Friday, November 24, 2023

Weekly Commentary: Really BIG

Notable developments for two key facets of the global government finance Bubble this week.

November 21 – Financial Times (George Steer): “Hedge funds betting on a decline in US and European stock markets have suffered an estimated $43bn of losses in a sharp rally over recent days. Short sellers, many of whom had built up bets against companies exposed to higher borrowing costs over the past year or so, have been caught out by a ‘painful’ rebound in ‘low quality’ stocks this month, said Barclays’ head of European equity strategy Emmanuel Cau. That has come as the market has grown more confident that the US Federal Reserve’s cycle of rate rises is finally over.”

It's definitely been The Year of the Squeeze. The Goldman Sachs most short index began the year with a 34% rally into early February. And after a spring retreat, the index surged 32% in the June/July period. While painful, the recent equities squeeze has been relatively modest. Yet stocks are only part of the story. Powerful squeezes have engulfed bonds, currencies, and the Credit default swap (CDS) marketplace.

Under the headline, “Crushed Bond Shorts See Quants Rush to Exit Wrong-Way Fed Bets,” a Tuesday Bloomberg article by Edward Bolingbroke: “The front-end of the Treasuries curve is expected to be propped up in the near-term by further waves of covering from commodity trading advisers, or CTAs, fresh from a washout of short positions triggered by last week’s US inflation data.”

The above FT article ran under the headline, “Hedge Fund Short Sellers Suffer $43bn of Losses in Market Rally.” To be sure, traditional short sellers account for only a small fraction of outstanding short positions. In last week’s WSJ article reporting on renowned short seller Jim Chanos’ decision to shutter his funds after almost four decades, it was noted that the short-only hedge fund sector has shriveled down to a mere (market inconsequential) $5 billion.

November 21 – Financial Times (George Steer): “The US stock market’s “Magnificent Seven” have been a headache for mutual fund managers, who have mostly eschewed them and are paying the performance price. Hedge funds have taken a different tack — in short, they yelled ‘YOLO’ and jumped in with both feet. From Goldman Sachs…: ‘The combination of elevated hedge fund concentration and the strong performance of popular stocks has supported returns this year but lifted our crowding index to a record high. Our Hedge Fund VIP list of the most popular long positions has returned +31% YTD, and most of the ‘Magnificent 7’ mega-cap tech stocks remain at the top of the list. Mirroring the increasing concentration in the equity market, concentration in hedge fund portfolios has risen; the typical hedge fund holds 70% of its long portfolio in its top 10 positions. These dynamics have also lifted hedge fund exposure to the Momentum factor to a near record.'Hedge fund crowding is now the most extreme it has been in the 22 years that Goldman has tracked hedge fund positioning…”

The FT article references “Goldman’s quarterly Hedge Fund Trend Monitor, which analyses over 700 hedge funds with $2.4tn of gross stock positions.” “Hedge fund exposure to momentum has rarely been as extreme as this, and the swing since 2022 has been astonishing.” A Bloomberg article stated the Goldman hedge fund universe holds $1.6 TN of longs versus $797 billion of shorts. Today, most shorting is associated with long/short and derivatives strategies.

The Goldman hedge fund universe captures only a slice of the vast “global leveraged speculating community.” Within my analytical framework, the global levered speculators operate as the marginal source of marketplace liquidity. “Risk on” leveraging creates liquidity, while de-risking/deleveraging destroys it. Stock shorts are only a small part of overall short exposure. I assume there’s a huge short position in Treasuries that finances holdings of higher yielding corporate debt. Shorting of Japanese government debt and other yen instruments could be one of the largest short positions ever.

While there have been close calls, it’s been a rewarding year for levered speculation. Yet fragility lies just below the surface. Performance dispersion has been exceptional. Some funds have performed quite well, while many have struggled. This has promoted extreme crowding in the high-flying big momentum technology stocks (i.e., “magnificent seven” and AI). The highly levered Treasury “basis trade” is surely crowded, along with myriad “carry trades” (corporate bonds, MBS, EM, European periphery).

Most importantly, I view leveraged speculation as one Really BIG Crowded Trade. Way too much “money” playing popular trading strategies ensures volatility and unstable markets. In particular, the proliferation of hedging and options strategies promotes instability. The potential is there for hedging and derivatives strategies to precipitate a market crash. But so far, this market structure has fueled repeated upside dislocations. The urgent unwind of hedges, short positions, and bearish CDS trades combine with FOMO for melt-up dynamics. The bottom line is that this aberrant structure impedes normal market function.

Under the Friday Bloomberg headline, “Wall Street Goes All-In on Cross-Market Meltup as Bears Retreat” (Isabelle Lee and Denitsa Tsekova): “It’s the major casualty of November’s sizzling stock rally: Investor caution. Thanks to what’s shaping up to be one of the biggest market meltups over the last 100 years, demand for protective strategies has all but evaporated. Professional and retail traders are battling to keep pace with an S&P 500 that has advanced almost 9% this month alone. Erstwhile defensive refuges — everything from inflation-protected bonds to cash ETFs and bearish options — are being jettisoned. In their place: Surging appetite for junk bonds and small-cap equities.”

On the other side of the world, Chinese Bubble deflation has gained important momentum, provoking only more extreme measures from an increasingly desperate Beijing. As reality begins to penetrate analysis, numbers quickly turn Really BIG.

November 22 – Bloomberg: “Chinese leaders are making their most forceful push yet to end the nation’s property crisis, ramping up pressure on banks to plug an estimated $446 billion shortfall in funding needed to stabilize the industry and deliver millions of unfinished apartments. Policymakers are finalizing a draft list of 50 developers eligible for financial support that includes Country Garden Holdings Co. and Sino-Ocean Group, indicating a pivot by Beijing to help some of the most distressed builders. Meanwhile, the country’s top lawmaking body said banks should increase funding for developers to reduce the risk of additional defaults and make certain that housing projects get completed.”

November 19 – Wall Street Journal (Rebecca Feng and Cao Li): “China’s housing market has a big problem: millions of unfinished homes that were sold but not delivered. Solving that is crucial for a recovery, but the problem keeps getting bigger. More property developers are defaulting on their debt and adding to the logjam of construction delays and stalled residential developments across the country. Potential home buyers have lost confidence in the housing market because they fear developers won’t be able to complete their projects. That sentiment has created a vicious circle as falling new home sales imperil even more companies. Households that have been waiting for years for the apartments they paid for have also become increasingly desperate for a resolution… Nomura’s chief China economist, Ting Lu, reckons that there are around 20 million units of uncompleted and delayed presold homes across China. He estimated that more than $440 billion would be needed to finish those homes and predicts that Beijing will eventually have to fill that funding gap.”

What are the options when purchasers have provided down-payments and already taken out mortgages on 20 million apartment units - and developers don’t have the money to complete construction? With years’ worth of inventory in many markets, China could live without millions of additional units. Beijing could simply write reimbursement checks to the 20 million buyers. But that would leave millions of construction jobs in jeopardy, along with a legacy of scores of eyesore uncompleted projects.

November 23 – Bloomberg: “China may allow banks to offer unsecured short-term loans to qualified developers for the first time, people familiar with the matter said, a major push to ease the property crisis that’s dragging down growth in the world’s second-largest economy… If the support measures are approved, they would represent China’s most forceful attempt yet to plug an estimated $446 billion shortfall in funding needed to stabilize the industry and deliver millions of uncompleted homes.”

Cajoling an already stretched and vulnerable banking system into unsecured developer lending reeks of desperation.

November 24 – Wall Street Journal (John Cheng): “Any step by China to allow banks to provide unsecured loans to qualified developers ‘would be a risky move’ for the lenders, according to JPMorgan... Such a measure ‘would be negative for banks as it would raise concerns about national service risk and credit risk in the medium term,’ analysts including Katherine Lei and Karl Chan wrote... What’s more, implementation ‘would be challenging, as banks could circumvent such guidance due to credit risk concerns.’”

Bloomberg Economics offered their take, with a report titled, “Unsecured Property Loans? Good Idea, Won’t Work.” “China’s policymakers appear to be racing to fill a liquidity gap facing developers, which we estimate at 15% of GDP.” “The commercial incentive for banks to lend to developers in current market conditions is questionable — even loans to the top firms in the sector are risky. Consider the loan officer who’s on the hook if a loan goes sour — their career could be on the line. With that thought, we conclude that the policy effort to right the teetering property sector is far from over.”

Let’s squeeze in a few Bloomberg Intelligence (Kristy Hung) highlights: “Tier-3 cities’ new-home inventory – at 33 months of average sales in September, the highest since the series started in 2010…” “The backlog in tier-2 cities at 24 months of sales was the second highest in 11 years.” “A surge in secondhand home listings is set to add further supply-side pressure on residential prices, as more homeowners seek to offload their second, third, or fourth properties…”

A couple of the week’s FT headlines: “China Property: Running Out of Options as Fallout Spreads to Shadow Banking.” “China Struggles to Spend its Way Out of Economic Crisis.” Bloomberg estimates that total developer debt exceeds $12 TN. Beijing faces a multi-trillion dollar black hole – one that expands greatly when China’s banking system eventually succumbs. And there’s more than $12 TN of local government debt, along with a $3 TN trust industry. Lots of Really BIG numbers.

November 23 – Financial Times (Hudson Lockett and Sun Yu): “Zhongzhi, one of the biggest groups in China’s vast shadow financing market, faces a shortfall of as much as $36.4bn and has warned that it is ‘severely insolvent’ in a letter to investors. The worsening situation at Zhongzhi has put the spotlight on liquidity issues in China’s nearly $3tn shadow financing market and its exposure to the country’s property sector crisis. Zhongzhi, a sprawling financial conglomerate, wrote… that its total assets amounted to just Rmb200bn ($28bn) against obligations of up to Rmb460bn. The company blamed the shortfall on the departure of ‘multiple senior executives and key personnel’ and the 2021 death of founder Xie Zhikun… The company said ‘internal management ran wild’ as a result of these departures. ‘The group’s investment products have defaulted one after the other, and we deeply apologise to investors,’ it said.”

These BIG numbers can be challenging to comprehend. My brain gets stuck on the combined half Trillion dollars of Evergrande and Country Garden liabilities. And now a single investment company, Zhongzhi, fesses up to a $36 billion hole in its balance sheet. In a company comment I fear is applicable to too many Chinese institutions and companies, “internal management ran wild.”

It’s worth noting that Chinese stocks have basically ignored global “risk on,” the Xi Jinping charm offensive, and a loudening drumbeat of stimulus measures. Developer stocks popped on the latest news, but financial stocks have been notably subdued. The Hang Seng China Financials Index declined 1.3% in Friday trading, reducing the week’s gain to only 1.2%. China’s CSI300 Index declined 0.8% this week, closing barely above four-year lows. A good segue to China’s October Credit data.

Aggregate Financing increased a weaker-than-expected $260 billion, with October (first month of the quarter) typically a slower lending month. This was down from September’s strong $577 billion, but up from October 2022’s $128 billion. Three-month growth of $1.273 TN was 30% above comparable year ago growth. At $4.360 TN, y-t-d growth in Aggregate Financing is running 8.6% ahead of last year. It’s worth noting that 2023 Credit growth is tracking just ahead of 2020’s all-time record.

Total Loan growth slowed to a stronger-than-expected $103 billion, down from September’s $323 billion, but up from the year ago $86 billion. Y-t-d growth of $3.350 TN is running 14% ahead of 2022, with one-year growth at 11.3%. Corporate Loans dropped to $72 billion from September’s $234 billion, but were up from last year’s $65 billion. Y-t-d growth of $2.264 TN is running 9% ahead of 2022, with one-year growth at 13.5%.

Consumer Loans (chiefly mortgages) contracted $5 billion, down from September’s $121 billion increase. Y-t-d growth of $650 billion is 37% ahead of comparable 2022, but 32% below 2021. One year growth of 6.8% remains near multi-decade lows.

Government Bond growth of $220 billion was second only to June 2022’s $227 billion. Three-month growth of $522 billion was up 150% from comparable 2022 ($208bn). At $1.052 TN, y-t-d growth was 21% ahead of 2022. Government bonds expanded 14.3% over one year, 32.6% over two and 51% over three years.

When I ponder China’s current predicament, I often return to Ben Bernanke’s thesis on the Great Depression: if only the Fed had printed money and recapitalized the U.S. banking system, collapse would have been avoided. This is flawed analysis. China could (will) today spend Trillions plugging holes in developer, local government, and corporate balance sheets, while recapitalizing their bloated banking system. Yet it would still require upwards of $5 TN of new Credit each year to hold collapse at bay. Beijing will spend Really BIG amounts, but it’s fighting a losing battle against Bubble Dynamics.

For the Week:

The S&P500 added 1.0% (up 18.7% y-t-d), and the Dow gained 1.3% (up 6.8%). The Utilities increased 0.6% (down 13.7%). The Banks dipped 0.8% (down 18.0%), while the Broker/Dealers rose 1.0% (up 10.3%). The Transports advanced 1.1% (up 12.7%). The S&P 400 Midcaps gained 0.9% (up 5.3%), and the small cap Russell 2000 increased 0.5% (up 2.6%). The Nasdaq100 added 0.9% (up 46.1%). The Semiconductors were unchanged (up 48.0%). The Biotechs gained 1.1% (down 8.4%). With bullion rising $20, the HUI gold equities index jumped 3.7% (down 1.3%).

Three-month Treasury bill rates ended the week at 5.2525%. Two-year government yields gained six bps this week to 4.95% (up 52bps y-t-d). Five-year T-note yields rose four bps to 4.49% (up 48bps). Ten-year Treasury yields increased three bps to 4.47% (up 59bps). Long bond yields added a basis point to 4.60% (up 63bps). Benchmark Fannie Mae MBS yields gained five bps to 6.08% (up 69bps).

Italian yields rose four bps to 4.40% (down 30bps). Greek 10-year yields dipped two bps to 3.82% (down 75bps y-t-d). Spain's 10-year yields gained four bps to 3.63% (up 12bps). German bund yields rose five bps to 2.64% (up 20bps). French yields gained five bps to 3.20% (up 22bps). The French to German 10-year bond spread was unchanged at 56 bps. U.K. 10-year gilt yields surged 18 bps to 4.28% (up 61bps). U.K.'s FTSE equities index slipped 0.2% (up 0.5% y-t-d).

Japan's Nikkei Equities Index was little changed (up 28.9% y-t-d). Japanese 10-year "JGB" yields increased two bps to 0.78% (up 36bps y-t-d). France's CAC40 increased 0.8% (up 12.7%). The German DAX equities index added 0.7% (up 15.1%). Spain's IBEX 35 equities index rose 1.8% (up 20.8%). Italy's FTSE MIB index slipped 0.2% (up 24.2%). EM equities were mostly higher. Brazil's Bovespa index increased 0.6% (up 14.3%), and Mexico's Bolsa index gained 0.6% (up 9.3%). South Korea's Kospi index added 1.1% (up 11.6%). India's Sensex equities index increased 0.3% (up 8.4%). China's Shanghai Exchange Index declined 0.4% (down 1.6%). Turkey's Borsa Istanbul National 100 index rose 1.4% (up 44.5%). Russia's MICEX equities index increased 0.4% (up 49.4%).

Federal Reserve Credit declined $43.8bn last week to $7.776 TN. Fed Credit was down $1.125 TN from the June 22nd, 2022, peak. Over the past 219 weeks, Fed Credit expanded $4.049 TN, or 109%. Fed Credit inflated $4.965 TN, or 177%, over the past 576 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt dropped $22.9bn last week to an almost five-month low of $3.408 TN. "Custody holdings" were up $97.3bn, or 2.9%, y-o-y.

Total Commercial Paper increased $10.0bn to $1.253 TN. CP was down $56bn, or 4.2%, over the past year.

Freddie Mac 30-year fixed mortgage rates dropped 12 bps to a 15-week low 7.13% (up 59bps y-o-y). Fifteen-year rates fell 13 bps to 6.58% (up 70bps). Five-year hybrid ARM rates sank 19 bps to 6.82% (up 131bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates up five bps to 7.82% (up 109bps).

Currency Watch:

November 20 – Reuters (Joe Cash): “The People's Bank of China and the Saudi Central Bank recently signed a local currency swap agreement worth 50 billion yuan ($6.93bn) or 26 billion Saudi riyals, both banks said… as bilateral relations continued to gather momentum. Saudi Arabia, the world's top oil exporter, and China, the world's biggest energy consumer, have worked to take relations beyond hydrocarbon ties in recent years… The swap agreement, which will be valid for three years and can be extended by mutual agreement, ‘will help strengthen financial cooperation... expand the use of local currencies... and promote trade and investment,’ between Riyadh and Beijing, the statement from China’s central bank said.”

For the week, the U.S. Dollar Index declined 0.5% to 103.39 (down 0.1% y-t-d). For the week on the upside, the New Zealand dollar increased 1.4%, the British pound 1.1%, the Australian dollar 1.1%, the Norwegian krone 0.7%, the Mexican peso 0.7%, the Canadian dollar 0.6%, the Swedish krona 0.6%, the Swiss franc 0.3%, the Singapore dollar 0.3%, the euro 0.2%, the Brazilian real 0.2%, and the Japanese yen 0.1%. On the downside, the South African rand dropped 2.2% and the South Korean won declined 0.7%. The Chinese (onshore) renminbi increased 0.91% versus the dollar (down 3.5%).

Commodities Watch:

The Bloomberg Commodities Index declined 0.5% (down 10.1% y-t-d). Spot Gold rose 1.0% to $2,001 (up 9.7%). Silver jumped 2.6% to $24.33 (up 1.6%). WTI crude slipped 35 cents, or 0.5%, to $75.54 (down 6%). Gasoline declined 0.9% (down 12%), and Natural Gas dropped 3.5% to $2.86 (down 36%). Copper gained 1.7% (up 1%). Wheat dipped 0.4% (down 31%), and Corn declined 0.8% (down 32%). Bitcoin rose $1,429, or 3.9%, to $37,920 (up 129%).

Middle East War Watch:

November 22 – Reuters: “Israel and Hamas agreed on Wednesday to a ceasefire in Gaza for at least four days, to let in aid and free at least 50 hostages held by militants in the Palestinian enclave in exchange for at least 150 Palestinians jailed in Israel. The first truce in a brutal, near seven-week-old war, reached after mediation by Qatar, was hailed around the world as a sign of progress that could ease the suffering of civilians in Israeli-besieged Gaza and bring more Israeli captives home.”

November 23 – Associated Press (Bassem Mroue): “The militant Hezbollah group fired more than 50 rockets at military posts in northern Israel on Thursday, a day after an Israeli airstrike on a home in southern Lebanon killed five of the group’s senior fighters. The waves of rockets sent over the border represented one of the most intense bombardments since Hezbollah started attacking Israeli posts in the country’s north at the beginning of the Israel-Hamas war.”

November 22 – Associated Press (Tara Copp and Kareem Chehayeb): “A major Iranian-backed militant group in Iraq warned it may strike additional U.S. targets after U.S. warplanes killed multiple militants in response to the first use of short-range ballistic missiles against U.S. forces at Al-Asad Air Base Monday. U.S. fighter jets struck a Kataib Hezbollah operations center and a Kataib Hezbollah command and control node near Al Anbar and Jurf al Saqr, south of Baghdad, on Tuesday… Kataib Hezbolla… meanwhile said it was considering ‘expanding the scope of targets’ if the U.S. military continues with its strikes, adding that the attack ‘will not go unpunished’.”

November 22 – Wall Street Journal (Michael R. Gordon): “The U.S. fears Iran is preparing to provide Russia with advanced short-range ballistic missiles for its military campaign in Ukraine, U.S. officials said… Iran has already provided Russia with armed drones, guided aerial bombs and artillery shells, U.S. officials said. But U.S. concern that the military cooperation between the nations may further expand grew when Iran showed its Ababil and Fateh-110 missiles to Russian Defense Minister Sergei Shoigu when he visited Tehran in September.”

November 21 – Wall Street Journal (Chun Han Wong): “Chinese leader Xi Jinping is seizing on the conflict in Gaza to portray his country as a force for stability in the Muslim world, in contrast with what Beijing casts as American meddling in the Middle East. In recent weeks, China has ramped up its appeals to halt the Israel-Gaza war, a show of diplomatic bustle laden with humanitarian platitudes but light on substantive proposals... China’s foreign minister on Monday hosted top diplomats from Arab and Muslim-majority countries in Beijing to discuss ways to mediate peace, building on efforts by Beijing’s Middle East envoy, who shuttled across the region this month to pledge Chinese support for talks to end the fighting in Gaza. Xi has weighed in as well.”

Market Instability Watch:

November 19 – Wall Street Journal (Eric Wallerstein): “The recent hack of a Chinese banking giant reignited Wall Street’s long-running fears of disruptions to the short-term cash markets underpinning the global financial system. Traders swiftly contained the cyberattack on the Industrial and Commercial Bank of China. But some said the incident exposed cracks in the multitrillion-dollar market for repurchase agreements, known as repo, where banks and hedge funds borrow cash mainly using Treasurys as collateral. Investors fear snarls in the repo market because it facilitates trading across Wall Street. Repo played a role in the pandemic market crash and the collapse of Lehman Brothers. Many worry problems originating there could spread rapidly throughout markets.”

November 21 – Reuters (Richard Cowan and Moira Warburton): “The U.S. Congress is facing growing calls to find a way to stem rising budget deficits and debt following this month's warning by Moody's that political dysfunction could lead it to lower the federal government's credit rating. There is no rocket science to the three basic choices for grappling with a national debt that has doubled in just the last decade and stands at $33.7 trillion, around 124% of GDP: raise taxes, cut spending or do a combination of the two. That has led some lawmakers to call for a commission to do the heavy lifting of coming up with realistic approaches to addressing the ballooning debt, a growing concern now that interest rates have risen, producing a jaw-dropping $659 billion in payments just on the national debt in fiscal year 2023…”

November 19 – Bloomberg (Billy House and Erik Wasson): “Republican ultra-conservatives are running out of patience less than four weeks after installing one their own, Mike Johnson, as House speaker, signaling turmoil ahead and heightened risk of a government shutdown in the new year. Many of them are fuming over the new speaker’s support of an interim funding measure that postponed a Nov. 18 government shutdown until mid-January without winning concessions conservatives wanted. That seemed too reminiscent of Johnson’s predecessor, whose ouster unleashed a fierce succession struggle.”

November 24 – Bloomberg (Sagarika Jaisinghani): “Investors flocked into equities at the fastest pace in almost two years, according to Bank of America Corp.’s Michael Hartnett, as wagers of peak interest rates grow. Global stock funds have seen inflows of about $40 billion in the two weeks through Nov. 21 — the most since February 2022, Hartnett wrote…”

Bubble and Mania Watch:

November 20 – Politico (Eleanor Mueller and Victoria Guida): “The national debt has reemerged as a paramount economic issue for the first time in nearly a decade, raising alarms from Congress to Wall Street. But even with all the outward drama, there’s little evidence that Washington is ready to stem the tide of red ink… Even GOP lawmakers acknowledged an inability to reach consensus within their own ranks on the path forward. Democrats want to focus on raising taxes, not spending reductions — and some don’t agree that deficits are an urgent issue at all. Both President Joe Biden and Donald Trump have refused to entertain cuts to Social Security and Medicare — taking two of the biggest drivers of the debt off the table. ‘Do Republicans have the political will? We sure do talk big,’ House Budget Chair Jodey Arrington (R-Texas) said.”

November 20 – Wall Street Journal (Konrad Putzier): “The office sector’s credit crunch is intensifying. By one measure, it’s now worse than during the 2008-09 global financial crisis. Only one out of every three securitized office mortgages that expired during the first nine months of 2023 was paid off by the end of September, according to Moody’s Analytics. That is the smallest share for the first nine months of any year since at least 2008 and well below the nadir reached in 2009, when 47% of these loans got paid off.”

November 22 – Reuters (Tom Wilson): “The most powerful man in crypto has lost his crown - and could see his freedom curtailed as well. Binance chief Changpeng Zhao on Tuesday stepped down and pleaded guilty to breaking U.S. anti-money laundering laws as part of a $4.3 billion settlement resolving a years-long probe into the world's largest crypto exchange, prosecutors said. The deal with the Justice Department, part of a large settlement between Binance and other U.S. agencies, resolves criminal charges for conducting an unlicensed money transmitter business, conspiracy and breaching sanctions regulations.”

November 22 – Reuters (Lisa Pauline Mattackal, Chris Prentice and Jonathan Stempel): “Investors pulled about $956 million from crypto exchange Binance over the past 24 hours after its chief, Changpeng Zhao, stepped down and faced prison time after pleading guilty to settle a years-long U.S. illicit finance probe. The deal, in which Binance will pay $4.3 billion to U.S. authorities, raises questions over the future of the world's largest crypto exchange and marks another blow for an industry beset by scandals.”

Banking Crisis Watch:

November 22 – Bloomberg (Alexandra Harris): “US regional banks are seeing ‘permanently’ elevated funding costs relative to their major competitors in the wake of the March turmoil that upended the sector and financial markets, according to Torsten Slok at Apollo Management. Eight months after the collapse of Silicon Valley Bank, ‘large banks continue to enjoy significantly lower funding costs and, hence, higher profit margins than regional banks,’ Slok, the firm’s chief economist, said…”

November 22 – Financial Times (Martin Arnold): “The balance sheets of eurozone banks are showing ‘early signs of stress’ after a rise in loan defaults and late repayments from historic lows, the European Central Bank has warned. Officials urged lenders to increase provisions to cover rising loan losses and predicted their profits would be hit by a drop in lending volumes and increased funding costs… ‘A longer period of high interest rates is likely to lead to higher provisions, which in turn will be a drag on profitability further down the line,’ the central bank said at its twice-yearly financial stability review.”

November 21 – Financial Times (Martin Arnold): “Eurozone property companies are being hit by surging losses and some will struggle to support their debts, which have risen to a higher level than before the 2008 financial crisis, the European Central Bank has warned. The losses, which the ECB said would have ‘consequences for the resilience of banks’ loan books’, stem from sharply higher financing costs, falling commercial property values, weaker rental income and rising concerns about the energy efficiency of buildings. The central bank said signs of stress in the commercial property sector, which accounts for 10% of all eurozone bank loans, ‘have the potential to significantly amplify an adverse scenario’ and would ‘drive large losses’ in the wider financial system.”

November 23 – Reuters (Balazs Koranyi): “Germany's financial firms may be well capitalised now but face challenges ranging from rising interest expenditure and weak loan demand to unrealised losses, Bundesbank Vice President Claudia Buch said… Interest rates have risen at the fastest pace on record in the past year and banks have done well to cope with the change but the new operating environment also holds risks… ‘Almost two-thirds of savings banks and credit cooperatives now have unrealised losses throughout their banking book, which comprises loans as well as securities… Life insurers are in a similar situation.’”

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

November 20 – Wall Street Journal (Alastair Gale): “For decades, the U.S. hasn’t had to worry much about China’s submarines. They were noisy and easy to track. The Chinese military, meanwhile, struggled to detect America’s ultraquiet submarines. Now, China is narrowing one of the biggest gaps separating the U.S. and Chinese militaries as it makes advances in its submarine technology and undersea detection capabilities, with major implications for American military planning for a potential conflict over Taiwan.”

November 20 – Bloomberg (Li Liu): “Chinese President Xi Jinping says China is willing to work with Russia in ‘resolutely’ developing bilateral relations featuring permanent friendship, comprehensive strategic coordination and mutually beneficial cooperation, China Central Television reports… China, Russia ties will inject more stability into the world, Xi is cited as saying. Putin also sent a congratulatory letter to the 10th meeting of the dialogue mechanism between the ruling parties of China and Russia.”

Inflation Watch:

November 22 – Reuters (Dan Burns): “U.S. consumers' inflation expectations rose for a second straight month in November despite growing signs that price increases are in fact slowing, according to a survey… that may create some worry for Federal Reserve policymakers. American households see inflation accelerating to 4.5% over the next year, up from 4.2% in October and from 3.2% in September, the University of Michigan's twice-monthly survey of consumer sentiment showed. That is the highest rate since April. Over a five-year horizon, consumers now see inflation running at 3.2% on average, up from 3.0% in October and 2.8% in September. That is the highest since a matching reading of 3.2% in 2011. Households' long-term inflation outlook has not been higher than that since 2008 when it reached 3.4% as the financial crisis was beginning to unfold. ‘These expectations have risen in spite of the fact that consumers have taken note of the continued slowdown in inflation,’ survey Director Joanne Hsu said… ‘Consumers appear worried that the softening of inflation could reverse in the months and years ahead.’”

November 20 – Wall Street Journal (Will Parker): “Big public companies that rent out single-family homes are beating the rest of the rental market this year, thanks to tenants who are paying large rent increases on the sorts of homes they increasingly can’t afford to buy. Landlords Tricon Residential, Invitation Homes and AMH, which together own about 180,000 rental homes, each posted rent increases greater than 6% for the third quarter over the same period a year prior. That was about twice as much as the average increase for rental homes in September, compared with the same month last year…”

Biden Administration Watch:

November 20 – CNBC (Rebecca Picciotto): “Treasury Secretary Janet Yellen said… U.S. President Joe Biden and Chinese President Xi Jinping remained far apart on the status of Taiwan after their high-profile meeting last week during the Asia-Pacific Economic Cooperation summit in San Francisco. ‘President Xi did express the view that it’s important for Taiwan and mainland China to unify. He certainly expressed the desire to have that occur by peaceful means,’ Yellen said… ‘But President Biden said our policy remains unchanged from what it’s always been with respect to Taiwan.’ The U.S. recognizes the People’s Republic of China as the sole government of China but also maintains that Taiwan is a self-governing island, despite China’s claims to the contrary.”

November 21 – Bloomberg (Jane Lanhee Lee, Ian King, Mackenzie Hawkins and Jillian Deutsch): “President Joe Biden has adopted a two-pronged approach to constrain China’s high-tech progress, curbing Beijing’s access to leading-edge chips while bolstering semiconductor production in the US. He’s about to ratchet up the pressure further, shifting focus to an emerging arena of the contest for technological supremacy: the process of packaging semiconductors that’s increasingly seen as a path to achieving higher performance. Only the US isn’t alone is recognizing the potential of so-called advanced packaging: China, too, is capitalizing on an area that isn’t subject to sanctions, capturing global market share and achieving progress denied it in manufacturing high-end chips.”
Federal Reserve Watch:

November 21 – Financial Times (Colby Smith): “Federal Reserve officials expressed little urgency to raise interest rates again at their most recent meeting, even as they reiterated their willingness to tighten monetary policy further if warranted by new data. Minutes from the Federal Open Market Committee’s November meeting… confirmed that all officials are still committed to proceeding ‘carefully’ on future rate decisions, as they debate whether they have squeezed the economy sufficiently to get inflation back down to the central bank’s 2% target. Data ‘in coming months’ would clarify the progress against inflation, the minutes emphasised, with the Fed looking for signs that demand from consumers and businesses was moderating and the labour market cooling.”

November 20 – Reuters (Michael S. Derby): “Demand for new credit in the U.S. over the last year has declined and will likely stay soft in the future, according to a survey released on Monday by the New York Federal Reserve. There was a ‘notable’ decline in credit over the last year, with application rates at 41.2%, compared to 44.8% in 2022 and the pre-pandemic 2019 level of 45.8%, the regional Fed bank's quarterly Survey of Consumer Expectations Credit Access survey showed.”

U.S. Bubble Watch:

November 22 – Associated Press (Paul Wiseman): “The number of Americans applying for unemployment benefits fell sharply last week, a sign that U.S. job market remains resilient despite higher interest rates. The Labor Department reported Wednesday that jobless claims dropped by 24,000 to 209,000. The previous week’s total — 233,000 — had been the highest since August. The four-week moving average of claims, which smooths out week-to-week volatility, fell by 750 to 220,000. Overall, 1.84 million Americans were receiving unemployment benefits the week that ended Nov. 11, down by 22,000 from the week before.”

November 22 – Reuters (Alicia Clanton): “Mortgage rates in the US continued their slide, reaching the lowest level since mid-September. The average for a 30-year, fixed loan was 7.29%, down from 7.44% last week, Freddie Mac said… The four-week streak of declines offers a bit of hope to would-be homebuyers who’ve been waiting for the market to shift in their favor. But borrowing costs are still elevated — and just part of the equation.”

November 22 – CNBC (Diana Olick): “Mortgage demand is finally crawling out of the basement as interest rates continue to move lower. Total application volume increased 3% last week from the previous week, according to the Mortgage Bankers Association’s… index… Applications for a mortgage to purchase a home increased 4% week to week but were still 20% lower than one year ago. ‘The average loan size on a purchase application was $403,600, the lowest since January 2023. This is consistent with other sources of home sales data showing a gradually increasing first-time homebuyer share,’ Kan added.”

November 21 – CNBC (Diana Olick): “Sales of previously owned homes were 4.1% lower in October compared with September, running at a seasonally adjusted annualized rate of 3.79 million units, according to the National Association of Realtors. It was the slowest sales pace since August 2010. Analysts were expecting a smaller drop, to 3.9 million units. Sales were down 14.6% year over year… At the end of October there were 1.15 million homes for sale, down 5.7% from a year earlier. This is about half as many homes as were available for sale pre-Covid. At the current sales pace, that represents a 3.6-month supply. a six-month supply is considered a balanced market... Tight supply kept pressure under prices. The median price of an existing home sold in October was $391,800, an increase of 3.4% from a year ago ($378,800). Prices rose in all regions of the country.”

November 22 – Reuters (Ananta Agarwal): “New vehicle sales in the United States are expected to rise in November, a report from industry consultants showed…, as demand for the latest models remains strong and inventories improve. U.S. new vehicle sales, including retail and non-retail transactions, are estimated to reach 1,236,000 units in November, a 10.2% jump from a year earlier, according to the joint forecast report by J.D. Power and GlobalData. ‘Sales growth is being enabled by improving vehicle availability,’ said Thomas King, president of the data and analytics division at J.D. Power…”

November 21 – Bloomberg (Leslie Patton and Laura Bejder Jensen): “Richer Americans are curtailing their spending ahead of Black Friday, a worrisome sign for an economy that has so far depended on the US consumer to stave off a recession. In the three months ahead of the all-important holiday shopping season, a group of retailers that cater to the upper middle class — including Apple, Coach and Nordstrom — saw its biggest sales drop in two years, according to an exclusive analysis of Bloomberg Second Measure data. The malaise also hit top-performing malls in wealthier areas, even as overall retail-sales figures march higher.”

November 20 – Axios (April Rubin): “The U.S. housing market has shattered the stereotypical American dream, as the dominant group of homebuyers ages and moves without young children. Why it matters: The median homebuyer age has jumped 10 years — to 49 — in two decades…, as the housing affordability crisis deepens. Repeat buyers were a median age of 58 in 2023, while first-time buyers were 35, per National Association of Realtors annual data... The data analyzed transactions between July 2022 to June 2023. ‘We're talking about a different profile of homebuyer today,’ Jessica Lautz, NAR deputy chief economist, told Axios, referring to older and more affluent purchasers.”

Fixed Income Watch:

November 22 – Financial Times (Harriet Clarfelt): “Investors are pouring cash into US corporate bond funds at the fastest pace in more than three years, signalling a growing appetite for risky assets as markets call the peak in interest rates. More than $16bn has flooded into corporate bond funds in the month to November 20…, already a larger net inflow than any full month since July 2020. The trend has been concentrated mainly in ‘junk’ debt, with $11.4bn flowing into funds investing in these low-grade, high-yield bonds this month. Another $5bn has poured into investment grade funds, which hold better quality corporate debt.”

November 21 – Bloomberg (Martin Z. Braun): “Bond investors have piled into New York City’s tax-exempt bonds, lured by their relatively high yields. He points to the city’s looming $7 billion budget deficit, exacerbated in part by spiraling costs of sheltering asylum seekers and other migrants that have sought refuge in New York. Declining Wall Street profits and job cuts at major investment banks will put pressure on city tax revenue, dimming New York’s fiscal outlook. That suggests the city’s general obligation bonds aren’t particularly attractive at current valuations.”

November 20 – Reuters (Matt Tracy): “Issuance of securities backed by U.S. commercial real estate (CRE) loans posted a rare rebound last quarter, but sector struggles will likely persist through 2023, according to ratings agency DBRS Morningstar. The third quarter saw roughly $3 billion in new collateralized loan obligations (CLOs) backed by CRE loans… This marks a significant turn from the second quarter, which saw less than $1 billion in CRE CLO issuance.”

China Watch:

November 21 – CNBC (Evelyn Cheng): “China’s property market… needs more government support to prevent it from deteriorating further, analysts said. Existing home prices fell in October by the most since 2014, while outstanding property loans fell for the first time in history, Larry Hu, chief economist at Macquarie, said… That indicates increased drags on both the demand and the supply side. Policy so far has focused on boosting demand. But the government hasn’t ‘addressed the most important issue: credit risk related to developers,’ according to a Macquarie report. ‘Without a lender of last resort, a self-fulfilled confidence crisis could easily happen as falling sales and rising default risks reinforce each other,’ the report said. ‘Indeed, some large developers have recently seen their credit risks rising rapidly.’”

November 21 – Bloomberg: “Country Garden Holdings Co. and Sino-Ocean Group have been included on China’s draft list of 50 developers eligible for a range of financing support, according to people familiar…, signaling a pivot by Beijing to help some of the nation’s most distressed builders… Bloomberg reported… that China is drafting a list to guide financial institutions as they weigh support for the property industry via loans, debt and equity financing. The scope of the funding — and the long-term implications for creditors and shareholders — remain unclear.”

November 22 – Bloomberg: “One of China’s largest shadow banks warned it’s ‘severely insolvent,’ with a debt pile more than two times higher than assets, according to a letter seen by Bloomberg... In a further sign of trouble for the nation’s $3 trillion trust sector, Zhongzhi Enterprise Group Co. told investors… it has debts of about 420 billion yuan to 460 billion yuan ($58.7bn to $64.3bn), compared with assets of 200 billion yuan. Liquidity has dried up and the recoverable amount from asset disposals is expected to be low, the company said.”

November 21 – Financial Times (Joe Leahy): “This month, China’s new finance minister Lan Fo’an told markets what they had been waiting to hear — Beijing would boost budget spending to support a struggling post-pandemic recovery in the world’s second-largest economy. China is to deploy an arsenal of local and central government bonds, including a new Rmb1tn ($140bn) treasury facility — which will push Beijing’s budget deficit up to a two-decade high of 3.8% this year, Lan said, to ‘maintain fiscal spending intensity at an appropriate level’. But while the message was welcomed by investors, many analysts question just how much budgetary firepower Beijing really has to boost flagging confidence and drive stronger economic momentum.”

November 20 – Bloomberg: “China’s central bank has encouraged lenders to cap the amount of new loans they issue in early 2024 and shift some forward to this year as authorities try to smooth the credit cycle, people familiar with the matter said. The People’s Bank of China last week guided lenders to make sure the value of new loans they extend in January-to-March does not exceed the quarterly average issued over the past five years… The guidance from the PBOC implies a limit in the first quarter of 7.9 trillion yuan ($1.1 trillion) in loans… — a quarter less than the amount in the first three months of 2023.”

November 23 – Bloomberg (Tom Hancock): “China’s labor market is weak and dragging on confidence in the world’s second-largest economy, alternative data show, contrasting with official gauges of employment suggesting a steady jobs picture. Independent analysis of online job listings and official economic and household surveys indicate the nation’s job market worsened in the third quarter of the year, with some showing softness stretching into October and November. Consumer confidence remains muted and Chinese companies are offering new hires lower salaries.”

November 21 – Wall Street Journal (Peter Grant): “Shares of battered down office landlords had their biggest one-day rally in three years last week, after inflation data came in lower than anticipated and expectations rose that the Federal Reserve was done raising interest rates. Shares of office real-estate investment trusts soared an average of 11.5% on Nov. 14… That is the largest daily increase since November 2020, when an even larger rally was sparked by the announcement of a Covid-19 vaccine.”

November 20 – Financial Times (Hudson Lockett): “More than three-quarters of the foreign money that flowed into China’s stock market in the first seven months of the year has left, with global investors dumping more than $25bn worth of shares despite Beijing’s efforts to restore confidence in the world’s second-largest economy. The sharp selling in recent months puts net purchases by offshore investors on course for the smallest annual total since 2015, the first full year of the Stock Connect programme that links up markets in Hong Kong and mainland China.”

Central Banker Watch:

November 20 – Financial Times (Sam Fleming): “The Bank of England governor warned… it was too early to declare victory over inflation even after the weaker price growth reported this month, as he predicted UK monetary policy will have to stay restrictive for ‘quite some time yet’. Andrew Bailey argued in a speech that the squeeze on household incomes from higher food and energy prices might still be influencing wage demands, which risks perpetuating inflationary pressures.”

November 21 – Financial Times (Martin Arnold): “Christine Lagarde has said it is too early to ‘start declaring victory’ in the European Central Bank’s push to tame inflation, calling for rate-setters — and markets — to ‘allow some time’ to see how fast disinflationary forces take effect. After raising interest rates by an unprecedented 4.5 percentage points in the past year, eurozone policymakers left borrowing costs on hold at their October policy meeting and are expected to do so again in December. Those pauses and weak eurozone growth have raised expectations that borrowing costs could edge lower, with investors betting the ECB could cut interest rates as early as April.”

November 23 – Bloomberg (Alexander Weber): “‘If wage growth remains at a level that is not compatible with the 2.0%, there is unfortunately nothing we can do even if there is a recession,’ Belgian central bank Governor Pierre Wunsch told Boersen-Zeitung… ‘With wage growth of around 5%, we will not lower interest rates — even if the economy shrinks slightly.’ ‘I think there is now a kind of consensus that we should err on the side of caution before cutting interest rates’.”

Europe Watch:

November 23 – Reuters (Johnny Cotton, Toby Sterling and Bart H. Meijer): “Far-right populist Geert Wilders wants to be the Netherlands' next prime minister and would focus his efforts on curbing immigration, he said… Wilders' win sent a warning shot to mainstream parties across Europe ahead of European Parliament elections next June, which will likely be fought on the same issues as the Dutch election: immigration, cost of living and climate change. ‘We've had it with the old politicians,’ voter Herman Borcher said…, summing up the mood. A fan of former U.S. President Donald Trump and Hungary's eurosceptic Prime Minister Viktor Orban, Wilders is openly anti-Islam, and anti-EU and said ‘the Netherlands will be returned to the Dutch.’”

November 21 – Bloomberg (Kamil Kowalcze and Michael Nienaber): “Germany imposed an emergency spending freeze in response to last week’s ruling by the country’s top court, deepening an unprecedented budget crisis that has rocked Europe’s biggest economy. Chancellor Olaf Scholz’s government has been racing to work out the implications of the Constitutional Court judgment, which called into question hundreds of billions of euros of financing in special funds that are not part of the regular federal budget. The Finance Ministry in Berlin on Monday froze virtually all new spending authorizations for this year as it tries to identify the broader and longer-term impact…”

November 22 – Bloomberg (Michael Nienaber and Kamil Kowalcze): “Germany’s ruling coalition is locked in near non-stop talks to try to resolve an unprecedented budget crisis triggered by last week’s shock ruling on off-budget funds by the country’s top court. As Chancellor Olaf Scholz hosted a regular weekly meeting of his cabinet Wednesday morning, government lawyers and officials continued frantic efforts to address the Constitutional Court judgment, which blew a €60 billion ($65.4bn) hole in a pot for funding initiatives to protect the climate and spur Germany’s industrial transformation.”

November 23 – Bloomberg (Alexander Weber and Zoe Schneeweiss): “A recession in the euro area is looking increasingly likely as the economic downturn persists in the final quarter of the year, private-sector activity surveys showed. S&P Global’s purchasing managers’ index was in contraction again in November, hitting 47.1. While that’s a bigger uptick than anticipated by economists, it marks the sixth consecutive month below the 50 level that marks expansion.”

Japan Watch:

November 23 – Reuters (Tetsushi Kajimoto): “Japan's core consumer price growth picked up slightly in October, after easing the previous month, reinforcing investors' views that stubborn inflation may push the Bank of Japan (BOJ) to roll back monetary stimulus before long. The nationwide core consumer price index (CPI), which excludes volatile fresh food costs, rose 2.9% year-on-year in October…”

November 19 – Reuters (Tetsushi Kajimoto and Kentaro Sugiyama): “Japan's big employers are set to follow this year's bumper pay hikes with another round in 2024, which are expected to help lift household spending and give the central bank the conditions it needs to finally roll back massive monetary stimulus. Early indications from businesses, unions and economists suggest the labour and cost pressures that set the stage for this year's pay hikes - the largest in more than three decades - will persist heading into next year's key spring wage talks. The head of major beverage maker Suntory Holdings Ltd, for example, plans to offer employees average monthly pay hikes of 7% in 2024 for the second straight year, to retain talent in a tight labour market and offset rising inflation.”

November 20 – Bloomberg (Emi Urabe and Toru Fujioka): “Japan’s advisory board for the finance ministry flagged the need to pay more attention to the possible adverse impact of inflation and higher interest rates on the nation’s finances as a shift in Bank of Japan policy looms large. ‘It will become even more important to manage Japan’s finances responsibly, bearing in mind the risks of a sharp rise in interest rate payments,’ the board said… ‘There is a possibility of entering a different phase in which high inflation and rising interest rates are normal.’”

November 21 – Bloomberg (Toru Fujioka and Sumio Ito): “The Bank of Japan is on track for zero purchases of real estate investment trusts this year and its smallest annual haul of exchange-traded funds since 2010 as it continues to stealthily tiptoe in the direction of more conventional policy… The lack of buying in the two markets reflects their robust growth, a factor that largely sidelines the need for additional help from the central bank.”

EM Watch:

November 19 – Reuters (Nicolás Misculin, Lucinda Elliott and Walter Bianchi): “Argentina elected right-wing libertarian Javier Milei as its new president on Sunday, rolling the dice on an outsider with radical views to fix an economy battered by triple-digit inflation, a looming recession and rising poverty. Milei, who rode a wave of voter anger with the political mainstream, won by a wider-than-expected margin. He landed some 56% of the vote versus just over 44% for his rival, Peronist Economy Minister Sergio Massa…”

November 20 – Wall Street Journal (Ryan Dubé and Santiago Pérez): “The self-styled anarcho-capitalist who won Argentina’s presidency… plans to ditch his nation’s peso and adopt the U.S. dollar as the national currency. President-elect Javier Milei’s top campaign proposal was aimed at eradicating rampant inflation that has for decades ravaged Latin America’s third-biggest economy by removing the battered national currency from circulation and stripping the central bank of its power to print money. Uncontrolled money-printing to cover public expenditures, economists say, has fueled 143% inflation, one of the world’s highest. ‘Closing the central bank is a moral obligation,’ Milei said…”

November 22 – Reuters (Horaci Soria): “Argentina's libertarian President-elect Javier Milei is sticking by his plans for economic ‘shock’ therapy to fix the country's myriad crises from triple-digit inflation to rising poverty and a dearth of foreign currency reserves. In an interview late on Tuesday, Milei said that his government, which will take office on Dec. 10, would have to make deep spending cuts, something he pledged in the campaign as part of a ‘chainsaw’ plan to trim state spending. ‘There’s no money. There's no money," Milei told… Neura Media. ‘If we don't make a fiscal adjustment, we’re headed for hyperinflation. We'll have hyperinflation and we are going to have 95% poverty and 70% or 80% homeless.’”

November 21 – Bloomberg (Anup Roy): “India’s central bank Governor Shaktikanta Das warned banks to undertake stress tests and said all forms of ‘exuberance’ should be avoided, days after imposing curbs on some lending. ‘At the current juncture, there may not be any cause for worry,’ Das said… But banks and non-bank financial companies ‘would be well advised to take certain precautionary measures,’ he said. The Reserve Bank of India last week clamped down on unsecured lending by lenders and shadow banks to curb financial stability risks… With lending accelerating, banks and non-banks should take care that credit growth at all levels ‘remain sustainable and all forms of exuberance must be avoided,’ Das said.”

November 23 – Reuters (Karin Strohecker and Ezgi Erkoyun): “Turkey's central bank delivered a larger-than-expected 500 bps interest rate hike on Thursday, lifting its benchmark to 40% but also flagging that the pace of monetary tightening was set to slow down and the end of the cycle was in sight.”

Levered Speculation Watch:

November 21 – Bloomberg (Michael Msika): “Hedge funds are holding their most concentrated wagers on US equities than anytime in the past 22 years, according to data from Goldman Sachs... An index created by the investment bank to track crowding across hedge funds has reached a record high…, which said the average fund holds 70% of its long portfolio in its top 10 positions. The most popular bets remain in megacap tech, with Microsoft Corp. Inc. and Meta Platforms Inc. in Goldman’s list of ‘Hedge Fund VIPs’ this quarter. A group of seven tech companies account for about 13% of the average hedge fund long portfolio, twice the weighting from the start of 2023, Goldman’s analysis show.”

Social, Political, Environmental, Cybersecurity Instability Watch:

November 24 – Wall Street Journal (Aaron Zitner): “The American dream—the proposition that anyone who works hard can get ahead, regardless of their background—has slipped out of reach in the minds of many Americans. Only 36% of voters in a new Wall Street Journal/NORC survey said the American dream still holds true, substantially fewer than the 53% who said so in 2012 and 48% in 2016 in similar surveys of adults by another pollster.”

November 19 – Financial Times (Kenza Bryan and Steven Bernard): “The cyclical El Niño effect which helped put the world on track for a heat record this year and is continuing to exacerbate and interfere with weather patterns will persist into 2024, scientists say. The naturally occurring warming effect in the Pacific Ocean can cause global temperatures to rise in the short term and wreak havoc on crop yields in some parts of the world. Companies in various sectors, including food and transportation, have warned about the disruption to commodities and supply chains, as well as higher insurance risks. In Brazil, where it is still spring, the National Institute of Meteorology issued a red alert for heat in the past week across several regions.”

November 20 – Financial Times (Kenza Bryan and Steven Bernard): “The world is on track for a temperature rise of up to 2.9C above pre-industrial levels, a report by the UN environment programme has found, even assuming countries stick to their Paris agreement climate pledges. UN chief António Guterres said that keeping the Paris goal of limiting the rise to ideally 1.5C and well below 2C would require ‘tearing out the poisoned root of the climate crisis: fossil fuels.’ ‘Otherwise, we’re simply inflating the lifeboats while breaking the oars,’ he added. The world has already warmed by at least 1.1C.”

Geopolitical Watch:

November 21 – Reuters (Ben Blanchard): “Taiwan cannot afford chaos or ‘experiments’ when it comes to being president, the front-runner to be the island's next leader said… as the opposition remained mired in a bitter dispute on mounting a joint presidential challenge. The Jan. 13 election will shape Chinese-claimed Taiwan's relations with Beijing at a time China has stepped up military pressure to assert its sovereignty claims. Vice President Lai Ching-te of the ruling Democratic Progressive Party (DPP), who China views as a separatist, leads opinion polls to be Taiwan's next president. Talks between the two main opposition parties to team up and take him on have floundered and are in deadlock.”

November 20 – Reuters (Ben Blanchard and Fabian Hamacher): “Lai Ching-te, the frontrunner for Taiwan's presidency, named on Monday Taipei's former envoy to the United States as his running mate in January's election, a high-profile diplomat well known in Washington but who Beijing denounces as a separatist. Lai, vice president and the ruling Democratic Progressive Party's (DPP) presidential candidate, has led in most opinion polls ahead of the election, which is taking place as Taiwan comes under increased pressure from China to accept its sovereignty claim.”

November 22 – Reuters (Ju-min Park): “North Korea vowed… to deploy stronger armed forces and new weapons on its border with the South, pulling back from a 2018 military accord designed to curb the risk of inadvertent clashes between two countries that remain technically at war. Pyongyang's statement came a day after South Korea suspended part of the same inter-Korean agreement and resumed frontline aerial surveillance of North Korea in a protest over Pyongyang's launch of a spy satellite.”

November 22 – Reuters (Hyonhee Shin): “North Korea got help from Russia for its successful launch of a reconnaissance satellite this week, South Korean lawmakers said…, citing the country's intelligence agency. Tuesday's launch was North Korea's third attempt after two failed tries, and the first since its leader Kim Jong Un's rare trip to Russia in September, during which President Vladimir Putin promised to help Pyongyang build satellites.”

November 21 – Financial Times (Kathrin Hille): “The US and the Philippines have started joint air and sea patrols in the South China Sea, the latest step in the two allies’ efforts to strengthen military co-operation amid growing tension with Beijing in the disputed waters. ‘This significant initiative is a testament to our commitment to bolster the interoperability of our military forces,’ Philippine President Ferdinand Marcos Jr wrote in… The move comes as Manila and Beijing are embroiled in an increasingly heated stand-off over the Philippine military’s regular resupply missions to its outpost on Second Thomas Shoal…”

November 18 – BBC: “Australia has accused China's navy of using sonar pulses in an incident in international waters that resulted in Australian divers suffering injuries. The Australian defence minister said a Chinese warship had resorted to ‘unsafe and unprofessional’ actions during the encounter off Japan earlier this week. The warship approached an Australian frigate as divers were clearing fishing nets from its propellers, he said. The Chinese ship then emitted dangerous sonar pulses, the minister added. This had posed ‘a risk to the safety of the Australian divers, who were forced to exit the water’, Defence Minister Richard Marles said…”