The unwind of highly levered yen “carry trades” is driving de-leveraging at the “periphery.” Elsewhere, de-risking/deleveraging has taken hold in the semiconductors and big tech stocks – one of history’s biggest and baddest “crowded trades” – following a historic speculative melt-up. Meanwhile, a destabilizing short squeeze ensures long/short and hedging strategies, along with the few surviving bears, remain on their heels. Moreover, a chaotic rotation unleashes frantic performance-chasing speculation.
July 25 – Bloomberg (Ruth Carson and Winnie Hsu): “The yen’s stunning revival is upending global markets, dragging the yuan higher and hammering assets from Japanese stocks to gold and Bitcoin as investors reassess their leveraged bets. The yen rose to its strongest mark in more than two months Thursday, reflecting burgeoning wagers that the interest rate gap between Japan and the US will likely narrow… It lifted the yuan to the highest in over a month, while battering the likes of the Australian dollar as carry trades fall out of favor. Gold and bitcoin also fell amid signs that traders were unwinding previously popular wagers to embrace the yen. ‘It’s effectively a big deleveraging event caused by the short squeeze in the yen,’ said Kyle Rodda, a senior market analyst at Capital.Com. ‘It’s forcing widespread liquidation across markets.’”
July 26 – Bloomberg (John Parry): “The short squeeze in the Japanese yen is fueling broad-based liquidation of global carry trades, leaving spot emerging market foreign exchange returns in deeply negative territory over the past month, writes Damian Sassower, chief emerging markets credit strategist with Bloomberg Intelligence.”
July 24 – Bloomberg (Masaki Kondo): “The yen rallied through key levels against the greenback on Wednesday, leading an unwind in global carry trades that pushed down currencies ranging from the Mexican peso to the Australian and New Zealand dollars… ‘This week has seen more pronounced unwinding of carry trades, underscoring the concentration of short JPY (Japanese yen) positioning that is now facing more intense pressure from MOF (Finance Ministry) intervention to support JPY,’ said Richard Franulovich, head of foreign exchange strategy at Westpac Banking. ‘Local politicians have become more vocal around the economic dangers from unfettered JPY weakness.’”
Over the past 12 sessions (beginning July 11th), the yen has surged 5.2% versus the dollar. The Japanese currency has clobbered EM currencies. The Brazilian real is down 9.0% versus the yen in 12 sessions, the Chilean peso 9.0%, the Mexican peso 8.1%, the Colombian peso 6.2%, the Argentine peso 6.0%, the South African rand 5.7%, the Taiwanese dollar 5.6%, the Indonesian rupiah 5.2%, the Turkish lira 5.2%, the Indian rupee 5.1%, and the Philippine peso 4.9%.
It's also worth noting yen strength against higher yielding (“carry trade” targets) developed currencies. The New Zealand dollar is down 7.9% versus the yen, the Australian dollar 7.7%, the Norwegian krone 7.6%, the Swedish krona 7.3%, and the Canadian dollar 6.4%.
Over this period, the Bloomberg Commodities Index dropped 4.5%. Copper is down over 11%, Aluminum 7.8%, Lead 5.2%, Tin 15.5%, Zinc 10%, Platinum 5.6%, and Palladium 10.6%. Crude prices have declined 4.7%.
The yen rally corresponded with a notable deterioration in sentiment for China’s markets and economy, following a less than inspiring third plenum. China’s CSI 300 index was down another 3.7% this week. After posting an all-time high on July 11th, the world’s hottest developed equities market, Japan’s Nikkei-225 Index, sank 11.2%.
Increasingly, it appears we’ll look back on July 11th as a critical day for global markets. U.S. June CPI was reported at a weaker-than-expected negative 0.1% (core 0.1%), with y-o-y CPI declining to 3.0% from 3.3% (core 3.3% from 3.4%). Currency traders believe Japan’s Ministry of Finance used softer U.S. inflation data as an opportunity to get the most bang from their intervention buying (yen support).
The yen rallied a notable 2.0% versus the dollar on the CPI release (ended the session up 1.8%). Ten-year Treasury yields fell seven bps to the lowest level (4.21%) since March. Curiously, big tech fell under selling pressure. Nvidia traded at $136 at the open on the 11th, only to close the session 5.5% lower at $127. After opening the session at all-time highs, the Semiconductor Index reversed sharply lower (down 3.5%). The Nasdaq100 closed the session with a 2.2% loss.
Meanwhile, a big short squeeze took hold. The Goldman Sachs Short Index surged 4.0% on the 11th. The KBW Regional Bank Index jumped 4.1%, with the Homebuilders ETF (XHB) rising 5.9%. The small cap Russell 2000 rose 3.6%, diverging notably from the S&P500’s 0.9% decline.
Nvidia is now down 16.2% over 12 sessions, with the SOX sinking 13.6%. The Nasdaq100 has declined 8.0%. Meanwhile, the Goldman Sachs short index has gained 9.0%. The KBW Regional Bank Index has surged 18.7%. The small cap Russell 2000 has risen 10.2%, versus the 3.1% decline in the S&P500.
These big moves have a common thread. It’s no coincidence that tech stocks retreated as the yen surged. De-risking and associated losses in crowded yen carry trades created vulnerability and risk aversion in the hyper-crowded AI/tech trade. Similarly, the concurrent tech selloff and intense short squeeze are not coincidental. The leveraged speculating community shifted to aggressive de-risking, reducing overall exposure by selling longs and buying/covering short positions.
July 22 – Bloomberg (Natalia Kniazhevich): “Hedge funds spent last week selling their winners at the fastest pace since the meme stock craze in January 2021 as the world’s largest technology companies got hammered. The cohort ‘aggressively unwound risk across their long and short books’ for the week ending July 19, according to Goldman Sachs… prime brokerage desk. The move… is a continuation of a trend since May of funds unloading shares to have more cash ahead of the US presidential election. ‘Overall, the week was filled with painful unwinds and violent moves lower in semis, mega caps, AI momentum winners,’ Goldman’s US shares sales trading team wrote…”
I believe July 11th likely marks the beginning of what will prove a major de-risking/deleveraging episode. An unwind of leverage in two major speculative Bubbles (yen “carry trades” and big tech equities) comes with major market ramifications. Typically, we would expect to see contagion (waxing risk aversion and waning liquidity) from “risk off” at the “periphery” begin to gravitate toward the “Core.” But there is every reason to be on guard for the atypical.
The Fed meets next week, and I and most others fully expect the Fed to signal a likely September rate cut.
July 26 – Bloomberg (Bill Dudley): “I’ve long been in the ‘higher for longer’ camp, insisting that the US Federal Reserve must hold short-term interest rates at the current level or higher to get inflation under control. The facts have changed, so I’ve changed my mind. The Fed should cut, preferably at next week’s policy-making meeting. For years, the persistent strength of the US economy suggested that the Fed wasn’t doing enough to slow things down… Now, the Fed’s efforts to cool the economy are having a visible effect… Although it might already be too late to fend off a recession by cutting rates, dawdling now unnecessarily increases the risk.”
It was a strikingly abrupt shift by the former New York Fed President and Goldman Sachs managing director. For his article, Dudley cherry-picked some weaker employment and inflation data. Pushing back is easy. This week’s stronger-than-expected (2.8%) Q2 GDP and Services PMI (high since April ’22) are not suggestive of imminent recession. But I doubt data are behind Dudley’s newfound concerns. His previous career responsibilities surely created acute sensitivity to changes in financial conditions. The former Fed President must be closely monitoring the yen squeeze, unwinding “carry trades”, and the faltering tech Bubble. He knows what trouble looks like.
I see big trouble. Yet, there remains a most critical issue of the course of de-risking contagion from the “periphery” to the “Core” – with U.S. Credit the epicenter. We must be mindful of the common dynamic whereby instability at the “periphery” tends to initially underpin “Core” excesses.
Two-year Treasury yields dropped 13 bps this week to 4.38%, the low since February 2nd. The two-year/10-year yield inversion narrowed to 15 bps Wednesday, the smallest inversion in two years. Benchmark MBS fell nine bps this week to 5.56%, approaching the lowest level back to February. Trading at an all-time high Friday, the Homebuilders ETF’s 4.3% gain for the week boosted 2024 returns to 22.6%.
While risks are mounting, “Core” financial conditions remain loose. The iShares Investment Grade Corporate Bond ETF’s (LQD) small weekly gain (0.2%) gain pushed y-t-d returns to 0.35%. The iShares High Yield ETF (HYG) gained 0.4% this week and is up 4.33% y-t-d. At 51 bps, investment grade CDS are up only two bps from July 10th levels – and not far off multi-year lows. High yield CDS prices were little changed on the week at 332 bps, up only four bps from July 10th, while down 25 bps from the start of the year and almost 200 bps below highs from last October. Importantly, debt issuance – corporate, municipal and, of course, spendthrift Washington - remains strong.
July 24 – Bloomberg (Josyana Joshua): “Blue-chip companies sold bonds this month at the fastest rate for any July in seven years… US investment-grade bond issuance has reached almost $92.2 billion this month, the biggest July volume since $123 billion was issued in 2017. That’s well over the top end of $85 billion dealers expected to be sold, with about a week left to go… Investment-grade US companies borrowed $867 billion in the first half of the year, the second largest haul… behind only 2020 when the pandemic set in.”
July 26 – Bloomberg (Erin Hudson and Amanda Albright): “The $9 billion-a-week market for new sales of state and local government debt is now so crowded that investors are being forced to get creative in their hunt for value. There’s been a record onslaught of issuance from municipal borrowers this year, with sales totaling $269 billion marking an increase of 38% from 2023’s volume. That supply… has been met with a surprising amount of enthusiasm in the $4 trillion muni market, frustrating long-time investors because it’s harder to get allocations of securities they want.”
Bottom line: the “Core” is booming. It has been seven straight months of corporate issuance surpassing forecasts. Leveraged speculation in all things U.S. Credit is feeling good – Imminent Easing Cycle Exuberance. “Carry trades” might be faltering, but the colossal Treasury “basis trade” is (for now) resilient. Leverage is generating solid returns in MBS, agency debt, corporate Credit and munis. When we think of late-cycle parabolic “Terminal Phase” excess, we need to look no further than runaway Treasury issuance and near record corporate issuance. The historic expansion of non-productive Credit runs unabated.
I believe the Fed months back erred by signaling the end of rate hikes despite ongoing excessively loose financial conditions, a speculative equities melt-up, and general asset Bubble inflation. A dovish Federal Reserve stoked historic late-cycle excess. Now, the Fed will signal an imminent rate cut with Markets in a Jumble.
A dovish Fed might now stoke some market chaos. It all seems too fitting. A big tech “crowded trade” beating concurrent with a big short squeeze and big rally in the under-owned sectors, including the small caps. Acute instability. Our central bank was determined not to let its “tightening” cycle “break” things and spark a market accident. When it comes to accidents, the Fed is not out of the woods.
For the Week:
The S&P500 declined 0.8% (up 14.5% y-t-d), while the Dow added 0.7% (up 7.7%). The Utilities rose 1.7% (up 13.7%). The Banks jumped 2.6% (up 20.1%), and the Broker/Dealers gained 1.7% (up 19.1%). The Transports increased 0.9% (up 0.1%). The S&P 400 Midcaps advanced 2.0% (up 10.5%), and the small cap Russell 2000 jumped 3.5% (up 11.5%). The Nasdaq100 dropped 2.6% (up 13.1%). The Semiconductors fell 3.1% (up 22.2%). The Biotechs rallied 3.4% (up 5.1%). With bullion down $14, the HUI gold index declined 1.3% (up 20.3%).
Three-month Treasury bill rates ended the week at 5.1525%. Two-year government yields dropped 13 bps this week to 4.38% (up 13bps y-t-d). Five-year T-note yields fell nine bps to 4.07% (up 23bps). Ten-year Treasury yields declined four bps to 4.19% (up 31bps). Long bond yields were little changed at 4.45% (up 42bps). Benchmark Fannie Mae MBS yields dropped nine bps to 5.56% (up 29bps).
Italian yields dipped two bps to 3.76% (up 6bps y-t-d). Greek 10-year yields were unchanged at 3.43% (up 38bps). Spain's 10-year yields declined two bps to 3.23% (up 24bps). German bund yields fell six bps to 2.41% (up 38bps). French yields slipped two bps to 3.12% (up 56bps). The French to German 10-year bond spread widened four to 71 bps. U.K. 10-year gilt yields declined two bps to 4.10% (up 56bps). U.K.'s FTSE equities index gained 1.6% (up 7.1% y-t-d).
Japan's Nikkei Equities Index sank 6.0% (up 12.6% y-t-d). Japanese 10-year "JGB" yields increased two bps to 1.07% (up 45bps y-t-d). France's CAC40 slipped 0.2% (down 0.3%). The German DAX equities index rallied 1.4% (up 9.9%). Spain's IBEX 35 equities index increased 0.7% (up 10.5%). Italy's FTSE MIB index fell 1.2% (up 11.4%). EM equities were mixed. Brazil's Bovespa index was little changed (down 5.0%), and Mexico's Bolsa index declined 1.5% (down 8.1%). South Korea's Kospi index slumped 2.3% (up 2.9%). India's Sensex equities index increased 0.9% (up 12.6%). China's Shanghai Exchange Index dropped 3.1% (down 2.8%). Turkey's Borsa Istanbul National 100 index fell 2.4% (up 45.8%).
Federal Reserve Credit declined $9.7 billion last week to $7.166 TN. Fed Credit was down $1.724 TN from the June 22, 2022, peak. Over the past 254 weeks, Fed Credit expanded $3.439 TN, or 92%. Fed Credit inflated $4.355 TN, or 155%, over the past 611 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt dipped $0.7bn last week to $3.311 TN. "Custody holdings" were down $120 billion y-o-y, or 3.5%.
Total money market fund assets declined $11.8 billion to $6.142 TN. Money funds were up $256 billion, or 7.5%, y-t-d and $688 billion, or 12.6%, y-o-y.
Total Commercial Paper jumped $12.8 billion to $1.308 TN. CP was up $133bn, or 11.3%, over the past year.
Freddie Mac 30-year fixed mortgage rates increased a basis point to 6.78% (down 2bps y-o-y). Fifteen-year rates added two bps to 6.07% (down 13bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates up five bps to 7.26% (down 12bps).
Currency Watch:
For the week, the U.S. Dollar Index was little changed at 104.316 (up 2.9% y-t-d). For the week on the upside, the Japanese yen increased 2.4%, the Swiss franc 0.6%, the South Korean won 0.5%, and the Singapore dollar 0.2%. On the downside, the Mexican peso declined 2.2%, the Australian dollar 2.1%, the New Zealand dollar 2.0%, the Swedish krona 1.3%, the Brazilian real 1.0%, the Norwegian krone 1.0%, the Canadian dollar 0.8%, the British pound 0.4%, the euro 0.2%, and the South African rand 0.1%. The Chinese (onshore) renminbi gained 0.27% versus the dollar (down 2.08% y-t-d).
Commodities Watch:
The Bloomberg Commodities Index declined 1.6% (down 2.7% y-t-d). Spot Gold slipped 0.6% to $2,387 (up 15.7%). Silver dropped 4.4% to $27.9258 (up 17.4%). WTI crude fell $2.97, or 3.7%, to $77.16 (up 8%). Gasoline added 0.4% (up 17%), while Natural Gas sank 5.7% to $2.006 (down 20%). Copper slumped 2.7% (up 6%). Wheat dropped 3.5% (down 17%), while Corn gained 1.0% (down 16%). Bitcoin gained $890, or 1.3%, to $67,880 (up 59.7%).
Election Watch:
July 21 – Wall Street Journal (Molly Ball): “What a year these past few weeks have been. President Biden’s withdrawal from the 2024 campaign caps off a historically tumultuous stretch in American politics, as a series of unexpected events—from a presidential debate for the ages to a near-assassination—have shaken up the political landscape and thrust it into uncharted territory. Until recently, the 2024 presidential election was shaping up as a snoozer of a rematch, with the same candidates who battled each other in 2020 ignoring the electorate’s pleas for change and slogging joylessly toward a November grudge match. Now the aperture has been thrown open—and an utterly unpredictable new phase has begun.”
“Crooked Joe Biden was not fit to run for President and is certainly not fit to serve - and never was! He only attained the position of President by lies, fake news, and not leaving his basement. All those around him, including his doctor, and the media, knew that he wasn't capable of being president, and he wasn’t. Look what he’s done to our country, with millions of people coming across our border, totally unchecked and unvetted, many from prisons, mental institutions, and record numbers of terrorists. We will suffer greatly because of his presidency, but we will remedy the damage he has done very quickly. MAKE AMERICA GREAT AGAIN.” Donald Trump, July 21, 2024
“If Joe Biden ends his reelection campaign, how can he justify remaining President? Not running for reelection would be a clear admission that President Trump was right all along about Biden not being mentally fit enough to serve as Commander-in-Chief. There is no middle ground.” JD Vance, July 21, 2024
Middle East War Watch:
July 23 – Foreign Affairs (Amos Harel): “More than nine months into its war with Hamas in the Gaza Strip, Israel now appears closer than ever to a second, even larger war with Hezbollah on its northern border. In June, the Israel Defense Forces announced that plans for a full-scale attack in southern Lebanon had been approved. And in mid-July, Hezbollah leader Hassan Nasrallah said that the Iranian-backed Shiite group was prepared to broaden its rocket attacks to a wider range of Israeli towns. Although the possibility has received relatively little scrutiny in the international media, a full-scale war between Israel and Hezbollah would have consequences that dwarf the current Gaza conflict. A major Israeli air and ground assault against Hezbollah, the most heavily armed group in the Middle East, would likely cause turmoil across the entire region, and could prove particularly destabilizing as the United States enters a crucial stage of its presidential election season.”
Ukraine War Watch:
July 26 – Reuters (Yuliia Dysa): “Ukraine said… its missile forces carried out a strike on a Russian military airfield in Crimea that has been used for long-range attacks against it, the latest in a series of blows to the Russian military on the occupied peninsula. Ukraine has ramped up long-range attacks on Crimea in recent months and says the Russian navy's Black Sea Fleet… has been forced to move its combat vessels to safer harbour elsewhere.”
July 23 – Reuters (Lidia Kelly): “Russian forces are conducting drills involving Yars mobile nuclear missile launchers…, in what would be the second such exercise in less than a month. Missile launcher crews in the Volga river basin, some 435 miles east of Moscow, were set to move over 62 miles and practice camouflage and deployment… The drills follow similar exercises in early July in at least two different regions and are taking place less than two months after Russia held tactical nuclear weapons deployment exercises alongside ally Belarus.”
July 22 – CNN (Anna Chernova, Nathan Hodge and Jennifer Hansler): “A Russian court has sentenced Alsu Kurmasheva, a Russian-American journalist, to six-and-a-half years in prison… The hearing, which was held behind closed doors, found Kurmasheva guilty of spreading false information about the Russian army, making her just the latest US journalist to be convicted in the country in recent months.”
July 26 – Wall Street Journal (Georgi Kantchev): “As Russia fights the war in Ukraine, it is losing a battle at home—against inflation. Last year, the Russian central bank more than doubled interest rates to tame prices. Inflation, though, kept rising, hitting over 9% this month, with a vast range of goods and services becoming costlier from potatoes (up 91% so far this year) to economy-class flights (up 35%). The central bank lifted its benchmark rate another two percentage points on Friday to 18%...”
Taiwan Watch:
July 20 – Financial Times (Kathrin Hille): “Taiwan’s armed forces will this week use combat exercises to rigorously test its warfighting capabilities for the first time, in a radical departure from decades of scripted performances as the military steels itself against the growing threat from China. ‘This time, we are exercising the ability of small units to operate in the event that they are cut off from more senior command,’ said a top military official… ‘The focus is on how to adapt, how to decide what to do, under what circumstances to engage the enemy.’ While these are standard goals for most modern militaries, the five-day drill… will mark a revolutionary change for the force, defence officials and analysts said.”
France Instability Watch:
July 24 – Financial Times (Leila Abboud): “President Emmanuel Macron has said he will not name a new government until after the Olympic Games because it would create ‘disorder’ just as France hosts the world’s most-watched sporting event. Calling for what he called an ‘Olympic political truce’… Macron said it was important that the current caretaker government and ministers stayed in place since they had been instrumental in planning the event. ‘Until mid-August, we are not in a position to change things since it would create disorder,’ he said…”
Market Instability Watch:
July 25 – Financial Times (Robin Wigglesworth): “The Mag7 puke — yesterday’s $1tn Nasdaq wipeout sent the grouping into technical correction territory — has naturally hogged market attention. But the most interesting move is happening in the Japanese yen. Just take a look at this: Since falling to a four-decade low earlier this month, the yen has jumped 6% versus the dollar. That makes it the best performing currency in the entire world so far in July. That the yen is up 9-ish per cent against higher-rate currencies like the Mexican peso, Brazilian real and Turkish lira indicates that this is a classic carry trade unwind. Still-low Japanese rates has meant it is a popular funding currency for all sorts of global currency and fixed income trades, which are now unwinding.”
July 22 – Financial Times (Martin Arnold): “The world’s financial stability watchdog has urged regulators to maintain their clampdown on the ‘underlying vulnerabilities’ building up outside the formal banking system in fast-growing and often heavily indebted areas such as private equity and hedge funds. Klaas Knot, chair of the Financial Stability Board, told the world’s top finance ministers and central bank governors… that geopolitical tensions, rising debt levels and elevated asset prices heightened the risk of a potential financial crisis. ‘While the memory of past turmoil fades and optimism over a soft landing for the global economy grows, it is important to emphasise that tail risks remain,’ said Knot, who is also head of the Dutch central bank.”
July 22 – Reuters (Huw Jones): “Patchy progress on implementing reforms to make money market funds and other types of ‘non banks’ safer has left the global financial system vulnerable to more shocks, the G20's risk watchdog said… The Financial Stability Board said that many of the underlying vulnerabilities that contributed to incidents, such as central banks having to inject liquidity to stabilise money market funds during a ‘dash for cash’ at the outset of COVID-19 lockdowns, are still largely in place. Progress by G20 countries on implementing reforms to investment funds, margining and liquidity set out by the FSB has been uneven, and ‘we may already be losing momentum’, FSB Chair Klaas Knot said…”
July 21 – Reuters (Libby George and Marc Jones): “Geopolitical rivalries, including brewing trade battles between the United States and China, now trump inflation as the biggest worry for sovereign wealth funds and central banks managing some $22 trillion in assets, an Invesco survey… showed. The ratcheting up of conflict - from Russia's war in Ukraine to trade restrictions - has loomed over global investors for several years, but with the inflation tide ebbing, and as nearly half the world's population votes on new leaders, the tensions are now centre stage.”
July 25 – Bloomberg (Denitsa Tsekova and Isabelle Lee): “Buying the dip has been a winning strategy during the recent epic AI-fueled rally in technology shares. It’s backfired this week — and is especially excruciating for those who used amped-up wagers to amplify returns. A batch of tech-centered leveraged exchanged-traded funds — designed to generate double or triple the daily move of underlying securities — scored double-digit losses after a market rout hammered stocks tied to the frenzy in artificial intelligence… The Direxion Daily Semiconductors Bull 3x Shares…, which delivers triple the daily move of the NYSE Semiconductor Index, tumbled 15% Wednesday to extend a 37% loss in the past 14 days. The fund took in a record inflow of $2.4 billion in the past six trading sessions.”
July 23 – Wall Street Journal (Jonathan Weil): “Ally Financial has joined the ranks of banks doing deals known as synthetic credit-risk transfers. These deals—for a price—might make lenders look less risky for certain purposes. They don’t transfer any loans off their books. Behold the wonder of structured finance. Companies simultaneously can accomplish different objectives that one might think should be mutually exclusive. In this case, Ally gets to make itself look less leveraged even while issuing more debt—a neat trick.”
Global Credit Bubble Watch:
July 23 – Bloomberg (Alice Gledhill and Enda Curran): “The bond-market tremors came two weeks and two continents apart. The first was in mid-June, when French President Emmanuel Macron’s decision to call a surprise election triggered a selloff amid fears a new government would ramp up spending. Then Treasury yields jumped after Donald Trump trounced Joe Biden in the presidential debate, fanning concern the US deficit will surge if the tax-cutting Republican returns to the White House — a trade that flared again early last week after the assassination attempt rallied supporters around his candidacy.”
AI Bubble Watch:
July 23 – Bloomberg (Yuki Hagiwara and Yoshiaki Nohara): “Prime Minister Fumio Kishida’s administration is drafting legislation to propel further investment in chipmaking capacity at home… ‘Domestic investment in AI and semiconductors needs to expand and continue,’ Kishida said… ‘The government will secure the necessary financing to provide large-scale and systematic support for priority investments that include mass production and R&D over multiple years.’”
Bubble and Mania Watch:
July 25 – Bloomberg (Amy Or): “For Wall Street’s investment bankers, a deepening tech-stock selloff is threatening to worsen a painful reality: Investors just aren’t clamoring to get in on the industry’s next big IPO… Jefferies Financial Group Inc.’s quarterly survey of hedge funds and long-only clients found that less than 20% said the track records of recent tech IPOs were encouraging enough to make them more likely to buy into new ones. That was a steep drop from the previous survey, when 56% said so.”
July 23 – Yahoo Finance (Dani Romero): “Southwest Florida was one of the hottest housing markets during the pandemic. Now, it boasts relatively high levels of unsold properties, according to PulteGroup… CEO Ryan Marshall responded to an analyst question about whether he was concerned about an uptick in existing home inventory in certain markets, such as Florida and Texas. ‘Probably the one market that's higher than what we'd ideally like to see would be Southwest Florida,’ Marshall told investors… The number of months it would take for the current inventory of homes on the market to sell is roughly nine, he said…”
July 23 – Wall Street Journal (Peter Grant): “The Washington, D.C., office market is struggling with rising foreclosures, plunging values and its highest vacancy rate ever… The district’s office market is poised to get worse regardless of the outcome of the election. The federal government is likely to shed more space in the years to come partly because of the growing number of employees working remotely. Six agencies, including the Justice and Treasury departments, have lease expirations between 2024 and 2027 in which they are expected to give up close to 600,000 square feet, according to Cushman & Wakefield.”
July 24 – Bloomberg (John Gittelsohn and Patrick Clark): “Blackstone Mortgage Trust Inc., which provides financing for commercial real estate, is cutting its dividend by 24% as defaults increase and borrowers struggle to make payments or refinance their loans. The board of the $3.4 billion real estate investment trust known as BXMT authorized the repurchase of up to $150 million of shares to lift the value of the stock…”
U.S./Russia/China/Europe Watch:
July 25 – Financial Times (Kathrin Hille and Max Seddon): “Russia and China have flown a joint strategic bomber patrol near Alaska for the first time, highlighting the growing scale and capability of a military partnership that has raised concern among the US and its allies. US and Canadian fighter jets detected, tracked and intercepted two Russian TU-95 and two Chinese H-6 aircraft late on Wednesday… Norad said the four bombers did not enter US or Canadian airspace but operated in the Alaskan air defence identification zone and did not present a threat.”
July 23 – Financial Times (John Paul Rathbone): “The British army has three years to prepare for war, according to its new chief, as he announced an ambitious reform programme to get the force fighting fit for modern warfare. General Sir Roly Walker said… there was an urgent need to modernise the British army because of the ‘converging geopolitical threats’ of Russia, China, Iran and North Korea. ‘We are not on an inexorable path but what we do have is an absolute urgency to restore credible hard power in order to underwrite deterrence,’ Walker said…”
Inflation Watch:
July 26 – CNBC (Jeff Cox): “An important gauge for the Federal Reserve showed inflation eased slightly from a year ago in June… The personal consumption expenditures price index increased 0.1% on the month and was up 2.5% from a year ago, in line with… estimates… The year-over-year gain in May was 2.6%, while the monthly measure was unchanged. Fed officials use the PCE measure as their main baseline to gauge inflation, which continues to run above the central bank’s 2% long-range target.”
July 23 – CNN (Matt Egan): “Many Americans regularly worry they won’t be able to make ends meet. Nearly four in ten (39%) of US adults say they worry most or all of the time that their family’s income won’t be enough to meet expenses, according to a new CNN poll. That’s up from 28% who expressed those concerns in December 2021, and it’s similar to the numbers seen during the Great Recession (37%). To cope, significant shares of Americans said they are adding side jobs, cutting down on driving and putting more expenses on credit cards. Even higher percentages of Latino (52%) and Black (46%) Americans said they’re worried most or all of the time about making ends meet…”
July 25 – Bloomberg (Paulina Cachero): “What can you get with $1 million in today’s housing market? A starter home. Just a few years ago, one might expect a large, well-cared for home with a lush lawn and maybe even a pool for $1 million. But not anymore. The typical starter home — defined as the lowest third of residential values in a region — has a seven-figure price tag in 237 cities… an analysis from Zillow... shows. That’s more than triple the number of cities just five years ago. Homebuyers today are facing low inventory, high borrowing costs and still-elevated values in one of the least affordable markets on record. That’s hit first-time buyers the hardest, as starter home values grew 54% over the past five years, surpassing a median 49% increase across all properties in the same time period.”
July 21 – Financial Times (Delphine Strauss): “Investors are underestimating the risk that surging shipping costs will push up inflation and slow the pace of interest rate cuts by the European Central Bank and Bank of England, economists have warned. The cost of moving a 40ft container between Asia and northern Europe at short notice has more than doubled since April from $3,223 to $8,461…, following an intensification of Houthi rebel attacks... When freight prices began to rise in December, policymakers were sanguine that it would not drive up the prices of consumer goods as a much bigger spike did after the pandemic.”
July 25 – Wall Street Journal (Kailyn Rhone): “More Americans are driving without car insurance, and it’s making coverage more expensive for everyone else. The problem has been growing since the start of the Covid-19 pandemic, according to the Insurance Research Council, whose latest data show the percentage of uninsured drivers rose to 14% in 2022, from about 11% in 2019. The IRC… expects the numbers have continued to climb since then.”
July 24 – Bloomberg (Ilena Peng): “Global coffee drinkers who’d hoped the price of their daily fix would soon stop rising are due for a bitter wake-up call: it’s about to get even worse. Both the high-end arabica beans favored by coffee chains like Starbucks Corp. and the more budget-friendly robusta variety have spiked in price, thanks to major supply disruptions from Vietnam to Brazil.”
Biden Administration Watch:
“Joe Biden’s body may not be as strong as it used to be. His language skills may not be as sharp as they used to be. His heart is as big as ever. His heart is as big and as true and as strong – and this is the difference between a politician and a leader. He made a selfless decision. And people are heartbroken. Even people who were pushing for this to happen. It’s kind of like when your grandpa – you’ve got to take the keys. And everybody, ‘you got to take his keys – you got to take his keys.’ And he’s fighting and he’s fighting - and everybody’s so frustrated. And you finally get the keys back – and then you just cry. Because this is somebody that you love. This is somebody you care about. This is somebody who was there for you. This is somebody - you wouldn’t be here without him. And you had to take something from him. Politics is politics. But this is a human moment for one of the great humans in America. This is a huge moment for him, for his family, for all of us who love him, for all of us who wanted him to get across the finish line. But if you’re a young person watching this – this is leadership. This is patriotism. This is what it means to put the country first – and put the party first… When your arm gets tired, you let someone else finish pitching the game. That’s what Joe Biden has done, and he's done it for all of us… I love this man. I care about this man… He did the right thing for this country. He did the right thing for this party. All of us are going to be in this situation someday. And I hope we can take a moment to honor this man and to love this man…” Political analyst Van Jones, CNN, July 21, 2024
The S&P500 declined 0.8% (up 14.5% y-t-d), while the Dow added 0.7% (up 7.7%). The Utilities rose 1.7% (up 13.7%). The Banks jumped 2.6% (up 20.1%), and the Broker/Dealers gained 1.7% (up 19.1%). The Transports increased 0.9% (up 0.1%). The S&P 400 Midcaps advanced 2.0% (up 10.5%), and the small cap Russell 2000 jumped 3.5% (up 11.5%). The Nasdaq100 dropped 2.6% (up 13.1%). The Semiconductors fell 3.1% (up 22.2%). The Biotechs rallied 3.4% (up 5.1%). With bullion down $14, the HUI gold index declined 1.3% (up 20.3%).
Three-month Treasury bill rates ended the week at 5.1525%. Two-year government yields dropped 13 bps this week to 4.38% (up 13bps y-t-d). Five-year T-note yields fell nine bps to 4.07% (up 23bps). Ten-year Treasury yields declined four bps to 4.19% (up 31bps). Long bond yields were little changed at 4.45% (up 42bps). Benchmark Fannie Mae MBS yields dropped nine bps to 5.56% (up 29bps).
Italian yields dipped two bps to 3.76% (up 6bps y-t-d). Greek 10-year yields were unchanged at 3.43% (up 38bps). Spain's 10-year yields declined two bps to 3.23% (up 24bps). German bund yields fell six bps to 2.41% (up 38bps). French yields slipped two bps to 3.12% (up 56bps). The French to German 10-year bond spread widened four to 71 bps. U.K. 10-year gilt yields declined two bps to 4.10% (up 56bps). U.K.'s FTSE equities index gained 1.6% (up 7.1% y-t-d).
Japan's Nikkei Equities Index sank 6.0% (up 12.6% y-t-d). Japanese 10-year "JGB" yields increased two bps to 1.07% (up 45bps y-t-d). France's CAC40 slipped 0.2% (down 0.3%). The German DAX equities index rallied 1.4% (up 9.9%). Spain's IBEX 35 equities index increased 0.7% (up 10.5%). Italy's FTSE MIB index fell 1.2% (up 11.4%). EM equities were mixed. Brazil's Bovespa index was little changed (down 5.0%), and Mexico's Bolsa index declined 1.5% (down 8.1%). South Korea's Kospi index slumped 2.3% (up 2.9%). India's Sensex equities index increased 0.9% (up 12.6%). China's Shanghai Exchange Index dropped 3.1% (down 2.8%). Turkey's Borsa Istanbul National 100 index fell 2.4% (up 45.8%).
Federal Reserve Credit declined $9.7 billion last week to $7.166 TN. Fed Credit was down $1.724 TN from the June 22, 2022, peak. Over the past 254 weeks, Fed Credit expanded $3.439 TN, or 92%. Fed Credit inflated $4.355 TN, or 155%, over the past 611 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt dipped $0.7bn last week to $3.311 TN. "Custody holdings" were down $120 billion y-o-y, or 3.5%.
Total money market fund assets declined $11.8 billion to $6.142 TN. Money funds were up $256 billion, or 7.5%, y-t-d and $688 billion, or 12.6%, y-o-y.
Total Commercial Paper jumped $12.8 billion to $1.308 TN. CP was up $133bn, or 11.3%, over the past year.
Freddie Mac 30-year fixed mortgage rates increased a basis point to 6.78% (down 2bps y-o-y). Fifteen-year rates added two bps to 6.07% (down 13bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates up five bps to 7.26% (down 12bps).
Currency Watch:
For the week, the U.S. Dollar Index was little changed at 104.316 (up 2.9% y-t-d). For the week on the upside, the Japanese yen increased 2.4%, the Swiss franc 0.6%, the South Korean won 0.5%, and the Singapore dollar 0.2%. On the downside, the Mexican peso declined 2.2%, the Australian dollar 2.1%, the New Zealand dollar 2.0%, the Swedish krona 1.3%, the Brazilian real 1.0%, the Norwegian krone 1.0%, the Canadian dollar 0.8%, the British pound 0.4%, the euro 0.2%, and the South African rand 0.1%. The Chinese (onshore) renminbi gained 0.27% versus the dollar (down 2.08% y-t-d).
Commodities Watch:
The Bloomberg Commodities Index declined 1.6% (down 2.7% y-t-d). Spot Gold slipped 0.6% to $2,387 (up 15.7%). Silver dropped 4.4% to $27.9258 (up 17.4%). WTI crude fell $2.97, or 3.7%, to $77.16 (up 8%). Gasoline added 0.4% (up 17%), while Natural Gas sank 5.7% to $2.006 (down 20%). Copper slumped 2.7% (up 6%). Wheat dropped 3.5% (down 17%), while Corn gained 1.0% (down 16%). Bitcoin gained $890, or 1.3%, to $67,880 (up 59.7%).
Election Watch:
July 21 – Wall Street Journal (Molly Ball): “What a year these past few weeks have been. President Biden’s withdrawal from the 2024 campaign caps off a historically tumultuous stretch in American politics, as a series of unexpected events—from a presidential debate for the ages to a near-assassination—have shaken up the political landscape and thrust it into uncharted territory. Until recently, the 2024 presidential election was shaping up as a snoozer of a rematch, with the same candidates who battled each other in 2020 ignoring the electorate’s pleas for change and slogging joylessly toward a November grudge match. Now the aperture has been thrown open—and an utterly unpredictable new phase has begun.”
“Crooked Joe Biden was not fit to run for President and is certainly not fit to serve - and never was! He only attained the position of President by lies, fake news, and not leaving his basement. All those around him, including his doctor, and the media, knew that he wasn't capable of being president, and he wasn’t. Look what he’s done to our country, with millions of people coming across our border, totally unchecked and unvetted, many from prisons, mental institutions, and record numbers of terrorists. We will suffer greatly because of his presidency, but we will remedy the damage he has done very quickly. MAKE AMERICA GREAT AGAIN.” Donald Trump, July 21, 2024
“If Joe Biden ends his reelection campaign, how can he justify remaining President? Not running for reelection would be a clear admission that President Trump was right all along about Biden not being mentally fit enough to serve as Commander-in-Chief. There is no middle ground.” JD Vance, July 21, 2024
Middle East War Watch:
July 23 – Foreign Affairs (Amos Harel): “More than nine months into its war with Hamas in the Gaza Strip, Israel now appears closer than ever to a second, even larger war with Hezbollah on its northern border. In June, the Israel Defense Forces announced that plans for a full-scale attack in southern Lebanon had been approved. And in mid-July, Hezbollah leader Hassan Nasrallah said that the Iranian-backed Shiite group was prepared to broaden its rocket attacks to a wider range of Israeli towns. Although the possibility has received relatively little scrutiny in the international media, a full-scale war between Israel and Hezbollah would have consequences that dwarf the current Gaza conflict. A major Israeli air and ground assault against Hezbollah, the most heavily armed group in the Middle East, would likely cause turmoil across the entire region, and could prove particularly destabilizing as the United States enters a crucial stage of its presidential election season.”
Ukraine War Watch:
July 26 – Reuters (Yuliia Dysa): “Ukraine said… its missile forces carried out a strike on a Russian military airfield in Crimea that has been used for long-range attacks against it, the latest in a series of blows to the Russian military on the occupied peninsula. Ukraine has ramped up long-range attacks on Crimea in recent months and says the Russian navy's Black Sea Fleet… has been forced to move its combat vessels to safer harbour elsewhere.”
July 23 – Reuters (Lidia Kelly): “Russian forces are conducting drills involving Yars mobile nuclear missile launchers…, in what would be the second such exercise in less than a month. Missile launcher crews in the Volga river basin, some 435 miles east of Moscow, were set to move over 62 miles and practice camouflage and deployment… The drills follow similar exercises in early July in at least two different regions and are taking place less than two months after Russia held tactical nuclear weapons deployment exercises alongside ally Belarus.”
July 22 – CNN (Anna Chernova, Nathan Hodge and Jennifer Hansler): “A Russian court has sentenced Alsu Kurmasheva, a Russian-American journalist, to six-and-a-half years in prison… The hearing, which was held behind closed doors, found Kurmasheva guilty of spreading false information about the Russian army, making her just the latest US journalist to be convicted in the country in recent months.”
July 26 – Wall Street Journal (Georgi Kantchev): “As Russia fights the war in Ukraine, it is losing a battle at home—against inflation. Last year, the Russian central bank more than doubled interest rates to tame prices. Inflation, though, kept rising, hitting over 9% this month, with a vast range of goods and services becoming costlier from potatoes (up 91% so far this year) to economy-class flights (up 35%). The central bank lifted its benchmark rate another two percentage points on Friday to 18%...”
Taiwan Watch:
July 20 – Financial Times (Kathrin Hille): “Taiwan’s armed forces will this week use combat exercises to rigorously test its warfighting capabilities for the first time, in a radical departure from decades of scripted performances as the military steels itself against the growing threat from China. ‘This time, we are exercising the ability of small units to operate in the event that they are cut off from more senior command,’ said a top military official… ‘The focus is on how to adapt, how to decide what to do, under what circumstances to engage the enemy.’ While these are standard goals for most modern militaries, the five-day drill… will mark a revolutionary change for the force, defence officials and analysts said.”
France Instability Watch:
July 24 – Financial Times (Leila Abboud): “President Emmanuel Macron has said he will not name a new government until after the Olympic Games because it would create ‘disorder’ just as France hosts the world’s most-watched sporting event. Calling for what he called an ‘Olympic political truce’… Macron said it was important that the current caretaker government and ministers stayed in place since they had been instrumental in planning the event. ‘Until mid-August, we are not in a position to change things since it would create disorder,’ he said…”
Market Instability Watch:
July 25 – Financial Times (Robin Wigglesworth): “The Mag7 puke — yesterday’s $1tn Nasdaq wipeout sent the grouping into technical correction territory — has naturally hogged market attention. But the most interesting move is happening in the Japanese yen. Just take a look at this: Since falling to a four-decade low earlier this month, the yen has jumped 6% versus the dollar. That makes it the best performing currency in the entire world so far in July. That the yen is up 9-ish per cent against higher-rate currencies like the Mexican peso, Brazilian real and Turkish lira indicates that this is a classic carry trade unwind. Still-low Japanese rates has meant it is a popular funding currency for all sorts of global currency and fixed income trades, which are now unwinding.”
July 22 – Financial Times (Martin Arnold): “The world’s financial stability watchdog has urged regulators to maintain their clampdown on the ‘underlying vulnerabilities’ building up outside the formal banking system in fast-growing and often heavily indebted areas such as private equity and hedge funds. Klaas Knot, chair of the Financial Stability Board, told the world’s top finance ministers and central bank governors… that geopolitical tensions, rising debt levels and elevated asset prices heightened the risk of a potential financial crisis. ‘While the memory of past turmoil fades and optimism over a soft landing for the global economy grows, it is important to emphasise that tail risks remain,’ said Knot, who is also head of the Dutch central bank.”
July 22 – Reuters (Huw Jones): “Patchy progress on implementing reforms to make money market funds and other types of ‘non banks’ safer has left the global financial system vulnerable to more shocks, the G20's risk watchdog said… The Financial Stability Board said that many of the underlying vulnerabilities that contributed to incidents, such as central banks having to inject liquidity to stabilise money market funds during a ‘dash for cash’ at the outset of COVID-19 lockdowns, are still largely in place. Progress by G20 countries on implementing reforms to investment funds, margining and liquidity set out by the FSB has been uneven, and ‘we may already be losing momentum’, FSB Chair Klaas Knot said…”
July 21 – Reuters (Libby George and Marc Jones): “Geopolitical rivalries, including brewing trade battles between the United States and China, now trump inflation as the biggest worry for sovereign wealth funds and central banks managing some $22 trillion in assets, an Invesco survey… showed. The ratcheting up of conflict - from Russia's war in Ukraine to trade restrictions - has loomed over global investors for several years, but with the inflation tide ebbing, and as nearly half the world's population votes on new leaders, the tensions are now centre stage.”
July 25 – Bloomberg (Denitsa Tsekova and Isabelle Lee): “Buying the dip has been a winning strategy during the recent epic AI-fueled rally in technology shares. It’s backfired this week — and is especially excruciating for those who used amped-up wagers to amplify returns. A batch of tech-centered leveraged exchanged-traded funds — designed to generate double or triple the daily move of underlying securities — scored double-digit losses after a market rout hammered stocks tied to the frenzy in artificial intelligence… The Direxion Daily Semiconductors Bull 3x Shares…, which delivers triple the daily move of the NYSE Semiconductor Index, tumbled 15% Wednesday to extend a 37% loss in the past 14 days. The fund took in a record inflow of $2.4 billion in the past six trading sessions.”
July 23 – Wall Street Journal (Jonathan Weil): “Ally Financial has joined the ranks of banks doing deals known as synthetic credit-risk transfers. These deals—for a price—might make lenders look less risky for certain purposes. They don’t transfer any loans off their books. Behold the wonder of structured finance. Companies simultaneously can accomplish different objectives that one might think should be mutually exclusive. In this case, Ally gets to make itself look less leveraged even while issuing more debt—a neat trick.”
Global Credit Bubble Watch:
July 23 – Bloomberg (Alice Gledhill and Enda Curran): “The bond-market tremors came two weeks and two continents apart. The first was in mid-June, when French President Emmanuel Macron’s decision to call a surprise election triggered a selloff amid fears a new government would ramp up spending. Then Treasury yields jumped after Donald Trump trounced Joe Biden in the presidential debate, fanning concern the US deficit will surge if the tax-cutting Republican returns to the White House — a trade that flared again early last week after the assassination attempt rallied supporters around his candidacy.”
AI Bubble Watch:
July 23 – Bloomberg (Yuki Hagiwara and Yoshiaki Nohara): “Prime Minister Fumio Kishida’s administration is drafting legislation to propel further investment in chipmaking capacity at home… ‘Domestic investment in AI and semiconductors needs to expand and continue,’ Kishida said… ‘The government will secure the necessary financing to provide large-scale and systematic support for priority investments that include mass production and R&D over multiple years.’”
Bubble and Mania Watch:
July 25 – Bloomberg (Amy Or): “For Wall Street’s investment bankers, a deepening tech-stock selloff is threatening to worsen a painful reality: Investors just aren’t clamoring to get in on the industry’s next big IPO… Jefferies Financial Group Inc.’s quarterly survey of hedge funds and long-only clients found that less than 20% said the track records of recent tech IPOs were encouraging enough to make them more likely to buy into new ones. That was a steep drop from the previous survey, when 56% said so.”
July 23 – Yahoo Finance (Dani Romero): “Southwest Florida was one of the hottest housing markets during the pandemic. Now, it boasts relatively high levels of unsold properties, according to PulteGroup… CEO Ryan Marshall responded to an analyst question about whether he was concerned about an uptick in existing home inventory in certain markets, such as Florida and Texas. ‘Probably the one market that's higher than what we'd ideally like to see would be Southwest Florida,’ Marshall told investors… The number of months it would take for the current inventory of homes on the market to sell is roughly nine, he said…”
July 23 – Wall Street Journal (Peter Grant): “The Washington, D.C., office market is struggling with rising foreclosures, plunging values and its highest vacancy rate ever… The district’s office market is poised to get worse regardless of the outcome of the election. The federal government is likely to shed more space in the years to come partly because of the growing number of employees working remotely. Six agencies, including the Justice and Treasury departments, have lease expirations between 2024 and 2027 in which they are expected to give up close to 600,000 square feet, according to Cushman & Wakefield.”
July 24 – Bloomberg (John Gittelsohn and Patrick Clark): “Blackstone Mortgage Trust Inc., which provides financing for commercial real estate, is cutting its dividend by 24% as defaults increase and borrowers struggle to make payments or refinance their loans. The board of the $3.4 billion real estate investment trust known as BXMT authorized the repurchase of up to $150 million of shares to lift the value of the stock…”
U.S./Russia/China/Europe Watch:
July 25 – Financial Times (Kathrin Hille and Max Seddon): “Russia and China have flown a joint strategic bomber patrol near Alaska for the first time, highlighting the growing scale and capability of a military partnership that has raised concern among the US and its allies. US and Canadian fighter jets detected, tracked and intercepted two Russian TU-95 and two Chinese H-6 aircraft late on Wednesday… Norad said the four bombers did not enter US or Canadian airspace but operated in the Alaskan air defence identification zone and did not present a threat.”
July 23 – Financial Times (John Paul Rathbone): “The British army has three years to prepare for war, according to its new chief, as he announced an ambitious reform programme to get the force fighting fit for modern warfare. General Sir Roly Walker said… there was an urgent need to modernise the British army because of the ‘converging geopolitical threats’ of Russia, China, Iran and North Korea. ‘We are not on an inexorable path but what we do have is an absolute urgency to restore credible hard power in order to underwrite deterrence,’ Walker said…”
Inflation Watch:
July 26 – CNBC (Jeff Cox): “An important gauge for the Federal Reserve showed inflation eased slightly from a year ago in June… The personal consumption expenditures price index increased 0.1% on the month and was up 2.5% from a year ago, in line with… estimates… The year-over-year gain in May was 2.6%, while the monthly measure was unchanged. Fed officials use the PCE measure as their main baseline to gauge inflation, which continues to run above the central bank’s 2% long-range target.”
July 23 – CNN (Matt Egan): “Many Americans regularly worry they won’t be able to make ends meet. Nearly four in ten (39%) of US adults say they worry most or all of the time that their family’s income won’t be enough to meet expenses, according to a new CNN poll. That’s up from 28% who expressed those concerns in December 2021, and it’s similar to the numbers seen during the Great Recession (37%). To cope, significant shares of Americans said they are adding side jobs, cutting down on driving and putting more expenses on credit cards. Even higher percentages of Latino (52%) and Black (46%) Americans said they’re worried most or all of the time about making ends meet…”
July 25 – Bloomberg (Paulina Cachero): “What can you get with $1 million in today’s housing market? A starter home. Just a few years ago, one might expect a large, well-cared for home with a lush lawn and maybe even a pool for $1 million. But not anymore. The typical starter home — defined as the lowest third of residential values in a region — has a seven-figure price tag in 237 cities… an analysis from Zillow... shows. That’s more than triple the number of cities just five years ago. Homebuyers today are facing low inventory, high borrowing costs and still-elevated values in one of the least affordable markets on record. That’s hit first-time buyers the hardest, as starter home values grew 54% over the past five years, surpassing a median 49% increase across all properties in the same time period.”
July 21 – Financial Times (Delphine Strauss): “Investors are underestimating the risk that surging shipping costs will push up inflation and slow the pace of interest rate cuts by the European Central Bank and Bank of England, economists have warned. The cost of moving a 40ft container between Asia and northern Europe at short notice has more than doubled since April from $3,223 to $8,461…, following an intensification of Houthi rebel attacks... When freight prices began to rise in December, policymakers were sanguine that it would not drive up the prices of consumer goods as a much bigger spike did after the pandemic.”
July 25 – Wall Street Journal (Kailyn Rhone): “More Americans are driving without car insurance, and it’s making coverage more expensive for everyone else. The problem has been growing since the start of the Covid-19 pandemic, according to the Insurance Research Council, whose latest data show the percentage of uninsured drivers rose to 14% in 2022, from about 11% in 2019. The IRC… expects the numbers have continued to climb since then.”
July 24 – Bloomberg (Ilena Peng): “Global coffee drinkers who’d hoped the price of their daily fix would soon stop rising are due for a bitter wake-up call: it’s about to get even worse. Both the high-end arabica beans favored by coffee chains like Starbucks Corp. and the more budget-friendly robusta variety have spiked in price, thanks to major supply disruptions from Vietnam to Brazil.”
Biden Administration Watch:
“Joe Biden’s body may not be as strong as it used to be. His language skills may not be as sharp as they used to be. His heart is as big as ever. His heart is as big and as true and as strong – and this is the difference between a politician and a leader. He made a selfless decision. And people are heartbroken. Even people who were pushing for this to happen. It’s kind of like when your grandpa – you’ve got to take the keys. And everybody, ‘you got to take his keys – you got to take his keys.’ And he’s fighting and he’s fighting - and everybody’s so frustrated. And you finally get the keys back – and then you just cry. Because this is somebody that you love. This is somebody you care about. This is somebody who was there for you. This is somebody - you wouldn’t be here without him. And you had to take something from him. Politics is politics. But this is a human moment for one of the great humans in America. This is a huge moment for him, for his family, for all of us who love him, for all of us who wanted him to get across the finish line. But if you’re a young person watching this – this is leadership. This is patriotism. This is what it means to put the country first – and put the party first… When your arm gets tired, you let someone else finish pitching the game. That’s what Joe Biden has done, and he's done it for all of us… I love this man. I care about this man… He did the right thing for this country. He did the right thing for this party. All of us are going to be in this situation someday. And I hope we can take a moment to honor this man and to love this man…” Political analyst Van Jones, CNN, July 21, 2024
Federal Reserve Watch:
July 26 – Bloomberg (Steve Matthews and Dana Morgan): “The Federal Reserve is likely to signal next week its plans to cut interest rates in September, according to economists surveyed by Bloomberg News, a move they say will kick off reductions each quarter through 2025. Nearly three-quarters of respondents say the US central bank will use the July 30-31 gathering to set the stage for a quarter-point cut at the following meeting in September. They’re divided, however, about how policymakers will do so.”
U.S. Economic Bubble Watch:
July 25 – CNBC (Jeff Cox): “Economic activity in the U.S. was considerably stronger than expected during the second quarter, boosted by a strong consumer, government spending and a sizeable inventory build… Real gross domestic product… increased at a 2.8% annualized pace adjusted for seasonality and inflation. Economists… had been looking for growth of 2.1% following a 1.4% rise in the first quarter… The personal consumption expenditures price index, a key measure for the Federal Reserve, increased 2.6% for the quarter, down from the 3.4% move in Q1. Excluding food and energy, core PCE prices, which the Fed focuses on even more as a longer-term inflation indicator, were up 2.9%...”
July 24 – Reuters (Lucia Mutikani): “U.S. business activity climbed to a 27-month high in July, but firms appeared to have some difficulty sustaining higher prices for their goods and services amid resistance from consumers, offering a further boost to the inflation outlook. S&P Global said… its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, edged up to 55.0 this month. That was the highest level since April 2022… The survey's flash manufacturing PMI dropped to a seven-month low of 49.5 this month from 51.6 in June… Its flash services PMI rose to 56.0, a 28-month high from 55.3 in June, confounding economists' expectations for a drop to a reading of 55.0.”
July 25 – Associated Press (Matt Ott): “Fewer Americans filed for unemployment benefits last week… Jobless claims for the week ending July 20 fell by 10,000 to 235,000 from 245,000 the previous week… It’s the ninth straight week claims came in above 220,000. Before that stretch, claims had been below that number in all but three weeks so far in 2024.”
July 21 – Financial Times (Taylor Nicole Rogers): “Welcoming a class of summer interns is a tradition in corporate America. But this summer, companies are bringing in fewer students, if any. Goldman Sachs hired 200 fewer summer analysts this year than in 2023. JPMorgan reduced the size of its own class of summer analysts by 600, more than 10% of the total. Tesla rescinded its internship offers just weeks before students were due to start. As US employers attempt to cut costs and increase efficiency, in anticipation of an economic slowdown, internships have been axed. Many companies have reduced hiring for white-collar jobs after recruiting too many new graduates in recent years, meaning there would not be enough jobs for more interns to move into.”
July 24 – CNBC (Diana Olick): “Rates have dropped over 20 bps in the last few weeks, but applications for a mortgage to purchase a home still dropped another 4% last week compared with the previous week… Purchase demand is now 15% lower than it was the same week one year ago… Applications to refinance a home loan were… 38% higher than the same week one year ago…”
July 23 – Bloomberg (Michael Sasso): “Existing-home sales in the US slumped to one of the slowest paces since 2010 in June, as sellers wait for mortgage rates to fall further and buyers balk at stubbornly high prices. Contract closings decreased 5.4% from May to a 3.89 million annualized rate… The slowdown came as prices reached another record in June, with the median sales price up 4.1% to $426,900… In June, there were 1.32 million homes for sale, the most since October 2020 but still well below the 1.9 million that were listed before the pandemic in June 2019. That means at the current sales rate, it would take 4.1 months to exhaust that supply…”
July 24 – Reuters: “Sales of new U.S. single-family homes fell to a seven-month low in June as higher mortgage rates and prices weighed on demand… New home sales slipped 0.6% to a seasonally adjusted annual rate of 617,000 units last month, the lowest level since November… Sales slumped 7.4% on a year-on-year basis in June… The median new house price dipped 0.1% to $417,300 in June from a year ago. Most of the houses sold last month were below the $499,999 price level. The inventory of new homes increased in June to 475,000 from 472,000 units in May. At June's sales pace it would take 9.3 months to clear the supply of houses on the market up from 9.1 months in May.”
July 23 – Wall Street Journal (Nicole Friedman): “Home prices hit a new high in June for the second straight month, the latest sign that the housing market is unaffordable to millions of Americans. The spring home-buying season… was a dud this year… But low inventory of homes for sale in much of the country is pushing prices higher. The national median existing-home price in June rose to $426,900… and a 4.1% increase from a year earlier… More than one-third of home sales in June went for more than their list price, according to… Redfin.”
July 24 – Bloomberg (Vince Golle): “US mortgage rates eased last week to their lowest level since early February… The contract rate on a 30-year fixed mortgage slipped 5 bps to 6.82%...”
July 24 – Bloomberg (Norah Mulinda and Prashant Gopal): “One of the least affordable US housing markets in decades is freezing residential real estate sales and shutting out a generation of aspiring homeowners. But one group remains unfazed by the crisis: the wealthy. Overall, it’s been a troubling key selling season in the US. New home sales were down slightly in June and well below expectations after May’s 15% decline… The lone bright spot in the market is luxury, with homes worth over $1 million the only price category to see sales rise in June… With the 30-year fixed mortgage rate hovering around 6.8%..., anyone who has to borrow is paying a significantly steeper price… But deep-pocketed buyers don’t have that concern because they can use cash. ‘I can’t remember the last time I heard a buyer talk about financing,’ said Lisa Rooks Morris, a Sarasota… luxury real estate agent... ‘They all come in with cash.’”
July 24 – Yahoo Finance (Rick Newman): “If you moved from the Snow Belt to the Sun Belt during the last few years, you might be part of a vanishing breed. Since the widespread adoption of air conditioning in the 1970s, Americans have moved in droves from cold northern climes to sunny southern ones… But Sun Belt migration is now skidding to a halt, according to a new working paper from the Federal Reserve Bank of San Francisco… ‘The US population is starting to migrate away from areas increasingly exposed to extreme heat days toward historically colder areas, which are becoming more attractive as extreme cold days become increasingly rare,’ economists Sylvain Leduc and Daniel Wilson wrote... ‘The previous century’s migration pattern from the Snow Belt to the Sun Belt is likely to ultimately be reversed.’”
July 26 – Yahoo Finance (Janna Herron): “A historically high number of new homes are up for sale in the US South, thanks largely to Florida and Texas. There were 293,000 newly built houses still on the market in that part of the country in June, topping the previous high of 291,000 set in August 2006… Supply is tight elsewhere in the US… The South doesn’t have that problem… ‘There's a measurable correction already occurring in the market on list prices, but it’s still a fraction of what the appreciation was,’ said Nicholas Gerli, founder and CEO of Reventure Consulting… Florida, which had reigned as the most popular move-in state, now ranks third, according to PODS… Austin, Texas — a top 20 move-in city during the pandemic — is the No. 5 move-out city this year. South Florida is third.”
July 24 – Bloomberg (Catarina Saraiva): “The share of credit card balances past due reached a series high in Federal Reserve Bank of Philadelphia data back to 2012… Some 2.6% of credit card balances were 60 days past due in the first quarter… That’s up from a low of 1.1% reached in 2021, when consumers were bolstered by pandemic-era support programs. The share of credit card balances 30 days and 90 days past due also climbed in the first three months of the year to the highest levels in data back to 2012.”
July 21 – Wall Street Journal (Gina Heeb and Kailyn Rhone): “The American economy has held up well against higher inflation and interest rates. Many individual borrowers haven’t… Employers have added jobs at a healthy clip month after month. Households have continued to spend. Many locked in ultralow mortgage rates before the Federal Reserve began its campaign to curb inflation in 2022. But Americans who need to borrow now stand on shakier ground. The costs to borrow for a home, a car or on a credit card are at the highest levels in decades… The total amount of interest consumers paid on mortgages in 2023 rose 14% from a year earlier… It jumped 50% for other types of consumer debt, such as credit cards and auto loans.”
China Watch:
July 22 – Bloomberg: “Drinking a glass of wine over lunch, Zhou Xiaochuan, China’s central bank governor at the time, talked freely as he was peppered with questions from economists at Western banks. The laid-back atmosphere at the April 2015 meeting typified Zhou, a fluent English speaker who served as central bank governor for more than 15 years. He held exchanges every few quarters with analysts that offered China’s leadership the chance to hear different perspectives… During President Xi Jinping’s first decade in power, policymakers sat down regularly with foreign economists and other analysts… Now, foreign experts only get irregular meetings with officials, which lack the meaningful debate of previous years… Chinese economists say they can’t tell whether their proposals are being heeded… Comments from prominent analysts are deemed noise disrupting from Xi’s top-down messaging, said one person familiar with the leadership’s thinking. ‘Xi Jinping is now the chief economist of China,’ said Stephen Roach, former Morgan Stanley Asia chairman…”
July 21 – Financial Times (The Editorial Board): “China’s third plenum, a major meeting that takes place only twice a decade, concluded on Thursday to plaudits from Beijing’s state-owned media. The Global Times, for instance, hailed the meeting for ‘drawing up a sweeping blueprint that will guide China’s reform and opening-up for years to come’. The reality seems less momentous. Rather than unveiling bold reforms, the communique that followed the plenum reads like a lengthy endorsement of the leadership of Xi Jinping, China’s strongman leader, and his existing policies. It stated that the Central Committee gave a ‘highly positive assessment’ of Beijing’s work. Importantly, it reaffirmed Xi’s philosophy of ‘high-quality economic development’, echoing objectives stated at a key congress in 2022.”
July 22 – Bloomberg: “Xi Jinping’s government has finally outlined its plan to fix a regional fiscal crisis that has weighed on China for years. Economists say it’s not nearly enough. The ruling Communist Party signaled at a key policy meeting last week that Beijing is willing to share its tax revenue with regional governments while easing their spending burden, one of the country’s biggest tax revamps in decades. A core part of the plan involves passing the proceeds of consumption levies… to cities and towns. But the consumption tax generated just 1.6 trillion yuan ($220bn) last year. That pales in comparison to the record 15 trillion yuan deficit accumulated by provinces, cities, and towns across China last year, with a similarly dire budget shortfall anticipated for 2024. ‘The fiscal reform plan reads more like a realistic but marginal remedy with the grip on local government debt still tight,’ Citigroup Inc. economists including Yu Xiangrong wrote…”
July 21 – Bloomberg: “President Xi Jinping unveiled sweeping plans to bolster the finances of China’s indebted local governments, as the ruling Communist Party announced a long-term blueprint for the world’s second-largest economy that offered few major surprises. China’s top leader mapped out measures for fixing the debt crisis facing regional authorities in a near-22,200 character resolution of a major meeting… Those plans — already hinted at by state media — centered around shifting more revenue from the central to local coffers, such as by letting regional governments receive a larger share of consumption tax.”
July 22 – Financial Times (Cheng Leng and Thomas Hale): “China has unveiled unexpected cuts to lending rates days after a top Communist party policy meeting, in a sign of government efforts to boost lagging momentum across the world’s second-largest economy. The People’s Bank of China announced on Monday that the one-year loan prime rate, widely used as a benchmark for corporate lending, would be lowered 0.1 percentage point to 3.35%, the first such cut since August last year. The five-year equivalent, which influences mortgage pricing, was also reduced 0.1 percentage point for the first time since February, to 3.85%.”
July 25 – Wall Street Journal (Jason Douglas): “China’s central bank took new steps to shore up the country’s sputtering economy, highlighting officials’ growing anxiety about growth only days after leader Xi Jinping set out his long-term vision to transform China into a technological powerhouse to rival the U.S. The People’s Bank of China said Thursday that it cut a key interest rate and pumped the equivalent of more than $25 billion into China’s banking system. The move caught investors by surprise… The cut followed a bevy of earlier easing moves this week, including a reduction in a different policy rate and cuts to benchmark lending rates by China’s major banks.”
July 23 – Bloomberg (Wei Zhou): “China’s local government financing vehicles, seen as one of the biggest risks in the nation’s debt markets, are finding some respite in the offshore bond market as government efforts to ease repayment pressures bolster investor confidence. LGFVs have issued a record amount of offshore bonds — including dollar bonds, offshore yuan bonds and those issued in other currencies — so far this year, with sales climbing to $24.1 billion as of July 22. That’s the highest level since Bloomberg began to compile the data in 2013 and is up 79% compared with the same period a year earlier.”
July 22 – Bloomberg: “Chinese authorities told state banks to extend support to ensure some of the nation’s most indebted municipalities can refinance through mid-2027… Under a new directive issued last week, banks and provincial governments should help local financing vehicles repay domestic and offshore debt maturing no later than June 30, 2027… That’s a 2 1/2-year extension of a previous plan calling for assistance with debt maturing before the end of this year, including loans, bonds and so-called non-standard liabilities, the people said.”
July 21 – Wall Street Journal (Jason Douglas and Rebecca Feng): “As Western companies quake at the latest onslaught of cheap Chinese goods, a similar drama is playing out in China, where manufacturers are struggling as Beijing boosts industrial capacity without stimulating new demand. Consider Jiangsu Lopal Tech, a company that supplies lithium iron phosphate to make batteries. The company lost $169 million in 2023, wiping out nearly three years of profit… It blamed the red ink on overcapacity in China’s lithium iron phosphate market and a slowdown in demand from domestic battery makers. A similarly plaintive song is heard throughout China’s corporate landscape. Rampant overcapacity combined with weak consumer demand is pushing many Chinese companies to the brink, forcing them to slash prices and crushing profits.”
July 22 – Bloomberg (Lorretta Chen and Pearl Liu): “When The Center skyscraper was sold in Hong Kong in 2017, the record $5.2 billion price tag was so high that investors had to form a consortium to take a majority stake and divvy up the floors. That decision is rapidly becoming a millstone. Cash-strapped owners, many of them Chinese homebuilders, are now competing with one another to secure revenue from tenants or buyers at the 73-story tower after housing sales in the mainland collapsed. Values have been dragged down as a result, with some space now offered at almost 50% less than the purchase price.”
Central Banking Watch:
July 24 – Reuters (Promit Mukherjee and David Ljunggren): “The Bank of Canada… trimmed its key interest rate by 25 bps for the second month in a row, bringing it to 4.5%, and said more reductions in borrowing costs were likely if inflation continued to cool in line with forecasts. The central bank had kept its policy rate at a two-decade high of 5% for almost a year in a bid to combat high inflation.”
Europe Watch:
July 23 – Reuters (Jonathan Cable): “Growth in euro zone business activity stalled this month as a tepid expansion in the bloc's dominant services industry failed to offset a deeper downturn among manufacturers, a survey showed… HCOB's preliminary composite Purchasing Managers' Index, compiled by S&P Global, dropped to 50.1 this month from June's 50.9, barely above the 50 mark separating growth from contraction and defying expectations… for an uptick to 51.1.”
Japan Watch:
July 24 – Reuters (Leika Kihara and Takahiko Wada): “The Bank of Japan is likely to debate whether to raise interest rates when it meets next week and unveil a plan to roughly halve bond purchases in coming years, sources said, signalling its resolve to steadily unwind its massive monetary stimulus. The rate decision will depend on how long the board members prefer to wait for clarity on whether consumption will recover and keep inflation stably around the bank's 2% target, said four people familiar with the BOJ's thinking.”
July 24 – Bloomberg (Toru Fujioka): “Service prices among businesses in Japan jumped by the most in about 33 years, adding to the list of supporting factors for the central bank to raise interest rates, with a policy meeting looming next week. The cost of services among companies climbed 3% in June, the biggest gain since September 1991 excluding the impact of sales tax hikes… The result came in hotter than economists’ estimate of 2.6%.”
July 23 – Reuters (Kaori Kaneko): “Japan's factory activity contracted slightly in July as output and new orders fell and firms remained under pressure from higher prices, a business survey showed… But the expansion in the service sector helped overall activity in Japan's private sector return to growth in July, the survey found. The au Jibun Bank flash Japan manufacturing purchasing managers' index (PMI) slipped to 49.2 in July from 50.0 in June.”
Emerging Market Watch:
July 23 – Bloomberg (Alex Vasquez and Maria Eloisa Capurro): “Mexico’s headline inflation accelerated much more than expected early this month, complicating investor bets that Banco de Mexico will resume interest rate cuts in August… Consumer prices rose 5.61% in the first two weeks of July from the same period a year earlier, above all forecasts…”
July 25 – Bloomberg (Andrew Rosati and Maria Eloisa Capurro): “Brazil’s annual inflation accelerated more than expected by all analysts in early July, supporting traders’ bets the central bank will have to hike borrowing costs later this year after holding them steady next week… Consumer prices increased 4.45% from a year earlier, above the 4.37% median estimate…”
July 24 – Reuters (Jayshree P Upadhyay): “The number of intraday traders in India's equity cash market jumped 300% between fiscal years 2019 and 2023, by when seven out of ten were making losses, the markets regulator said in a study… Those younger than 30 years made up nearly half of all intraday traders in fiscal 2023, but accounted for three-fourth of the lossmakers, the Securities and Exchange Board of India (SEBI) said. 80% of traders who executed more than 500 trades in a year made losses…”
July 23 – Bloomberg (Chiranjivi Chakraborty and Ashutosh Joshi): “India made significant changes to taxes on gains from equity investments and stock derivatives for the first time in decades, seeking to curb the surge in speculative trading in the nation’s $5 trillion market. The government raised the levy on stocks held for less than 12 months to 20%, the first hike since 2008, and to 12.5% from 10% for those held for more than a year…”
Leveraged Speculation Watch:
July 21 – Bloomberg (Ruth Carson and Masaki Kondo): “Hedge funds pared bets against the yen in spectacular fashion after a suspected double-whammy market intervention from Japanese authorities to bolster the currency. Leveraged funds reduced net short positions on the yen by 38,025 contracts during the week to July 16th — the most since March 2011… Hedge funds pulled back during what was a turbulent trading week, with Japan estimated to have spent ¥5.64 trillion ($35.8bn) over two sessions to lift the yen from near its weakest levels since the 1980s.”
July 23 – Reuters (Summer Zhen): “Chinese computer-driven ‘quant’ hedge funds suffered heavy losses in the first half of the year, underperforming traditional stocks strategies at home and other popular global fund strategies... That dismal performance is leading to a reshuffle in the $200 billion industry, prompting some to even exit their businesses… Quant hedge funds trading China's onshore A-shares suffered an 8.6% loss in the first half of the year on average…”
Social, Political, Environmental, Cybersecurity Instability Watch:
July 23 – Reuters (Gloria Dickie): “Sunday, July 21 was the hottest day ever recorded, according to preliminary data from the European Union's Copernicus Climate Change Service, which has tracked such global weather patterns since 1940. The global average surface air temperature on Sunday reached 17.09 degrees Celsius (62.76 degrees Fahrenheit) — slightly higher than the previous record set last July of 17.08 C (62.74 F) — as heatwaves scorched large swathes of the United States, Europe and Russia.”
July 22 – Wall Street Journal (Gareth Vipers): “The CrowdStrike glitch that caused outages for millions of users of Microsoft Windows devices last week continued to roil industries and snarl global air travel. Around 8.5 million devices were affected by the outage, CrowdStrike said… Warning customers that bad actors were trying to exploit the event, the company said it had identified a malicious file being sent around by hackers posing as a ‘quick fix’ to the problem. A file named ‘crowdstrike-hotfix.zip’ was being distributed that included malware enabling hackers to remotely control or monitor a user’s device…”
July 24 – Reuters (James Pearson): “A software bug in CrowdStrike's quality-control system caused the software update that crashed computers globally last week, the U.S. firm said…, as losses mount following the outage which disrupted services from aviation to banking. The extent of the damage from the botched update is still being assessed. On Saturday, Microsoft said about 8.5 million Windows devices had been affected, and the U.S. House of Representatives Homeland Security Committee has sent a letter to CrowdStrike CEO George Kurtz asking him to testify.”
July 23 – Financial Times (Ian Smith): “The insurance industry is braced for losses that could run into the billions after last week’s worldwide IT outage exposed the vulnerabilities of a global economy run on a handful of software platforms. Industries ranging from airlines to retailers were thrown into turmoil on Friday after a botched update from security firm CrowdStrike triggered one of the biggest-ever IT outages, affecting more than 8mn devices reliant on Microsoft Windows software. Cyber experts said it was a painful reminder of the systemic nature of cyber risk, and showed how an innocuous software update could cause as much disruption as a malicious cyber attack.”
July 24 – Reuters (Carolyn Cohn): “U.S. Fortune 500 companies, excluding Microsoft, will face $5.4 billion in financial losses from the recent CrowdStrike outage, insurer Parametrix said… CrowdStrike's faulty update to its security software crashed computers powered by Microsoft's Windows operating system, disrupting internet services across the globe and affecting a broad swathe of industries including airlines, banking and healthcare.”
July 20 – Bloomberg (Mark Chediak, Naureen S Malik and Tope Alake): “Thousands of people in the Houston area were still without power more than a week after Hurricane Beryl tore through the fourth-largest US city. Two factors are now emerging as important explanations for why the powerful but predictable storm caused so much disruption: a shortage of workers at CenterPoint Energy… and the company's limited management of vegetation growing alongside electricity poles and power lines.”
July 22 – Axios (Andrew Freedman): “A dangerous heat wave will continue into midweek in much of the West as large wildfires burn out of control in several states, particularly California, Oregon and Washington… The combination of heat and wildfire smoke is bringing a significant threat to public health, and smoke from fires burning in Canada may soon move into the U.S. as well… The heat wave has triggered warnings for millions in California, Nevada, Oregon, Washington and Idaho. In addition, red flag warnings are in effect in many areas for dangerous fire weather conditions.”
July 25 – Bloomberg (Shoko Oda): “The California Independent System Operator, which runs most of the state’s power grid, warned of potential energy shortages on Wednesday evening. A fire in the north of the state threatens imports into the network, the operator said in an alert issued on late Wednesday afternoon local time. It urged users to offer available energy services and reduce consumption.”
July 23 – Financial Times (Attracta Mooney, Steven Bernard and Jana Tauschinski): “In 30 years of studying the oceans, Matthew England has learnt to understand their irregular yet constant rhythms — the cycles of wind, temperature and atmospheric changes that interact with the masses of water covering most of the Earth’s surface. But what he has seen in the past 15 months has shocked him. Global sea surface temperatures have reached and stayed at record levels, fuelling heatwaves and melting sea ice… ‘I was stressed by the amount of climate change, to see the pace of change, to see these marine heatwaves, the loss of sea ice,’ says England, who is Scientia professor of ocean and climate dynamics at the University of New South Wales in Australia. The rate of warming went ‘beyond what you would typically see from steady global warming’.”
July 25 – Financial Times (Attracta Mooney): “The number of workers suffering from the ‘silent killer’ of extreme heat in Europe and central Asia had increased by almost a fifth since 2000, the UN labour agency said… The International Labour Organization, a UN agency, said the fastest changing working conditions were in Europe and central Asia, where almost a third of the workforce was exposed to extreme heat. The regions had greatest increase in the number of workers enduring excessive heat exposure, at 17.3% between 2000 and 2020, or almost double the global average rise of 8.8%. Europe is the world’s fastest warming continent.”
Geopolitical Watch:
July 22 – Associated Press (Jim Gomez): “China and the Philippines reached a deal they hope will end confrontations at the most fiercely disputed shoal in the South China Sea… The Philippines occupies Second Thomas Shoal but China also claims it, and increasingly hostile clashes at sea have sparked fears of larger conflicts that could involve the United States. The crucial deal was reached Sunday, after a series of meetings between Philippine and Chinese diplomats in Manila and exchanges of diplomatic notes that aimed to establish a mutually acceptable arrangement at the shoal…”
July 26 – Bloomberg (Steve Matthews and Dana Morgan): “The Federal Reserve is likely to signal next week its plans to cut interest rates in September, according to economists surveyed by Bloomberg News, a move they say will kick off reductions each quarter through 2025. Nearly three-quarters of respondents say the US central bank will use the July 30-31 gathering to set the stage for a quarter-point cut at the following meeting in September. They’re divided, however, about how policymakers will do so.”
U.S. Economic Bubble Watch:
July 25 – CNBC (Jeff Cox): “Economic activity in the U.S. was considerably stronger than expected during the second quarter, boosted by a strong consumer, government spending and a sizeable inventory build… Real gross domestic product… increased at a 2.8% annualized pace adjusted for seasonality and inflation. Economists… had been looking for growth of 2.1% following a 1.4% rise in the first quarter… The personal consumption expenditures price index, a key measure for the Federal Reserve, increased 2.6% for the quarter, down from the 3.4% move in Q1. Excluding food and energy, core PCE prices, which the Fed focuses on even more as a longer-term inflation indicator, were up 2.9%...”
July 24 – Reuters (Lucia Mutikani): “U.S. business activity climbed to a 27-month high in July, but firms appeared to have some difficulty sustaining higher prices for their goods and services amid resistance from consumers, offering a further boost to the inflation outlook. S&P Global said… its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, edged up to 55.0 this month. That was the highest level since April 2022… The survey's flash manufacturing PMI dropped to a seven-month low of 49.5 this month from 51.6 in June… Its flash services PMI rose to 56.0, a 28-month high from 55.3 in June, confounding economists' expectations for a drop to a reading of 55.0.”
July 25 – Associated Press (Matt Ott): “Fewer Americans filed for unemployment benefits last week… Jobless claims for the week ending July 20 fell by 10,000 to 235,000 from 245,000 the previous week… It’s the ninth straight week claims came in above 220,000. Before that stretch, claims had been below that number in all but three weeks so far in 2024.”
July 21 – Financial Times (Taylor Nicole Rogers): “Welcoming a class of summer interns is a tradition in corporate America. But this summer, companies are bringing in fewer students, if any. Goldman Sachs hired 200 fewer summer analysts this year than in 2023. JPMorgan reduced the size of its own class of summer analysts by 600, more than 10% of the total. Tesla rescinded its internship offers just weeks before students were due to start. As US employers attempt to cut costs and increase efficiency, in anticipation of an economic slowdown, internships have been axed. Many companies have reduced hiring for white-collar jobs after recruiting too many new graduates in recent years, meaning there would not be enough jobs for more interns to move into.”
July 24 – CNBC (Diana Olick): “Rates have dropped over 20 bps in the last few weeks, but applications for a mortgage to purchase a home still dropped another 4% last week compared with the previous week… Purchase demand is now 15% lower than it was the same week one year ago… Applications to refinance a home loan were… 38% higher than the same week one year ago…”
July 23 – Bloomberg (Michael Sasso): “Existing-home sales in the US slumped to one of the slowest paces since 2010 in June, as sellers wait for mortgage rates to fall further and buyers balk at stubbornly high prices. Contract closings decreased 5.4% from May to a 3.89 million annualized rate… The slowdown came as prices reached another record in June, with the median sales price up 4.1% to $426,900… In June, there were 1.32 million homes for sale, the most since October 2020 but still well below the 1.9 million that were listed before the pandemic in June 2019. That means at the current sales rate, it would take 4.1 months to exhaust that supply…”
July 24 – Reuters: “Sales of new U.S. single-family homes fell to a seven-month low in June as higher mortgage rates and prices weighed on demand… New home sales slipped 0.6% to a seasonally adjusted annual rate of 617,000 units last month, the lowest level since November… Sales slumped 7.4% on a year-on-year basis in June… The median new house price dipped 0.1% to $417,300 in June from a year ago. Most of the houses sold last month were below the $499,999 price level. The inventory of new homes increased in June to 475,000 from 472,000 units in May. At June's sales pace it would take 9.3 months to clear the supply of houses on the market up from 9.1 months in May.”
July 23 – Wall Street Journal (Nicole Friedman): “Home prices hit a new high in June for the second straight month, the latest sign that the housing market is unaffordable to millions of Americans. The spring home-buying season… was a dud this year… But low inventory of homes for sale in much of the country is pushing prices higher. The national median existing-home price in June rose to $426,900… and a 4.1% increase from a year earlier… More than one-third of home sales in June went for more than their list price, according to… Redfin.”
July 24 – Bloomberg (Vince Golle): “US mortgage rates eased last week to their lowest level since early February… The contract rate on a 30-year fixed mortgage slipped 5 bps to 6.82%...”
July 24 – Bloomberg (Norah Mulinda and Prashant Gopal): “One of the least affordable US housing markets in decades is freezing residential real estate sales and shutting out a generation of aspiring homeowners. But one group remains unfazed by the crisis: the wealthy. Overall, it’s been a troubling key selling season in the US. New home sales were down slightly in June and well below expectations after May’s 15% decline… The lone bright spot in the market is luxury, with homes worth over $1 million the only price category to see sales rise in June… With the 30-year fixed mortgage rate hovering around 6.8%..., anyone who has to borrow is paying a significantly steeper price… But deep-pocketed buyers don’t have that concern because they can use cash. ‘I can’t remember the last time I heard a buyer talk about financing,’ said Lisa Rooks Morris, a Sarasota… luxury real estate agent... ‘They all come in with cash.’”
July 24 – Yahoo Finance (Rick Newman): “If you moved from the Snow Belt to the Sun Belt during the last few years, you might be part of a vanishing breed. Since the widespread adoption of air conditioning in the 1970s, Americans have moved in droves from cold northern climes to sunny southern ones… But Sun Belt migration is now skidding to a halt, according to a new working paper from the Federal Reserve Bank of San Francisco… ‘The US population is starting to migrate away from areas increasingly exposed to extreme heat days toward historically colder areas, which are becoming more attractive as extreme cold days become increasingly rare,’ economists Sylvain Leduc and Daniel Wilson wrote... ‘The previous century’s migration pattern from the Snow Belt to the Sun Belt is likely to ultimately be reversed.’”
July 26 – Yahoo Finance (Janna Herron): “A historically high number of new homes are up for sale in the US South, thanks largely to Florida and Texas. There were 293,000 newly built houses still on the market in that part of the country in June, topping the previous high of 291,000 set in August 2006… Supply is tight elsewhere in the US… The South doesn’t have that problem… ‘There's a measurable correction already occurring in the market on list prices, but it’s still a fraction of what the appreciation was,’ said Nicholas Gerli, founder and CEO of Reventure Consulting… Florida, which had reigned as the most popular move-in state, now ranks third, according to PODS… Austin, Texas — a top 20 move-in city during the pandemic — is the No. 5 move-out city this year. South Florida is third.”
July 24 – Bloomberg (Catarina Saraiva): “The share of credit card balances past due reached a series high in Federal Reserve Bank of Philadelphia data back to 2012… Some 2.6% of credit card balances were 60 days past due in the first quarter… That’s up from a low of 1.1% reached in 2021, when consumers were bolstered by pandemic-era support programs. The share of credit card balances 30 days and 90 days past due also climbed in the first three months of the year to the highest levels in data back to 2012.”
July 21 – Wall Street Journal (Gina Heeb and Kailyn Rhone): “The American economy has held up well against higher inflation and interest rates. Many individual borrowers haven’t… Employers have added jobs at a healthy clip month after month. Households have continued to spend. Many locked in ultralow mortgage rates before the Federal Reserve began its campaign to curb inflation in 2022. But Americans who need to borrow now stand on shakier ground. The costs to borrow for a home, a car or on a credit card are at the highest levels in decades… The total amount of interest consumers paid on mortgages in 2023 rose 14% from a year earlier… It jumped 50% for other types of consumer debt, such as credit cards and auto loans.”
China Watch:
July 22 – Bloomberg: “Drinking a glass of wine over lunch, Zhou Xiaochuan, China’s central bank governor at the time, talked freely as he was peppered with questions from economists at Western banks. The laid-back atmosphere at the April 2015 meeting typified Zhou, a fluent English speaker who served as central bank governor for more than 15 years. He held exchanges every few quarters with analysts that offered China’s leadership the chance to hear different perspectives… During President Xi Jinping’s first decade in power, policymakers sat down regularly with foreign economists and other analysts… Now, foreign experts only get irregular meetings with officials, which lack the meaningful debate of previous years… Chinese economists say they can’t tell whether their proposals are being heeded… Comments from prominent analysts are deemed noise disrupting from Xi’s top-down messaging, said one person familiar with the leadership’s thinking. ‘Xi Jinping is now the chief economist of China,’ said Stephen Roach, former Morgan Stanley Asia chairman…”
July 21 – Financial Times (The Editorial Board): “China’s third plenum, a major meeting that takes place only twice a decade, concluded on Thursday to plaudits from Beijing’s state-owned media. The Global Times, for instance, hailed the meeting for ‘drawing up a sweeping blueprint that will guide China’s reform and opening-up for years to come’. The reality seems less momentous. Rather than unveiling bold reforms, the communique that followed the plenum reads like a lengthy endorsement of the leadership of Xi Jinping, China’s strongman leader, and his existing policies. It stated that the Central Committee gave a ‘highly positive assessment’ of Beijing’s work. Importantly, it reaffirmed Xi’s philosophy of ‘high-quality economic development’, echoing objectives stated at a key congress in 2022.”
July 22 – Bloomberg: “Xi Jinping’s government has finally outlined its plan to fix a regional fiscal crisis that has weighed on China for years. Economists say it’s not nearly enough. The ruling Communist Party signaled at a key policy meeting last week that Beijing is willing to share its tax revenue with regional governments while easing their spending burden, one of the country’s biggest tax revamps in decades. A core part of the plan involves passing the proceeds of consumption levies… to cities and towns. But the consumption tax generated just 1.6 trillion yuan ($220bn) last year. That pales in comparison to the record 15 trillion yuan deficit accumulated by provinces, cities, and towns across China last year, with a similarly dire budget shortfall anticipated for 2024. ‘The fiscal reform plan reads more like a realistic but marginal remedy with the grip on local government debt still tight,’ Citigroup Inc. economists including Yu Xiangrong wrote…”
July 21 – Bloomberg: “President Xi Jinping unveiled sweeping plans to bolster the finances of China’s indebted local governments, as the ruling Communist Party announced a long-term blueprint for the world’s second-largest economy that offered few major surprises. China’s top leader mapped out measures for fixing the debt crisis facing regional authorities in a near-22,200 character resolution of a major meeting… Those plans — already hinted at by state media — centered around shifting more revenue from the central to local coffers, such as by letting regional governments receive a larger share of consumption tax.”
July 22 – Financial Times (Cheng Leng and Thomas Hale): “China has unveiled unexpected cuts to lending rates days after a top Communist party policy meeting, in a sign of government efforts to boost lagging momentum across the world’s second-largest economy. The People’s Bank of China announced on Monday that the one-year loan prime rate, widely used as a benchmark for corporate lending, would be lowered 0.1 percentage point to 3.35%, the first such cut since August last year. The five-year equivalent, which influences mortgage pricing, was also reduced 0.1 percentage point for the first time since February, to 3.85%.”
July 25 – Wall Street Journal (Jason Douglas): “China’s central bank took new steps to shore up the country’s sputtering economy, highlighting officials’ growing anxiety about growth only days after leader Xi Jinping set out his long-term vision to transform China into a technological powerhouse to rival the U.S. The People’s Bank of China said Thursday that it cut a key interest rate and pumped the equivalent of more than $25 billion into China’s banking system. The move caught investors by surprise… The cut followed a bevy of earlier easing moves this week, including a reduction in a different policy rate and cuts to benchmark lending rates by China’s major banks.”
July 23 – Bloomberg (Wei Zhou): “China’s local government financing vehicles, seen as one of the biggest risks in the nation’s debt markets, are finding some respite in the offshore bond market as government efforts to ease repayment pressures bolster investor confidence. LGFVs have issued a record amount of offshore bonds — including dollar bonds, offshore yuan bonds and those issued in other currencies — so far this year, with sales climbing to $24.1 billion as of July 22. That’s the highest level since Bloomberg began to compile the data in 2013 and is up 79% compared with the same period a year earlier.”
July 22 – Bloomberg: “Chinese authorities told state banks to extend support to ensure some of the nation’s most indebted municipalities can refinance through mid-2027… Under a new directive issued last week, banks and provincial governments should help local financing vehicles repay domestic and offshore debt maturing no later than June 30, 2027… That’s a 2 1/2-year extension of a previous plan calling for assistance with debt maturing before the end of this year, including loans, bonds and so-called non-standard liabilities, the people said.”
July 21 – Wall Street Journal (Jason Douglas and Rebecca Feng): “As Western companies quake at the latest onslaught of cheap Chinese goods, a similar drama is playing out in China, where manufacturers are struggling as Beijing boosts industrial capacity without stimulating new demand. Consider Jiangsu Lopal Tech, a company that supplies lithium iron phosphate to make batteries. The company lost $169 million in 2023, wiping out nearly three years of profit… It blamed the red ink on overcapacity in China’s lithium iron phosphate market and a slowdown in demand from domestic battery makers. A similarly plaintive song is heard throughout China’s corporate landscape. Rampant overcapacity combined with weak consumer demand is pushing many Chinese companies to the brink, forcing them to slash prices and crushing profits.”
July 22 – Bloomberg (Lorretta Chen and Pearl Liu): “When The Center skyscraper was sold in Hong Kong in 2017, the record $5.2 billion price tag was so high that investors had to form a consortium to take a majority stake and divvy up the floors. That decision is rapidly becoming a millstone. Cash-strapped owners, many of them Chinese homebuilders, are now competing with one another to secure revenue from tenants or buyers at the 73-story tower after housing sales in the mainland collapsed. Values have been dragged down as a result, with some space now offered at almost 50% less than the purchase price.”
Central Banking Watch:
July 24 – Reuters (Promit Mukherjee and David Ljunggren): “The Bank of Canada… trimmed its key interest rate by 25 bps for the second month in a row, bringing it to 4.5%, and said more reductions in borrowing costs were likely if inflation continued to cool in line with forecasts. The central bank had kept its policy rate at a two-decade high of 5% for almost a year in a bid to combat high inflation.”
Europe Watch:
July 23 – Reuters (Jonathan Cable): “Growth in euro zone business activity stalled this month as a tepid expansion in the bloc's dominant services industry failed to offset a deeper downturn among manufacturers, a survey showed… HCOB's preliminary composite Purchasing Managers' Index, compiled by S&P Global, dropped to 50.1 this month from June's 50.9, barely above the 50 mark separating growth from contraction and defying expectations… for an uptick to 51.1.”
Japan Watch:
July 24 – Reuters (Leika Kihara and Takahiko Wada): “The Bank of Japan is likely to debate whether to raise interest rates when it meets next week and unveil a plan to roughly halve bond purchases in coming years, sources said, signalling its resolve to steadily unwind its massive monetary stimulus. The rate decision will depend on how long the board members prefer to wait for clarity on whether consumption will recover and keep inflation stably around the bank's 2% target, said four people familiar with the BOJ's thinking.”
July 24 – Bloomberg (Toru Fujioka): “Service prices among businesses in Japan jumped by the most in about 33 years, adding to the list of supporting factors for the central bank to raise interest rates, with a policy meeting looming next week. The cost of services among companies climbed 3% in June, the biggest gain since September 1991 excluding the impact of sales tax hikes… The result came in hotter than economists’ estimate of 2.6%.”
July 23 – Reuters (Kaori Kaneko): “Japan's factory activity contracted slightly in July as output and new orders fell and firms remained under pressure from higher prices, a business survey showed… But the expansion in the service sector helped overall activity in Japan's private sector return to growth in July, the survey found. The au Jibun Bank flash Japan manufacturing purchasing managers' index (PMI) slipped to 49.2 in July from 50.0 in June.”
Emerging Market Watch:
July 23 – Bloomberg (Alex Vasquez and Maria Eloisa Capurro): “Mexico’s headline inflation accelerated much more than expected early this month, complicating investor bets that Banco de Mexico will resume interest rate cuts in August… Consumer prices rose 5.61% in the first two weeks of July from the same period a year earlier, above all forecasts…”
July 25 – Bloomberg (Andrew Rosati and Maria Eloisa Capurro): “Brazil’s annual inflation accelerated more than expected by all analysts in early July, supporting traders’ bets the central bank will have to hike borrowing costs later this year after holding them steady next week… Consumer prices increased 4.45% from a year earlier, above the 4.37% median estimate…”
July 24 – Reuters (Jayshree P Upadhyay): “The number of intraday traders in India's equity cash market jumped 300% between fiscal years 2019 and 2023, by when seven out of ten were making losses, the markets regulator said in a study… Those younger than 30 years made up nearly half of all intraday traders in fiscal 2023, but accounted for three-fourth of the lossmakers, the Securities and Exchange Board of India (SEBI) said. 80% of traders who executed more than 500 trades in a year made losses…”
July 23 – Bloomberg (Chiranjivi Chakraborty and Ashutosh Joshi): “India made significant changes to taxes on gains from equity investments and stock derivatives for the first time in decades, seeking to curb the surge in speculative trading in the nation’s $5 trillion market. The government raised the levy on stocks held for less than 12 months to 20%, the first hike since 2008, and to 12.5% from 10% for those held for more than a year…”
Leveraged Speculation Watch:
July 21 – Bloomberg (Ruth Carson and Masaki Kondo): “Hedge funds pared bets against the yen in spectacular fashion after a suspected double-whammy market intervention from Japanese authorities to bolster the currency. Leveraged funds reduced net short positions on the yen by 38,025 contracts during the week to July 16th — the most since March 2011… Hedge funds pulled back during what was a turbulent trading week, with Japan estimated to have spent ¥5.64 trillion ($35.8bn) over two sessions to lift the yen from near its weakest levels since the 1980s.”
July 23 – Reuters (Summer Zhen): “Chinese computer-driven ‘quant’ hedge funds suffered heavy losses in the first half of the year, underperforming traditional stocks strategies at home and other popular global fund strategies... That dismal performance is leading to a reshuffle in the $200 billion industry, prompting some to even exit their businesses… Quant hedge funds trading China's onshore A-shares suffered an 8.6% loss in the first half of the year on average…”
Social, Political, Environmental, Cybersecurity Instability Watch:
July 23 – Reuters (Gloria Dickie): “Sunday, July 21 was the hottest day ever recorded, according to preliminary data from the European Union's Copernicus Climate Change Service, which has tracked such global weather patterns since 1940. The global average surface air temperature on Sunday reached 17.09 degrees Celsius (62.76 degrees Fahrenheit) — slightly higher than the previous record set last July of 17.08 C (62.74 F) — as heatwaves scorched large swathes of the United States, Europe and Russia.”
July 22 – Wall Street Journal (Gareth Vipers): “The CrowdStrike glitch that caused outages for millions of users of Microsoft Windows devices last week continued to roil industries and snarl global air travel. Around 8.5 million devices were affected by the outage, CrowdStrike said… Warning customers that bad actors were trying to exploit the event, the company said it had identified a malicious file being sent around by hackers posing as a ‘quick fix’ to the problem. A file named ‘crowdstrike-hotfix.zip’ was being distributed that included malware enabling hackers to remotely control or monitor a user’s device…”
July 24 – Reuters (James Pearson): “A software bug in CrowdStrike's quality-control system caused the software update that crashed computers globally last week, the U.S. firm said…, as losses mount following the outage which disrupted services from aviation to banking. The extent of the damage from the botched update is still being assessed. On Saturday, Microsoft said about 8.5 million Windows devices had been affected, and the U.S. House of Representatives Homeland Security Committee has sent a letter to CrowdStrike CEO George Kurtz asking him to testify.”
July 23 – Financial Times (Ian Smith): “The insurance industry is braced for losses that could run into the billions after last week’s worldwide IT outage exposed the vulnerabilities of a global economy run on a handful of software platforms. Industries ranging from airlines to retailers were thrown into turmoil on Friday after a botched update from security firm CrowdStrike triggered one of the biggest-ever IT outages, affecting more than 8mn devices reliant on Microsoft Windows software. Cyber experts said it was a painful reminder of the systemic nature of cyber risk, and showed how an innocuous software update could cause as much disruption as a malicious cyber attack.”
July 24 – Reuters (Carolyn Cohn): “U.S. Fortune 500 companies, excluding Microsoft, will face $5.4 billion in financial losses from the recent CrowdStrike outage, insurer Parametrix said… CrowdStrike's faulty update to its security software crashed computers powered by Microsoft's Windows operating system, disrupting internet services across the globe and affecting a broad swathe of industries including airlines, banking and healthcare.”
July 20 – Bloomberg (Mark Chediak, Naureen S Malik and Tope Alake): “Thousands of people in the Houston area were still without power more than a week after Hurricane Beryl tore through the fourth-largest US city. Two factors are now emerging as important explanations for why the powerful but predictable storm caused so much disruption: a shortage of workers at CenterPoint Energy… and the company's limited management of vegetation growing alongside electricity poles and power lines.”
July 22 – Axios (Andrew Freedman): “A dangerous heat wave will continue into midweek in much of the West as large wildfires burn out of control in several states, particularly California, Oregon and Washington… The combination of heat and wildfire smoke is bringing a significant threat to public health, and smoke from fires burning in Canada may soon move into the U.S. as well… The heat wave has triggered warnings for millions in California, Nevada, Oregon, Washington and Idaho. In addition, red flag warnings are in effect in many areas for dangerous fire weather conditions.”
July 25 – Bloomberg (Shoko Oda): “The California Independent System Operator, which runs most of the state’s power grid, warned of potential energy shortages on Wednesday evening. A fire in the north of the state threatens imports into the network, the operator said in an alert issued on late Wednesday afternoon local time. It urged users to offer available energy services and reduce consumption.”
July 23 – Financial Times (Attracta Mooney, Steven Bernard and Jana Tauschinski): “In 30 years of studying the oceans, Matthew England has learnt to understand their irregular yet constant rhythms — the cycles of wind, temperature and atmospheric changes that interact with the masses of water covering most of the Earth’s surface. But what he has seen in the past 15 months has shocked him. Global sea surface temperatures have reached and stayed at record levels, fuelling heatwaves and melting sea ice… ‘I was stressed by the amount of climate change, to see the pace of change, to see these marine heatwaves, the loss of sea ice,’ says England, who is Scientia professor of ocean and climate dynamics at the University of New South Wales in Australia. The rate of warming went ‘beyond what you would typically see from steady global warming’.”
July 25 – Financial Times (Attracta Mooney): “The number of workers suffering from the ‘silent killer’ of extreme heat in Europe and central Asia had increased by almost a fifth since 2000, the UN labour agency said… The International Labour Organization, a UN agency, said the fastest changing working conditions were in Europe and central Asia, where almost a third of the workforce was exposed to extreme heat. The regions had greatest increase in the number of workers enduring excessive heat exposure, at 17.3% between 2000 and 2020, or almost double the global average rise of 8.8%. Europe is the world’s fastest warming continent.”
Geopolitical Watch:
July 22 – Associated Press (Jim Gomez): “China and the Philippines reached a deal they hope will end confrontations at the most fiercely disputed shoal in the South China Sea… The Philippines occupies Second Thomas Shoal but China also claims it, and increasingly hostile clashes at sea have sparked fears of larger conflicts that could involve the United States. The crucial deal was reached Sunday, after a series of meetings between Philippine and Chinese diplomats in Manila and exchanges of diplomatic notes that aimed to establish a mutually acceptable arrangement at the shoal…”
