January 16 – Reuters (Lawrence Delevingne, Yoruk Bahceli, Davide Barbuscia and Dhara Ranasinghe): “When Bill Clinton began his first term as president in 1993, he faced a challenge to his authority from an unexpected adversary: bond traders. Low taxes and high defense spending over the prior decade had contributed to U.S. debt doubling as a share of economic output. Clinton and his advisers worried that ‘bond vigilantes’ – so called because they punish governments' profligacy – would target the new Democratic administration. A run on U.S. Treasury bonds, they feared, could sharply raise borrowing costs, hurting growth and jeopardizing financial stability. A frustrated Clinton was forced to make the unpopular decision to raise taxes and cut spending to balance the budget. ‘He went away pretty disgusted with the idea that here he had just won an election by a pretty nice margin in a difficult three-way race, and now he was subservient to a bunch of bond traders,’ said Alan Blinder, one of Clinton's closest economic counselors… ‘A lot of us are wondering if the bond market vigilantes are going to come back for a second chapter.’”
Scott Bessent is an impressive individual. He’s highly intelligent and has worked very hard for a long time. Living the American dream. Having made billions, his decades-long interest in public service has turned into a full-time occupation. In Bessent’s Thursday confirmation hearing, he was well-prepared, earnest, and respectful. As a seasoned hedge fund “master of the universe” - and teacher of “Twentieth Century Financial Booms and Busts” and “The Financial Panic of 2007–2009” at Yale - he grasps the challenges that await.
Bessent: “I believe that President Trump has a generational opportunity to unleash a new economic golden age that will create more jobs, wealth and prosperity for all Americans. My life’s work in the private sector has given me a deep understanding of the economy and markets.”
“The federal government has a significant spending problem, driving deficits that have averaged an historically high 7% of GDP annually during the past four years. We must work to get our fiscal house in order and adjust federal domestic discretionary spending that has grown by an astonishing 40% over the past four years. Productive investment that grows the economy must be prioritized over wasteful spending that drives inflation.”
“This is the single most important economic issue of the day. This is pass/fail. If we do not fix these tax cuts, if we do not renew and extend, then we will be facing an economic calamity.”
I would rank extending 2017 tax cuts somewhat down the list, somewhere below ongoing “terminal phase” Bubble excess, runaway federal debt, bond market fragility, speculative asset Bubbles, acute wealth inequality, over-indebted consumers and businesses, and global trade frictions.
I’m a strong proponent of free markets, fiscal prudence, low taxes, and limited government. Most unfortunately, this framework is hardly even germane at this stage of the cycle, as Credit and speculative Bubbles inflate out of control – as egregious inequality threatens societal and political stability. Unbridled finance is anathema to free market Capitalism.
I struggle with the notion of a “generational opportunity to unleash a new economic golden age.” It is, of course, seductively appealing in an age of insecurity. But today’s imperative is to halt Bubble inflation and commence arduous post-Bubble adjustment.
Reining in deficit spending is critical. But the administration’s agenda of wedding government cost-cutting with aggressive private-sector stimulus is premised on the perpetuation of Bubble excess, including easy Credit conditions and booming markets. Such a gambit presents clear and present risk to bond market and system stability. With today’s financial and economic structures and associated resource allocation, what scope of “money” and Credit growth would ensure “trickle-down” to small-town and rural America?
Wednesday’s market reaction to December CPI data was interesting. Markets interpreted a mixed report (headline up 0.39% vs. November’s 0.31%, while “Core” slipped to a less-than-expected 0.23% vs. 0.31%) bullishly, focusing on the slight 0.1% increase in core goods inflation and the relative stability (0.3%) of core Services inflation – with ramifications for what is expected to be positive inflation news with PCE data at the end of the month.
Ten-year Treasury yields immediately dropped 12 bps on CPI, falling 14 bps for the session - ending the week at 4.63%, down 16 bps from Tuesday’s close. Market rallies into monthly options expirations have become commonplace. The S&P500 jumped 1.8% in Wednesday trading, the Nasdaq100 2.3%, and small cap Russell 2000 2.0%. The KBW Bank Index surged 4.1%.
January 15 – New York Times (Rob Copeland and Danielle Kaye): “Worried about the economy? You must not run a major bank. A swath of the nation’s largest lenders, including JPMorgan Chase, Wells Fargo and Goldman Sachs, reported quarterly and annual financial results… that beat analysts’ expectations, and largely expressed a go-go attitude about what’s ahead after President-elect Donald J. Trump is inaugurated next week. JPMorgan… said it earned $14 billion in profits in the fourth quarter, and nearly $59 billion for the full year. Wells Fargo made $5.1 billion in the fourth quarter and $20 billion for the year… Citi… reported net income of $2.9 billion in the quarter and $12.7 billion for the full year. Goldman Sachs, which saw fourth quarter profits of $4 billion and $14 billon for 2024, said it had particular success connecting risky companies looking for money to clients willing to lend it, typically a sign that credit conditions… remain fluid.”
The KBW Bank Index enjoys a one-year return of 46.9%, with the NYSE Broker/Dealer Index returning 63.3%, Nasdaq Financial Index 34.2%, and the NYSE Financial Index 29.2%. Booming financial earnings and stock prices corroborate excessively loose financial conditions and asset Bubbles.
January 15 – Financial Times (Brooke Masters, Stephen Gandel and Ortenca Aliaj): “Donald Trump’s return to the White House could fuel a blockbuster 2025 on Wall Street, but concerns linger over inflationary policies and global strife, big US banks said as they unveiled bumper quarterly earnings. Top executives from several of Wall Street’s biggest banks… offered upbeat outlooks for this year, particularly for their investment banking businesses, which have surged in revenues in recent months… Goldman Sachs chief executive David Solomon… said: ‘There has been a meaningful shift in CEO confidence, particularly following the results of the US election. Additionally, there is… an overall increased appetite for dealmaking supported by an improving regulatory backdrop’… JPMorgan chief financial officer Jeremy Barnum said the US was in an ‘animal spirits moment… We are happy to see more optimism in the c-suites of the country and globally in some pockets.’”
These are not markets – stocks, Credit, lending, crypto and otherwise - in need of additional adrenaline. Speculative dynamics have been well-entrenched for a while now. Elevated risks ensure extensive derivatives hedging and shorting, well-recognized fodder for short squeezes and rally-inducing unwinds of derivative hedges. Especially with abundant hedging around major economic data (i.e., CPI), two days ahead of expiration no less, the backdrop provided an enticing opportunity for bullish speculation.
The return of President Trump to the White House adds an additional element of market intrigue.
January 16 – Bloomberg (Stephanie Lai and Olga Kharif): “President-elect Donald Trump is planning to release an executive order elevating crypto as a policy priority and giving industry insiders a voice within his administration… The order is expected to name crypto as a national imperative or priority — strategic wording intended to guide government agencies to work with the industry… It is also slated to create a crypto advisory council to advocate for the industry’s policy priorities… Also under consideration is the creation of a national Bitcoin stockpile, which would encompass the government’s existing holdings of the world’s biggest cryptocurrency… The US government currently holds nearly $20 billion worth of Bitcoin, confiscated as part of various investigations…”
January 17 – Bloomberg (Shawn Donnan, Joe Deaux and Eric Martin): “Donald Trump pledged to create ‘the greatest sovereign wealth fund of them all.’ His advisers think one way to do it is a government agency they bet can help mobilize hundreds of billions from Wall Street. Plans discussed for the US International Development Finance Corp. include how it could use investments to deliver on Trump’s ambitions for greater US influence over Greenland and Panama. Backers say the agency, which stands to get as much as $120 billion in capital of its own, will be able to trigger far larger geopolitically driven overseas commitments by some of America’s most powerful institutional investors.”
I don’t get it; no doubt hopelessly out of touch. But I do get that markets anticipate extraordinary patronage from the Trump administration. The crypto universe is emboldened, though it’s the mighty stock market that holds the most sway over its comrade setting up shop next week at 1600 Pennsylvania Avenue. This is a historic Bubble marketplace confident in Fed and Trump support - central bank liquidity when things turn dicey, and Truth Social posts when a timely (quite visible) hand might go a long way.
The strongest weekly stock market gains since the election create a delightful backdrop for Monday’s inauguration. And after 10-year Treasury yields surged 120 bps in four months, bonds were overdue for a rally. Still, it’s the party of the century - and Treasuries are chagrined by the non-invite. Will the bond market hold a grudge?
There was $2.829 TN worth of outstanding Treasuries for Bill Clinton’s inauguration, tallying 41% of GDP. Annual deficits totaled a then unprecedented $1.09 TN over the preceding five years. Total Bank Assets came in at $5.36 TN. Broker/Dealer assets were $867 billion, with total system “repo” assets of $1.04 TN. Money market fund assets (MMFA) ended 1992 at $546 billion. Total (Debt and Equities) Securities closed the year at $13.13 TN, or 200% of GDP. Household Net Worth was $25.6 TN, or 380% of GDP.
It’s an interesting backdrop for talk of unleashing a “new economic golden age.” The Friedman/Bernanke revisionist view asserts that a golden age of Capitalism was brought to a needless end by Federal Reserve policy blunders, while an opposing analytical framework holds the Fed responsible for accommodating Credit excess and an unsustainable historic “Roaring Twenties” Bubble of leverage, speculation, and epic resource misallocation. Surely, Mr. Bessent is familiar with this debate.
The backdrop for President Trump’s second inauguration is one of about $28 TN of outstanding Treasuries, registering at 95% of GDP – having expanded $11.7 TN, or 54%, over the past 19 quarters. Bank assets expanded $6.4 TN, or 30%, in 19 quarters to approach $28 TN. Broker/Dealer assets inflated 40% in 18 quarters to almost $6 TN. Total system “repo” assets surged 54% in 19 quarters to $7.4 TN. Having expanded 71% in 19 quarters, MMFA surpassed $7 TN. Total Securities inflated $58.7 TN, or 62%, in five years to $153 TN – or 522% of GDP. Household Net Worth ballooned $50 TN, or 42%, in 17 quarters to a record $169 TN – or 575% of GDP.
There’s no stabilizing this historic Bubble inflation. To believe that consumer price inflation will magically steady at 2% - with Credit, financial markets, and household perceive wealth raging – is fanciful thinking. And now the new administration is determined to use every tool in the kit – while devising some crafty new ones – to crank the boom up a few notches.
Global markets remain highly synchronized. When Treasury yields drop and the dollar weakens, as they did following Wednesday’s CPI report, “risk on” is triggered globally. With rising Treasury yields a key risk for some vulnerable markets, Wednesday’s squeeze lower in yields was swiftly transmitted to UK (down 23bps from Tuesday’s close) and Brazilian yields (down 18bps) - for example. Ten-year French yields sank 12 bps Wednesday. The spread between French and German yields narrowed six on the session to 76 bps, with Italian spreads narrowing eight to 119 bps. For the week, dollar-denominated yields sank 28 bps in Colombia, 26 bps in Brazil, 23 bps in Peru, 23 bps in Panama, and 18 bps in Mexico.
Meanwhile, another key global risk was flashing amber. The Dollar Index only traded down to 108.60 on the CPI release and was back up to 109.405 by Friday close – slipping only 0.3% for the week and only marginally below two-year lows. The British pound and Mexican peso declined 0.3% this week, while the euro mustered only a 0.3% increase. The Brazilian real recovered only 0.5%, while the Indonesian rupiah (down 1.1%), Indian rupee (0.7%), Russian ruble (0.6%), and Argentine peso (0.5%) all posted losses for the week. Despite a decent squeeze and general “risk on,” the fragile global periphery was notably listless.
January 15 – Reuters: “Overnight borrowing costs for some Chinese financial institutions jumped as high as 16% on Wednesday…, due to tight cash supplies in the market ahead of the week-long Lunar New Year. In addition to seasonal factors, some market participants said the country's central bank has been cautious with cash injections due to concerns about sliding bond yields and a weak yuan. Traders said overnight borrowing costs surged as high as 16% in the afternoon, while some 7-day borrowing costs jumped to 10%.”
January 14 – Bloomberg: “China’s increasing determination to defend its currency against a strong dollar has worsened a liquidity squeeze in the country, pushing a key short-term funding rate to its highest level in more than a year. The cost of borrowing cash via seven-day interbank pledged repurchase contracts — a popular funding tool used by financial institutions — spiked this week to its highest level since October 2023. The spread between the rate and the central bank’s own reverse repo reference rate is now at its widest point since early 2021. The funding squeeze is a sign of China’s increasingly fraught attempts to stimulate its economy at the same time as stabilizing its currency.”
January 15 – Bloomberg: “China’s central bank pumped a near-historic amount of short-term funds into its financial system on Wednesday, dialing up liquidity support amid a cash squeeze with the new year holiday looming. The People’s Bank of China injected a net 958.4 billion yuan ($131bn) of cash via seven-day reverse repurchase agreements in daily open market operations, the second highest on record in data… back to 2004.”
As the world waits warily for Day One, China teeters. Increasingly desperate – and incongruent – measures are employed to buttress a deflating Bubble – to stabilize apartment markets, an incredibly maladjusted economy, funding markets and system liquidity – while simultaneously working intently to thwart currency instability. A fragile “developing” world hangs in the balance.
Scott Bessent and Team Trump are keenly aware of China’s current vulnerability. I’ll assume they keep much of their powder dry on Day One, as they prepare for hardball trade negotiations. For now, China could sure use a weaker dollar, declining Treasury and global yields, and lower U.S. policy rates.
January 16 – Bloomberg (Amara Omeokwe): “Federal Reserve Governor Christopher Waller said the US central bank could lower interest rates again in the first half of 2025 if inflation data continue to be favorable. ‘The inflation data we got yesterday was very good,’ Waller said... ‘If we continue getting numbers like this, it’s reasonable to think rate cuts could happen in the first half of the year,’ he said, adding that he wouldn’t entirely rule out a cut in March. If future inflation figures fall in-line with December’s positive report, Waller said the Fed may cut more this year and sooner than investors are currently expecting. ‘I’m optimistic that this disinflationary trend will continue and we’ll get back closer to 2% a little quicker than maybe others are thinking,’ he said.”
Despite all the week’s inflation optimism, the five-year Treasury (inflation premium) “breakeven” rate added a basis point to 2.54% - near highs back to March 2023. The Bloomberg Commodities Index rose another 1.2%, boosting early 2025 gains to a notable 5.0%. Crude is up 8.6% month-to-date, with Natural Gas gaining 9.3%. The precious metals are building on robust 2024 advances. Gold and Silver have started the year with gains of 3.0% and 5.1%.
January 13 – AccuWeather (Monica Danielle): “As fires continue to rage across Southern California and the scope of catastrophic damage, loss of life, business disruptions and other economic impacts becomes clearer, AccuWeather has updated and increased its preliminary estimate of the total damage and economic loss to between $250 billion and $275 billion."
Estimates of insured Los Angeles fire losses have reached $40 billion. Insurance premiums will be rising significantly for millions of Californians and tens of millions across the country. The exodus of many from Southern California will support home prices and rents elsewhere. Competing for rebuilding resources with North Carolina, Florida and others, the inpouring of labor and building materials will surely have regional and national repercussions. Lumber futures prices are up a quick 8% to start the year.
January 15 – Wall Street Journal (Katherine Clarke, E.B. Solomont and Jessica Flint): “Among the most valuable homes that have burned down is a compound on Carbon Beach that billionaire media mogul David Geffen sold to Walter for $85 million in 2017. Another is one of Ellison’s homes… worth an estimated $21.5 million… Real-estate investor Robert Rivani told The Wall Street Journal that he invested roughly $27 million into developing a spec house on the same stretch; that property, which he purchased for $19.55 million in 2022, is gone. His insurance only covered up to $3 million in damages.”
First human tragedy, and now an unfolding insurance debacle. What is the financial status of California’s backstop insurance “FAIR Plan”? I wouldn’t want to be a lender in the area. Losses will be felt in MBS and ABS. The municipal debt market will be pressured. Local utilities, with significant amounts of debt outstanding, face quite a challenge. Business losses will be enormous, negatively impacting loan performance. Recovery will take many years. Will insurance even be available in some areas? Ramifications far and wide.
So many factors these days point to a new paradigm of inflation and bond market risk. Day One will have us – and the world – at the edge of our seats.
For the Week:
The S&P500 rallied 2.9% (up 2.0% y-t-d), and the Dow jumped 3.7% (up 2.2%). The Utilities rose 4.2% (up 4.4%). The Banks surged 8.2% (up 4.4%), and the Broker/Dealers rallied 7.8% (up 6.9%). The Transports advanced 3.2% (up 3.4%). The S&P 400 Midcaps surged 4.5% (up 3.8%), and the small cap Russell 2000 jumped 4.0% (up 2.1%). The Nasdaq100 gained 2.8% (up 2.0%). The Semiconductors rallied 5.4% (up 6.6%). The Biotechs increased 1.2% (up 4.2%). With bullion adding $13, the HUI gold index gained 1.1% (up 7.7%).
Three-month Treasury bill rates ended the week at 4.195%. Two-year government yields declined 10 bps to 4.28% (up 4bps y-t-d). Five-year T-note yields fell 14 bps to 4.43% (up 5bps). Ten-year Treasury yields dropped 13 bps to 4.63% (up 6bps). Long bond yields declined nine bps to 4.86% (up 9bps). Benchmark Fannie Mae MBS yields sank 17 bps to 5.89% (up 5bps).
Italian 10-year yields fell 12 bps to 3.65% (up 12bps y-t-d). Greek 10-year yields dropped 10 bps to 3.30% (up 9bps). Spain's 10-year yields fell nine bps to 3.18% (up 11bps). German bund yields declined six bps to 2.54% (up 17bps). French yields dropped 12 bps to 3.31% (up 12bps). The French to German 10-year bond spread narrowed six to 77 bps. U.K. 10-year gilt yields sank 18 bps to 4.66% (up 9bps). U.K.'s FTSE equities index surged 3.1% (up 4.1% y-t-d).
Japan's Nikkei 225 Equities Index dropped 1.9% (down 3.6% y-t-d). Japanese 10-year "JGB" yields were unchanged at 1.20% (up 10bps y-t-d). France's CAC40 jumped 3.8% (up 4.5%). The German DAX equities index rose 3.4% (up 5.0%). Spain's IBEX 35 equities index advanced 1.7% (up 2.8%). Italy's FTSE MIB index jumped 3.4% (up 6.1%). EM equities were mostly higher. Brazil's Bovespa index rallied 2.9% (up 1.7%), and Mexico's Bolsa index increased 0.7% (up 0.9%). South Korea's Kospi added 0.3% (up 5.2%). India's Sensex equities index declined 1.0% (down 2.4%). China's Shanghai Exchange Index recovered 2.3% (down 3.3%). Turkey's Borsa Istanbul National 100 index increased 0.7% (up 1.5%).
Federal Reserve Credit dipped $2.4 billion last week to $6.805 TN. Fed Credit was down $2.085 TN from the June 22, 2022, peak. Over the past 279 weeks, Fed Credit expanded $3.078 TN, or 83%. Fed Credit inflated $3.994 TN, or 142%, over the past 636 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt fell $7.7 billion last week to $3.240 TN - the low back to May, 2017. "Custody holdings" were down $139 billion y-o-y, or 4.1%.
Total money market fund assets dropped $54.9 billion to $6.848 TN. Money funds were up $727 billion over 25 weeks (25% annualized) and $887 billion y-o-y (15%).
Total Commercial Paper slipped $2.0 billion to $1.145 TN. CP was down $110 billion, or 8.7%, over the past year.
Freddie Mac 30-year fixed mortgage rates rose 11 bps this week to an eight-month high 7.04% (up 44bps y-o-y). Fifteen-year rates jumped 13 bps to 6.27% (up 51bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates up five bps to 7.14% (up 8bps).
Currency Watch:
January 12 – Bloomberg: “China has ramped up its support for the yuan with tweaks to its capital controls and a vow to crack down on market disruption, after the currency dropped close to a record low against the dollar in offshore trading. The People’s Bank of China and other regulators pledged to strengthen their management of the foreign-exchange market, deal with any behavior that may disrupt the market and prevent the risk of a large move in the yuan… The PBOC also adjusted its rules for cross-border flows…, allowing firms and financial institutions to borrow more from overseas, which may help increase capital inflows and support the yuan.”
For the week, the U.S. Dollar Index slipped 0.3% to 109.347 (up 0.8% y-t-d). For the week on the upside, the South African rand increased 1.9%, the South Korean won 1.0%, the Japanese yen 0.9%, the Australian dollar 0.8%, the New Zealand dollar 0.5%, the Brazilian real 0.5%, the euro 0.5%, the Norwegian krone 0.2%, the Swedish krona 0.2%, the Singapore dollar 0.2%, and the Swiss franc 0.2%. On the downside, the Canadian dollar declined 0.4%, the Mexican peso 0.4%, and the British pound 0.3%. The Chinese (onshore) renminbi increased 0.1% versus the dollar (down 0.35% y-t-d).
Commodities Watch:
January 15 – Bloomberg (Yvonne Yue Li): “US prices of metals and oil are rallying above other international benchmarks as traders increase bets President-elect Donald Trump will impose tariffs on imported goods. Metals including copper, silver and platinum have seen a sharp price dislocation between London and New York in recent weeks, while differentials in oil prices between the US and Canada also have expanded. The spikes come as apprehension and uncertainty loom over the scope of Trump’s global trade policies and create opportunities for traders to buy cheaper goods overseas and deliver them into the US.”
January 12 – Bloomberg (Anna Shiryaevskaya, Priscila Azevedo Rocha, Stephen Stapczynski, and Ruth Liao): “The world is bracing for a fight for natural gas supplies this year, prolonging the pain of higher bills for consumers and factories in energy-hungry Europe and putting poorer emerging countries from Asia to South America at risk of getting priced out of the market. For the first time since the energy crisis was turbocharged by Russia’s war in Ukraine, Europe risks failing to meet its storage targets for next winter, setting the stage for one last scramble for supplies before new liquefied natural gas capacity starts to ease the situation next year.”
The Bloomberg Commodities Index gained 1.2% (up 5.0% y-t-d). Spot Gold increased 0.5% to $2,703 (up 3.0%). Silver was little changed at $30.367 (up 5.1%). WTI crude added $1.31, or 1.7%, to $77.88 (up 9%). Gasoline increased 1.8% (up 4%), while Natural Gas dipped 1.0% to $3.948 (up 9%). Copper rose 1.5% (up 9%). Wheat rallied 1.5% (down 2%), and Corn jumped 2.9% (up 6%). Bitcoin surged $9,970 or 10.6%, to $104,322 (up 11%).
Trump Administration Watch:
January 14 – Reuters (David Lawder): “The U.S. government posted an $87 billion budget deficit in December, reduced partly by a shift of benefit payments into November but capping a record $711 billion deficit for the first three months of the 2025 fiscal year… The Treasury… said that the $711 billion October-December deficit was $201 billion, or 39% higher, than the $510 billion deficit in the same period a year earlier as outlays grew sharply and revenues declined slightly. For December, the $87 billion deficit was reduced by $51 billion by the calendar benefit shift…”
January 16 – Reuters (David Lawder, Bo Erickson, Andrea Shalal, Ann Saphir): “Scott Bessent, U.S. President-elect Donald Trump's choice to head the Treasury Department, on Thursday said that extending Trump's 2017 tax cuts that are set to expire at the end of this year is ‘the single most important economic issue of the day.’ ‘If we do not renew and extend, then we will be facing an economic calamity,’ Bessent told the U.S. Senate Finance Committee. ‘We will see a gigantic middle class tax increase.’”
January 15 – Wall Street Journal (Richard Rubin and Sam Goldfarb): “The bond market has a message for the new Congress: It’s not 2017 anymore. As Republicans retake full control of the government and weigh taking on more debt, they face a much trickier fiscal and financial environment than they did during Donald Trump’s first term. Interest rates are much higher and budget deficits much larger. U.S. government bonds have endured a particularly steep selloff over the past few months, making the deficit an even bigger burden… Bond investors’ increasing premium for U.S. government debt poses a tough challenge for the new GOP Congress and for Scott Bessent... Bessent… has talked about boosting economic growth and trimming deficits roughly in half, to 3% of gross domestic product. But Republicans are also proposing several deficit-increasing policies: extending expiring tax cuts, fulfilling Trump’s additional tax-cut promises, increasing border-security spending and boosting national defense.”
January 16 – Financial Times (Jamie Smyth and Amanda Chu): “Donald Trump’s pick for secretary of the interior has warned the US will lose the ‘AI arms race’ to China unless it boosts electricity generation from fossil fuels and stabilises its power grid. Doug Burgum, a billionaire businessman and former governor of North Dakota, told US senators… the country had an ‘electricity crisis’ due to weaknesses in the grid and ‘roadblocks’ stopping companies from building fossil fuel plants that can supply round-the-clock power. He added that the Trump administration would allocate more public land to drilling for oil and slash tax breaks favouring renewables companies that produce ‘intermittent and unreliable power’.”
January 12 – Bloomberg (Anthony Capaccio): “Outgoing Defense Secretary Lloyd Austin recommended the US government boost defense spending by about $50 billion more than projected in fiscal year 2026 with increases that would push the Pentagon budget past $1 trillion in the years to come. The recommendation… offers a path forward with defense-spending caps — imposed under a 2023 debt-limit deal — expiring after fiscal year 2025.”
Trade War Watch:
January 13 – Bloomberg (Jenny Leonard and Saleha Mohsin): “Members of President-elect Donald Trump’s incoming economic team are discussing slowly ramping up tariffs month by month, a gradual approach aimed at boosting negotiating leverage while helping avoid a spike in inflation, according to people familiar... One idea involves a schedule of graduated tariffs increasing by about 2% to 5% a month, and would rely on executive authorities under the International Emergency Economic Powers Act... The proposal is in its early stages and has not yet been presented to Trump… — a sign that a monthly stepped approach is early in the deliberation process.”
January 13 – Financial Times (Manik Narain): “American exceptionalism dominates markets, with equities outperforming the rest of the world by 20% last year alone. Yet one indicator, close to Donald Trump’s heart, remains exceptionally weak: the trade balance. We expect this to motivate new, China-centric tariffs. But rather than in China itself, we see larger market moves playing out in the rest of the emerging world for five reasons. First, China is exporting its strongest disinflationary impulse in at least 30 years: its export prices are down 18% from their post-Covid peak compared with a 5% decline globally… Second, tariffs may accelerate a slowdown in Chinese imports that was already coming… Third, with growth now slowing in large parts of developing economies, markets are in a weak position to navigate a potential Trade War 2.0… Fourth, tariff-sensitive industries such as autos, steel, transport infrastructure and electrical equipment constitute a higher share of emerging markets equities… than in developed economies… Finally, emerging markets outside China also face more challenging trade negotiations with Trump than ever before.”
January 15 – Associated Press (Brian Platt): “Canada’s energy minister came to Washington this week to warn U.S. lawmakers about President-elect Donald Trump’s tariffs threat on Canada: They’d inflict economic pain on Americans, with higher prices and job losses. Jonathan Wilkinson, Canada’s minister of energy and natural resources, said he feels obligated to sound the alarm about the inflationary risks... ‘It will mean higher gas prices, it will mean higher food prices, it will mean higher natural gas prices for heating people’s homes,’ he told The AP... ‘It will mean higher electricity prices. That’s not something Donald Trump campaigned on. He campaigned on actually reducing the price of energy.’”
January 15 – Bloomberg (Brian Platt): “Canada has drawn up an initial list of C$150 billion ($105bn) of US-manufactured items that it would hit with tariffs if President-elect Donald Trump decides to levy tariffs against Canadian goods, according to an official familiar with the matter. The list is a draft and would come into play only if the Trump administration moves first… More tariffs from Canada might be added later, depending on what the US does, the person said.”
January 12 – Associated Press (Zen Soo and Elaine Kurtenbach): “China’s exports in December grew at a faster pace than expected, as factories rushed to fill orders to beat higher tariffs that U.S. President-elect Donald Trump has threatened to impose once he takes office. Exports rose 10.7% from a year earlier… Imports rose 1% year-on-year. Analysts had expected them to shrink about 1.5%. With exports outpacing imports, China’s trade surplus grew to $104.84 billion in December, and nearly $1 trillion for the year, at $992.2 billion.”
January 15 – Bloomberg: “The Biden administration has added 37 companies from China’s mining, solar and textile sectors to its list of those banned from exporting to the US due to alleged forced labor practices in the Xinjiang region… US and European companies have been under pressure to pull away from factories that make clothes and other products in the Xinjiang region. Labor groups have documented alleged forced labor camps and other poor working conditions involving the local Uyghur population.”
January 12 – Financial Times (Brooke Masters): “Rising trade war fears in the wake of the election of Donald Trump have sent global companies scrambling to make their supply chains more resilient and transparent. Eighty-five per cent of the 1,700 large company executives surveyed by The Conference Board late last year said they were planning to make significant changes to their supply chain, up 15 percentage points from the previous year… Their focus on supply chains comes alongside growing concerns about the future of global trade. Forty-five per cent of global chief executives in The Conference Board’s report cited intensified trade wars as the leading geopolitical conflict risk for 2025, double last year’s tally of 19%. US executives were particularly worried, with 47% mentioning trade wars as their biggest concern.”
President Biden Watch:
January 16 – Reuters (Steve Holland, Jeff Mason and Andrea Shalal): “President Joe Biden said an oligarchy is forming in the U.S. that threatens democracy, issuing the bleak warning… in his final Oval Office speech as he prepares to hand over power to Donald Trump next week… ‘Today, an oligarchy is taking shape in America of extreme wealth, power, and influence that really threatens our entire democracy, our basic rights and freedom, and a fair shot for everyone to get ahead,’ Biden said.”
January 16 – Bloomberg (Julian Lee and Rakesh Sharma): “In the final days of Joe Biden’s presidency, the US unveiled its most sweeping and aggressive effort yet to disrupt the oil shipments that are helping Russia to fund its war in Ukraine. About 160 tankers were sanctioned, with India — a key buyer of seaborne oil — agreeing not to allow the ships into its ports from March. Two large energy producers and exporters were also targeted, along with trading firms that organize shipments, insurance companies, two US oil service providers and a Chinese oil terminal operator. If the measures are kept in place by Biden’s successor Donald Trump, they have more chance of disrupting Russian petroleum exports than anything done by a western nation so far.”
LA Wildfire Watch:
'January 14 – New York Times (Christopher Flavelle): “It’s too soon to know how the Los Angeles fires will change life in California, but it may heavily depend on the answer to a single question: Will a once-obscure insurance program run out of money? That program, the California FAIR Plan, was created by state lawmakers in 1968 to cover people who couldn’t get standard home insurance for various reasons. But as climate change makes wildfires more frequent and intense, causing commercial insurance companies to pull back from the state, the rapidly growing FAIR Plan has become the linchpin holding together California’s increasingly fragile insurance market… As of last Friday, the FAIR Plan had just $377 million available to pay claims… Unlike regular insurance companies, the FAIR Plan can’t refuse to cover homes just because they’re in vulnerable areas. As a result, as the risk of wildfires grows, homes deemed too dangerous by major insurers have been piling up on the FAIR Plan’s books. Between 2020 and 2024, the number of homes covered by the plan more than doubled, to almost half a million properties with a value that tripled to about half a trillion dollars.”
January 14 – Bloomberg (Alexandre Rajbhandari): “The cost of wildfires ravaging swaths of Los Angeles keeps rising, with new estimates of the total losses for the insurance industry now seen as high as $40 billion. The fresh figure Tuesday from Keefe Bruyette & Woods analysts is double their rough initial estimate from just a day earlier. In a note to clients, they cited ‘continuing upside insured loss potential’ as the fires across the region remain largely uncontrolled.”
January 14 – Bloomberg (John Gittelsohn and Patrick Clark): “Los Angeles already had a housing affordability crisis before devastating wildfires burned entire neighborhoods to the ground. The disaster is making it worse. Incoming calls at LA Estate Rentals, which manages and leases homes in some of the area’s costliest neighborhoods, have jumped to 500 a day, more than 10 times the number before the fires, said owner Patrick Michael. He recently arranged for a tenant to pay $35,000 a month for a place in Beverly Hills with a 12-month lease. After the fires but before the deal closed, the owner raised the rent to $40,000. ‘What’s going on in the real estate market is disgusting,’ Michael said... ‘People are price gouging. It’s become like the eBay of homes, a bidding war.’”
January 13 – Yahoo Finance (Laura Bratton): “Edison International (EIX) — the parent company of the utility Southern California Edison (SCE) — saw its stock drop roughly 12% Monday following an announcement from SCE late last week that it’s being investigated by California fire authorities for its potential link to the Los Angeles wildfires… SCE was also accused of playing a role in sparking the Eaton fire, which tore through more than 14,000 acres. Edison International stock has fallen nearly 30% over the last week.”
January 16 – Bloomberg (Maxwell Adler, Mark Chediak and Amanda Albright): “There’s a truism in municipal debt: Bonds rarely move on natural disasters. That long-tested concept had held up until fires destroyed thousands of properties in Los Angeles last week. The Los Angeles Department of Water and Power — the biggest American municipal utility — has seen its bonds drop and credit rating downgraded as the blazes continue to burn. A planned debt sale this week is in limbo… LADWP, with about $18 billion in power and water system debt in the muni market, stands to be one of the biggest tests of bond investors over the risks of climate change.”
January 15 – Wall Street Journal (Katherine Clarke, E.B. Solomont and Jessica Flint): “Tucked away on a once-lush mountainside in the Upper Riviera area of Pacific Palisades, roughly 20 miles west of Downtown Los Angeles, a sprawling, architecturally striking mansion built by L.A. developer Ardie Tavangarian was a monument to luxury and excess. Sold for $83 million in 2021 to Luminar Technologies Chief Executive Austin Russell, the house, which took roughly five years and more than $50 million to build, was packed with amenities geared to the super rich. There was a 20-seat theater, a temperature-controlled wine lounge, and a retractable roof in the primary suite for stargazing. There was a ballistic safe room where the owner could retreat in a crisis. The property… is among the most valuable destroyed to date by the Palisades fire…”
January 14 – Bloomberg (Charles Williams): “Approximately 3% of the total loan balance in US RMBS deals rated by Moody’s are backed by properties in Los Angeles County…Roughly 30% of total deals rated by Moody’s have over 10% exposure to this area, with approximately 83% of those deals being pre-2009 legacy RMBS deals. Among deals with over 10% exposure to Los Angeles County, 71% have highest outstanding ratings below investment grade and 58% of them are rated Caa1 or lower.”
Ukraine War Watch:
January 16 – Bloomberg (Ben Bartenstein): “Advisers to President-elect Donald Trump are crafting a wide-ranging sanctions strategy to facilitate a Russia-Ukraine diplomatic accord in the coming months while at the same time squeezing Iran and Venezuela, people familiar… said… There are two main approaches under consideration by the Trump team. One set of policy recommendations — if the incoming administration believes a resolution to the Ukraine war is in sight — involves some good-faith measures to benefit sanctioned Russian oil producers that could help seal a peace deal, said the people, requesting anonymity as the deliberations are private. A second option would build on the sanctions, ramping up pressure even further to increase leverage…”
January 14 – Bloomberg: “Swarms of Ukrainian drones attacked energy and military facilities across central Russia and the Volga region overnight, according to a Ukrainian Security Service official. Drones targeted two chemical plants in the Tula and Bryansk regions, hit an ammunition warehouse at the Engels airfield in the Saratov region and set Rosneft PJSC’s Saratov oil refinery on fire, the official said on condition of anonymity.”
Taiwan Watch:
January 13 – Financial Times (Kathrin Hille): “China is building a new class of mobile piers, satellite images reveal, which could bolster its ability to land an invading force in Taiwan, a major step in its preparations for a potential future attack. Satellite images… show six barge-like vessels equipped with extendable ramps under construction at China’s state-owned Guangzhou Shipyard. The vessels could help the People’s Liberation Army transport heavy military equipment such as tanks and artillery across mudflats or seawalls on to firm ground.”
January 12 – Reuters (Yimou Lee): “Taiwanese charged with suspicion of spying on behalf of China rose by a third to 64 people last year, the island's National Security Bureau said, adding most were current or retired soldiers. China has stepped up political and military pressure in recent years to back its claim that democratically governed Taiwan is its own territory. This has included daily military drills, balloons near the island and an espionage campaign.”
Market Instability Watch:
January 12 – Bloomberg (Julian Harris): “Chancellor of the Exchequer Rachel Reeves returns to the UK from China on Monday with the Labour Party keen to brush off market turmoil around its fiscal difficulties and emphasize the government’s long-term ambitions. UK debt costs soared last week as gilts were punished particularly hard amid a global bond rout, while the pound fell to its lowest level since late 2023 — a combination that implied jitters around Britain’s rising inflation, weak growth and the sustainability of Labour’s plan to ramp up public spending.”
January 13 – Reuters (Dhara Ranasinghe): “High government spending and a growing need among big economies - from the United States to Britain and France - to tap bond markets to fund their outlays have shot up the list of concerns for some policymakers and investors. This year has started with a selloff across global government bond markets, with Britain in particular caught in the crosshairs. France's inability to enact belt-tightening measures due to political instability has also hurt its standing in financial markets. And rising U.S. Treasury yields suggests some sceptism among investors that a new U.S. administration will curb a high budget deficit. No wonder talk of a return of bond vigilantes is growing.”
January 13 – Bloomberg (Mia Glass): “Japan’s 40-year government bond yield reached its highest since inception amid a global debt selloff and expectations that the Bank of Japan will hike interest rates in coming months. The yield rose as much as 3 bps to 2.755%, the highest since 2007 when the bonds were sold for the first time. Japan’s 20-year yield also rose to its highest since May 2011…”
January 14 – Bloomberg (Jan Bratanic and Andras Gergely): “Sovereign bonds in eastern Europe are having a weak start to the year as a potent mix of economic and political risks weighs on the asset class. A strong dollar, jumping global yields, sluggish economic growth and renewed inflation fears are putting investors from Poland to the Balkans on edge just as Donald Trump prepares to take over the presidency... In dollar terms, local-currency bonds from Hungary, Romania, Poland and the Czech Republic have all been among the 10 worst performers in emerging markets so far this year…”
January 15 – Investopedia (David Marino-Nachison): “Two big risks threaten a ‘resilient’ U.S. economy, JPMorgan… CEO Jamie Dimon said ahead of next week's scheduled inauguration of President-elect Donald Trump and the start of his second administration… Dimon… cited two ‘significant risks’ in his statement: ‘Ongoing and future spending requirements will likely be inflationary, and therefore, inflation may persist for some time.’ ‘Additionally, geopolitical conditions remain the most dangerous and complicated since World War II.’ ‘We hope for the best but prepare the Firm for a wide range of scenarios,’ Dimon said.”
Global Credit and Financial Bubble Watch:
January 15 – Associated Press (Matt Ott): “JPMorgan’s net income soared 50% to more than $14 billion in the fourth quarter as the bank’s profit and revenue easily beat Wall Street forecasts, and other major banks reported banner earnings for the year as businesses and consumers continued to spend despite elevated interest rates… Total managed revenue hit $43.7 billion, up 10%, from $39.9 billion a year ago. Wall Street was expecting revenue of $41.9 billion. JPMorgan posted a record $54 billion profit for the year…”
January 15 – Financial Times (Harriet Agnew): “BlackRock attracted a record amount of new money in each of the final two quarters of 2024, driving net inflows at the world’s largest asset manager to $641bn for the full year. The company reported assets under management of $11.55tn at the end of December — an all-time high… The inflows helped push revenues during the final three months of the year to $5.68bn, a 23% increase on the same period in 2023… Full-year revenues rose 14% in 2024, passing $20bn for the first time. The performance underlines BlackRock’s rapid growth since its initial public offering 25 years ago when it had $165bn in assets under management and 650 employees. ‘BlackRock is now truly in a category of one,’ said chief financial officer Martin Small.”
January 17 – Bloomberg (Todd Gillespie): “Goldman Sachs Group Inc. handed its top two executives retention awards valued at $80 million each and introduced a new program to give its leaders a slice of carried interest earned on private equity funds as it tries to compete on pay with top alternative asset managers. The retention awards are the second in just over three years given to Chief Executive Officer David Solomon and President John Waldron. Goldman also gave Solomon a $39 million pay package for 2024…”
AI Bubble Watch:
January 16 – Reuters (Siddarth S): “JPMorgan estimated spending on data centers could contribute between 10-20 bps to U.S. economic growth in 2025-2026 as technology companies race to benefit from the artificial intelligence boom… While the brokerage estimates exclude the costs of new power generation, it projected each 5-10 gigawatt in new capacity could require $20 billion in spending, or 7 bps of GDP. U.S. power consumption will rise to record highs in 2025 and 2026, the government’s Energy Information Administration said…”
January 12 – Financial Times (Amanda Chu and Jamie Smyth): “The US is on the cusp of a natural gas power plant construction boom, as Big Tech turns to fossil fuels to meet the huge electricity needs of the artificial intelligence revolution — putting climate targets in peril. As many as 80 new gas-fired power plants will be built in the US by 2030, said energy consultancy Enverus, adding 46 gigawatts of capacity — the size of the electricity system in Norway and nearly 20% more than was added in the past five years.”
Bubble and Mania Watch:
January 16 – Financial Times (Steve Johnson): “Global exchange traded fund flows hit a record $1.5tn last year with the buying frenzy accelerating after Donald Trump’s presidential victory in November. The net inflows obliterated the previous full-year record of $1.2tn set in 2021 according to data from Morningstar, which includes most major investment markets except China and India. Total assets hit $13.8tn, a rise of $2.7tn during the year, and nearly five times the $2.9bn level of a decade ago.”
January 16 – Bloomberg (Ben Steverman): “The very richest Americans are among the biggest winners from President Joe Biden’s time in office, despite his farewell address warning of an ‘oligarchy’ and a ‘tech industrial complex’ that threaten US democracy. The 100 wealthiest Americans got more than $1.5 trillion richer over the last four years, with tech tycoons including Elon Musk, Larry Ellison and Mark Zuckerberg leading the way…The top 0.1% gained more than $6 trillion… Biden warned of ‘a dangerous concentration of power in the hands of a very few ultra wealthy people,’ in his speech from the White House…”
January 16 – Bloomberg (Todd Gillespie): “After years of hoarding capital amid fears that regulators would come knocking, Wall Street’s biggest banks paid out the most in three years to shareholders in the form of dividends and buybacks. The six largest US banks delivered more than $100 billion to shareholders through dividends and share repurchases during the year, the most since 2021…”
January 16 – Bloomberg (Allison McNeely and Laura Benitez): “Private equity firms’ strategy of shuffling assets to buy more time for investments to pan out is starting to show signs of weakness. More than 100 so-called continuation funds were raised between 2019 and 2021 to move portfolio companies from one private equity vehicle to new ones backed by fresh capital. Some are now running into trouble amid a sluggish dealmaking environment and declining asset values.”
January 13 – Bloomberg (Erin Hudson): “Just down the road from Stanford University, a roughly $200 million campus upgrade is underway at one of the Palo Alto area’s elite private schools, with plans encompassing state-of-the-art classrooms, an aquatics center and a recording studio. It’s a massive financial undertaking for Castilleja School Foundation. Its leadership considered loans from banks before turning to the municipal bond market, which is more often used to finance roads and bridges than projects at private institutions charging more than $60,000 a year in tuition.”
January 16 – Wall Street Journal (Carol Ryan): “House hunters don’t need to be told that property is too expensive right now. But Wall Street has an idea by just how much. The stock market is pricing portfolios of American homes at a hefty discount to what houses are changing hands for in the open market. Shares of single-family landlords Invitation Homes and American Homes are trading at 35% and 20% discounts to their net asset values, respectively, according to real-estate analytics firm Green Street.”
U.S./Russia/China/Europe Watch:
January 14 – Financial Times (The Editorial Board): “Under the sea, a shadowy hybrid war is being fought. In November, a Chinese-owned freight vessel was suspected of severing two fibre-optic cables under the Baltic from Germany to Finland and Sweden to Lithuania. A month later, Finnish coastguards seized a tanker carrying Russian gasoline that allegedly cut a subsea power connector between Finland and Estonia, and damaged four telecoms lines. Early this month, Taiwan asked South Korea to help it investigate a Chinese-owned ship suspected of damaging an internet cable off its northern coast… China blamed a previous incident in October 2023 when a Hong Kong-registered vessel cut a natural gas pipeline also between Finland and Estonia on an ‘accident caused by a storm’.”
January 15 – Reuters (Anne Kauranen): “Crew on board an oil tanker accused of sabotaging undersea power and communications cables in the Baltic Sea were poised to cut other cables and pipelines when Finnish authorities boarded the vessel last month, the head of the Finnish investigation said. Baltic Sea nations are on high alert after a string of power cable, telecom link and gas pipeline outages since Russia invaded Ukraine in 2022. Leaders of the NATO member states around the Baltic Sea are set to meet in Helsinki… to discuss the alliance's response to the threat.”
January 14 – Reuters (Anne Kauranen, Essi Lehto and Andreas Rinke): “NATO countries will deploy frigates, patrol aircraft and naval drones in the Baltic Sea to help protect critical infrastructure and reserve the right to take action against ships suspected of posing a security threat, alliance members said… The military and political alliance is taking the action, dubbed ‘Baltic Sentry’, following a string of incidents in which power cables, telecom links and gas pipelines have been damaged in the wake of Russia's invasion of Ukraine in February 2022.”
De-globalization Watch:
January 13 – Bloomberg (Alex Longley and Jack Wittels): “Oil tanker rates jumped on Monday as the Biden Administration’s sanctions on Russia’s petroleum trade threaten to cut the supply of ships while forcing traders to seek alternative sources of crude. On Friday, ten days before Donald Trump takes over, the outgoing president sanctioned about 160 Russian oil tankers. It means about a tenth of the current crude-carrying fleet is under US measures. Benchmark tanker rates jumped 39%, the most since August…”
January 12 – Bloomberg: “Refiners, tanker operators and port executives across Asia have been left scrambling to manage the fallout from the most aggressive US sanctions on Russia’s oil industry to date, sifting through documents and quizzing government officials… to understand the impact for major importers China and India. The two countries have been the main beneficiaries of cut-price Russian crude since the invasion of Ukraine in early 2022, working around a Western price cap intended to limit funds flowing back to Moscow.”
January 14 – Bloomberg (Andy Lin, Hallie Gu, Nguyen Xuan Quynh, Helen Nyambura and Sergio Mendoza): “China’s quest to feed itself has taken it as far as Kenya’s macadamia nut groves and Bolivia’s cattle ranches, as part of a push in recent years to diversify food sources away from traditional Western suppliers. The market-share loss for US-allied nations is a win for countries from the Global South, which Beijing has sought to court as geopolitics increasingly cleaves the world into distinct blocs. There are obvious beneficiaries like crop powerhouse Brazil, which has clawed market share in corn and soybean exports from the US, while Russia is selling more grains, edible oils and meat to China.”
Inflation Watch:
January 15 – Yahoo Finance (Ines Ferré): “Energy prices jumped in December, helping send up overall inflation for the month amid colder-than-expected temperatures, supply concerns driven by Ukraine's targeting of Russian oil facilities, and optimism over Chinese stimulus spurring demand. According to Consumer Price Index (CPI) data…, seasonally adjusted energy prices rose 2.6% from the previous month, higher than November's 0.2% increase. December's rise in prices accounted for more than 40% of the monthly increase in headline inflation.
January 14 – CNBC (Jeff Cox): “A measure of wholesale prices increased less than expected in December... The producer price index rose just 0.2% on the month, less than the 0.4% increase in November and below the… consensus estimate for 0.4%... Excluding food and energy, the so-called core PPI was flat compared with the forecast for a 0.3% rise. Excluding food, energy and trade services, the measure rose just 0.1%. On an annual basis, headline PPI rose 3.3% for the full year, well ahead of the 1.1% increase in 2023. Goods prices increased 0.6%, pushed by a 9.7% surge in gasoline prices.”
January 14 – Bloomberg (Mark Schroers): “Economists expect global inflation to remain high at least until 2028, according to a new survey… They forecast an average inflation rate of 3.5% in three years, only slightly below the 3.9% anticipated for 2025, a quarterly study conducted by the German Ifo Institute and the Institute for Swiss Economic Policy… showed. Almost 1,400 experts from 125 countries took part in the survey in early December. ‘Inflation expectations remain above the inflation targets of many central banks,’ said Niklas Potrafke, director of the Ifo Center for Public Finance and Political Economy. ‘Major interest rate cuts are unlikely given these inflation expectations.’”
Federal Reserve Watch:
January 14 – Wall Street Journal (James Mackintosh): “How embarrassing would it be for the Federal Reserve to raise rates this year? Could it admit that its aggressive rate reductions last year, including a cut as recently as last month, were a mistake, and put them into reverse? Investors are starting to think about the idea. While the chance of a hike this year is still put at zero by pricing of fed-funds futures…, it is a topic of heavy discussion. This isn’t just a matter of whether the economy stays hot or whether the new Trump administration’s tariff, immigration and tax policies prove inflationary… At the heart of it for investors is an important question: Are the barriers to raising rates stiffer than those to cutting?”
January 15 – Wall Street Journal (Matthew Boesler and Amara Omeokwe): “A clutch of Federal Reserve officials… welcomed fresh data showing a crucial gauge of consumer prices in December rose less than expected, giving them confidence inflation would continue to ebb. ‘The process of disinflation remains in train. But we are still not at our 2% goal, and it will take more time until we can achieve that on a sustained basis,’ New York President John Williams said… Austan Goolsbee, president of the Chicago Fed, also pointed to the data as supporting his outlook for easing price pressures. ‘The trend continues to be improvement in inflation,’ he said. ‘I’m still optimistic for 2025 that we can continue growing and have a soft landing.’”
U.S. Economic Bubble Watch:
January 16 – Reuters (Lucia Mutikani): “The number of Americans filing new applications for unemployment benefits increased more than expected last week, but remained at levels consistent with a healthy labor market. Initial claims for state unemployment benefits rose 14,000 to a seasonally adjusted 217,000 for the week ended Jan. 11… The number of people receiving benefits after an initial week of aid… fell 18,000 to a seasonally adjusted 1.859 million during the week ending Jan. 4…”
January 16 – Bloomberg (Mark Niquette): “US retail sales broadly advanced in December, indicating strong consumer demand to wrap up the holiday season. The value of retail purchases… increased 0.4% after an upwardly revised 0.8% gain in November… Excluding autos and gasoline, sales climbed 0.3%. The retail data showed so-called control-group sales — which feed into the government’s calculation of goods spending for gross domestic product — increased 0.7% in December, the most in three months. The measure excludes food services, auto dealers, building materials stores and gasoline stations. Ten of the report’s 13 categories posted increases…”
January 14 – Bloomberg (Nazmul Ahasan): “US small-business optimism extended its surge in December to the highest level since October 2018, buoyed by expectations of favorable policies under President-elect Donald Trump. The National Federation of Independent Business optimism index rose 3.4 points last month to 105.1, following the sharpest monthly increase on record in November. Seven of the 10 index components improved, led by a 16-point jump in the net share of businesses expecting better business conditions — bringing that measure to the highest in monthly data since 2002. Meanwhile, the group’s uncertainty indicator dropped another 12 points — amounting to the biggest back-to-back decline on record…”
January 17 – Reuters (Lucia Mutikani): “U.S. single-family homebuilding increased solidly in December… Single-family housing starts, which account for the bulk of homebuilding, rose 3.3% to a seasonally adjusted annual rate of 1.050 million units last month… Data for November was revised higher to show homebuilding increasing to a rate of 1.016 million units from the previously reported pace of 1.011 million units… There is an oversupply of unsold new homes, with inventory at levels last seen in late 2007. Permits for future construction of single-family housing increased 1.6% to a rate of 992,000 units in December.”
January 15 – Bloomberg (Vince Golle): “US mortgage rates topped 7% last week, reaching the highest level since early May and extending a months-long advance that risks restraining the housing market. The contract rate on a 30-year mortgage rose 10 bps to 7.09% in the week ended Jan. 10…”
China Watch:
January 14 – Bloomberg: “An outpouring of Chinese government bond issuance and early signs of improvement in the housing market helped stir up appetite for financing in December, drawing to a close a year when new loans declined for the first time since 2011. The worst of the plunge in demand for credit is likely over as Beijing’s stimulus blitz kicks in. Aggregate financing climbed 2.86 trillion yuan ($390bn) last month while 998 billion yuan in new loans was extended, the highest totals for both measures in three months.”
January 16 – Bloomberg: “China’s cash squeeze extended with some signs of disruption to trading, as a liquidity infusion from Beijing failed to counteract a spike in demand for funds. The volume-weighted average rate of seven-day repurchase transactions in the money market, a gauge of borrowing costs, climbed to 2.36%, the highest since March 2023. Late Wednesday there were some failed trades and a 10 minute delay to the official close of a clearing system, according to traders who asked not to be identified…”
January 16 – Bloomberg: “China’s money market saw disruption Wednesday with some delayed and failed settlements after a spike in borrowing costs, according to market participants familiar with the matter. Some clearing and settlement failures occurred late Wednesday afternoon, as non-bank financial institutions’ borrowing costs surged to as high as 16%...”
January 12 – Bloomberg: “China will promote the role of consumption in the economy and move away from its sole focus on investment, according to the central bank governor, ushering in a shift in the growth model that’s come to define the country over the past two decades. ‘The priority of macroeconomic policy should shift from promoting more investment in the past, to promoting both consumption and investment, with more importance attached to consumption,’ Pan Gongsheng said…”
January 17 – Caixin Global: “Questions about the whereabouts of a China Vanke Co. Ltd. executive with financial know-how has once again cast a spotlight on the Shenzhen-based property giant as it struggles to repay its mounting debts. On Thursday, the Economic Observer, a Chinese financial news outlet, quoted multiple sources as saying that Vanke CEO and President Zhu Jiusheng has been taken away by police. It also reported that Vanke might be taken over by the government for a restructuring. Vanke has yet to issue a public response to the report, which was later removed.”
January 14 – Wall Street Journal (Jiahui Huang): “Country Garden released its long-delayed results showing that the heavily indebted Chinese developer’s net loss narrowed in the first half of 2024 following a record loss of more than $24 billion in 2023... It said… it booked a net loss of 12.84 billion yuan, the equivalent of about $1.75 billion, in the first six months of 2024… Revenue fell 55% to 102.10 billion yuan during the period. Its 2023 net loss hit a record… —roughly $24.33 billion… Revenue for the year fell 6.8% to 401.02 billion yuan.”
January 12 – Bloomberg: “Just over a year ago, Sunac China Holdings Ltd. became a model for the country’s defaulted developers by clinching the sector’s first major offshore debt restructuring deal. Now its problems are mounting again. At a time when Sunac is trying to complete an onshore debt overhaul, questions over whether it will meet looming repayment deadlines are putting its offshore agreement at risk. On top of that, it’s now contending with another court petition to wind up. Sunac said… it ‘can’t rule out’ a second offshore debt restructuring. Should the wind-up petition become successful, it may not be able to pay some offshore debt.”
January 12 – Wall Street Journal (Rebecca Feng): “In recent years, Chinese property developers have been so strapped for cash that they have used unsold apartments to settle debts to construction companies and furniture suppliers. Now, Chinese local governments are following suit. In August, a gas supplier in China’s far western Xinjiang region struck a solution to settle $25 million of overdue gas bills racked up by a few state-owned entities in Changji city. Instead of cash, the gas supplier will effectively take over 260 unfinished apartments in a French-themed residential compound being developed by its clients. The compound’s main street is to be called the Avenue des Champs-Élysées.”
January 16 – Bloomberg: “China’s decline in home prices abated for a fourth month in December, reflecting signs of market stabilization after the government’s latest stimulus blitz. New home prices in 70 cities, excluding state-subsidized housing, dropped 0.08% from November, the smallest decline in a year and a half… Existing home values slid 0.31%, easing from a 0.35% drop a month earlier… Improvements were seen on a year-on-year basis too, with new-home prices falling 5.73% versus 6.07% a month earlier. Used-home values dropped 8.11% compared with 8.54% in November.”
January 13 – Wall Street Journal (Rebecca Feng and Chun Han Wong): “Chinese leader Xi Jinping is bringing the country’s financial sector to heel, one banker at a time. For decades, China sought to learn from Western finance. Now it’s purging many of the internationally experienced financiers who helped steer the country’s economic rise, while ushering in a new generation of loyal functionaries willing to carry out Communist Party edicts and disavow capitalist excess… The purges are being paired with other steps aimed at diluting pro-market instincts in China’s financial industry and bringing it more squarely under Xi’s control. The Communist Party is curbing bankers’ lavish pay packages, ramping up political study sessions and centralizing decision-making on financial affairs.”
January 13 – Bloomberg (Foster Wong): “China’s top securities regulator said it will work on building a mechanism to stabilize the market, vowing to anchor market expectations in 2025 after a disappointing start to the new year. The China Securities Regulatory Commission said stability is top of its agenda in 2025 as it pledged to make every effort to induce and maintain the market’s stabilizing and positive momentum…”
January 16 – Bloomberg: “China’s population shrank for the third straight year in 2024, even though births rose slightly, underscoring a persistent long-term risk for the economy. The total number of people in China fell by over 1.39 million to 1.408 billion last year…”
Europe Watch:
January 15 – Associated Press (Danika Kirka): “Britain’s new government, which is already facing anger over higher taxes, unpopular spending decisions and political scandals just six months after taking office, is now being battered by rising borrowing costs that threaten to derail its left-leaning program. The yield on the U.K.’s 10-year bonds, a reflection of the price investors demand for financing the country’s debt, has risen by more than 1.1 percentage points since Sept. 16 on concerns over sluggish economic growth and stubbornly high inflation. That has pushed Britain’s borrowing costs to the highest level since the 2008 financial crisis.”
January 15 – Associated Press (David McHugh and Geir Moulson): “Germany’s economy shrank for the second straight year in 2024 as worried consumers held back on spending and Chinese competition ate into the country’s traditional exports of cars and industrial machinery. The year's weak performance underlines Germany’s status as Europe's worst performing major economy and shows the country as having no meaningful growth in the past four years as it has struggled to deal with major shifts in the global economy. Gross domestic product contracted by 0.2% last year, following a 0.3% decline in 2023…”
Japan Watch:
January 15 – Bloomberg (Erica Yokoyama and Toru Fujioka): “The yen surged as Bank of Japan Governor Kazuo Ueda joined his deputy in strengthening market expectations for a potential interest-rate hike next week, signaling the central bank is doing its utmost to avoid a global market crash that followed July’s hike… His remarks suggest the BOJ’s two top officials are on the same page, as Deputy Governor Ryozo Himino said Tuesday the policy board will decide whether to raise rates, signaling the possibility of a hike.”
January 15 – Wall Street Journal (Megumi Fujikawa): “Bank of Japan Gov. Kazuo Ueda repeated his pledge to discuss an interest-rate increase next week, echoing recent comments that have revived market expectations for imminent policy action. ‘If improvements in the economy and prices continue this year, we will adjust the degree of monetary easing by raising interest rates,’ Ueda said… That underlines remarks from both him and his deputy earlier this week that a rate hike at the upcoming Jan. 23-24 meeting is firmly on the table.”
Emerging Markets Watch:
January 16 – Bloomberg (Felipe Saturnino and Raphael Almeida Dos Santos): “Investors yanked money out Brazilian hedge funds at a record pace in 2024 as rising interest rates and a crumbling of local markets fueled a second year of underperformance for the struggling industry. The stampede — almost 357 billion reais ($57.3bn) more than the past two years combined and the worst-ever in data going back to 2002 — comes as investors flock back to fixed income.”
January 16 – Bloomberg (Maria Eloisa Capurro): “Brazil’s economic activity barely grew on the month in November as central bankers try to tame consumer demand by raising interest rates… Overall activity in Latin America’s largest economy is finally showing signs of cooling after several stronger-than-expected quarters.”
January 15 – Bloomberg (Marcus Wong): “Indonesia’s central bank defied the expectations of practically the entire market when it cut interest rates this week, deepening a period of uncertainty for government bond yields. Bank Indonesia cut its policy rate by 25 bps to 5.75%... ‘It was a risky move by Bank Indonesia which increases financial risk for the country,’ said Rajeev De Mello, a global macro portfolio manager at Gama Asset Management SA. ‘With the imminent policy uncertainty emanating from the US, it is really not the time for EM central bankers to ease monetary policy.’”
January 15 – Bloomberg (Soo-Hyang Choi and Sohee Kim): “President Yoon Suk Yeol faces his first night in detention following his arrest by investigators looking to question the impeached leader over his short-lived martial law declaration. Investigators from the Corruption Investigation Office for High-ranking Officials took Yoon into custody in an operation that started before dawn after the president repeatedly defied summons to appear for questioning.”
January 13 – Bloomberg (Subhadip Sircar): “A selloff in Indian assets sent the rupee tumbling by the most in nearly two years, as a strong dollar and rising oil prices amplified concerns that one of the world’s fastest-growing major economies is headed for a slowdown. With the Indian currency sinking past the key psychological level of 86 per dollar, doubts are rising over whether the nation’s central bank will cut borrowing costs next month.”
Leveraged Speculation Watch:
January 14 – Bloomberg (Betty Hou): “The Taiwan dollar is on the verge of overtaking the yuan as Asia’s best carry-trade target given its lower risk of interest-rate and currency volatility. A strategy of borrowing the island’s currency to invest in higher-yielding alternatives has generated the second-highest return over the past month among Asian currencies behind the yuan, based on the Sharpe ratio that measures risk-adjusted relative returns.”
January 13 – Bloomberg (Josyana Joshua and Olivia Raimonde): “Citadel LP, the hedge fund manager founded by Ken Griffin, is looking to raise at least $500 million through a corporate bond sale… Citadel, which managed about $65 billion of investment capital as of Jan. 1, is rated Baa2 by Moody’s Ratings and BBB by S&P Global Ratings.”
January 16 – Bloomberg (Chris Hughes): “A little more than a year after legendary Enron short-seller Jim Chanos threw in the towel on activist short selling, the equally famous Hindenburg Research is calling it a day. Short selling, short-trade research and public activism are all key to the functioning of the stock market. And yet it’s fiendishly hard to combine the three strands into a business that endures.”
Social, Political, Environmental, Cybersecurity Instability Watch:
January 16 – Financial Times (Martin Arnold and Lee Harris): “The world’s financial stability watchdog has warned that disasters caused by climate change are increasingly likely to trigger broader panic in financial markets... The Financial Stability Board said the financial damage of climate shocks such as floods, droughts, fires or storms could cause a broader pullback in lending and downturn in investor confidence. ‘Banks could reduce lending, including for recovery to already vulnerable households and corporates,’ the body… said. ‘There could also be an abrupt, broad-based repricing of climate-physical risk, as the expectation of larger future losses are incorporated into current prices and impact sectors and jurisdictions not currently directly affected by disasters.’”
January 12 – Wall Street Journal (Mike Pompeo): “When a state-sponsored Chinese hacker breached the Treasury Department’s Office of Foreign Assets Control, it allowed the Communist Party to access sensitive information with significant strategic implications. It’s the latest example of Beijing’s espionage campaign against the West, which runs deeper and is far more dangerous than the Soviet efforts of the 20th century. While leading America’s clandestine operations and diplomacy during the first Trump term, I got a front-row seat to these undercover activities. Judging from publicly available information, these efforts have accelerated over the past four years. The Chinese Communist Party is already deep inside our critical networks and infrastructure—a consequence of a dangerous gap in our national security that imperils Americans and heightens the risk of war.”
January 16 – Bloomberg (Kendra Pierre-Louis): “Severe drought conditions have helped fuel the Los Angeles wildfires. But a new study… in the journal Nature comes with a warning: Climate change is making catastrophic, multiyear ‘megadroughts’ much worse around the world. Droughts are relative… But they can throw ecosystems out of whack, sometimes in dangerous ways. ‘That's what we see right now in California,’ said Dirk Nikolaus Karger, a senior researcher at Swiss Federal Institute WSL and a paper author. ‘Over time, the vegetation dries out, and we have increased fire frequency, and houses burn down. In other areas, we will have agricultural failures.’”
January 16 – Bloomberg: “China’s fossil fuel power plants increased generation to a record last year, as the boom in clean energy failed to keep pace with surging electricity consumption in the world’s second-biggest economy. Output from thermal plants, predominantly powered by coal, rose 1.5% in 2024 from the previous year…”
The S&P500 rallied 2.9% (up 2.0% y-t-d), and the Dow jumped 3.7% (up 2.2%). The Utilities rose 4.2% (up 4.4%). The Banks surged 8.2% (up 4.4%), and the Broker/Dealers rallied 7.8% (up 6.9%). The Transports advanced 3.2% (up 3.4%). The S&P 400 Midcaps surged 4.5% (up 3.8%), and the small cap Russell 2000 jumped 4.0% (up 2.1%). The Nasdaq100 gained 2.8% (up 2.0%). The Semiconductors rallied 5.4% (up 6.6%). The Biotechs increased 1.2% (up 4.2%). With bullion adding $13, the HUI gold index gained 1.1% (up 7.7%).
Three-month Treasury bill rates ended the week at 4.195%. Two-year government yields declined 10 bps to 4.28% (up 4bps y-t-d). Five-year T-note yields fell 14 bps to 4.43% (up 5bps). Ten-year Treasury yields dropped 13 bps to 4.63% (up 6bps). Long bond yields declined nine bps to 4.86% (up 9bps). Benchmark Fannie Mae MBS yields sank 17 bps to 5.89% (up 5bps).
Italian 10-year yields fell 12 bps to 3.65% (up 12bps y-t-d). Greek 10-year yields dropped 10 bps to 3.30% (up 9bps). Spain's 10-year yields fell nine bps to 3.18% (up 11bps). German bund yields declined six bps to 2.54% (up 17bps). French yields dropped 12 bps to 3.31% (up 12bps). The French to German 10-year bond spread narrowed six to 77 bps. U.K. 10-year gilt yields sank 18 bps to 4.66% (up 9bps). U.K.'s FTSE equities index surged 3.1% (up 4.1% y-t-d).
Japan's Nikkei 225 Equities Index dropped 1.9% (down 3.6% y-t-d). Japanese 10-year "JGB" yields were unchanged at 1.20% (up 10bps y-t-d). France's CAC40 jumped 3.8% (up 4.5%). The German DAX equities index rose 3.4% (up 5.0%). Spain's IBEX 35 equities index advanced 1.7% (up 2.8%). Italy's FTSE MIB index jumped 3.4% (up 6.1%). EM equities were mostly higher. Brazil's Bovespa index rallied 2.9% (up 1.7%), and Mexico's Bolsa index increased 0.7% (up 0.9%). South Korea's Kospi added 0.3% (up 5.2%). India's Sensex equities index declined 1.0% (down 2.4%). China's Shanghai Exchange Index recovered 2.3% (down 3.3%). Turkey's Borsa Istanbul National 100 index increased 0.7% (up 1.5%).
Federal Reserve Credit dipped $2.4 billion last week to $6.805 TN. Fed Credit was down $2.085 TN from the June 22, 2022, peak. Over the past 279 weeks, Fed Credit expanded $3.078 TN, or 83%. Fed Credit inflated $3.994 TN, or 142%, over the past 636 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt fell $7.7 billion last week to $3.240 TN - the low back to May, 2017. "Custody holdings" were down $139 billion y-o-y, or 4.1%.
Total money market fund assets dropped $54.9 billion to $6.848 TN. Money funds were up $727 billion over 25 weeks (25% annualized) and $887 billion y-o-y (15%).
Total Commercial Paper slipped $2.0 billion to $1.145 TN. CP was down $110 billion, or 8.7%, over the past year.
Freddie Mac 30-year fixed mortgage rates rose 11 bps this week to an eight-month high 7.04% (up 44bps y-o-y). Fifteen-year rates jumped 13 bps to 6.27% (up 51bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates up five bps to 7.14% (up 8bps).
Currency Watch:
January 12 – Bloomberg: “China has ramped up its support for the yuan with tweaks to its capital controls and a vow to crack down on market disruption, after the currency dropped close to a record low against the dollar in offshore trading. The People’s Bank of China and other regulators pledged to strengthen their management of the foreign-exchange market, deal with any behavior that may disrupt the market and prevent the risk of a large move in the yuan… The PBOC also adjusted its rules for cross-border flows…, allowing firms and financial institutions to borrow more from overseas, which may help increase capital inflows and support the yuan.”
For the week, the U.S. Dollar Index slipped 0.3% to 109.347 (up 0.8% y-t-d). For the week on the upside, the South African rand increased 1.9%, the South Korean won 1.0%, the Japanese yen 0.9%, the Australian dollar 0.8%, the New Zealand dollar 0.5%, the Brazilian real 0.5%, the euro 0.5%, the Norwegian krone 0.2%, the Swedish krona 0.2%, the Singapore dollar 0.2%, and the Swiss franc 0.2%. On the downside, the Canadian dollar declined 0.4%, the Mexican peso 0.4%, and the British pound 0.3%. The Chinese (onshore) renminbi increased 0.1% versus the dollar (down 0.35% y-t-d).
Commodities Watch:
January 15 – Bloomberg (Yvonne Yue Li): “US prices of metals and oil are rallying above other international benchmarks as traders increase bets President-elect Donald Trump will impose tariffs on imported goods. Metals including copper, silver and platinum have seen a sharp price dislocation between London and New York in recent weeks, while differentials in oil prices between the US and Canada also have expanded. The spikes come as apprehension and uncertainty loom over the scope of Trump’s global trade policies and create opportunities for traders to buy cheaper goods overseas and deliver them into the US.”
January 12 – Bloomberg (Anna Shiryaevskaya, Priscila Azevedo Rocha, Stephen Stapczynski, and Ruth Liao): “The world is bracing for a fight for natural gas supplies this year, prolonging the pain of higher bills for consumers and factories in energy-hungry Europe and putting poorer emerging countries from Asia to South America at risk of getting priced out of the market. For the first time since the energy crisis was turbocharged by Russia’s war in Ukraine, Europe risks failing to meet its storage targets for next winter, setting the stage for one last scramble for supplies before new liquefied natural gas capacity starts to ease the situation next year.”
The Bloomberg Commodities Index gained 1.2% (up 5.0% y-t-d). Spot Gold increased 0.5% to $2,703 (up 3.0%). Silver was little changed at $30.367 (up 5.1%). WTI crude added $1.31, or 1.7%, to $77.88 (up 9%). Gasoline increased 1.8% (up 4%), while Natural Gas dipped 1.0% to $3.948 (up 9%). Copper rose 1.5% (up 9%). Wheat rallied 1.5% (down 2%), and Corn jumped 2.9% (up 6%). Bitcoin surged $9,970 or 10.6%, to $104,322 (up 11%).
Trump Administration Watch:
January 14 – Reuters (David Lawder): “The U.S. government posted an $87 billion budget deficit in December, reduced partly by a shift of benefit payments into November but capping a record $711 billion deficit for the first three months of the 2025 fiscal year… The Treasury… said that the $711 billion October-December deficit was $201 billion, or 39% higher, than the $510 billion deficit in the same period a year earlier as outlays grew sharply and revenues declined slightly. For December, the $87 billion deficit was reduced by $51 billion by the calendar benefit shift…”
January 16 – Reuters (David Lawder, Bo Erickson, Andrea Shalal, Ann Saphir): “Scott Bessent, U.S. President-elect Donald Trump's choice to head the Treasury Department, on Thursday said that extending Trump's 2017 tax cuts that are set to expire at the end of this year is ‘the single most important economic issue of the day.’ ‘If we do not renew and extend, then we will be facing an economic calamity,’ Bessent told the U.S. Senate Finance Committee. ‘We will see a gigantic middle class tax increase.’”
January 15 – Wall Street Journal (Richard Rubin and Sam Goldfarb): “The bond market has a message for the new Congress: It’s not 2017 anymore. As Republicans retake full control of the government and weigh taking on more debt, they face a much trickier fiscal and financial environment than they did during Donald Trump’s first term. Interest rates are much higher and budget deficits much larger. U.S. government bonds have endured a particularly steep selloff over the past few months, making the deficit an even bigger burden… Bond investors’ increasing premium for U.S. government debt poses a tough challenge for the new GOP Congress and for Scott Bessent... Bessent… has talked about boosting economic growth and trimming deficits roughly in half, to 3% of gross domestic product. But Republicans are also proposing several deficit-increasing policies: extending expiring tax cuts, fulfilling Trump’s additional tax-cut promises, increasing border-security spending and boosting national defense.”
January 16 – Financial Times (Jamie Smyth and Amanda Chu): “Donald Trump’s pick for secretary of the interior has warned the US will lose the ‘AI arms race’ to China unless it boosts electricity generation from fossil fuels and stabilises its power grid. Doug Burgum, a billionaire businessman and former governor of North Dakota, told US senators… the country had an ‘electricity crisis’ due to weaknesses in the grid and ‘roadblocks’ stopping companies from building fossil fuel plants that can supply round-the-clock power. He added that the Trump administration would allocate more public land to drilling for oil and slash tax breaks favouring renewables companies that produce ‘intermittent and unreliable power’.”
January 12 – Bloomberg (Anthony Capaccio): “Outgoing Defense Secretary Lloyd Austin recommended the US government boost defense spending by about $50 billion more than projected in fiscal year 2026 with increases that would push the Pentagon budget past $1 trillion in the years to come. The recommendation… offers a path forward with defense-spending caps — imposed under a 2023 debt-limit deal — expiring after fiscal year 2025.”
Trade War Watch:
January 13 – Bloomberg (Jenny Leonard and Saleha Mohsin): “Members of President-elect Donald Trump’s incoming economic team are discussing slowly ramping up tariffs month by month, a gradual approach aimed at boosting negotiating leverage while helping avoid a spike in inflation, according to people familiar... One idea involves a schedule of graduated tariffs increasing by about 2% to 5% a month, and would rely on executive authorities under the International Emergency Economic Powers Act... The proposal is in its early stages and has not yet been presented to Trump… — a sign that a monthly stepped approach is early in the deliberation process.”
January 13 – Financial Times (Manik Narain): “American exceptionalism dominates markets, with equities outperforming the rest of the world by 20% last year alone. Yet one indicator, close to Donald Trump’s heart, remains exceptionally weak: the trade balance. We expect this to motivate new, China-centric tariffs. But rather than in China itself, we see larger market moves playing out in the rest of the emerging world for five reasons. First, China is exporting its strongest disinflationary impulse in at least 30 years: its export prices are down 18% from their post-Covid peak compared with a 5% decline globally… Second, tariffs may accelerate a slowdown in Chinese imports that was already coming… Third, with growth now slowing in large parts of developing economies, markets are in a weak position to navigate a potential Trade War 2.0… Fourth, tariff-sensitive industries such as autos, steel, transport infrastructure and electrical equipment constitute a higher share of emerging markets equities… than in developed economies… Finally, emerging markets outside China also face more challenging trade negotiations with Trump than ever before.”
January 15 – Associated Press (Brian Platt): “Canada’s energy minister came to Washington this week to warn U.S. lawmakers about President-elect Donald Trump’s tariffs threat on Canada: They’d inflict economic pain on Americans, with higher prices and job losses. Jonathan Wilkinson, Canada’s minister of energy and natural resources, said he feels obligated to sound the alarm about the inflationary risks... ‘It will mean higher gas prices, it will mean higher food prices, it will mean higher natural gas prices for heating people’s homes,’ he told The AP... ‘It will mean higher electricity prices. That’s not something Donald Trump campaigned on. He campaigned on actually reducing the price of energy.’”
January 15 – Bloomberg (Brian Platt): “Canada has drawn up an initial list of C$150 billion ($105bn) of US-manufactured items that it would hit with tariffs if President-elect Donald Trump decides to levy tariffs against Canadian goods, according to an official familiar with the matter. The list is a draft and would come into play only if the Trump administration moves first… More tariffs from Canada might be added later, depending on what the US does, the person said.”
January 12 – Associated Press (Zen Soo and Elaine Kurtenbach): “China’s exports in December grew at a faster pace than expected, as factories rushed to fill orders to beat higher tariffs that U.S. President-elect Donald Trump has threatened to impose once he takes office. Exports rose 10.7% from a year earlier… Imports rose 1% year-on-year. Analysts had expected them to shrink about 1.5%. With exports outpacing imports, China’s trade surplus grew to $104.84 billion in December, and nearly $1 trillion for the year, at $992.2 billion.”
January 15 – Bloomberg: “The Biden administration has added 37 companies from China’s mining, solar and textile sectors to its list of those banned from exporting to the US due to alleged forced labor practices in the Xinjiang region… US and European companies have been under pressure to pull away from factories that make clothes and other products in the Xinjiang region. Labor groups have documented alleged forced labor camps and other poor working conditions involving the local Uyghur population.”
January 12 – Financial Times (Brooke Masters): “Rising trade war fears in the wake of the election of Donald Trump have sent global companies scrambling to make their supply chains more resilient and transparent. Eighty-five per cent of the 1,700 large company executives surveyed by The Conference Board late last year said they were planning to make significant changes to their supply chain, up 15 percentage points from the previous year… Their focus on supply chains comes alongside growing concerns about the future of global trade. Forty-five per cent of global chief executives in The Conference Board’s report cited intensified trade wars as the leading geopolitical conflict risk for 2025, double last year’s tally of 19%. US executives were particularly worried, with 47% mentioning trade wars as their biggest concern.”
President Biden Watch:
January 16 – Reuters (Steve Holland, Jeff Mason and Andrea Shalal): “President Joe Biden said an oligarchy is forming in the U.S. that threatens democracy, issuing the bleak warning… in his final Oval Office speech as he prepares to hand over power to Donald Trump next week… ‘Today, an oligarchy is taking shape in America of extreme wealth, power, and influence that really threatens our entire democracy, our basic rights and freedom, and a fair shot for everyone to get ahead,’ Biden said.”
January 16 – Bloomberg (Julian Lee and Rakesh Sharma): “In the final days of Joe Biden’s presidency, the US unveiled its most sweeping and aggressive effort yet to disrupt the oil shipments that are helping Russia to fund its war in Ukraine. About 160 tankers were sanctioned, with India — a key buyer of seaborne oil — agreeing not to allow the ships into its ports from March. Two large energy producers and exporters were also targeted, along with trading firms that organize shipments, insurance companies, two US oil service providers and a Chinese oil terminal operator. If the measures are kept in place by Biden’s successor Donald Trump, they have more chance of disrupting Russian petroleum exports than anything done by a western nation so far.”
LA Wildfire Watch:
'January 14 – New York Times (Christopher Flavelle): “It’s too soon to know how the Los Angeles fires will change life in California, but it may heavily depend on the answer to a single question: Will a once-obscure insurance program run out of money? That program, the California FAIR Plan, was created by state lawmakers in 1968 to cover people who couldn’t get standard home insurance for various reasons. But as climate change makes wildfires more frequent and intense, causing commercial insurance companies to pull back from the state, the rapidly growing FAIR Plan has become the linchpin holding together California’s increasingly fragile insurance market… As of last Friday, the FAIR Plan had just $377 million available to pay claims… Unlike regular insurance companies, the FAIR Plan can’t refuse to cover homes just because they’re in vulnerable areas. As a result, as the risk of wildfires grows, homes deemed too dangerous by major insurers have been piling up on the FAIR Plan’s books. Between 2020 and 2024, the number of homes covered by the plan more than doubled, to almost half a million properties with a value that tripled to about half a trillion dollars.”
January 14 – Bloomberg (Alexandre Rajbhandari): “The cost of wildfires ravaging swaths of Los Angeles keeps rising, with new estimates of the total losses for the insurance industry now seen as high as $40 billion. The fresh figure Tuesday from Keefe Bruyette & Woods analysts is double their rough initial estimate from just a day earlier. In a note to clients, they cited ‘continuing upside insured loss potential’ as the fires across the region remain largely uncontrolled.”
January 14 – Bloomberg (John Gittelsohn and Patrick Clark): “Los Angeles already had a housing affordability crisis before devastating wildfires burned entire neighborhoods to the ground. The disaster is making it worse. Incoming calls at LA Estate Rentals, which manages and leases homes in some of the area’s costliest neighborhoods, have jumped to 500 a day, more than 10 times the number before the fires, said owner Patrick Michael. He recently arranged for a tenant to pay $35,000 a month for a place in Beverly Hills with a 12-month lease. After the fires but before the deal closed, the owner raised the rent to $40,000. ‘What’s going on in the real estate market is disgusting,’ Michael said... ‘People are price gouging. It’s become like the eBay of homes, a bidding war.’”
January 13 – Yahoo Finance (Laura Bratton): “Edison International (EIX) — the parent company of the utility Southern California Edison (SCE) — saw its stock drop roughly 12% Monday following an announcement from SCE late last week that it’s being investigated by California fire authorities for its potential link to the Los Angeles wildfires… SCE was also accused of playing a role in sparking the Eaton fire, which tore through more than 14,000 acres. Edison International stock has fallen nearly 30% over the last week.”
January 16 – Bloomberg (Maxwell Adler, Mark Chediak and Amanda Albright): “There’s a truism in municipal debt: Bonds rarely move on natural disasters. That long-tested concept had held up until fires destroyed thousands of properties in Los Angeles last week. The Los Angeles Department of Water and Power — the biggest American municipal utility — has seen its bonds drop and credit rating downgraded as the blazes continue to burn. A planned debt sale this week is in limbo… LADWP, with about $18 billion in power and water system debt in the muni market, stands to be one of the biggest tests of bond investors over the risks of climate change.”
January 15 – Wall Street Journal (Katherine Clarke, E.B. Solomont and Jessica Flint): “Tucked away on a once-lush mountainside in the Upper Riviera area of Pacific Palisades, roughly 20 miles west of Downtown Los Angeles, a sprawling, architecturally striking mansion built by L.A. developer Ardie Tavangarian was a monument to luxury and excess. Sold for $83 million in 2021 to Luminar Technologies Chief Executive Austin Russell, the house, which took roughly five years and more than $50 million to build, was packed with amenities geared to the super rich. There was a 20-seat theater, a temperature-controlled wine lounge, and a retractable roof in the primary suite for stargazing. There was a ballistic safe room where the owner could retreat in a crisis. The property… is among the most valuable destroyed to date by the Palisades fire…”
January 14 – Bloomberg (Charles Williams): “Approximately 3% of the total loan balance in US RMBS deals rated by Moody’s are backed by properties in Los Angeles County…Roughly 30% of total deals rated by Moody’s have over 10% exposure to this area, with approximately 83% of those deals being pre-2009 legacy RMBS deals. Among deals with over 10% exposure to Los Angeles County, 71% have highest outstanding ratings below investment grade and 58% of them are rated Caa1 or lower.”
Ukraine War Watch:
January 16 – Bloomberg (Ben Bartenstein): “Advisers to President-elect Donald Trump are crafting a wide-ranging sanctions strategy to facilitate a Russia-Ukraine diplomatic accord in the coming months while at the same time squeezing Iran and Venezuela, people familiar… said… There are two main approaches under consideration by the Trump team. One set of policy recommendations — if the incoming administration believes a resolution to the Ukraine war is in sight — involves some good-faith measures to benefit sanctioned Russian oil producers that could help seal a peace deal, said the people, requesting anonymity as the deliberations are private. A second option would build on the sanctions, ramping up pressure even further to increase leverage…”
January 14 – Bloomberg: “Swarms of Ukrainian drones attacked energy and military facilities across central Russia and the Volga region overnight, according to a Ukrainian Security Service official. Drones targeted two chemical plants in the Tula and Bryansk regions, hit an ammunition warehouse at the Engels airfield in the Saratov region and set Rosneft PJSC’s Saratov oil refinery on fire, the official said on condition of anonymity.”
Taiwan Watch:
January 13 – Financial Times (Kathrin Hille): “China is building a new class of mobile piers, satellite images reveal, which could bolster its ability to land an invading force in Taiwan, a major step in its preparations for a potential future attack. Satellite images… show six barge-like vessels equipped with extendable ramps under construction at China’s state-owned Guangzhou Shipyard. The vessels could help the People’s Liberation Army transport heavy military equipment such as tanks and artillery across mudflats or seawalls on to firm ground.”
January 12 – Reuters (Yimou Lee): “Taiwanese charged with suspicion of spying on behalf of China rose by a third to 64 people last year, the island's National Security Bureau said, adding most were current or retired soldiers. China has stepped up political and military pressure in recent years to back its claim that democratically governed Taiwan is its own territory. This has included daily military drills, balloons near the island and an espionage campaign.”
Market Instability Watch:
January 12 – Bloomberg (Julian Harris): “Chancellor of the Exchequer Rachel Reeves returns to the UK from China on Monday with the Labour Party keen to brush off market turmoil around its fiscal difficulties and emphasize the government’s long-term ambitions. UK debt costs soared last week as gilts were punished particularly hard amid a global bond rout, while the pound fell to its lowest level since late 2023 — a combination that implied jitters around Britain’s rising inflation, weak growth and the sustainability of Labour’s plan to ramp up public spending.”
January 13 – Reuters (Dhara Ranasinghe): “High government spending and a growing need among big economies - from the United States to Britain and France - to tap bond markets to fund their outlays have shot up the list of concerns for some policymakers and investors. This year has started with a selloff across global government bond markets, with Britain in particular caught in the crosshairs. France's inability to enact belt-tightening measures due to political instability has also hurt its standing in financial markets. And rising U.S. Treasury yields suggests some sceptism among investors that a new U.S. administration will curb a high budget deficit. No wonder talk of a return of bond vigilantes is growing.”
January 13 – Bloomberg (Mia Glass): “Japan’s 40-year government bond yield reached its highest since inception amid a global debt selloff and expectations that the Bank of Japan will hike interest rates in coming months. The yield rose as much as 3 bps to 2.755%, the highest since 2007 when the bonds were sold for the first time. Japan’s 20-year yield also rose to its highest since May 2011…”
January 14 – Bloomberg (Jan Bratanic and Andras Gergely): “Sovereign bonds in eastern Europe are having a weak start to the year as a potent mix of economic and political risks weighs on the asset class. A strong dollar, jumping global yields, sluggish economic growth and renewed inflation fears are putting investors from Poland to the Balkans on edge just as Donald Trump prepares to take over the presidency... In dollar terms, local-currency bonds from Hungary, Romania, Poland and the Czech Republic have all been among the 10 worst performers in emerging markets so far this year…”
January 15 – Investopedia (David Marino-Nachison): “Two big risks threaten a ‘resilient’ U.S. economy, JPMorgan… CEO Jamie Dimon said ahead of next week's scheduled inauguration of President-elect Donald Trump and the start of his second administration… Dimon… cited two ‘significant risks’ in his statement: ‘Ongoing and future spending requirements will likely be inflationary, and therefore, inflation may persist for some time.’ ‘Additionally, geopolitical conditions remain the most dangerous and complicated since World War II.’ ‘We hope for the best but prepare the Firm for a wide range of scenarios,’ Dimon said.”
Global Credit and Financial Bubble Watch:
January 15 – Associated Press (Matt Ott): “JPMorgan’s net income soared 50% to more than $14 billion in the fourth quarter as the bank’s profit and revenue easily beat Wall Street forecasts, and other major banks reported banner earnings for the year as businesses and consumers continued to spend despite elevated interest rates… Total managed revenue hit $43.7 billion, up 10%, from $39.9 billion a year ago. Wall Street was expecting revenue of $41.9 billion. JPMorgan posted a record $54 billion profit for the year…”
January 15 – Financial Times (Harriet Agnew): “BlackRock attracted a record amount of new money in each of the final two quarters of 2024, driving net inflows at the world’s largest asset manager to $641bn for the full year. The company reported assets under management of $11.55tn at the end of December — an all-time high… The inflows helped push revenues during the final three months of the year to $5.68bn, a 23% increase on the same period in 2023… Full-year revenues rose 14% in 2024, passing $20bn for the first time. The performance underlines BlackRock’s rapid growth since its initial public offering 25 years ago when it had $165bn in assets under management and 650 employees. ‘BlackRock is now truly in a category of one,’ said chief financial officer Martin Small.”
January 17 – Bloomberg (Todd Gillespie): “Goldman Sachs Group Inc. handed its top two executives retention awards valued at $80 million each and introduced a new program to give its leaders a slice of carried interest earned on private equity funds as it tries to compete on pay with top alternative asset managers. The retention awards are the second in just over three years given to Chief Executive Officer David Solomon and President John Waldron. Goldman also gave Solomon a $39 million pay package for 2024…”
AI Bubble Watch:
January 16 – Reuters (Siddarth S): “JPMorgan estimated spending on data centers could contribute between 10-20 bps to U.S. economic growth in 2025-2026 as technology companies race to benefit from the artificial intelligence boom… While the brokerage estimates exclude the costs of new power generation, it projected each 5-10 gigawatt in new capacity could require $20 billion in spending, or 7 bps of GDP. U.S. power consumption will rise to record highs in 2025 and 2026, the government’s Energy Information Administration said…”
January 12 – Financial Times (Amanda Chu and Jamie Smyth): “The US is on the cusp of a natural gas power plant construction boom, as Big Tech turns to fossil fuels to meet the huge electricity needs of the artificial intelligence revolution — putting climate targets in peril. As many as 80 new gas-fired power plants will be built in the US by 2030, said energy consultancy Enverus, adding 46 gigawatts of capacity — the size of the electricity system in Norway and nearly 20% more than was added in the past five years.”
Bubble and Mania Watch:
January 16 – Financial Times (Steve Johnson): “Global exchange traded fund flows hit a record $1.5tn last year with the buying frenzy accelerating after Donald Trump’s presidential victory in November. The net inflows obliterated the previous full-year record of $1.2tn set in 2021 according to data from Morningstar, which includes most major investment markets except China and India. Total assets hit $13.8tn, a rise of $2.7tn during the year, and nearly five times the $2.9bn level of a decade ago.”
January 16 – Bloomberg (Ben Steverman): “The very richest Americans are among the biggest winners from President Joe Biden’s time in office, despite his farewell address warning of an ‘oligarchy’ and a ‘tech industrial complex’ that threaten US democracy. The 100 wealthiest Americans got more than $1.5 trillion richer over the last four years, with tech tycoons including Elon Musk, Larry Ellison and Mark Zuckerberg leading the way…The top 0.1% gained more than $6 trillion… Biden warned of ‘a dangerous concentration of power in the hands of a very few ultra wealthy people,’ in his speech from the White House…”
January 16 – Bloomberg (Todd Gillespie): “After years of hoarding capital amid fears that regulators would come knocking, Wall Street’s biggest banks paid out the most in three years to shareholders in the form of dividends and buybacks. The six largest US banks delivered more than $100 billion to shareholders through dividends and share repurchases during the year, the most since 2021…”
January 16 – Bloomberg (Allison McNeely and Laura Benitez): “Private equity firms’ strategy of shuffling assets to buy more time for investments to pan out is starting to show signs of weakness. More than 100 so-called continuation funds were raised between 2019 and 2021 to move portfolio companies from one private equity vehicle to new ones backed by fresh capital. Some are now running into trouble amid a sluggish dealmaking environment and declining asset values.”
January 13 – Bloomberg (Erin Hudson): “Just down the road from Stanford University, a roughly $200 million campus upgrade is underway at one of the Palo Alto area’s elite private schools, with plans encompassing state-of-the-art classrooms, an aquatics center and a recording studio. It’s a massive financial undertaking for Castilleja School Foundation. Its leadership considered loans from banks before turning to the municipal bond market, which is more often used to finance roads and bridges than projects at private institutions charging more than $60,000 a year in tuition.”
January 16 – Wall Street Journal (Carol Ryan): “House hunters don’t need to be told that property is too expensive right now. But Wall Street has an idea by just how much. The stock market is pricing portfolios of American homes at a hefty discount to what houses are changing hands for in the open market. Shares of single-family landlords Invitation Homes and American Homes are trading at 35% and 20% discounts to their net asset values, respectively, according to real-estate analytics firm Green Street.”
U.S./Russia/China/Europe Watch:
January 14 – Financial Times (The Editorial Board): “Under the sea, a shadowy hybrid war is being fought. In November, a Chinese-owned freight vessel was suspected of severing two fibre-optic cables under the Baltic from Germany to Finland and Sweden to Lithuania. A month later, Finnish coastguards seized a tanker carrying Russian gasoline that allegedly cut a subsea power connector between Finland and Estonia, and damaged four telecoms lines. Early this month, Taiwan asked South Korea to help it investigate a Chinese-owned ship suspected of damaging an internet cable off its northern coast… China blamed a previous incident in October 2023 when a Hong Kong-registered vessel cut a natural gas pipeline also between Finland and Estonia on an ‘accident caused by a storm’.”
January 15 – Reuters (Anne Kauranen): “Crew on board an oil tanker accused of sabotaging undersea power and communications cables in the Baltic Sea were poised to cut other cables and pipelines when Finnish authorities boarded the vessel last month, the head of the Finnish investigation said. Baltic Sea nations are on high alert after a string of power cable, telecom link and gas pipeline outages since Russia invaded Ukraine in 2022. Leaders of the NATO member states around the Baltic Sea are set to meet in Helsinki… to discuss the alliance's response to the threat.”
January 14 – Reuters (Anne Kauranen, Essi Lehto and Andreas Rinke): “NATO countries will deploy frigates, patrol aircraft and naval drones in the Baltic Sea to help protect critical infrastructure and reserve the right to take action against ships suspected of posing a security threat, alliance members said… The military and political alliance is taking the action, dubbed ‘Baltic Sentry’, following a string of incidents in which power cables, telecom links and gas pipelines have been damaged in the wake of Russia's invasion of Ukraine in February 2022.”
De-globalization Watch:
January 13 – Bloomberg (Alex Longley and Jack Wittels): “Oil tanker rates jumped on Monday as the Biden Administration’s sanctions on Russia’s petroleum trade threaten to cut the supply of ships while forcing traders to seek alternative sources of crude. On Friday, ten days before Donald Trump takes over, the outgoing president sanctioned about 160 Russian oil tankers. It means about a tenth of the current crude-carrying fleet is under US measures. Benchmark tanker rates jumped 39%, the most since August…”
January 12 – Bloomberg: “Refiners, tanker operators and port executives across Asia have been left scrambling to manage the fallout from the most aggressive US sanctions on Russia’s oil industry to date, sifting through documents and quizzing government officials… to understand the impact for major importers China and India. The two countries have been the main beneficiaries of cut-price Russian crude since the invasion of Ukraine in early 2022, working around a Western price cap intended to limit funds flowing back to Moscow.”
January 14 – Bloomberg (Andy Lin, Hallie Gu, Nguyen Xuan Quynh, Helen Nyambura and Sergio Mendoza): “China’s quest to feed itself has taken it as far as Kenya’s macadamia nut groves and Bolivia’s cattle ranches, as part of a push in recent years to diversify food sources away from traditional Western suppliers. The market-share loss for US-allied nations is a win for countries from the Global South, which Beijing has sought to court as geopolitics increasingly cleaves the world into distinct blocs. There are obvious beneficiaries like crop powerhouse Brazil, which has clawed market share in corn and soybean exports from the US, while Russia is selling more grains, edible oils and meat to China.”
Inflation Watch:
January 15 – Yahoo Finance (Ines Ferré): “Energy prices jumped in December, helping send up overall inflation for the month amid colder-than-expected temperatures, supply concerns driven by Ukraine's targeting of Russian oil facilities, and optimism over Chinese stimulus spurring demand. According to Consumer Price Index (CPI) data…, seasonally adjusted energy prices rose 2.6% from the previous month, higher than November's 0.2% increase. December's rise in prices accounted for more than 40% of the monthly increase in headline inflation.
January 14 – CNBC (Jeff Cox): “A measure of wholesale prices increased less than expected in December... The producer price index rose just 0.2% on the month, less than the 0.4% increase in November and below the… consensus estimate for 0.4%... Excluding food and energy, the so-called core PPI was flat compared with the forecast for a 0.3% rise. Excluding food, energy and trade services, the measure rose just 0.1%. On an annual basis, headline PPI rose 3.3% for the full year, well ahead of the 1.1% increase in 2023. Goods prices increased 0.6%, pushed by a 9.7% surge in gasoline prices.”
January 14 – Bloomberg (Mark Schroers): “Economists expect global inflation to remain high at least until 2028, according to a new survey… They forecast an average inflation rate of 3.5% in three years, only slightly below the 3.9% anticipated for 2025, a quarterly study conducted by the German Ifo Institute and the Institute for Swiss Economic Policy… showed. Almost 1,400 experts from 125 countries took part in the survey in early December. ‘Inflation expectations remain above the inflation targets of many central banks,’ said Niklas Potrafke, director of the Ifo Center for Public Finance and Political Economy. ‘Major interest rate cuts are unlikely given these inflation expectations.’”
Federal Reserve Watch:
January 14 – Wall Street Journal (James Mackintosh): “How embarrassing would it be for the Federal Reserve to raise rates this year? Could it admit that its aggressive rate reductions last year, including a cut as recently as last month, were a mistake, and put them into reverse? Investors are starting to think about the idea. While the chance of a hike this year is still put at zero by pricing of fed-funds futures…, it is a topic of heavy discussion. This isn’t just a matter of whether the economy stays hot or whether the new Trump administration’s tariff, immigration and tax policies prove inflationary… At the heart of it for investors is an important question: Are the barriers to raising rates stiffer than those to cutting?”
January 15 – Wall Street Journal (Matthew Boesler and Amara Omeokwe): “A clutch of Federal Reserve officials… welcomed fresh data showing a crucial gauge of consumer prices in December rose less than expected, giving them confidence inflation would continue to ebb. ‘The process of disinflation remains in train. But we are still not at our 2% goal, and it will take more time until we can achieve that on a sustained basis,’ New York President John Williams said… Austan Goolsbee, president of the Chicago Fed, also pointed to the data as supporting his outlook for easing price pressures. ‘The trend continues to be improvement in inflation,’ he said. ‘I’m still optimistic for 2025 that we can continue growing and have a soft landing.’”
U.S. Economic Bubble Watch:
January 16 – Reuters (Lucia Mutikani): “The number of Americans filing new applications for unemployment benefits increased more than expected last week, but remained at levels consistent with a healthy labor market. Initial claims for state unemployment benefits rose 14,000 to a seasonally adjusted 217,000 for the week ended Jan. 11… The number of people receiving benefits after an initial week of aid… fell 18,000 to a seasonally adjusted 1.859 million during the week ending Jan. 4…”
January 16 – Bloomberg (Mark Niquette): “US retail sales broadly advanced in December, indicating strong consumer demand to wrap up the holiday season. The value of retail purchases… increased 0.4% after an upwardly revised 0.8% gain in November… Excluding autos and gasoline, sales climbed 0.3%. The retail data showed so-called control-group sales — which feed into the government’s calculation of goods spending for gross domestic product — increased 0.7% in December, the most in three months. The measure excludes food services, auto dealers, building materials stores and gasoline stations. Ten of the report’s 13 categories posted increases…”
January 14 – Bloomberg (Nazmul Ahasan): “US small-business optimism extended its surge in December to the highest level since October 2018, buoyed by expectations of favorable policies under President-elect Donald Trump. The National Federation of Independent Business optimism index rose 3.4 points last month to 105.1, following the sharpest monthly increase on record in November. Seven of the 10 index components improved, led by a 16-point jump in the net share of businesses expecting better business conditions — bringing that measure to the highest in monthly data since 2002. Meanwhile, the group’s uncertainty indicator dropped another 12 points — amounting to the biggest back-to-back decline on record…”
January 17 – Reuters (Lucia Mutikani): “U.S. single-family homebuilding increased solidly in December… Single-family housing starts, which account for the bulk of homebuilding, rose 3.3% to a seasonally adjusted annual rate of 1.050 million units last month… Data for November was revised higher to show homebuilding increasing to a rate of 1.016 million units from the previously reported pace of 1.011 million units… There is an oversupply of unsold new homes, with inventory at levels last seen in late 2007. Permits for future construction of single-family housing increased 1.6% to a rate of 992,000 units in December.”
January 15 – Bloomberg (Vince Golle): “US mortgage rates topped 7% last week, reaching the highest level since early May and extending a months-long advance that risks restraining the housing market. The contract rate on a 30-year mortgage rose 10 bps to 7.09% in the week ended Jan. 10…”
China Watch:
January 14 – Bloomberg: “An outpouring of Chinese government bond issuance and early signs of improvement in the housing market helped stir up appetite for financing in December, drawing to a close a year when new loans declined for the first time since 2011. The worst of the plunge in demand for credit is likely over as Beijing’s stimulus blitz kicks in. Aggregate financing climbed 2.86 trillion yuan ($390bn) last month while 998 billion yuan in new loans was extended, the highest totals for both measures in three months.”
January 16 – Bloomberg: “China’s cash squeeze extended with some signs of disruption to trading, as a liquidity infusion from Beijing failed to counteract a spike in demand for funds. The volume-weighted average rate of seven-day repurchase transactions in the money market, a gauge of borrowing costs, climbed to 2.36%, the highest since March 2023. Late Wednesday there were some failed trades and a 10 minute delay to the official close of a clearing system, according to traders who asked not to be identified…”
January 16 – Bloomberg: “China’s money market saw disruption Wednesday with some delayed and failed settlements after a spike in borrowing costs, according to market participants familiar with the matter. Some clearing and settlement failures occurred late Wednesday afternoon, as non-bank financial institutions’ borrowing costs surged to as high as 16%...”
January 12 – Bloomberg: “China will promote the role of consumption in the economy and move away from its sole focus on investment, according to the central bank governor, ushering in a shift in the growth model that’s come to define the country over the past two decades. ‘The priority of macroeconomic policy should shift from promoting more investment in the past, to promoting both consumption and investment, with more importance attached to consumption,’ Pan Gongsheng said…”
January 17 – Caixin Global: “Questions about the whereabouts of a China Vanke Co. Ltd. executive with financial know-how has once again cast a spotlight on the Shenzhen-based property giant as it struggles to repay its mounting debts. On Thursday, the Economic Observer, a Chinese financial news outlet, quoted multiple sources as saying that Vanke CEO and President Zhu Jiusheng has been taken away by police. It also reported that Vanke might be taken over by the government for a restructuring. Vanke has yet to issue a public response to the report, which was later removed.”
January 14 – Wall Street Journal (Jiahui Huang): “Country Garden released its long-delayed results showing that the heavily indebted Chinese developer’s net loss narrowed in the first half of 2024 following a record loss of more than $24 billion in 2023... It said… it booked a net loss of 12.84 billion yuan, the equivalent of about $1.75 billion, in the first six months of 2024… Revenue fell 55% to 102.10 billion yuan during the period. Its 2023 net loss hit a record… —roughly $24.33 billion… Revenue for the year fell 6.8% to 401.02 billion yuan.”
January 12 – Bloomberg: “Just over a year ago, Sunac China Holdings Ltd. became a model for the country’s defaulted developers by clinching the sector’s first major offshore debt restructuring deal. Now its problems are mounting again. At a time when Sunac is trying to complete an onshore debt overhaul, questions over whether it will meet looming repayment deadlines are putting its offshore agreement at risk. On top of that, it’s now contending with another court petition to wind up. Sunac said… it ‘can’t rule out’ a second offshore debt restructuring. Should the wind-up petition become successful, it may not be able to pay some offshore debt.”
January 12 – Wall Street Journal (Rebecca Feng): “In recent years, Chinese property developers have been so strapped for cash that they have used unsold apartments to settle debts to construction companies and furniture suppliers. Now, Chinese local governments are following suit. In August, a gas supplier in China’s far western Xinjiang region struck a solution to settle $25 million of overdue gas bills racked up by a few state-owned entities in Changji city. Instead of cash, the gas supplier will effectively take over 260 unfinished apartments in a French-themed residential compound being developed by its clients. The compound’s main street is to be called the Avenue des Champs-Élysées.”
January 16 – Bloomberg: “China’s decline in home prices abated for a fourth month in December, reflecting signs of market stabilization after the government’s latest stimulus blitz. New home prices in 70 cities, excluding state-subsidized housing, dropped 0.08% from November, the smallest decline in a year and a half… Existing home values slid 0.31%, easing from a 0.35% drop a month earlier… Improvements were seen on a year-on-year basis too, with new-home prices falling 5.73% versus 6.07% a month earlier. Used-home values dropped 8.11% compared with 8.54% in November.”
January 13 – Wall Street Journal (Rebecca Feng and Chun Han Wong): “Chinese leader Xi Jinping is bringing the country’s financial sector to heel, one banker at a time. For decades, China sought to learn from Western finance. Now it’s purging many of the internationally experienced financiers who helped steer the country’s economic rise, while ushering in a new generation of loyal functionaries willing to carry out Communist Party edicts and disavow capitalist excess… The purges are being paired with other steps aimed at diluting pro-market instincts in China’s financial industry and bringing it more squarely under Xi’s control. The Communist Party is curbing bankers’ lavish pay packages, ramping up political study sessions and centralizing decision-making on financial affairs.”
January 13 – Bloomberg (Foster Wong): “China’s top securities regulator said it will work on building a mechanism to stabilize the market, vowing to anchor market expectations in 2025 after a disappointing start to the new year. The China Securities Regulatory Commission said stability is top of its agenda in 2025 as it pledged to make every effort to induce and maintain the market’s stabilizing and positive momentum…”
January 16 – Bloomberg: “China’s population shrank for the third straight year in 2024, even though births rose slightly, underscoring a persistent long-term risk for the economy. The total number of people in China fell by over 1.39 million to 1.408 billion last year…”
Europe Watch:
January 15 – Associated Press (Danika Kirka): “Britain’s new government, which is already facing anger over higher taxes, unpopular spending decisions and political scandals just six months after taking office, is now being battered by rising borrowing costs that threaten to derail its left-leaning program. The yield on the U.K.’s 10-year bonds, a reflection of the price investors demand for financing the country’s debt, has risen by more than 1.1 percentage points since Sept. 16 on concerns over sluggish economic growth and stubbornly high inflation. That has pushed Britain’s borrowing costs to the highest level since the 2008 financial crisis.”
January 15 – Associated Press (David McHugh and Geir Moulson): “Germany’s economy shrank for the second straight year in 2024 as worried consumers held back on spending and Chinese competition ate into the country’s traditional exports of cars and industrial machinery. The year's weak performance underlines Germany’s status as Europe's worst performing major economy and shows the country as having no meaningful growth in the past four years as it has struggled to deal with major shifts in the global economy. Gross domestic product contracted by 0.2% last year, following a 0.3% decline in 2023…”
Japan Watch:
January 15 – Bloomberg (Erica Yokoyama and Toru Fujioka): “The yen surged as Bank of Japan Governor Kazuo Ueda joined his deputy in strengthening market expectations for a potential interest-rate hike next week, signaling the central bank is doing its utmost to avoid a global market crash that followed July’s hike… His remarks suggest the BOJ’s two top officials are on the same page, as Deputy Governor Ryozo Himino said Tuesday the policy board will decide whether to raise rates, signaling the possibility of a hike.”
January 15 – Wall Street Journal (Megumi Fujikawa): “Bank of Japan Gov. Kazuo Ueda repeated his pledge to discuss an interest-rate increase next week, echoing recent comments that have revived market expectations for imminent policy action. ‘If improvements in the economy and prices continue this year, we will adjust the degree of monetary easing by raising interest rates,’ Ueda said… That underlines remarks from both him and his deputy earlier this week that a rate hike at the upcoming Jan. 23-24 meeting is firmly on the table.”
Emerging Markets Watch:
January 16 – Bloomberg (Felipe Saturnino and Raphael Almeida Dos Santos): “Investors yanked money out Brazilian hedge funds at a record pace in 2024 as rising interest rates and a crumbling of local markets fueled a second year of underperformance for the struggling industry. The stampede — almost 357 billion reais ($57.3bn) more than the past two years combined and the worst-ever in data going back to 2002 — comes as investors flock back to fixed income.”
January 16 – Bloomberg (Maria Eloisa Capurro): “Brazil’s economic activity barely grew on the month in November as central bankers try to tame consumer demand by raising interest rates… Overall activity in Latin America’s largest economy is finally showing signs of cooling after several stronger-than-expected quarters.”
January 15 – Bloomberg (Marcus Wong): “Indonesia’s central bank defied the expectations of practically the entire market when it cut interest rates this week, deepening a period of uncertainty for government bond yields. Bank Indonesia cut its policy rate by 25 bps to 5.75%... ‘It was a risky move by Bank Indonesia which increases financial risk for the country,’ said Rajeev De Mello, a global macro portfolio manager at Gama Asset Management SA. ‘With the imminent policy uncertainty emanating from the US, it is really not the time for EM central bankers to ease monetary policy.’”
January 15 – Bloomberg (Soo-Hyang Choi and Sohee Kim): “President Yoon Suk Yeol faces his first night in detention following his arrest by investigators looking to question the impeached leader over his short-lived martial law declaration. Investigators from the Corruption Investigation Office for High-ranking Officials took Yoon into custody in an operation that started before dawn after the president repeatedly defied summons to appear for questioning.”
January 13 – Bloomberg (Subhadip Sircar): “A selloff in Indian assets sent the rupee tumbling by the most in nearly two years, as a strong dollar and rising oil prices amplified concerns that one of the world’s fastest-growing major economies is headed for a slowdown. With the Indian currency sinking past the key psychological level of 86 per dollar, doubts are rising over whether the nation’s central bank will cut borrowing costs next month.”
Leveraged Speculation Watch:
January 14 – Bloomberg (Betty Hou): “The Taiwan dollar is on the verge of overtaking the yuan as Asia’s best carry-trade target given its lower risk of interest-rate and currency volatility. A strategy of borrowing the island’s currency to invest in higher-yielding alternatives has generated the second-highest return over the past month among Asian currencies behind the yuan, based on the Sharpe ratio that measures risk-adjusted relative returns.”
January 13 – Bloomberg (Josyana Joshua and Olivia Raimonde): “Citadel LP, the hedge fund manager founded by Ken Griffin, is looking to raise at least $500 million through a corporate bond sale… Citadel, which managed about $65 billion of investment capital as of Jan. 1, is rated Baa2 by Moody’s Ratings and BBB by S&P Global Ratings.”
January 16 – Bloomberg (Chris Hughes): “A little more than a year after legendary Enron short-seller Jim Chanos threw in the towel on activist short selling, the equally famous Hindenburg Research is calling it a day. Short selling, short-trade research and public activism are all key to the functioning of the stock market. And yet it’s fiendishly hard to combine the three strands into a business that endures.”
Social, Political, Environmental, Cybersecurity Instability Watch:
January 16 – Financial Times (Martin Arnold and Lee Harris): “The world’s financial stability watchdog has warned that disasters caused by climate change are increasingly likely to trigger broader panic in financial markets... The Financial Stability Board said the financial damage of climate shocks such as floods, droughts, fires or storms could cause a broader pullback in lending and downturn in investor confidence. ‘Banks could reduce lending, including for recovery to already vulnerable households and corporates,’ the body… said. ‘There could also be an abrupt, broad-based repricing of climate-physical risk, as the expectation of larger future losses are incorporated into current prices and impact sectors and jurisdictions not currently directly affected by disasters.’”
January 12 – Wall Street Journal (Mike Pompeo): “When a state-sponsored Chinese hacker breached the Treasury Department’s Office of Foreign Assets Control, it allowed the Communist Party to access sensitive information with significant strategic implications. It’s the latest example of Beijing’s espionage campaign against the West, which runs deeper and is far more dangerous than the Soviet efforts of the 20th century. While leading America’s clandestine operations and diplomacy during the first Trump term, I got a front-row seat to these undercover activities. Judging from publicly available information, these efforts have accelerated over the past four years. The Chinese Communist Party is already deep inside our critical networks and infrastructure—a consequence of a dangerous gap in our national security that imperils Americans and heightens the risk of war.”
January 16 – Bloomberg (Kendra Pierre-Louis): “Severe drought conditions have helped fuel the Los Angeles wildfires. But a new study… in the journal Nature comes with a warning: Climate change is making catastrophic, multiyear ‘megadroughts’ much worse around the world. Droughts are relative… But they can throw ecosystems out of whack, sometimes in dangerous ways. ‘That's what we see right now in California,’ said Dirk Nikolaus Karger, a senior researcher at Swiss Federal Institute WSL and a paper author. ‘Over time, the vegetation dries out, and we have increased fire frequency, and houses burn down. In other areas, we will have agricultural failures.’”
January 16 – Bloomberg: “China’s fossil fuel power plants increased generation to a record last year, as the boom in clean energy failed to keep pace with surging electricity consumption in the world’s second-biggest economy. Output from thermal plants, predominantly powered by coal, rose 1.5% in 2024 from the previous year…”
