indexes in the wake of President Vladimir Putin’s invasion of Ukraine hits an already trampled market. Russia’s government and corporate bonds are set on Thursday to be removed from the closely-followed JPMorgan Chase & Co. suite of emerging-market bond indexes, known as EMBI, leaving some money managers whose funds track the gauge with little choice but to sell or write down their holdings.”

March 31 – Bloomberg (Selcuk Gokoluk): “Russian government bondholders would be left with no viable path to recover their money if the country defaults, according to one of the top global lawyers in sovereign debt litigation. Jay Auslander, who worked with Argentina holdout creditors in 2016, believes there would be little scope for litigating Russia in court in case of a default at least until the end of the conflict in Ukraine. ‘Bondholders getting paid depends entirely on this conflict getting resolved and Russia coming back to the world stage,’ he said…”

March 30 – Financial Times (Andy Bounds, Tom Mitchell, Sun Yu and Richard Milne): “Leaders of the EU and China meet for a ‘difficult’ virtual summit on Friday with two other countries at the top of the European agenda: Russia and Ukraine. Beijing’s supportive line toward Russia’s invasion of Ukraine has brought the 27 EU states together behind a tough stance on China after years of divisions fuelled by some bloc members’ reluctance to put at risk access to Chinese trade, investment and tourists. ‘Member states are unified. There is no question of divide and rule,’ said a senior EU official... ‘It is going to be the most difficult summit we have had. This is not business as usual.’”

March 28 – CNBC (Weizhen Tan): “There’s been a ‘significant uptick’ in Russian oil deliveries bound for India since March after Russia’s invasion of Ukraine began — and New Delhi looks set to buy even more cheap oil from Moscow, industry observers say. China, already the largest single buyer of Russian oil, is also widely expected to buy more oil from Russia at deep discounts, they say.”

March 31 – Bloomberg (Eric Martin and Sudhi Ranjan Sen): “The U.S. and Australia criticized India for considering a Russian proposal that would undermine sanctions imposed by America and its allies, showing a deepening rift between the emerging security partners as Foreign Minister Sergei Lavrov traveled to Delhi for talks. ‘Now is the time to stand on the right side of history, and to stand with the United States and dozens of other countries, standing up for freedom, democracy and sovereignty with the Ukrainian people, and not funding and fueling and aiding President Putin’s war,’ Commerce Secretary Gina Raimondo told reporters…”

March 30 – Bloomberg (Siddharth Philip): “AerCap Holdings NV, the world’s largest aircraft-leasing firm, is seeking about $3.5 billion from insurers related to jets and engines stuck in Russia following the invasion of Ukraine.”

U.S./Russia Watch:

March 29 – Reuters: “Russia accused the United States… of leading a massive campaign of ‘cyber aggression’ behind hundreds of thousands of malicious attacks a day while Russia has troops in Ukraine. The foreign ministry said media, critical infrastructure and life support systems had been targeted, with the unprecedented scale pointing at U.S. and NATO-trained special forces as well as hackers acting on behalf of Kyiv's western sponsors.”

March 30 – Reuters: “Russian Foreign Minister Sergei Lavrov… said Moscow would work with Iran to take practical steps in an effort to circumvent Western sanctions, the RIA news agency said.”

China/Russia/U.S. Watch:

March 30 – Newsweek (Katherine Fung): “Chinese Foreign Minister Wang Yi praised Russia for its efforts to ‘prevent a large-scale humanitarian crisis’ in Ukraine, saying that the relationship between China and Russia ‘maintained the right direction of progress’ amid the war in Eastern Europe.”

March 30 – Reuters (Guy Faulconbridge): “Moscow and Beijing are ‘more determined’ to develop bilateral ties and boost cooperation, Chinese Foreign Minister Wang Yi said… following a meeting in eastern China with his Russian counterpart, Sergei Lavrov... The two also condemned what they called illegal and counter- productive Western sanctions imposed on Moscow over its actions in Ukraine, the Russian foreign ministry said… Wang and Lavrov spoke in the eastern Chinese province of Anhui, where China is hosting two days of multilateral meetings... ‘Both sides are more determined to develop bilateral ties, and are more confident in promoting cooperation in various fields,’ Wang said. ‘China is willing to work with Russia to take China-Russian ties to a higher level in a new era under the guidance of the consensus reached by the heads of state,’ he said… ‘The sides noted the counterproductive nature of the illegal unilateral sanctions imposed on Russia by the United States and its satellites,’ the ministry said…”

March 30 – AFP: “Beijing and Moscow advanced a vision of a new world order… as Russia's foreign minister made his first visit to key ally China since the invasion of Ukraine… Beijing has refused to condemn the invasion and has provided a level of diplomatic cover for an increasingly isolated Russia. U.S. officials have accused China of signaling ‘willingness’ to provide military and economic aid to Russia… Lavrov painted a picture of a new world order, saying the world was ‘living through a very serious stage in the history of international relations.’ ‘We, together with you, and with our sympathizers will move towards a multipolar, just, democratic world order,’ Lavrov said…”

March 30 – PTI: “Hosting Russian Foreign Minister Sergey Lavrov, the first high level Russian official to visit Beijing after the Ukraine war, China… said ‘cooperation’ between the two allies has no ceiling’ to resist ‘hegemony’. Lavrov arrived in Tunxi, east China's Anhui Province, for the third meeting of foreign ministers… ‘There is no ceiling for China-Russia cooperation, no ceiling for us to strive for peace, no ceiling for us to safeguard security and no ceiling for us to oppose hegemony,’ Chinese Foreign Ministry spokesman Wang Wenbin told a media…”

Europe/Russia/China Watch:

March 28 – Bloomberg (Vince Golle): “Energy ministers from the Group of Seven industrialized nations unanimously rejected Russian President Vladimir Putin’s demand that natural-gas contracts be paid in rubles. The order represents a ‘one-sided and clear breach of contracts,’ German Economy Minister Robert Habeck said… after chairing G-7 talks. ‘That means that a payment in rubles is not acceptable and we urge the relevant companies not to comply with Putin’s demand.’”

April 1 – Associated Press (Lorne Cook, Samuel Petrequin and Ken Moritsugu): “China on Friday renewed its criticism of Western sanctions against Russia, as top European Union officials sought assurances from Beijing that it would not help Moscow circumvent the economic measures imposed in response to Russia’s invasion of Ukraine. The Chinese Foreign Ministry also laid blame for the war in Ukraine at least partially on the United States for pushing to expand the NATO military alliance closer to Russia’s borders… At a virtual summit, European Council President Charles Michel, Commission President Ursula von der Leyen and EU foreign policy chief Josep Borrell sought signs from Chinese President and Communist Party leader Xi Jinping and Premier Li Keqiang that Beijing would help to end the war in Ukraine. ‘China disapproves of solving problems through sanctions, and we are even more opposed to unilateral sanctions and long-arm jurisdiction that have no basis in international law,’ Foreign Ministry spokesperson Zhao Lijian said…”

March 30 – Bloomberg (Andrew Langley): “The economic damage from the war in Ukraine is worsening across Europe as already-record inflation soars further and Germany faces a danger of recession because of its dependence on Russian energy. President Vladimir Putin’s invasion has sapped euro-area confidence and sent consumer-price expectations to their highest level since records began in 1985. In Spain, inflation surged by almost 10% in March -- the most in nearly four decades -- while it also topped expectations in Germany.”

March 30 – Reuters (Joseph Nasr and Vera Eckert): “Germany triggered an emergency plan to manage gas supplies… that could see Europe's largest economy ration power if a standoff over a Russian demand to pay for fuel with roubles disrupts or halts supplies. Moscow's insistence on rouble payments for the Russian gas that meets a third of Europe's annual energy needs has galvanised others in Europe: Greece called an emergency meeting of suppliers, the Dutch government said it would urge consumers to use less gas and the French energy regulator told consumers not to panic.”

Market Instability Watch:

March 30 – Financial Times (Kate Duguid): “Investors’ ability to trade US government debt has deteriorated to its lowest point since the ructions of March 2020, deepening worries about the world’s most important bond market as the Federal Reserve tightens monetary policy. Liquidity, or the ease of buying and selling, in US government securities has dropped since the beginning of this year, reaching levels not seen since the first months of the coronavirus crisis, according to an index compiled by Bloomberg. The deteriorating trading conditions have exacerbated this month’s price swings, with investors increasingly concerned about how well the market will function as the Fed starts reducing the size of its $9tn balance sheet.”

March 30 – Bloomberg (Jack Farchy): “Furious investors and traders. Evaporating liquidity. A market that many veterans simply describe as ‘broken.’ It’s been three weeks since nickel was suspended on the London Metal Exchange after a 250% price spike and while trading has resumed, the market remains all but paralyzed. As the crisis plays out, accusations are already beginning to fly. Investors are preparing lawsuits; the LME and its regulator, the Financial Conduct Authority, are likely to run investigations. It’s far from clear that any party broke any rules — it may be that the rules just weren’t fit for purpose.”

March 29 – Bloomberg (Chikako Mogi and Toru Fujioka): “Japanese officials beat back market speculation on all sides, striving to keep a lid on borrowing costs while containing a selloff in the yen. As the Bank of Japan showed its determination to cap bond yields with a pledge of unlimited purchases, government officials signaled concerns over the currency’s recent decline… While the double act worked for the day, Japan’s commitment to an ultra-loose monetary policy in a world of rising interest rates means policymakers have to choose between defending their currency or yield-curve control. Staying the course so far has led to the yen dropping to the lowest level since 2015…”

March 29 – Bloomberg (Sofia Horta e Costa): “President Xi Jinping’s efforts to regain the trust of international investors face serious hurdles. Xi’s government showed little regard for the same investors last year when it unleashed a series of crackdowns on the country’s most profitable companies, in a bid to curb ‘disorderly capital’ and ensure the firms didn’t become more powerful than the Communist Party. The result was confusion and punishing losses for shareholders. Regulators have yet to follow through on promises made this month to ensure policies are more transparent and predictable. Wariness toward Chinese assets has only increased since Russia attacked Ukraine just weeks after a Beijing summit reinforced the close ties between Xi and Vladimir Putin.”

March 29 – CNBC (Wendy Ye and Evelyn Cheng): “More and more wealthy Chinese are worried about keeping their money on the mainland and some see Singapore as a safe haven. Since protests disrupted Hong Kong’s economy in 2019, affluent Chinese have looked for alternative places to store their wealth. Singapore proved attractive because of its large Mandarin Chinese-speaking community and, unlike many countries, it doesn’t have a wealth tax. The trend appeared to pick up last year after Beijing’s sudden crackdown on the education industry and emphasis on ‘common prosperity’ — moderate wealth for all, rather than just a few.”

March 29 – Bloomberg (Sydney Maki and Maria Elena Vizcaino): “With all the focus on the risk of default by Russia, an even more spectacular collapse has gone largely unnoticed right next door: There’s a bond crisis brewing in Belarus, which has the world’s worst-performing government debt this year. Notes from the key Russian ally… have slumped to levels that suggest investors see little hope of getting repaid. Belarus dollar-denominated debt due in 2027 was quoted as low as 6.5 cents on the dollar on March 7, down from 88 cents just days before Russia’s invasion…”

Inflation Watch:

March 31 – Associated Press (Christopher Rugaber): “An inflation gauge that is closely monitored by the Federal Reserve jumped 6.4% in February compared with a year ago, with sharply higher prices for food, gasoline and other necessities squeezing Americans’ finances. The figure… was the largest year-over-year rise since January 1982. Excluding volatile prices for food and energy, so-called core inflation increased 5.4% in February from 12 months earlier.”

March 28 – Bloomberg (Vince Golle): “Manufacturers from Texas to the East Coast signal they’ll be paying more for raw materials in the next six months, and they also see room to pass some of those costs on to customers. Survey results from the Federal Reserve Bank of Dallas on Monday showed a net 59.2% of Texas manufacturers in March expect to receive higher prices for their products six months from now. Moreover, a gauge of current wages and benefits climbed to the highest in data back to 2004…”

March 30 – Wall Street Journal (Ryan Dezember): “The U.S. is shipping more natural gas than ever overseas, which is keeping domestic inventories lean and power prices high. Natural-gas prices usually decline into spring, when heating demand drops but before air-conditioning season begins. Gas producers and traders use the off-season to build up inventory for summer, socking away fuel in storage facilities until the weather turns and demand and prices rise. This year prices climbed into spring, thanks to record export volumes and promises from the White House to support the shipment of even more liquefied natural gas, or LNG, to allies across the Atlantic to supplant Russian supply.”

March 29 – Bloomberg (Marvin G. Perez): “Avocado prices jumped to the highest in more than two decades amid tightening supplies in Mexico, the world’s biggest exporter of the fruit, signaling pricier guacamole.”

Biden Administration Watch:

March 31 – Bloomberg (Justin Sink and Jennifer Jacobs): “President Joe Biden said his plan to release a million barrels of oil a day from U.S. reserves for six months would lay a foundation for the country to achieve independence from foreign energy suppliers. Biden blamed a spike in gasoline prices this year on Russian President Vladimir Putin and Russia’s invasion of Ukraine, calling it’'Putin’s price hike.’ But he also criticized U.S. oil companies that have been reluctant to increase production, and called for Congress to charge fees to firms that have unused drilling leases on federal lands.”

March 28 – Financial Times (Colby Smith, James Politi and Felicia Schwartz): “Joe Biden sought to put the US war strategy back on firmer ground on Monday, insisting that he had not called for regime change in Russia while calling to increase military funding for Ukraine in a budget plan that included a $69bn rise in defence spending. Speaking to reporters at the White House, the US president said his declaration last weekend that Vladimir Putin, Russia’s leader, ‘cannot remain in power’ — which caused controversy and confusion around the world — did not amount to Washington’s official policy.”

March 29 – Reuters (David Lawder and Kate Holton): “The United States and its allies plan new sanctions on more sectors of Russia's economy that are critical to sustaining its invasion of Ukraine, including military supply chains, Deputy U.S. Treasury Secretary Wally Adeyemo said… Adeyemo… said the broadening of those efforts was aimed at undermining ‘the Kremlin's ability to operate its war machine.’”

March 29 – Associated Press (Alan Fram): “President Joe Biden’s $5.8 trillion budget for next year would trim federal deficits and boost taxes on the wealthiest Americans. Both could appeal to Sen. Joe Manchin amid Democratic hopes of reviving talks with him over the party’s derailed social and environment plan. The question is whether this time, the pivotal West Virginia Democrat can be wooed to craft a scaled-down version of his party’s roughly $2 trillion, 10-year package. Before Christmas, Manchin sank that plan, which had already passed the House, saying it would fuel inflation and deepen deficits. Biden and his allies touted his budget as focusing on fiscal responsibility, security at home and overseas and investments in social programs to help families afford housing, child care, health care and other costs.”

March 28 – Reuters (Caroline Valetkevitch): “U.S. corporate stock buybacks are being targeted in U.S. President Joe Biden's 2023 budget plan announced on Monday, which seeks to discourage corporations from using profits to repurchase stocks in order to benefit executives. Under the plan, company executives would be required to hold on to company shares that they receive for several years after taking them, and they would be prohibited from selling shares in the years after a stock buyback.”

Federal Reserve Watch:

March 28 – Financial Times (Taylor Nicole Rogers): “Businesses across the US are broadening pay rises as inflation gallops at the fastest pace in 40 years, with employees struggling to match their wages with consumer prices. Retailers, airlines and resorts are boosting starting pay to attract recruits and offering company-wide bumps to staff’s base pay. Some 92% of businesses plan to increase employee pay this year, up from 85% in 2021, according to… PayScale. Federal Reserve chair Jay Powell said wages were ‘moving up at ways that are not consistent’ with its 2% inflation target after the central bank decided to raise interest rates this month.”

March 28 – Bloomberg (Alister Bull): “Who’s to blame for high U.S. inflation? The folks who create fiscal policy -- at least says those behind monetary policy. U.S. consumer prices have surged more than in other developed economies and one reason may be the massive government support provided to Americans during the pandemic, according to… the Federal Reserve Bank of San Francisco. ‘Fiscal support measures designed to counteract the severity of the pandemic’s economic effect may have contributed to this divergence by raising inflation about 3 percentage points by the end of 2021,’ wrote Òscar Jordà, Celeste Liu, Fernanda Nechio and Fabián Rivera-Reyes in the regional Fed’s weekly Economic Letter. ‘However, without these spending measures, the economy might have tipped into outright deflation and slower economic growth, the consequences of which would have been harder to manage,’ they added.”

March 29 – Bloomberg (Craig Torres): “Philadelphia Federal Reserve Bank President Patrick Harker expects a series of ‘deliberate, methodical’ increases in the benchmark federal funds rate this year, but said he is open to a half-point move in May if near-term data shows more inflation. ‘The bottom line is that generous fiscal policies, supply chain disruptions, and accommodative monetary policy have pushed inflation far higher than I -- and my colleagues on the FOMC -- are comfortable with,’ Harker said... ‘I’m also worried that inflation expectations could become unmoored…’”

U.S. Bubble Watch:

April 1 – CNBC (Jeff Cox): “Amid soaring inflation and worries about a looming recession, the U.S. economy added slightly fewer jobs than expected in March as the labor market grew increasingly tighter. Nonfarm payrolls expanded by 431,000 for the month, while the unemployment rate was 3.6%... Average hourly earnings, a closely watched inflation metric, increased 0.4% on the month, in line with expectations. On a 12-month basis, pay rose nearly 5.6%, just above the estimate.”

March 28 – Market Watch (Jeffry Bartash): “The U.S. trade deficit in goods fell slightly in February to $106.6 billion to mark the first decline in three months, but the gap stayed near an all-time high and is unlikely to fall dramatically in the near future. An early or advanced look at the trade gap in goods showed that it slipped from a record $107.6 billion in January, the U.S. Census Bureau said. Last year, the U.S. posted the highest trade deficit ever. The goods deficit topped $1 trillion for the very first time.”

March 29 – Bloomberg (Reade Pickert): “U.S. job openings in February were little changed near a record high and quits edged up, highlighting the ongoing mismatch between labor supply and demand that’s pushing up wages. The number of available positions totaled 11.3 million in the month, the Labor Department’s Job Openings and Labor Turnover Survey, or JOLTS, showed…”

March 31 – Associated Press (Emily McCormick): “Initial unemployment claims rose modestly after reaching a 50-year low as employers continue to show reluctance in reducing their workforces in the current competitive labor market… Initial jobless claims, week ended March 26: 202,000 vs. 196,000 expected and a revised 188,000 during prior week. Continuing claims, week ended March 19: 1.307 million vs. 1.340 million expected and a revised 1.342 million during prior week.”

March 30 – CNBC (Jeff Cox): “Companies added jobs at a solid pace in March, indicating that hiring is strong despite signs of a tightening labor market, payroll processing firm ADP reported… Private payrolls expanded by 455,000 for the month, the firm said, about in line with the Dow Jones estimate of 450,000 though it was the lowest since August 2021.”

March 31 – Bloomberg (Jo Constantz): “Mortgage rates in the U.S. continued their steep ascent, reaching a level not seen since December 2018. The average for a 30-year loan was 4.67%, up from 4.42% last week… Rates are up more than a percentage point and a half since the start of the year, the largest three-month increase since 1987.”

March 29 – Bloomberg (Jordan Yadoo): “U.S. consumer confidence edged up in March, suggesting solid job growth offset Americans’ concerns over decades-high inflation that poses a risk to spending and growth. The Conference Board’s index increased to 107.2 from a downwardly revised 105.7 reading in February, which was the lowest in a year…”

March 30 – Bloomberg (Sagarika Jaisinghani): “U.S. profits are likely to feel the heat from a jump in wages this year caused by a historically tight labor market, according to Morgan Stanley... ‘The challenges companies face in attracting workers seems to be worsening in quarters,’ strategists including Andrew Pauker and Michael Wilson wrote… Companies have so far responded by raising prices to offset higher wage costs, but that could become increasingly difficult as demand weakens across industries such as household durables and autos, they said.”

March 27 – Financial Times (Nicholas Megaw): “US companies are rushing to repurchase large volumes of shares to take advantage of recent stock market volatility and reassure investors as growth slows. A record $319bn of share buybacks have been authorised this year, according to Goldman Sachs data, with a rising number of companies using ‘accelerated’ deals to buy volumes as quickly as possible while their share prices are depressed. There were $267bn in share buybacks at the same point in 2021.”

March 29 – Wall Street Journal (Jaewon Kang): “Home-price growth accelerated in January as the supply of homes for sale fell to a new low. The S&P CoreLogic Case-Shiller National Home Price Index… rose 19.2% in the year that ended in January, compared with an 18.9% annual gain the prior month. Home prices rose at a record pace in 2021 and have continued to climb this year as home-buying demand strongly outpaces the supply of homes for sale. Competition among buyers is leading to bidding wars, and many homes are selling above their list price.”

March 29 – CNBC (Diana Olick): “After cooling off ever so slightly toward the end of last year, home price gains reaccelerated in January. Home prices nationally rose 19.2% year over year in January, up from 18.9% in December, according to the S&P CoreLogic Case-Shiller Index. The 10-city composite annual increase was 17.5%, up from 17.1% in the previous month. The 20-city composite rose 19.1%, up from 18.6% in December. Phoenix, Tampa, Florida, and Miami saw the biggest annual gains at 32.6%, 30.8% and 28.1%, respectively. Sixteen of the 20 cities reported higher price increases in the year ended in January 2022 versus the year ended in December 2021.”

March 31 – Bloomberg (Jo Constantz): “Mortgage rates in the U.S. continued their steep ascent, reaching a level not seen since December 2018. The average for a 30-year loan was 4.67%, up from 4.42% last week, Freddie Mac said…”

March 30 – Bloomberg (Natalie Wong): “Blocks of empty offices in the Financial District helped push the supply of available space in Manhattan to another record high. The office availability rate in New York reached 19% in the first quarter, the highest in data going back to 2000, according to… Savills Research. In the Financial District, more than a quarter of offices were available to rent, compared to just 17% a year ago.”

April 1 – Bloomberg (Matt Day): “ Inc. Chief Executive Officer Andy Jassy received compensation valued at about $212 million in 2021…, a sum that reflects the big stock award he received after taking over the company.”

March 31 – Bloomberg (Miles Weiss): “Jamie Dimon just received almost $56 million of JPMorgan Chase & Co.’s stock, before taxes, from an incentive program the bank valued at less than half that much just three years ago. The chief executive officer collected 398,708 shares last week from a performance award dating to January 2019…”

Fixed-Income Bubble Watch:

March 26 – Bloomberg (Caleb Mutua): “Companies are expected to keep borrowing in the U.S. corporate investment-grade bond market next week even as funding costs march higher… Wall Street syndicate desks are projecting as much as $25 billion of fresh high-grade supply, a drop from over $37 billion raised this week. Sales for March are poised to surpass the $200 billion mark, breaking it into the top four months on record, according to… Bloomberg.”

Economic Dislocation Watch:

March 28 – New York Times (Peter S. Goodman): “In a world contending with no end of economic troubles, a fresh source of concern now looms: the prospect of a confrontation between union dockworkers and their employers at some of the most critical ports on earth. The potential conflict centers on negotiations over a new contract for more than 22,000 union workers employed at 29 ports along the West Coast of the United States… The contract for the International Longshore and Warehouse Union expires at the end of June. For those whose livelihoods are tied to ports — truckers, logistics companies, retailers — July 1 marks the beginning of a period of grave uncertainty.”

China Watch:

March 30 – Bloomberg: “China’s cabinet vowed to stabilize the economy and called on officials to avoid measures that harm market expectations as the government struggles to control Covid outbreaks across the country… A State Council meeting led by Premier Li Keqiang… called on the nation to prioritize stable growth and to draft contingency plans to deal with possible greater uncertainties… The meeting pledged to stick to the goals set for this year -- including reaching about 5.5% growth -- even though downward pressure on the economy is increasing.”

March 31 – Bloomberg: “Chinese authorities are considering a plan to raise several hundred billion yuan for a new fund to backstop troubled financial firms, according to people familiar… The People’s Bank of China is leading the effort, seeking to shore up confidence in the $60 trillion financial system as the economy slows and a debt crisis in the property industry spreads. The stability fund would dwarf other pools available to bail out troubled institutions and their depositors. China is moving to stem financial risks ranging from hundreds of weak rural banks to dozens of distressed developers saddled with at least $1 trillion of liabilities.”

March 30 – Reuters (Ellen Zhang, Stella Qiu and Ryan Woo): “Activity in Chinese manufacturing and services simultaneously contracted in March for the first time since the height of the country's COVID-19 outbreak in 2020… The official manufacturing Purchasing Managers' Index (PMI) fell to 49.5 from 50.2 in February…, while the non-manufacturing PMI eased to 48.4 from 51.6 in February. The last time both PMI indexes simultaneously were below the 50-point mark that separates contraction from growth was in February 2020, when authorities were racing to arrest the spread of the coronavirus, first detected in the central Chinese city of Wuhan.”

March 30 – Bloomberg: “China’s economy is coming under strain because of an escalating Covid outbreak, with economists warning of a deeper slowdown if lockdowns in Shanghai and elsewhere continue to expand. Natixis SA estimates the Covid controls will cut the economic growth rate in the first quarter by 1.8 percentage points. Long-lasting restrictions across the country could push gross domestic product growth toward 4% this year, according to UBS Group AG, well below the government’s target of about 5.5%.”

March 30 – Reuters (Zhang Yan and Engen Tham): “Five of China's largest banks have said the country's lenders face multiple headwinds this year that include the pandemic, global politics and domestic turmoil in the real estate industry. On Wednesday, the world's largest lender Industrial and Commercial Bank of China (ICBC), warned that China faces ‘shrinking demand, disrupted supply and weakening expectations’ in its annual earnings report. Agricultural Bank of China Ltd (AgBank) signaled the same... China's banking industry is facing ‘a more complicated and severe business environment,’ the country's second-biggest lender by assets, China Construction Bank Corp (CCB), said… ‘The global epidemic will continue to recur, the easing policies of developed economies will be withdrawn, geopolitical conflicts will intensify,’ Bank of China (BoC) also said…”

April 1 – Bloomberg (Dorothy Ma): “Bond and trust obligations will again be in the spotlight for China’s troubled property sector this month, after further signals of investor concern about builders’ repayment capabilities. Stressed developers face at least $3.1 billion of payments on dollar and onshore public bonds… In addition, the sector has 53.6 billion yuan ($8.45bn) of trust payments due in April…”

March 29 – Financial Times (Thomas Hale and Tabby Kinder): “International auditors are resigning from China’s heavily indebted property developers as a wave of delayed financial results has increased uncertainty over the full scale of the sector’s worst-ever crisis and raised the threat of hidden debts. Big Four accounting firm PwC, which audits more than a dozen listed Chinese developers, is under investigation in Hong Kong over its Evergrande audit. It and Deloitte have resigned as auditors of at least five Chinese developers in the past three months. Shimao, one of China’s largest property companies, said last week that PwC had resigned after it did not provide information related to ‘trust loan arrangements’…”

March 25 – Financial Times (Hudson Lockett and Thomas Hale): “Chinese property developers’ issuance of dollar debt has come to a near standstill as the escalating Evergrande crisis severs other real estate companies’ access to global capital markets. High yield dollar bond issuance by Chinese developers during the year to date is down a record 97% compared to the first quarter of 2021… So far just two deals worth less than $295mn in total have gone through, compared with more than $8.7bn in the first three months of last year raised across 30 deals. At the same time, developers’ costs to borrow on international markets has leapt to an all-time high.”

March 29 – Dow Jones (Rebecca Feng): “Auditors have resigned from a series of Chinese property companies, reflecting the challenges of verifying these businesses' financial health after a punishing sector-wide downturn. Audit firms are probably taking a hard look at the developers' results after a series of revelations about off-balance-sheet debts… Pandemic-related restrictions in mainland China and Hong Kong have also made it harder to collect information. In recent days, PricewaterhouseCoopers has quit as auditor at three developers, Ronshine China Holdings Ltd., Powerlong Real Estate Holdings Ltd. and Shimao Group Holdings Ltd., and at two linked property-management companies…”

March 29 – Bloomberg: “China’s shadow banks are emerging as unlikely white knights for embattled property firms by becoming mini-developers themselves. Trust companies including MinMetals Trust Co. and Zhongrong Trust Co. have bought stakes in at least 10 real estate projects this year, betting that the unfinished homes will eventually yield cash to pay off some of the $280 billion in property-backed funds sold by trusts to investors… ‘Taking up property projects during an enduring downturn is more about saving themselves,’ said Zhu Yiming, a property analyst at China Real Estate Information Corp., referring to the trusts…”

March 31 – Bloomberg: “China’s housing market reached a peak last year, according to one of the biggest developers, in another setback for the beleaguered industry’s recovery. Property sales nationwide totaled about 18 trillion yuan ($2.8 trillion) in 2021 and are unlikely to exceed that level in the future, China Vanke Co. Chairman Yu Liang said… Vanke was the second-biggest Chinese developer by sales last year…, trailing only Country Garden Holdings Co. The two property giants reported declines in annual earnings on Wednesday, with Vanke posting its first profit drop since the 2008 global financial crisis.”

March 31 – Bloomberg (Krystal Chia): “Hong Kong’s retail sales contracted 14.6% in February from a year ago, the biggest decline since July 2020 as the government imposed tough restrictions to battle the city’s worst-ever Covid outbreak.”

Central Banker Watch:

March 28 – Reuters (Andy Bruce and William Schomberg): “Bank of England Governor Andrew Bailey said swings in commodity markets after Russia's invasion of Ukraine posed a risk to financial stability and the challenges facing the world economy are bigger than after the global financial crisis. Prices in gas, oil, metals and agricultural markets have soared and have become so volatile that companies have had to cut trading volumes due to strained liquidity.”

March 29 – Bloomberg (Erik Hertzberg): “Markets and economists are expecting the Bank of Canada to embark on one of the most aggressive tightening cycles in the central bank’s history as officials race to bring inflation back under control… Bank of Montreal ramped up its timeline, predicting Canada will see back-to-back, half-percentage-point hikes at the central bank’s next two policy decisions, beginning April 13. Bank of America Corp. and Citigroup Inc. are forecasting three consecutive 50 bps increases.”

Global Bubble Watch:

March 31 – Financial Times (Nikou Asgari, Antoine Gara and James Fontanella-Khan): “Global dealmaking fell to its lowest level since the start of the coronavirus pandemic as surging inflation, tougher regulation and the war in Ukraine led to a slowdown in what had been a record period of mergers and acquisitions. Just over $1tn worth of deals were struck in the first quarter of 2022, 23% lower than the same period last year, with all continents facing a decline in M&A activity, according to Refinitiv data. Despite the slowdown, private equity groups enjoyed their strongest ever start to the year as they deployed vast cash piles accumulated during the pandemic. Buyout groups backed $288bn worth of deals, a 17% rise compared with the first three months of 2021.”

March 30 – Bloomberg (Tasos Vossos, Hannah Benjamin and Jack Pitcher): “Investors in corporate bonds are bracing for more trouble after getting hammered by rampant inflation and rising yields in the first quarter. The worldwide pool of the safest corporate debt has shrunk by $805 billion this year, while the global junk market lost $236 billion… That’s the biggest dollar decline since records began over 20 years ago, following a borrowing binge propelled by record-low funding costs.”

March 25 – Bloomberg (Julia Fioretti and Swetha Gopinath): “Initial public offerings worldwide have plummeted in the first quarter after a record showing in 2021, as volatility stoked by the war in Ukraine and soaring inflation sets investors on edge and scuppers deals. About $65 billion has been raised via IPOs around the world in 2022, down 70% from $219 billion in the first three months of last year… That puts the global market on track for the lowest quarterly proceeds since the onset of the coronavirus pandemic in 2020.”

Europe Watch:

March 30 – Financial Times (Martin Arnold): “German inflation rose to its highest rate for 40 years as European Central Bank president Christine Lagarde warned that Russia’s war in Ukraine was delivering a ‘supply shock’ to the eurozone economy. A 39.5% jump in energy prices from a year earlier was the main driver behind Germany’s higher than expected increase in harmonised consumer prices to 7.6%... Berlin is preparing for a potential halt in gas deliveries from Russia because of a dispute over payments. Presenting her gloomiest assessment yet of how the invasion would hit the bloc’s economy, Lagarde said Europe was ‘entering a difficult phase’ as she outlined how the soaring price of energy, food and manufactured goods would squeeze consumers’ purchasing power.”

April 1 – Bloomberg (Carolynn Look): “Euro-zone inflation accelerated to another all-time high as Russia’s invasion of Ukraine roiled global supply chains and provided a fresh driver for already-soaring energy costs. March consumer prices surged 7.5% from a year ago, up from 5.9% in February and more than the 6.7% median estimate... Showing the increasingly broad nature of the advance, a core gauge excluding volatile components also hit a new record.”

March 31 – Bloomberg (William Horobin): “French inflation accelerated more than expected to reach another record, reflecting the economic repercussions of Russia’s invasion of Ukraine and the growing challenges facing policy makers. European Union-harmonized consumer prices rose 5.1% from a year ago in March -- the most since the data series began in 1997.”

March 30 – Associated Press: “Inflation in Spain hit a 37-year high in March, rising to 9.8% over the past year as consumer prices have soared worldwide. The provisional figure, the highest since May 1985, is an increase over the 7.6% annual inflation rate reported for February…”

March 31 – Bloomberg (Sagarika Jaisinghani): “European stocks posted their first quarterly decline since the early pandemic days of 2020 as economic uncertainty around the war in Ukraine and red-hot inflation soured appetite for risk assets. The Stoxx Europe 600 Index closed 0.9% lower, wrapping up the first quarter of the year with a retreat of 6.6% and snapping its longest quarterly winning streak since 1998.”

March 31 – Bloomberg (James Hirai): “The end of quarter is putting a spotlight on just how historic the global bond selloff has been. For Germany’s 10-year debt, yields have risen 75 bps to 0.58% in the first quarter, which would be the biggest increase since 1994…”

April 1 – Bloomberg (Eddie Spence, Kati Pohjanpalo, and Alberto Brambilla): “A failed tender to build a bridge in Rome highlights another consequence of Moscow’s war: soaring steel prices. There were no takers earlier this month for the 146 million-euro ($163 million) contract for the Ponte dei Congressi across the River Tiber as steel market turmoil left potential bidders wary of getting burnt. In the three weeks following Russia’s invasion of Ukraine, benchmark European steel prices surged 51% as shipments from those countries were taken out of the market.”

EM Bubble Watch:

March 31 – Bloomberg (Lilian Karunungan and Ronojoy Mazumdar): “Russia’s invasion of Ukraine risks sparking a wave of financial hardship and market losses from the Black Sea to the edge of the Himalayas. Sweeping sanctions have put the world’s biggest energy exporter on track for a deep, two-year recession that will endanger trade ties, tourism and billions of dollars of remittances for its ex-Soviet neighbors. While a potential cease-fire deal in Ukraine sparked a relief rally this week, warning signs are still flashing in the $17 billion pool of eurobonds from Tajikistan, Georgia, Belarus, Armenia, Uzbekistan, and Kazakhstan… ‘Extensive economic links’ could ‘affect the ability of former Soviet republics to repay their external debt,’ said Claudia Calich, head of emerging market debt at M&G Investments... ‘They’re ‘risky as they’re still very dependent on the conflict.’”

March 31 – Bloomberg (Anup Roy): “India’s current-account balance widened to the highest in nearly a decade as the nation’s trade gap ballooned and foreign investments fell. The current account, the broadest measure of the country’s overseas trade and services flows, was in a deficit of $23 billion, or 2.7% of gross domestic product, in the three months ended December…”

Japan Watch:

March 28 – Reuters (Leika Kihara): “Struggling to swim against the tide taking interest rates higher globally, the Bank of Japan staunchly defended its 0.25% yield cap on Monday by offering to buy an unlimited amount of government bonds for the first four days of this week. The BOJ's defence of its ultra-loose policy pushed the yen to a six-year low of 124 to the dollar on Monday, adding to the problems Japan's economy is facing from already surging costs for fuel and raw material imports.”

March 29 – Bloomberg (Yuko Takeo): “Japan’s retail sales fell for a third straight month in February amid the country’s biggest wave of virus infections adding to concern that the economy’s recovery may have slipped back into reverse. Sales fell 0.8% in February from the month before…”

Covid Watch:

March 29 – Wall Street Journal (Joe Kamp and Brianna Abbott): “The Omicron BA.2 variant represents more than half of new Covid-19 cases in the U.S., the latest federal estimates show, as signs suggest infections are edging higher again in parts of the Northeast. The region has the highest BA.2 concentrations, including more than 70% in an area including New York and New Jersey… BA.2 has been moving steadily higher for more than a month and represents an estimated 55% of national cases in the week ended March 26, the CDC said.”

Social, Political, Environmental, Cybersecurity Instability Watch:

March 25 – Reuters (Isla Binnie): “An East Antarctica ice shelf disintegrated this month following a period of extreme heat in the region, according to scientists. Satellite images show the 1,200 square-kilometre Conger Ice Shelf collapsed completely on or around March 15. ‘Possible it hit its tipping point following the #Antarctic #AtmosphericRiver and heat wave too?’ asked NASA Earth and Planetary Scientist Catherine Colello Walker on Twitter…”

March 27 – Washington Post (Jason Samenow): “Although it’s still March, a heat wave has brought summerlike temperatures to the western United States, shattering long-standing records… The heat was intense enough to break records for the entire month in parts of the Southwest. Las Vegas soared to 93 degrees on Saturday, while Death Valley, Calif., hit 104 — both March records.”

March 30 – Reuters (Renju Jose): “Heavy rains deluged Australia's east coast on Wednesday, submerging entire towns, while thousands of people fled their homes for the second time within weeks after fast-moving flood waters burst river banks and broke over levees. Several towns in northern New South Wales, already reeling after record floods over a month ago, were pounded by an intense low-pressure system overnight. Some regions took a month's rainfall in under six hours…”

Leveraged Speculation Watch:

April 1 – Bloomberg (Hema Parmar): “Things have gone from bad to worse at Tiger Global Management’s flagship hedge fund. The vehicle fell nearly 34% in the first quarter, due to poor-performing stocks and markdowns of private holdings… The hedge fund tumbled more than 13% in March.”

March 29 – CNBC (Yun Li): “Investor Bill Ackman said… he will no longer take part in vocal activist short selling campaigns, a practice he engaged in that led to one of the most colorful battles in Wall Street history. ‘Despite our limited participation in this investment strategy, it has generated enormous media attention for Pershing Square. In addition to massive amounts of media hits, our two short activist investments managed to inspire a book and a movie,’ Ackman said in his annual letter. ‘Fortunately for all of us, and as importantly for our reputation as a supportive constructive owner, we have permanently retired from this line of work.’”

Geopolitical Watch:

March 28 – Financial Times (Kathrin Hille): “Volodymyr Zelensky’s role in leading Ukraine’s resistance against the Russian invasion has inspired Taiwan to adjust its own defence plans against a potential attack from China. The charismatic Ukrainian president’s video messages to his people from the streets of Kyiv and virtual addresses to foreign governments have helped blunt Russia’s assault, and Taiwan needs its president to emulate him if China invades, senior government officials told the Financial Times. ‘Propaganda and political warfare are crucially important in today’s war. Zelensky is showing his people that he is not running and not hiding,’ said one official… ‘That means it is necessary to have our president do the same, showing herself out there instead of being hidden away.’”

March 30 – Reuters (Ben Blanchard): “China's diplomatic and military pressure on Taiwan represents a threat to all democracies and the United States is committed to helping the island defend itself, the top U.S. diplomat in Taipei said. Speaking at an American Chamber of Commerce in Taiwan event…, Sandra Oudkirk, director of the American Institute in Taiwan which handles relations in the absence of formal diplomatic ties, said managing U.S. differences with China faces ‘distinct challenges’… ‘The PRC's increasingly aggressive behaviour is nowhere more evident than in relation to Taiwan, where the PRC has continued to exert military, diplomatic, and economic pressure,’ she said…”

Friday Evening Links

[Reuters] Tanks and bodies mark path of Russian retreat near Kyiv

[Yahoo/Bloomberg] Ukraine Update: EU Warns China Not to Interfere With Sanctions

[Reuters] Oil falls most in 2 years after oil stockpile release

[Yahoo/Bloomberg] Treasury Curve Flashes New Warnings as Jobs Data Fuel Rate Bets

[Yahoo/Bloomberg] Bond ETFs Revel in Record Flows Amid Worst Performance in Years

[Reuters] Fed Chair Powell worked the weekend after Russia's invasion began

[Guardian] China accused of launching cyber-attacks on Ukraine before Russian invasion

[Reuters] Europe signals unity against Russian gas payment demands

[Newsweek] China Calls U.S. 'Leading Instigator' of Russia, Ukraine Conflict

[MSN/Time] China's Embrace of Putin Is Looking More and More Costly

[AP] Number of COVID patients in US hospitals reaches record low

[Yahoo/Bloomberg] California Snowpack Melts, Leaving State Desperate for Water

[FT] Global fundraising in capital markets shrinks by $900bn in first quarter

Friday Afternoon Links

[Reuters] Russian logistics hub ablaze, Moscow blames Ukraine 

[Reuters] Kremlin says Ukraine strike on Russian fuel depot creates awkward backdrop for talks

[Reuters] Russia's ally China tells EU it will pursue Ukraine peace in its own way

[Yahoo/Bloomberg] Bond Yields Surge as Jobs Bolster Rate-Hike Bets: Markets Wrap

[Yahoo/Bloomberg] U.S. Manufacturing Growth Loses Steam, Inflation Pressures Grow

[Yahoo/Bloomberg] Ukraine Update: Nuclear Monitors Set to Return; EU Warns China

[Reuters] U.S. labor market rapidly tightening; unemployment rate drops to 3.6%

[Reuters] China's Xi calls on EU to view China 'independently' -state media