Friday, May 6, 2022

Weekly Commentary: Global Quagmire

The Global Bubble, several decades in the making, is in the process of bursting. A new cycle is emerging, replete with extraordinary uncertainties. Acute instability has become a permanent feature, at least through the cycle transition phase. These are not statements made to be provocative, but rather to offer an analytical framework that might help us better comprehend such a complex and increasingly alarming world.

CNBC’s Steve Liesman: “You talked about using 50 basis point rate hikes or the possibility of them in coming meetings. Might there be something larger than 50? Is 75 or a percentage point possible? And perhaps you could walk us through your calibration?

Chair Powell: “So, 75 basis point increase is not something the committee is actively considering… Assuming that economic and financial conditions evolve in ways that are consistent with our expectations, there’s a broad sense on the committee that additional 50 bps increases should be on the table for the next couple of meetings… We’ll be paying close attention to the incoming data and the evolving outlook, as well as to financial conditions… So the test is really just as I laid it out, economic and financial conditions evolving broadly in line with expectations.”

The Financial Times’ Colby Smith: “Given the expectation that inflation will remain well above the Fed's target at year end, what constitutes a neutral policy setting in terms of the Fed funds rate? And to what extent is it appropriate for policy to move beyond that level at some point this year?

Powell: “So, neutral. When we talk about the neutral rate, we’re really talking about the rate that neither pushes economic activity higher, nor slows it down. So, it’s a concept really. It’s not something we can identify with any precision. So, we estimate it within broad bands of uncertainty. And the current estimates on the Committee are sort of 2 to 3%. And also, that’s a longer-run estimate. That’s an estimate for an economy that’s at full employment and 2% inflation. So really what we’re doing is we are raising rates expeditiously to the -- what we see as the broad range of plausible levels of neutral. But we know that there’s not a bright line drawn on the road that tells us when we get there. We’re going to be looking at financial conditions, right. Our policy affects financial conditions and financial conditions affect the economy. So, we’re going to be looking at the effect of our policy moves on financial conditions. Are they tightening appropriately?

Powell referred to “financial conditions” 17 times during his relatively short press conference. “Nimble” made it only once, in the Chair’s opening statement. The S&P500 rallied 3.5% during and immediately following Powell’s press conference, with the Nasdaq100 surging 4.5%. Taking 75 bps hikes off the table was the spark, but the general tenor of the press conference was much less hawkish than markets had feared. A Financial Times headline succinctly captured its essence: “Investors Detect Dovish Undertones to Powell’s Campaign Against Inflation.”

Powell’s neutral rate comments (“current estimates on the Committee are sort of 2 to 3%”), while open to interpretation, suggest a more measured tightening cycle than markets anticipate. There was reference to inflation-restraining reductions in fiscal and monetary stimulus, along with continued focus on eventual supply chain normalization.

Mainly, nervous markets were comforted by the focus on “financial conditions.” The Fed’s hawkish tightening cycle is, after all, on a Collision Course with faltering Bubbles, De-risking/Deleveraging Dynamics and serious liquidity issues. Powell faced an extraordinary challenge in conveying to the public and Washington politicians the Fed’s focus on and commitment to reining in inflation, while signaling to the markets that he is appropriately monitoring unfolding market instability. From this perspective, Powell’s preparation and performance were masterful.

Powell: “Before I go into the details of today’s meeting, I’d like to take this opportunity to speak directly to the American people. Inflation is much too high, and we understand the hardship it is causing, and we’re moving expeditiously to bring it back down. We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses.

With his overt opening display of hawkishness out of the way, he subtly turned his attention to vulnerable markets. “Going to raise rates, and you’re going to be kind of inquiring how that is affecting the economy through financial conditions…” “We need to look around and keep going if we don’t see that financial conditions have tightened adequately…” “We just would be looking at very broad measures of financial conditions—all the different financial conditions indexes, for example—which include equity, but they also include debt and other—many other things; credit spreads, things like that too.” As for balance sheet reduction, Powell noted this tool’s high degree of uncertainty, implying flexibility and, again, a focus on financial conditions.

Powell spurred a big equities market reversal. Bonds mustered a gain, though the unenthusiastic four bps decline (to 2.94%) in 10-year Treasury yields was portentous. Yields were up 16 bps to 3.10% by mid-day Thursday. It was Bloomberg with the day’s apt headline: “Stocks Stumble as Traders Fret About Fed’s Quagmire.” After rallying 3.0% Wednesday, the S&P500 fell 3.6% in Thursday’s rout. With big tech in the crosshairs, the Nasdaq100 sank 5.0% Thursday, more than reversing Wednesday’s 3.4% recovery. It was the type of volatility one might expect prior to an accident.

Importantly, De-risking/Deleveraging Dynamics attained critical momentum. Investment-grade CDS rose five bps (largest one-day gain since June 2020) Thursday to 83 bps to the high since May 2020. High-yields CDS surged 30 to 460 bps, the largest one-day increase in almost two years and the high since July 2020. Bank CDS jumped to highest levels since April 2020 pandemic instability. JPMorgan CDS gained three to 90 bps, BofA five to 93 bps, Citigroup four to 109 bps, and Goldman Sachs four to 108 bps.

Thursday’s instability was a global phenomenon. European Bank (subordinate debt) CDS traded above 200 bps for the first time since May 2020. European high-yield (“crossover”) CDS surged 19, the first session trading above 450 bps, also back to May 2020.

May 6 – Bloomberg (Steven Arons and Nicholas Comfort): “European banks are counting the rising costs of Russia’s invasion of Ukraine as the war pushes up commodity prices and disrupts corporate supply chains. Led by Societe Generale SA and UniCredit SpA, the region’s lenders have so far flagged a hit of about $9.6 billion, mostly from writing down the value of their operations in the region and setting aside money as a shield against the expected economic ramifications.”

European bank stocks (STOXX 600) dropped 3.8% this week (down 12.3% y-t-d), with Italian banks slammed 5.3% (down 23.2%). Ominously, European bonds are being crushed, even though the ECB has yet to lift rates above zero. Moreover, the prospect for Europe’s dreaded bond/bank “doom loop” (vulnerable banks levered in sinking bond portfolios) has become only more troubling with the war in Ukraine taking a chunk out of precious European bank capital (while elevating stagflation and geopolitical risks).

Highly levered European “periphery” bond markets were hit by major liquidations this week. Italian 10-year yields spiked 36 bps (6-wk gain 104bps) to 3.14%, the high since December 2018. Greek yields surged another 23 bps (6-wk gain 90bps) to a (excluding the March 2020 spike to 3.67%) three-year high 3.56%. Moreover, susceptible Spain and Portugal joined the bond rout. Spanish yields jumped 26 bps (2.24%) and Portuguese yields surged 25 bps (2.27%) – both ending the week with yields near seven-year highs.

I don’t recall a serious global “risk off” session of equities, corporate Credit, CDS, European periphery bonds, and “developing” market stress that didn’t spur at least a modicum of a safe haven Treasury market bid. Corroborating the New Cycle Thesis, 10-year Treasury yields surged 12 bps on “risk off” Thursday, trading above 3.10% for the first time since November 2018 (ending the week at 3.13%).

Symptomatic of deleveraging and resulting systemic global market stress, “developing” markets were under pressure this week. Local currency yields were up 59 bps in Romania (decade-high 7.65%), 39 bps in Poland (7-yr high 6.88%), 38 bps in Peru (13-yr high 8.27%), 36 bps in Hungary (9-yr high 7.21%), 33 bps in India (3-yr high 7.45%), 31 bps in the Czech Republic (12-yr high 4.41%), 25 bps in Colombia (12-yr high 10.65%), 23 bps in Brazil (6-yr high 12.69%), and 22 bps in Slovakia (8-yr high 1.93%). Dollar-denominated EM bonds were anything but immune to intensifying de-leveraging contagion. Yields were up 51 bps in Turkey (9.01%), 27 bps in Saudi Arabia (3.97%), 22 bps in Indonesia (4.02%), and 12 bps in the Philippines (4.00%). EM CDS rose 15 bps this week to a seven-week high 285 bps (began 2022 at 187bps).

There was an additional noteworthy dynamic from Thursday’s session. As “risk off” gathered momentum across markets during the U.S. session, selling accelerated in the offshore renminbi (CNH). CNH had gained with Powell’s relief rally, but then sank about 1% Thursday. Selling continued into Friday’s session, with the dollar/CNH trading above 7.72 for the first time since November 2020. The CNH’s 1.2% decline for the week pushed y-t-d loss to 5.4%. To observe CNH selling so directly correlated with U.S. “risk off” supports the analysis of global market vulnerability to the unwind of speculative leverage in Chinese securities.

Ominously, China sovereign CDS jumped 6.5 this week to 83 bps. Outside the multi-day March 2020 pandemic spike to 91 bps, China sovereign CDS has not been higher since February 2017. Despite a chorus of Beijing assurances, the erstwhile Pavlovian Chinese market recovery has gone MIA. The Shanghai Composite’s 1.5% decline boosted y-t-d losses to 17.5%. Down another 3.2%, the growth-oriented ChiNext Index has a 2022 loss of 32.4%. Chinese developer and other high-yield bonds remain under pressure.

May 5 – Bloomberg: “China’s top leaders warned against questioning Xi Jinping’s Covid Zero strategy, as pressure builds to relax virus curbs and protect the economic growth that has long been a source of Communist Party strength. The Politburo’s supreme Standing Committee pledged… during a meeting led by Xi to ‘fight against any speech that distorts, questions or rejects our country’s Covid-control policy,’ state broadcaster China Central Television said. The body reaffirmed its support for the lockdown-dependent approach, saying China had made progress toward overcoming its worst outbreak since the first wave in Wuhan two years ago. ‘Our pandemic prevention-and-control strategy is determined by the party’s nature and principles,’ the seven-member committee said, according to CCTV. ‘Our policy can stand the test of history, and our measures are scientific and effective.’”

China’s historic apartment Bubble is bursting, the Chinese Bubble Economy is faltering, and “Covid zero” is right there nudging things over the cliff. Beijing’s response is anything but confidence inspiring. Kooky. And with the confluence of a deflating Bubble and the villainous Putin/Xi bromance, expect more discussion of whether China is at this point even “investible.” For now, it was another week where it was rational to question whether Beijing can maintain currency stability. If there is anywhere near the amount of speculative leverage (including levered “carry trades”) in China as I suspect, we’re now officially on Chinese Dislocation Watch.

The Fed’s “US Marketable Securities Held in Custody for Foreign Official & International Accounts” sank $36.1 billion this past week, the biggest decline since the market panic in late March 2020. There’s a crucial global “doom loop” dynamic to ponder. When global de-risking/deleveraging gains momentum, currency weakness motivates EM central bankers to liquidate Treasury holdings for funds to support their local currencies (accommodating “hot money” outflows). And as this selling contributes to higher Treasury and, accordingly, global yields, there is further pressure on “carry trades” and other levered speculations. It’s a bad cycle of broad-based market weakness, currency instability, Treasury selling and illiquidity. The tightening of global financial conditions has accelerated.

May 3 – Reuters (Selcuk Gokoluk): “Emerging-market debt sales slumped to their lowest level for the month of April in a decade… Developing-nation governments and companies raised $30.6 billion of bonds in dollars or euros in April, a 48% decline from the same month a year ago… Issuance for the period dropped to its lowest level since 2012… The average yield on dollar debt exceeded 6.3% on May 2 to hit the highest level in two years, making borrowing prohibitively expensive for junk-rated issuers from emerging markets… Meanwhile, global emerging-market debt funds suffered their largest outflow since April 2020 in the week ending April 27, with investors pulling almost $4 billion, according to a Bank of America Merrill Lynch report… Outflows in the year to date reached $18.7 billion…”

May 2 – Bloomberg (Michael MacKenzie and Chikako Mogi): “In times of Treasury turmoil, the biggest investor outside American soil has historically lent a helping hand. Not this time round. Japanese institutional managers -- known for their legendary U.S. debt buying sprees in recent decades -- are now fueling the great bond selloff, just as the Federal Reserve pares its $9 trillion balance sheet. Estimates from BMO Capital Markets based on the most recent data show the largest overseas holder of Treasuries has offloaded almost $60 billion over the past three months. While that may be small change relative to the Japan’s $1.3 trillion stockpile, the divestment threatens to grow.”

There are dynamics at play that have fundamentally altered global demand for Treasuries. My confidence that we’re witnessing a secular shift will be further solidified with confirmation that the Chinese have begun shaving Treasury holdings.

April 30 – Financial Times (Sun Yu): “Chinese regulators have held an emergency meeting with domestic and foreign banks to discuss how they could protect the country’s overseas assets from US-led sanctions similar to those imposed on Russia for its invasion of Ukraine, according to people familiar... Officials are worried the same measures could be taken against Beijing in the event of a regional military conflict or other crisis. President Xi Jinping’s administration has maintained staunch support for Vladimir Putin throughout the crisis but Chinese banks and companies remain wary of transacting any business with Russian entities that could trigger US sanctions. The internal conference, held on April 22, included officials from China’s central bank and finance ministry, as well as executives from dozens of local and international lenders such as HSBC... Senior regulators including Yi Huiman, chairman of the China Securities Regulatory Commission, and Xiao Gang, who headed the CSRC from 2013 to 2016, asked bankers in attendance what could be done to protect the nation’s overseas assets, especially its $3.2tn in foreign reserves. China’s vast dollar-denominated holdings range from more than $1tn US Treasury bonds to New York office buildings.”

For decades, the U.S. financial system expanded Credit without constraint or worry. Massive trade and Current Account Deficits would flood the world with dollar balances that would simply be recycled back into Treasuries and U.S. securities. For the most part, the greatest inflationary manifestations remained comfortably within the confines of securities and asset markets. Finance would run absolutely wild, while the Fed monkeyed with conventional central bank doctrine. Somehow, the Federal Reserve became fixated on inflating CPI up to its 2% target, even as central bank balance sheets and Monetary Disorder ran completely out of control – leveraged speculation, manias and shenanigans aplenty.

Arguably, no sector lavished in monetary excess with such flagrance as the indomitable tech sector. More evidence this week of serious leakage from a historic Bubble. Get ready for one brutal and protracted bear market. Losses will be unprecedented.

May 4 – Financial Times (Robin Wigglesworth): “Back in the halcyon days of… early 2021, it looked like venture capital was the hottest game in town. Hedge funds were piling in. Even private equity firms were getting involved in early-stage company investing. Investors loved the combination of fat returns and the lack of volatility in private markets. But the VC cycle now looks like it has hit a sudden stop. Refinitiv’s venture capital index, which uses the performance of individual VC portfolios and listed stocks to mimic the performance of the broader industry, tanked another 24.2% in April, taking its 2022 loss to a comically bad 45.8% (NB, the Nasdaq is ‘only’ down 19.7% YTD). That is comfortably its worst monthly performance since worst of the dotcom bust two decades ago. Of course, a lot of venture capital funds are unlikely to be marking down their books to anywhere near these levels.”

The short half-life of Powell’s Wednesday rally speaks volumes. Equities players (especially those loaded with tech stocks) were only temporarily relieved by Powell’s subtle lean dovish. Meanwhile, bonds want nothing to do with it – not with inflation dynamics now deeply entrenched. And there have already been Fed officials (current and former) pushing back against Wednesday’s Powell Show (i.e. “Fed’s Barkin Declines to Take 75 bps off the Table”). A divided Fed will only exacerbate uncertainties.

Our system faces a serious inflation problem. At the same time, Market Structure and systemic fragilities simply cannot tolerate a significant tightening cycle. It is a Quagmire. The writing’s on the wall: faltering markets will spur a major tightening of financial conditions, while consumer inflation remains elevated.

Back to the faltering global Bubble. It is in reality myriad interrelated Bubbles, conjoined through global networks of financial institutions, leveraged speculation, market structures and derivatives. China, U.S. securities and assets, European periphery bonds, global tech, and EM, to highlight the most obvious. Basically, it all ripened into One Big Crowded Trade. And as the Crowd heads for the exits, there’s no one with sufficient liquidity outside of global central bank balance sheets.

There are today similarities to previous serious “risk off” episodes - that almost brought down the global financial system. There are key differences: Global Bubbles are today much grander and interconnected; the world’s financial and economic structures are splintering; inflation has become a serious global issue; and Fed and global central bank community liquidity backstops are problematic like never before.

For the Week:

The S&P500 ended one of the more volatile weeks in years with a slight 0.2% decline (down 13.5% y-t-d), and the Dow dipped 0.2% (down 9.5%). The Utilities rallied 1.1% (down 0.5%). The Banks recovered 2.2% (down 14.9%), while the Broker/Dealers slipped 0.3% (down 16.8%). The Transports increased 0.2% (down 9.6%). The S&P 400 Midcaps declined 0.8% (down 12.7%), and the small cap Russell 2000 fell 1.3% (down 18.1%). The Nasdaq100 lost 1.3% (down 22.2%). The Semiconductors rallied 2.1% (down 24.4%). The Biotechs fell 2.1% (down 17.9%). With bullion slipping $13, the HUI gold index dropped 3.0% (up 5.9%).

Three-month Treasury bill rates ended the week at 0.80%. Two-year government yields added two bps to 2.74% (up 200bps y-t-d). Five-year T-note yields rose 12 bps to 3.08% (up 182bps). Ten-year Treasury yields jumped 19 bps to 3.13% (up 162bps). Long bond yields surged 23 bps to 3.23% (up 132bps). Benchmark Fannie Mae MBS yields rose 17 bps 4.32% (up 225bps).

Greek 10-year yields jumped 23 bps to 3.56% (up 224bps y-t-d). Ten-year Portuguese yields surged 25 bps to 2.27% (up 167bps). Italian 10-year yields surged 36 bps to 3.14% (up 196bps). Spain's 10-year yields jumped 26 bps to 2.24% (up 167bps). German bund yields gained 19 bps to 1.13% (up 131bps). French yields rose 20 bps to 1.66% (up 146bps). The French to German 10-year bond spread widened one to 53 bps. U.K. 10-year gilt yields increased nine bps to 2.00% (up 102bps). U.K.'s FTSE equities index dropped 2.1% (unchanged y-t-d).

Japan's Nikkei Equities Index increased 0.6% (down 6.2% y-t-d). Japanese 10-year "JGB" yields added a basis point to 0.24% (up 17bps y-t-d). France's CAC40 sank 4.2% (down 12.5%). The German DAX equities index fell 3.0% (down 13.9%). Spain's IBEX 35 equities index lost 3.1% (down 4.5%). Italy's FTSE MIB index slumped 3.2% (down 14.2%). EM equities were mostly lower. Brazil's Bovespa index fell 2.5% (up 0.3%), and the Mexico's Bolsa index dropped 3.6% (down 7.0%). South Korea's Kospi index declined 1.9% (down 11.2%). India's Sensex equities index sank 3.9% (down 5.9%). China's Shanghai Exchange Index declined 1.5% (down 17.5%). Turkey's Borsa Istanbul National 100 index added 1.2% (up 32.4%). Russia's MICEX equities index fell 2.1% (down 36.8%).

Investment-grade bond funds saw outflows of $5.977 billion, and junk bond funds posted negative flows of $1.102 billion (from Lipper).

Federal Reserve Credit last week declined $14.5bn to $8.904 TN. Over the past 138 weeks, Fed Credit expanded $5.177 TN, or 139%. Fed Credit inflated $6.092 Trillion, or 217%, over the past 495 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week sank $36.1bn to a four-month low $3.425 TN. "Custody holdings" were down $118bn, or 3.3%, y-o-y.

Total money market fund assets added $2.2bn to $4.512 TN. Total money funds were little changed y-o-y.

Total Commercial Paper slipped $1.0bn to $1.103 TN. CP was down $103bn, or 8.5%, over the past year.

Freddie Mac 30-year fixed mortgage rates jumped 17 bps to 5.27% (up 231bps y-o-y) - the high since August 2009. Fifteen-year rates rose 12 bps to 4.52% - the high since December 2009 (up 222bps). Five-year hybrid ARM rates jumped 18 bps to 3.96% (up 126bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates unchanged at a more than decade-high 5.38% (up 229bps).

Currency Watch:

For the week, the U.S. Dollar Index added 0.7% to 103.66 (up 8.4% y-t-d), trading this week to a nine-year high. For the week on the upside, the Mexican peso increased 1.5%, the Australian dollar 0.2% and the euro 0.1%. On the downside, the Brazilian real declined 2.1%, the British pound 1.8%, the Swiss franc 1.7%, the South Korean won 1.4%, the South African rand 1.3%, the Swedish krona 1.3%, the Norwegian krone 1.1%, the New Zealand dollar 0.7%, the Japanese yen 0.7%, the Canadian dollar 0.2% and the Singapore dollar 0.1%. The Chinese (onshore) renminbi declined 0.87% versus the dollar (down 4.66% y-t-d).

Commodities Watch:

May 1 – Bloomberg (Pratik Parija): “A blistering heat wave has scorched wheat fields in India, reducing yields in the second-biggest grower and damping expectations for exports that the world is relying on to alleviate a global shortage. Temperatures soared in March to the highest ever for the month on record going back to 1901, shriveling India’s wheat crop during a crucial growth period. That’s spurring estimates that yields have slumped 10% to 50% this season, according to almost two dozen farmers and local government officials surveyed by Bloomberg.”

The Bloomberg Commodities Index increased 0.7% (up 31.4% y-t-d). Spot Gold dipped 0.7% to $1,884 (up 3.0%). Silver fell 1.8% to $22.36 (down 4.1%). WTI crude jumped $5.08 to $109.77 (up 46%). Gasoline surged 8.3% (up 69%), and Natural Gas jumped another 11.0% (up 116%). Copper dropped 3.2% (down 4%). Wheat surged 5.0% (up 44%), while Corn declined 3.5% (up 32%). Bitcoin sank $2,693, or 7.0%, this week to $35,905 (down 22.6%).

Market Instability Watch:

May 3 – Wall Street Journal (Gunjan Banerji): “Stocks and bonds are falling in tandem at a pace not seen in decades, leaving investors with few places to hide from the market volatility. Through Monday, the S&P 500 was down 13% for 2022 and the Bloomberg U.S. Aggregate bond index—largely U.S. Treasurys, highly rated corporate bonds and mortgage-backed securities—was off 10%. That puts them on track for their biggest simultaneous drop in Dow Jones Market Data going back to 1976. The only other time both indexes dropped for the year was in 1994, when the bond index declined 2.9% and the S&P 500 fell 1.5%... This year’s declines have dealt a blow to the 60/40 portfolio model—a mix of 60% stocks and 40% bonds that has long been advertised as offering strong returns and hedging against the expected occasional pullback in stocks…”

May 6 – Reuters (Samuel Shen, Winni Zhou and Tom Westbrook): “The yuan's slump has triggered a scramble by Chinese companies to hedge against the risk of further depreciation, which analysts say could add downward pressure on the currency. The yuan's 4% tumble in April, its steepest monthly drop since foreign exchange reforms of 1994, is being driven by portfolio outflows, a rising U.S. dollar and a gloomy economic outlook at home.”

May 2 – Bloomberg (Michael Gambale): “At least five but possibly as many as eight issuers stood down from selling new bonds in the U.S. high-grade primary market as volatility continues to suppress new issuance. A wave of potential issuers looking to get their deals done Monday opted to hold off, with most intending to look again on Tuesday prior to the Federal Reserve’s rates decision announcement the following day.”

May 4 – Financial Times (Joe Rennison): “Investors have started backing away from the riskiest corporate bonds in the US, with the amount of debt that trades at distressed levels doubling since the start of the year. The value of junk bonds trading for 70 cents on the dollar or less, considered a sign of distress and a warning that a company may struggle to repay debts, has climbed to $27bn from about $14bn at the end of 2021…”

May 6 – Bloomberg (Sam Potter): “For a measure of just how brutal Thursday’s reversal was in U.S. equities, take a look at where cash was moving in the ETF market earlier in the week. In the three days through Wednesday, investors added $426 million to the ProShares UltraPro QQQ ETF (ticker TQQQ), a leveraged product that delivers three-times the return of the Nasdaq 100 Index. Caught in the tech stock selloff, it tumbled 15%... In the same time frame almost $1.8 billion poured into the iShares iBoxx High Yield Corporate Bond ETF (HYG), just in time for the fund’s worst day in nearly two years. Almost $600 million was plowed into the ARK Innovation ETF (ARKK), which slumped 8.9% for its biggest drop since the height of the Covid turmoil.”

May 3 – Bloomberg (Ksenia Galouchko, Albertina Torsoli and Jonas Ekblom): “A rare flash crash in European stocks caused by a Citigroup Inc. trader highlights the risks from computer-initiated sell orders exacerbating a single human error. The OMX Stockholm 30 Index slumped as much as 8% in just five minutes before 10 a.m. CET on Monday, but quickly recovered most of the losses. A trader at Citi’s London desk made an error inputting a transaction…”

May 3 – CNBC (Yun Li): “Billionaire hedge fund manager Paul Tudor Jones said the environment for investors is worse than ever as the Federal Reserve is raising interest rates when financial conditions have already become increasingly tight. ‘You can’t think of a worse environment than where we are right now for financial assets,’ Jones said… on CNBC’s ‘Squawk Box.’ ‘Clearly you don’t want to own bonds and stocks.’”

May 4 – Bloomberg (Morwenna Coniam): “JPMorgan CEO Jamie Dimon said… that the turmoil in commodity markets caused by Russia’s invasion of Ukraine ‘could get much worse.’ ‘It’s a war and we don’t know how it’s going to end. It could get worse. The sanctions could get worse. It’s causing complete turmoil in commodity markets around the world and that could get much worse.’”

Bursting Bubble/Mania Watch:

May 5 – Bloomberg (Lu Wang and Elaine Chen): “A common warning on Wall Street for a decade is that trading desks have been overrun by people who are too young to know what it’s like to navigate a Federal Reserve tightening cycle. They’re finding out now. In markets, there’s turbulence, then there’s whatever you call the last two days, when a 900-point Dow rally was followed 12 hours later by a 1,000-point decline. Hundreds of billions of dollars of value are conjured and incinerated across assets in the space of a day lately, a stark reversal from the straight-up trajectory of the post-pandemic era. Where once every dip was bought, now every bounce is sold. Thursday was only the fourth day in 20 years in which stocks and bonds each posted 2%-plus declines…”

May 3 – Bloomberg (Ryan Vlastelica): “Tech bulls are grappling with a new reality: breakneck profit growth is no longer something they can count on. Analysts are becoming more glum on tech earnings as weaker-than-expected results and guidance from the likes of Inc. and Apple Inc., along with a new era of rising interest rates, cast doubt on what has been the market’s most long-standing growth narrative.”

May 5 – Bloomberg (David Pan): “Bitcoin tumbled the most since January as the rout in financial markets deepened in the wake of increasing concern of recession. The largest digital currency fell as much as 11% to $35,611, the biggest intraday drop since Jan. 21. It had gained 5.3% on Wednesday. Ether slumped as much as 8.7%. Avalanche and Solana, among some of the largest gainers after the U.S. central bank raised rates Wednesday, were down as much as 15% and 11%, respectively.”

May 3 – Bloomberg (Lydia Beyoud and Allyson Versprille): “The U.S. Securities and Exchange Commission is adding 20 more officials to a team dedicated to policing crypto markets, the latest move by Wall Street’s main regulator to crack down on digital tokens that may run afoul of its rules. The additions will bring the SEC’s Crypto Assets and Cyber Unit to 50 people…”

May 2 – Bloomberg (David Pan): “Bitcoin miners are deploying their own version of ‘yield farming,’ the often-discussed cryptocurrency money-making strategy, but with an old-school twist. Publicly traded miners very much embrace the HODL, or ‘hold on for dear life,’ mantra, hoarding tokens to make their stock more appealing to investors seeking exposure to Bitcoin’s gains. But these firms have major expenses; grinding through cryptographic puzzles to spawn new coins takes pricey computer hardware and giant power bills. Instead of selling Bitcoin to raise money, firms like Marathon Digital Holdings Inc. are selling Bitcoin call options to wring money out of their holdings, turning to a yield-generating strategy deployed throughout conventional finance. ‘Bitcoin miners are some of the most voracious yield seekers in the market today,’ said Joshua Lim, head of derivatives at… Genesis Global Trading…”

May 6 – Reuters (Gaurav Dogra): “Global bond funds faced big outflows in the week to May 4 as soaring inflationary pressure fueled caution ahead of the Federal Reserve's policy decision this week. According to Refinitiv Lipper, investors exited global bond funds worth $11.99 billion in their fifth weekly net selling in a row… U.S. and European bond funds suffered outflows of $5.58 billion and $6.24 billion respectively, while Asian funds had marginal selling worth a net $0.03 billion.”

May 2 – Bloomberg (Bailey Lipschultz): “Judging by the 70% beating that former SPACs have taken since they peaked early last year, a lot of investors are leery of blank-check companies -- which is why Enrique Abeyta likes some of them. ‘Everything was going to the moon, and now SPAC is a curse word,’ said Abeyta, who follows special-purpose acquisition companies as editor of Empire Financial Research.”

May 1 – Bloomberg (Emily Nicolle): “The Solana blockchain is recovering after going dark in a seven-hour outage, caused by a significant rush of bots trying to mint nonfungible tokens on the crypto network. An NFT minting program for Solana called Candy Machine struggled under a tsunami of traffic from bots seeking to push through transactions late Saturday, which caused Solana’s mainnet to fall out of consensus and crash as nodes belonging to validators collapsed under the weight.”

Russia/Ukraine Watch:

May 5 – Wall Street Journal (James Marson): “Russia is intensifying strikes on Ukrainian infrastructure, seeking to disrupt deliveries of Western weapons as Moscow’s offensive in the east appears to have stalled… Missile strikes in recent days have targeted rail hubs and electrical power facilities—particularly in Ukraine’s west, where arms are flowing into the country from the West. Pentagon officials say the strikes haven’t disrupted the handoff of arms at Ukraine’s borders. ‘The shipments of supplies and weapons and materiel going in continues every day, including today, and we’ve seen no indication that that flow has been impeded,’ Pentagon spokesman John Kirby said…”

May 4 – Associated Press (Jon Gambrell and Cara Anna): “Complaining that the West is ‘stuffing Ukraine with weapons,’ Russia bombarded railroad stations and other supply-line targets across the country, as the European Union moved to further punish Moscow for the war… by proposing a ban on oil imports.”

May 4 – Reuters: “Russian Defence Minister Sergei Shoigu said… the Russian military would consider NATO transport carrying weapons in Ukraine as targets to be destroyed, RIA news agency quoted him as saying.”

May 2 – Associated Press (Ben Fox, Aamer Madhani, Jay reeves and Dan Huff): “The planes take off almost daily from Dover Air Force Base in Delaware — hulking C-17s loaded up with Javelins, Stingers, howitzers and other material being hustled to Eastern Europe to resupply Ukraine’s military in its fight against Russia. The game-changing impact of those arms is exactly what President Joe Biden hopes to spotlight as he visits a Lockheed Martin plant… that builds the portable Javelin anti-tank weapons that have played a crucial role in Ukraine. But Biden’s visit is also drawing attention to a growing concern as the war drags on: Can the U.S. sustain the cadence of shipping vast amounts of arms to Ukraine while maintaining the healthy stockpile it may need if a new conflict erupts with North Korea, Iran or elsewhere?”

Economic War/ Iron Curtain Watch:

May 4 – Reuters (Francesco Guarascio and John Chalmers): “The European Union's executive… proposed the toughest package of sanctions yet against Moscow for its war in Ukraine, but several countries worried about the impact of cutting off Russia oil imports stood in the way of agreement. The new punishments, announced by European Commission President Ursula von der Leyen, included sanctions on Russia's top bank and a ban on Russian broadcasters from European airwaves, as well as the embargo on crude oil in six months. The EU faces the task of finding alternatives when energy prices have surged as it imports some 3.5 million barrels of Russian oil and oil products every day and also depends on Moscow's gas supplies.”

May 3 – Bloomberg (Libby Cherry, Giulia Morpurgo and Lyubov Pronina): “Russia’s closely watched dollar payments on two bonds are trickling through to investors after the country dipped into its local holdings of the U.S. currency and sidestepped its first foreign default in a century. The transfer of the $650 million had got tangled up in the wide-ranging sanctions imposed after the invasion of Ukraine. And despite the 11th-hour escape before a Wednesday deadline to get the funds to creditors, Russia could face bigger hurdles within weeks that scupper future payments.”

May 6 – Bloomberg: “China has ordered central government agencies and state-backed corporations to replace foreign-branded personal computers with domestic alternatives within two years, marking one of Beijing’s most aggressive efforts so far to eradicate key overseas technology from within its most sensitive organs. Staff were asked after the week-long May break to turn in foreign PCs for local alternatives that run on operating software developed domestically…”

May 5 – Reuters: “The Chinese and Russian central banks will discuss the use and promotion of their respective national payment systems in both countries, Beijing's envoy to Moscow told the TASS news agency… ‘Regarding the promotion and use of the Mir and China UnionPay national payment systems in both countries, this question will be decided by the two sides' central banks at consultations,’ Zhang Hanhui said.”

U.S./Russia Watch:

May 5 – New York Times (Julian E. Barnes, Helene Cooper and Eric Schmitt): “The United States has provided intelligence about Russian units that has allowed Ukrainians to target and kill many of the Russian generals who have died in action in the Ukraine war, according to senior American officials. Ukrainian officials said they have killed approximately 12 generals on the front lines, a number that has astonished military analysts. The targeting help is part of a classified effort by the Biden administration to provide real-time battlefield intelligence to Ukraine. That intelligence also includes anticipated Russian troop movements gleaned from recent American assessments of Moscow’s secret battle plan for the fighting in the Donbas region of eastern Ukraine, the officials said.”

May 5 – NBC (Ken Dilanian, Courtney Kube and Carol E. Lee): “Intelligence shared by the U.S. helped Ukraine sink the Russian cruiser Moskva, U.S. officials told NBC News, confirming an American role in perhaps the most embarrassing blow to Vladimir Putin’s troubled invasion of Ukraine. The attack happened after Ukrainian forces asked the Americans about a ship sailing in the Black Sea south of Odesa… The U.S. identified it as the Moskva, officials said, and helped confirm its location, after which the Ukrainians targeted the ship. The U.S. did not know in advance that Ukraine was going to target the Moskva, officials said, and was not involved in the decision to strike.”

China/Russia/U.S. Watch:

April 30 – Reuters: “Russia said… it expected commodity flows with China to grow and trade with Beijing to reach $200 billion by 2024, as Moscow faces mounting isolation from the West. China has refused to condemn Russia's actions in Ukraine and has criticized the unprecedented Western sanctions on Moscow. The two countries have bolstered ties in recent years, including announcing a ‘no limits’ partnership in February.”

May 3 – Reuters (Steve Holland, Trevor Hunnicutt and David Brunnstrom): “Two months after warning that Beijing appeared poised to help Russia in its fight against Ukraine, senior U.S. officials say they have not detected overt Chinese military and economic support, a welcome development in the tense U.S.-China relationship. U.S. officials told Reuters in recent days they remain wary about China's long-standing support for Russia in general, but that the military and economic support that they worried about has not come to pass, at least for now. The relief comes at a pivotal time.”

Europe/Russia/China Watch:

May 5 – Financial Times (Robert Wright and Demetri Sevastopulo): “Japanese prime minister Fumio Kishida has used a visit to London to stress the importance of a resolute international response to Russia’s invasion of Ukraine in deterring potential future Chinese action against Taiwan. Kishida issued the warning following a meeting with UK prime minister Boris Johnson, who on Thursday also insisted there was a ‘direct read across’ from recent events in Europe to East Asia. The comments from the two prime ministers highlight international concerns about Chinese intentions towards Taiwan and come after talks in early March between UK and US officials over how best to deter any use of force against the island.”

May 4 – Reuters (Simon Johnson): “Sweden has received assurances from the United States that it would receive support during the period a potential application to join NATO is processed by the 30 nations in the alliance, Foreign Minister Ann Linde said in Washington… Sweden and neighbour Finland stayed out of NATO during the Cold War, but Russia's annexation of Crimea in 2014 and its invasion of Ukraine have led the countries to rethink their security policies, with NATO membership looking increasingly likely.”

Inflation Watch:

May 3 – New York Times (Ivan Penn): “Already frustrated and angry about high gasoline prices, many Americans are being hit by rapidly rising electricity bills, compounding inflation’s financial toll on people and businesses. The national average residential electricity rate was up 8% in January from a year earlier, the biggest annual increase in more than a decade… In Florida, Hawaii, Illinois and New York, rates are up about 15%...”

May 1 – Bloomberg (Elizabeth Elkin and Samuel Gebre): “For the first time ever, farmers the world over — all at the same time — are testing the limits of how little chemical fertilizer they can apply without devastating their yields come harvest time. Early predictions are bleak. In Brazil, the world’s biggest soybean producer, a 20% cut in potash use could bring a 14% drop in yields, according to… MB Agro. In Costa Rica, a coffee cooperative representing 1,200 small producers sees output falling as much as 15% next year if the farmers miss even one-third of normal application. In West Africa, falling fertilizer use will shrink this year’s rice and corn harvest by a third…”

May 3 – Bloomberg (Sheela Tobben): “The U.S. is shipping the largest amount of crude oil to Europe since Washington ended its ban on exports more than six years ago as buyers seek alternatives to Russian supplies. In April, U.S. producers exported nearly 50 million barrels of crude to European buyers from major terminals in Texas and Louisiana…”

May 2 – Bloomberg (Chunzi Xu): “Record fuel exports from the U.S. Gulf Coast are eating into domestic supplies, leaving gasoline and diesel tanks on the East Coast emptier than they have been in decades. As much as 2.09 million barrels a day of gasoline, diesel and jet fuel shipped out of the refining hub in April, the highest level since oil analytics firm Vortexa began tracking the data in 2016. The bulk of the exports went to Latin America. The strong pull from overseas shows the world needs U.S. Gulf Coast refiners more than ever.”

May 3 – Bloomberg (Scott Moritz): “AT&T Inc. is raising prices on older mobile-service plans in an effort to squeeze more revenue from customers and blunt the effects of quickening inflation. The price increases mark a high-profile reversal for an industry that has mostly competed for new customers with discounts, free phones and low-priced family plans…”

May 4 – Bloomberg (Tatiana Freitas): “Beef will be getting even more expensive at U.S. grocery stores in the months ahead… National Beef Co., controlled by the Brazilian giant Marfrig Global Foods, sees relatively stable margins in the next two quarters, according to Tim Klein, who heads Marfrig’s U.S. operations. That means even though their costs to buy cattle are increasing, the company will ultimately be able to pass that on to consumers in the form of pricier steaks and burgers. ‘Cattle prices will go up, and beef prices will go up with them,’ Klein said…”

Biden Administration Watch:

April 30 – Financial Times (Demetri Sevastopulo and Kathrin Hille): “The US has held top-level talks with the UK on how they can co-operate more closely to reduce the chances of war with China over Taiwan and to explore conflict contingency plans for the first time. Kurt Campbell, the White House Indo-Pacific co-ordinator, and Laura Rosenberger, the top National Security Council China official, held a meeting on Taiwan with UK representatives in early March… It occurred during a broader two-day meeting with their respective teams on Indo-Pacific strategy. Three people familiar with the stepped-up engagement said the US wanted to boost co-operation with European allies, such as the UK, to raise awareness about what the administration regards as Beijing’s increasingly assertive attitude towards Taiwan, which it considers part of China…”

Federal Reserve Watch:

May 4 – Bloomberg (Matthew Boesler and Steve Matthews): “The Federal Reserve delivered the biggest interest-rate increase since 2000 and signaled it would keep hiking at that pace over the next couple of meetings, unleashing the most aggressive policy action in decades to combat soaring inflation. The U.S. central bank’s policy-setting Federal Open Market Committee on Wednesday voted unanimously to increase the benchmark rate by a half percentage point. It will begin allowing its holdings of Treasuries and mortgage-backed securities to decline in June at an initial combined monthly pace of $47.5 billion, stepping up over three months to $95 billion. ‘Inflation is much too high and we understand the hardship it is causing and we are moving expeditiously to bring it back down,’ Chair Jerome Powell said…”

May 3 – Bloomberg (Katherine Burton): “The Federal Reserve is in uncharted territory and investors are facing a period not seen since the 1970s, according to Paul Tudor Jones. ‘This is a most challenging period ahead for the Fed in its history,’ Tudor Jones, who runs the $12 billion Tudor Investment Corp., said… ‘You can’t think of a worse environment than where we are right now for financial assets,’ he added. ‘Clearly you don’t want to own bonds and stocks.’ The central bank is dealing with dueling forces of inflation and slowing growth and interest rates are likely to reach 2.5% by September, the hedge fund manager said. Tudor Jones said he’s not sure investors can make money in the current environment and that capital preservation may be the best course. ‘There is huge volatility straight ahead,’ he said, adding that ‘inflation is much harder to tame than we think.’”

U.S. Bubble Watch:

May 6 – Associated Press (Paul Wiseman): “America’s employers added 428,000 jobs in April, extending a streak of solid hiring that has defied punishing inflation, chronic supply shortages, the Russian war against Ukraine and much higher borrowing costs. Friday’s jobs report… showed that last month’s hiring kept the unemployment rate at 3.6%, just above the lowest level in a half-century. The economy’s hiring gains have been strikingly consistent in the face of the worst inflation in four decades. Employers have added at least 400,000 jobs for 12 straight months… Hourly wages rose 0.3% from March and 5.5% from a year ago. Across industries last month, hiring was widespread. Factories added 55,000 jobs, the most since last July. Warehouses and transportation companies added 52,000, restaurants and bars 44,000, health care 41,000, finance 35,000, retailers 29,000 and hotels 22,000. Construction companies, which have been slowed by shortages of labor and supplies, added just 2,000.”

May 3 – Financial Times (Taylor Nicole Rogers): “A record 4.5mn US workers quit the labour force in March, while the number of job openings hit a high of 11.5mn, underscoring employers’ struggles to fill positions as inflation ripples through the economy… The rising number of job openings and voluntary resignations have forced companies desperate for employees to raise wages and sweeten incentives to lure workers away from their old jobs — which, in turn, has encouraged even more employees to quit their current posts. The figures for both job openings and workers quitting were the highest since the US labour department began collecting the data in December 2000.”

May 4 – Yahoo Finance (Emily McCormick): “Payrolls rose less-than-expected in the U.S. private sector last month, as employers worked to fill persistent vacancies to help meet demand. Private-sector payrolls grew by 247,000 in April, ADP said… This came following an increase of 479,000 private payrolls in March…”

May 5 – Reuters: “The number of Americans filing new claims for unemployment benefits increased more than expected last week, but remained at a level consistent with tightening labor market conditions and further wage gains. Initial claims for state unemployment benefits rose 19,000 to a seasonally adjusted 200,000 for the week ended April 30… Claims had hovered below the 200,000 level since mid-February amid strong demand for workers.”

May 4 – Bloomberg (Ana Monteiro): “The U.S. trade deficit widened to a record in March, reflecting a surge in imports as companies relied on foreign producers to meet solid domestic demand. The gap in goods and services trade grew 22.3% to $109.8 billion… Net exports subtracted 3.2 percentage points from first-quarter GDP, government figures showed last week… The value of imports of goods and services rose 10.3% in March to $351.5 billion and exports increased 5.6% to $241.7 billion. Both values were records.”

May 4 – Bloomberg (Reade Pickert): “Growth at U.S. service providers eased in April while cost pressures worsened, highlighting how decades-high inflation and an ongoing struggle to hire and retain workers is weighing on the sector. The Institute for Supply Management’s gauge of services decreased to 57.1 last month from 58.3 in March… An index of prices paid by firms for materials and services jumped to a record 84.6 in April, pointing to persistent upward pressure on U.S. inflation… Amid high prices, ISM’s gauge of new orders growth pulled back to softest pace since February of last year. Even so, other measures point to solid consumer demand… Meantime, employment activity contracted for the second time in three months. The measure, which fell to 49.5 in April from 54, underscores the ongoing challenge of hiring enough people to meet demand.”

May 2 – Bloomberg (Reade Pickert): “A measure of U.S. manufacturing activity unexpectedly dropped in April to the lowest level since 2020 as growth in orders, production and employment softened. The Institute for Supply Management’s gauge of factory activity fell to 55.4 last month from 57.1… The latest data underscore the impact from lingering supply constraints, made worse by restrictive Covid-19 measures in China. Measures of both new orders and production dropped to their lowest levels since May 2020, though remained above the threshold that indicates growth.”

May 5 – CNBC (Jeff Cox): “Worker productivity fell to start 2022 at its fastest pace in nearly 75 years while labor costs soared as the U.S. struggled with surging Covid cases… Nonfarm productivity, a measure of output against hours worked, declined 7.5% from January through March, the biggest fall since the third quarter of 1947. At the same time, unit labor costs soared 11.6%, bringing the increase over the past four quarters to 7.2%, the biggest gain since the third quarter of 1982. The metric calculates how much employers pay workers in salary and benefits per unit of output.”

May 5 – Wall Street Journal (Charley Grant): “The average rate for a 30-year fixed-rate home loan rose to 5.27% from 5.1% a week earlier, housing-finance giant Freddie Mac said... That marked the weekly figure’s highest reading in nearly 13 years… The average rate on America’s most popular home loan was 3.22% in early January and 2.96% a year ago. From January to April, rates rose at their fastest three-month pace since 1994.”

May 2 – Wall Street Journal (Orla McCaffrey): “Mortgage rates are at their highest level in more than a decade. Home buyers are fighting back. More borrowers are paying fees to cut their interest rates and making higher down payments to lower the amount they have to finance, lenders and real-estate agents say. People buying homes under construction are choosing to lock in today’s rates rather than risk even higher ones later. And more home buyers are considering home loans that carry lower rates in their early years. Applications for adjustable-rate mortgages have doubled over the past three months…”

May 2 – CNBC (Diana Olick): “Mortgage rates just hit their highest level since 2009, and home prices are continuing to experience double-digit gains. Now, nearly all of the major housing markets in the United States are less affordable than they have been historically, and affordability is near its worst point on record. New calculations from Black Knight, a mortgage technology and data provider, show that 95% of the 100 biggest U.S. housing markets are less affordable than their long-term levels.”

May 5 – Financial Times (Imani Moise): “Americans are stretching their budgets to buy new homes, hustling to strike deals quickly to avoid higher mortgage financing costs later… Lenders and realtors said the willingness of buyers to devote more of their income to mortgage payments was providing support for housing prices just as rising rates were eroding affordability. Determined consumers are driving a ‘very, very aggressive, fast-moving spring market as we head into the homebuying season’, said Matt Vernon, head of retail lending at Bank of America.”

May 3 – Wall Street Journal (Nicole Friedman): “Home prices continued to surge in virtually every corner of the U.S. during the first quarter as mortgage rates rose rapidly… Many buyers rushed to lock in purchases in the first quarter before rates climbed even higher, according to real-estate agents. ‘The housing market remains very active right now,’ said Nick Bailey, chief executive of Re/Max LLC… ‘Buyers are rushing to beat anticipated mortgage rate hikes.’ The median sales price for single-family existing homes was higher in the first quarter compared with a year ago in 181 of the 185 metro areas tracked by the NAR... The current housing boom has been geographically widespread, with most metro areas in the country posting robust home-price growth in the past two years.”

May 1 – New York Times (Emily Badger and Quoctrung Bui): “Over the past two years, Americans who own their homes have gained more than $6 trillion in housing wealth. To be clear, that doesn’t mean homebuilders have transferred to buyers $6 trillion worth of new housing, or that existing homeowners have made $6 trillion in kitchen and bathroom upgrades. Rather, most of this money has been created by the simple fact that housing, in short supply and high demand across America, has appreciated at record pace during the pandemic. Millions of people — broadly spread among the 65% of American households who own their home — have gained a share of this windfall.”

May 3 – Bloomberg (John Gittelsohn): “The heated U.S. housing market is soaring to new extremes in California, where buying a home requires sharp elbows — and a lot of money. Take a two-floor, 2,500-square-foot house listed in Berkeley last month for $1.795 million. The property, built in 1935 but extensively renovated, received 28 offers. It sold to an all-cash buyer for more than $4 million.”

May 4 – Reuters (Elizabeth Dilts Marshall): “Soaring inflation pushing the price up for everyday items like gas and groceries in the United States is leading consumers with low credit scores to borrow more and default on their loans more often, a study by credit agency TransUnion found… Credit card balances and delinquency rates among non-prime borrowers--people with credit scores below 660--increased by the greatest percentage since early 2021, when inflation began to rise significantly.”

Fixed-Income Bubble Watch:

May 5 – Bloomberg (Romy Varghese): “With municipal-bond funds bleeding cash at a record clip, market strategists have one crucial hope for triggering a turnaround: a sustained stretch of stability in Treasuries, something that’s proved to be a fleeting notion in 2022. Amid a broad pummeling of fixed-income markets this year, muni outflows have totaled $44 billion, an unprecedented year-to-date tally, according to Refinitiv… data, which includes exchange-traded funds. Muni funds have lost cash for 12 straight weeks, the longest streak since 2018.”

May 4 – Bloomberg (Jack Pitcher): “As the Federal Reserve prepares to lift rates again on Wednesday, companies are increasingly finding they can’t always borrow when they want to. Bioventus Inc., a medical device manufacturer, said this week that it’s shelved a $415 million junk bond sale. In Europe, the high-yield market was closed for 2.5 months, the longest halt in a decade, before reopening last week. Even for investment-grade sales, the window for borrowing isn’t always open: at least five companies opted to postpone bond sales on Monday, and around two stood down on Tuesday.”

Economic Dislocation Watch:

May 3 – New York Times (Jeanna Smialek and Ana Swanson): “For the past three decades, companies and consumers benefited from cross-border connections that kept a steady supply of electronics, clothes, toys and other goods so abundant it helped prices stay low. But as the pandemic and the war in Ukraine continue to weigh on trade and business ties, that period of plenty appears to be undergoing a partial reversal. Companies are rethinking where to source their products and stocking up on inventory, even if that means lower efficiency and higher costs. If it lasts, such a shift away from fine-tuned globalization could have important implications for inflation and the world’s economy.”

May 4 – Reuters (Brenna Hughes Neghaiwi): “The Swiss government is setting up a gas sector crisis intervention group and a monitoring system for early detection of an impending electricity shortage…, as it prepares for the possibility of ‘severe’ power shortages. The Swiss government began drawing up plans in April for a potential gas shortage in the wake of Russia's invasion of Ukraine, saying measures were being developed ranging from appealing to the public to reduce consumption to possible power rationing in the event of a crunch.”

China Watch:

May 5 – Financial Times (Diana Choyleva): “For a long time, foreign investors’ favourite adjective for the Chinese Communist party was ‘pragmatic’. The CCP would not do anything that would harm China’s economic interests, the argument went, and so short-term glitches in policy would always be ironed out before they made a durable dent in growth. But in Xi Jinping’s China politics overrides everything else. This extends even to the battle against Covid-19. The supreme leader has staked his personal reputation on China’s success in taming the pandemic, and avoiding the deaths and overwhelmed hospitals suffered elsewhere. He is unlikely to change his zero-Covid policy before this autumn’s Communist party congress, when he is all but certain to secure the unprecedented third term for himself that he sees as critical to cementing his legacy.”

May 4 – Reuters (Chen Aizhu): “China's central bank… pledged monetary policy support to ensure ample liquidity, help businesses badly hit by the latest COVID-19 outbreak in the country and support a recovery in consumption. The remarks came after a top decision-making body of the ruling Communist Party last week also vowed to support the economy. ‘(We shall) waste no time planning incremental policy tools to support steady economic growth, stabilise employment and prices ... to provide a fair monetary and financial environment,’ the People's Bank of China said…”

May 4 – Reuters (Stella Qiu and Ryan Woo): “China's services sector activity contracted at the second-steepest rate on record in April, as tighter COVID curbs halted the industry, leading to sharper reductions in new business and employment, a private-sector survey showed… The Caixin services purchasing managers' index (PMI) fell to 36.2 in April, the second-lowest since the survey begun in November 2005 and down from 42 in March. The index hit 26.5 in February 2020 during the onset of the pandemic, representing the biggest contraction in activity on record… A sub-index for new business stood at 38.4, also the second-lowest on record and down from 45.9 the previous month…”

April 30 – Associated Press: “China’s manufacturing activity fell to a six-month low in April as lockdowns continued in Shanghai and other manufacturing hubs in an attempt to stem COVID-19 outbreaks, according to a survey… The monthly purchasing managers’ index, released by China’s National Bureau of Statistics, fell to 47.4 in April, down from 49.5 in March on a 100-point scale.”

May 6 – Bloomberg: “China’s property loan growth slowed to the lowest pace in over two decades due to the continued slump in the real-estate market… Outstanding loans in the property sector grew 6% to 53.2 trillion yuan ($8 trillion) at the end of March from a year ago, the slowest pace of expansion since data began in 2009… The growth rate was down from 7.9% at the end of 2021. Residents’ mortgages rose 8.9% to 38.8 trillion yuan from a year ago, slowing from the 11.3% increase at the end of last year… China’s home sales slump deepened in April, with preliminary data from the China Real Estate Information Corp showing an almost 60% decline in sales by the top 100 developers.”

May 5 – Bloomberg: “When a bellwether Chinese property developer reportedly sought buyers for $12 billion of assets to repay debt this year, the move sparked hopes of a liquidity boost for the nation’s embattled real estate firms. But since January, only about three of 34 assets listed by Shimao Group Holdings Ltd. -- one of the biggest issuers of dollar bonds in the sector -- have been sold… While some of the luxury builder’s prime assets drew interest, buyers have become more cautious about acquisitions in response to the deepening liquidity crisis, according to a person familiar... That, along with the broader property slowdown, has led to a price gap that’s often impossible to bridge…”

May 2 – Reuters (Jason Xue and Ryan Woo): “The Chinese social media accounts of an outspoken Hong Kong-based market strategist were suspended after a series of downbeat commentaries and a slump in mainland equities to two-year lows on COVID-19 lockdowns and global political tensions. All content on the WeChat account of Hong Hao, who is head of research at Bocom International Holdings, has been blocked since late Saturday. His account has also been suspended, WeChat said…”

Central Banker Watch:

May 5 – Bloomberg (Philip Aldrick and David Goodman): “The Bank of England issued the most gloomy outlook of any major central bank this year, warning Britain to brace for double-digit inflation and a prolonged period of stagnation or even recession. The U.K. central bank’s bleak forecasts along with a boost for interest rates to the highest since 2009 sent the pound to the lowest in almost two years and triggered a drop in government bond yields. BOE Governor Andrew Bailey underscored the stark trade-offs facing policy makers, who are attempting to contain the worst bout of inflation in three decades and maintain the recovery from the coronavirus pandemic. ‘I recognize the hardship this will cause people in the U.K., particularly those on lower incomes,’ Bailey told reporters…”

May 6 – Financial Times (Martin Arnold): “Momentum is building for the European Central Bank to raise interest rates in July to fight soaring inflation, after dovish policymakers indicated they are ready to accept an end to almost eight years of negative borrowing costs. ECB chief economist Philip Lane and executive board member Fabio Panetta have signalled they are now more open to raising rates in the coming months, following calls from the governing council’s hawks to make the first rise in more than a decade sooner rather than later. The hawkish shift comes after eurozone inflation hit a record 7.5% in April…”

May 3 – Bloomberg (Swati Pandey): “One of the developed world’s last remaining doves turned hawkish as Australia’s central bank rocked markets with a bigger-than-expected interest-rate hike in the middle of an election campaign. Having abandoned his pledge of just two months ago to remain patient, Reserve Bank Governor Philip Lowe topped economists estimates by raising the cash rate 25 bps to 0.35%. That move and suggestions that more hikes will follow sent benchmark three-year bond yields soaring through 3% for the first time in eight years.”

Global Bubble and Instability Watch:

May 1 – Bloomberg (Enda Curran, Liz McCormick and Anchalee Worrachate): “The global shift away from easy money is poised to accelerate as a pandemic bond-buying blitz by central banks swings into reverse, threatening another shock to the world’s economies and financial markets. Bloomberg Economics estimates that policy makers in the Group of Seven countries will shrink their balance sheets by about $410 billion in the remainder of 2022. It’s a stark turnaround from last year, when they added $2.8 trillion — taking the total expansion to more than $8 trillion since Covid-19 arrived.”

May 2 – Financial Times (Jonathan Wheatley): “Janet Yellen’s call last month for the World Bank to ‘think well beyond the status quo’ to help deliver the trillions of dollars needed to tackle multiple global crises made the US Treasury secretary part of a growing chorus of western economic officials urging the bank to lend more by relaxing its capital requirements. Over the past year, development economists and US government advisers have leaned on multilateral development banks (MDBs) to borrow more — even if it means forgoing their triple-A credit ratings — to meet a host of challenges, ranging from food crises to climate change, affecting some of the world’s poorest countries. The coronavirus pandemic and the fallout from Russia’s war in Ukraine have added to the pressure on institutions, such as the World Bank and other MDBs, that were already struggling to provide the finance needed to meet UN Sustainable Development goals.”

May 1 – Financial Times (Andrew Edgecliffe-Johnson, Ian Johnston, Eleanor Olcott and Leila Abboud): “Covid-19 lockdowns across China are shaking western multinationals’ production lines, snarling supply chains and threatening financial forecasts as Beijing steps up its effort to contain a surge in coronavirus cases. Apple, Coca-Cola, General Electric and Pernod Ricard were among the companies to warn this week of the threat from the spreading lockdowns in the world’s second-largest economy, with many more blaming the strict measures for higher costs, shortfalls in their latest results and more cautious outlooks. An extension of the policies designed to curb the spread of coronavirus has gathered pace in recent weeks, leaving about 345mn people living under full or partial lockdowns across 46 cities, according to… Nomura.”

May 2 – Reuters (Jihoon Lee and Choonsik Yoo): “South Korea's consumer inflation quickened far more than forecast and hit a more than 13-year high in April, boosting expectations in the bond market for more central bank interest rate rises this year. The Statistics Korea data showed the consumer price index (CPI) rose 4.8% in April from a year before, speeding up from a 4.1% rise in the previous month…”

April 30 – Reuters (Joori Roh): “South Korea's exports grew at their slowest pace in 14 months in April, with the trade deficit widening as China-bound shipments shrank and rising energy and raw materials prices pushed up the country's imports. Exports grew 12.6% from a year earlier to $57.69 billion, trade ministry data showed on Sunday, the slowest since February 2021.”

May 3 – Wall Street Journal (Asa Fitch): “The drought in chip availability that has hit auto production, raised electronics prices and stoked supply-chain worries in capitals around the globe has a new pain point: a lack of chips needed for the machines that make chips, industry executives say. The wait time it takes to get machinery for chip-making—one of the world’s most complex and delicate kinds of manufacturing—has extended over recent months. Early in the pandemic it took months from placing an order to receiving the equipment. That time frame has stretched to two or three years in some cases…”

May 1 – Reuters (Wayne Cole): “Australian home prices were still rising nationally in April even as more of the heat came out of the Sydney and Melbourne markets… Figures from property consultant CoreLogic out… showed prices in the combined capital cities nudged up 0.3% in April from March, as Sydney dropped 0.2% for a second month and Melbourne held steady. Brisbane again fared much better with a rise of 1.7%, while Perth rose 1.1% and Adelaide 1.9%... Combined, prices nationally rose 0.6% in April, to be up 16.7% on the year.”

Europe Watch:

May 4 – Bloomberg (Alexander Weber): “German factory orders fell more than anticipated after Russia’s invasion of Ukraine darkened the prospects… Demand plunged 4.7% in March from the previous month, driven by a decline in orders from broad. That’s worse than all but one forecast in a survey of economists by Bloomberg, where the median estimate was for a 1.1% drop.”

May 4 – Financial Times (Martin Arnold): “Eurozone retail sales fell more than expected in March, compounding fears that surging inflation and worries about Russia’s invasion of Ukraine have cancelled out the boost to consumer spending delivered by the lifting of pandemic restrictions. The disappointing data added to concerns that the eurozone risks sliding into stagflation… after figures released on Friday showed the bloc had weaker growth in the first quarter and higher price increases in April than expected.”

EM Bubble Watch:

May 2 – Bloomberg (Marcus Wong and Netty Ismail): “A widespread selloff in China is rippling through emerging markets, threatening to snuff out growth and drag down everything from stocks to currencies and bonds. Fresh Covid outbreaks -- and the government’s stringent policy to contain them -- are spooking global investors who fear shutdowns in China will echo across the world by lowering demand and disrupting supply chains. That’s pushing them to sell not just China’s currency, bonds and stocks but the assets of any developing nation that relies heavily on trade with the world’s second-biggest economy. The result is the sharpest slide in emerging markets in two years, not unlike the meltdown in 2015 when China’s woes led to a rout in their bonds and currencies…”

May 5 – Reuters (Daren Butler and Ali Kucukgocmen): “Turkey's annual inflation jumped to a two-decade high of 69.97% in April…, fuelled by the Russia-Ukraine conflict and rising energy and commodity prices after last year's lira crash. The surge in prices has badly strained households just over a year before presidential and parliamentary elections that could bring the curtain down on President Tayyip Erdogan's long rule.”

May 3 – Bloomberg (Maria Eloisa Capurro and Juan Pablo Spinetto): “Inflation is so rampant in Brazil, having surpassed 12% a year in early April, that workers at the institution in charge of taming prices are themselves on strike, demanding wage raises to recover lost purchasing power. Brazil’s central bank employees in Brasilia stopped working on Tuesday, piling pressure on the institution to increase their salaries by 26% to compensate for losses to inflation in the past few years.”

May 4 – Bloomberg (Vinícius Andrade): “One of Brazil’s best-known hedge funds saw an unprecedented rout last month… Adam Capital’s flagship fund Adam Macro II FIC fund slumped 7.3% in April, the biggest monthly decline since it was launched by veteran investor Marcio Appel in 2016… Our portfolio suffered with the magnitude of the correction, as well as the loss of correlation between some asset classes,’ the fund wrote in a monthly note this week. ‘A reduction in some positions was needed.’”

May 4 – Bloomberg (Rajesh Kumar Singh): “A power crisis in India that’s delivering hours-long blackouts, halting manufacturing lines and triggering street protests is forecast to continue for months, adding pressure on the nation’s economic rebound. Electricity outages and curbs have spread across more than half of all states and the nation’s coal-dominated energy system is expected to come under further strain as power demand tops a recent record high in the coming weeks.”

Japan Watch:

May 5 – Bloomberg (Toru Fujioka and Yoshiaki Nohara): “The cost of living in Tokyo rose at the fastest pace in almost three decades in April, as the impact of soaring energy prices became clearer, an outcome that complicates the Bank of Japan’s messaging on inflation and the need for continued stimulus. Consumer prices excluding fresh food in the capital climbed 1.9% from a year ago…”

Leveraged Speculation Watch:

May 4 – Financial Times (Edward White and Eleanor Olcott): “Tiger Global’s flagship hedge fund was dealt a fresh blow in April and is now down more than 40% this year, in the latest sign of how star investors who rode the big rally in tech stocks have been wrongfooted by a sharp pullback. The losses mark a dramatic fall from grace for Tiger Global’s founder Chase Coleman, who has emerged as one of the world’s most prominent growth investors after founding the firm in 2001. Tiger Global’s hedge fund lost 15.2% in April…, taking it down 43.7% in the first four months of 2022. This year’s losses and a 7% reversal in 2021 mean that the Tiger Global hedge fund’s gain of 48% in 2020 has been completely erased. The group’s long-only fund lost 24.9% in April and is down 51.7% in 2022... Together across the two funds, the firm managed around $35bn in public equities at the end of 2021.”

Covid Watch:

May 5 – Bloomberg (Renee Bonorchis): “South Africa’s daily coronavirus test positivity rate rose to its highest level since Jan. 1 on Thursday as the continent’s most-industrialized nation heads into a fifth wave of infections. There were 9,757 new Covid-19 cases identified, representing a 25.9% positivity rate of those tested, the National Institute for Communicable Diseases said…”

May 1 – Reuters (Tim Cocks): “Two new sublineages of the Omicron coronavirus variant can dodge antibodies from earlier infection well enough to trigger a new wave, but are far less able to thrive in the blood of people vaccinated against COVID-19, South African scientists have found. The scientists from multiple institutions were examining Omicron's BA.4 and BA.5 sublineages - which the World Health Organization last month added to its monitoring list.”

Social, Political, Environmental, Cybersecurity Instability Watch:

May 4 – Bloomberg (Megan Durisin): “The global hunger crisis is ‘exploding’ as the war in Ukraine sends prices of key staples even higher, following a 25% spike in food insecurity last year. The comment from the chief economist at the World Food Programme came as the Global Network Against Food Crises warned that the hunger problem is expected to ‘deteriorate further’ this year. A gauge of world food prices has soared to a record as the Ukraine war disrupts harvests and exports from one of the world’s top grain and vegetable-oil suppliers. ‘The world is exploding with food insecurity,’ the WFP’s Arif Husain said…”

May 5 – CNN (Paradise Afshar and Michelle Krupa): “Wildfires and straight-line winds that have ravaged New Mexico for a month have created a major disaster, President Joe Biden declared, unlocking critical federal aid as the state continues to battle the largest wildfire burning in the United States… Some 300,000 acres have burned this year in New Mexico -- more than the past two full years combined…”

May 6 – Bloomberg (Zijia Song, Elizabeth Elkin and Michael Hirtzer): “A bird flu virus that’s sweeping across the U.S. is rapidly becoming the country’s worst outbreak, having already killed over 37 million chickens and turkeys and with more deaths expected through next month as farmers perform mass culls across the Midwest… The crisis is hurting egg-laying hens and turkeys the most, with the disease largely being propagated by migrating wild birds that swarm above farms and leave droppings that get tracked into poultry houses.”

May 3 – Financial Times (Benjamin Parkin and Chloe Cornish): “India is boosting coal production to record highs in an effort to overcome a fuel shortage that has strained power supply, leading to blackouts during a searing heatwave on the subcontinent. Officials and analysts expect India to bump up coal production after the supply crunch prompted fears about the country’s energy security. Care Edge, a ratings and research group, said it expected India to mine more than 800mn tonnes of coal in the financial year that started in April.”

Geopolitical Watch:

May 2 – Reuters (Kevin Buckland): “Eight Chinese naval vessels, including an aircraft carrier, passed between islands in Japan's southern Okinawa chain…, Japan's defence ministry said… The ships, which included several destroyers, sailed between the main Okinawa island and Miyakojima, according to the ministry. Although there was no incursion into Japan's territorial waters, helicopters on board the Liaoning carrier took off and landed…”

May 6 – Reuters (Ben Blanchard): “Taiwan's air force scrambled on Friday to warn away 18 Chinese aircraft that entered its air defence zone, Taiwan's defence ministry said, part of what is a regular pattern of incursions that has angered the government in Taipei.”

May 6 – Reuters (Yew Lun Tian): “China's foreign ministry… accused Japan of exaggerating a perceived threat from Beijing as an excuse to boost its own military might, after Japanese Prime Minister Fumio Kishida warned the invasion of Ukraine could be replicated in East Asia. Speaking at a regular briefing in Beijing, foreign ministry spokesman Zhao Lijian also said that if Japan really wanted peace and stability in East Asia, it should immediately stop provoking confrontation between big powers.”

Friday Afternoon Links

[Reuters] Putin to send 'doomsday' warning to West at Russia's WW2 victory parade

[Yahoo/Bloomberg] Ukraine Latest: G-7 Leaders to Discuss More Russia Sanctions

[Reuters] Stocks slip, yields mixed as U.S. wage growth slows

[Yahoo/Bloomberg] European Stocks Slump to Two-Month Low as Risk-Off Mood Spreads

[Yahoo/Bloomberg] Oil Heads for Weekly Gain as Europe Moves Closer to Russia Ban

[Yahoo/Bloomberg] Pulp Shortage Risk Raises Threat of Higher Tissue Prices

[Reuters] China to launch relending facility to aid transport, logistics

[AP] Nearly 1 million COVID-19 deaths: A look at the US numbers

[FT] Sanity appears to be returning to central bank policymaking