In my first CBB, I promised readers to “call them as I see them and let the chips fall where they will.” It has become a challenge to live up to a pledge I’ve taken to heart for so many years. I’m compelled to shoot straight on this. I’ve voted Republican for much of my adult life, including for Bob Dole and John McCain. I cast ballots for and against Donald Trump. More importantly, I am fiercely independent in my analysis and politics. Wary of ideologies.
Character matters tremendously. Not by coincidence do I work for an individual (David McAlvany) with unassailable character. No amount of money could lure me to work with schmucks. Irrespective of talents as educators, I would have serious issues if my son’s high school teachers demonstrated obvious character issues. It doesn’t feel right to expect so much less from our political leaders, but that’s where we’ve landed in this most extraordinary of environments and cycles.
I was ready to keep an open mind with Trump 2.0. That ended swiftly, with the gut punch of Matt Gaetz hand selected as Attorney General nominee. It was an affront to our deeply divided nation in dire need of mindfulness and mending.
I want so much to just stick with my analysis and avoid politics (like the plague). But the CBB has a subtitle: “Chronicling History’s Greatest Financial Bubble.” Especially at this cycle’s perilous turning point, politics and policymaking have become fundamental to market, financial, economic, and geopolitical analysis. I would prefer not to upset readers. I could take a year or four off. But I passionately believe this period will be studied for generations – and I want my legacy to be rigorous, sound, and factual contemporaneous analysis of a critical period in U.S. and world history.
For better or worse, the Trump administration will force momentous change both at home and abroad. From the perspective of my analytical framework, it’s not coincidental that our President returns to the White House with the world at the brink – with manias and acutely vulnerable speculative Bubbles; with a deeply maladjusted U.S. economy and associated inequality and acute societal strain; with political dysfunction and corruption; with escalating trade and military wars at risk of spiraling out of control; with an antagonistic world and precarious geopolitics. For the foreseeable future, there may be a need for CBB warning labels: “Some readers may find the following content offensive and disturbing.”
I doubt President Trump’s agenda will prove even close to feasible. A populist agenda for bettering the lives of many millions left behind over decades of boom-time economic transformation, while ensuring that stock and bond market Bubble inflation runs unabated. Stoking a boom while taming inflation. The billionaire class clearly has the President’s ear, while their position in the world lives or dies with the Bubble. Populism so long as the super wealthy continue to get more than their share. The numbers don’t work in today’s world.
Reduce taxes; deregulate and cut red tape; stoke investment and growth; boost production and reduce energy prices, while betting the ranch the boom can be extended for four years. It’s an agenda more suited for emerging out of a downturn than prolonging fateful excesses that will conclude a historic super cycle.
In previous “Issues” pieces, I would repeat a critical maxim: Bubbles inflate or burst. Importantly, last year’s spectacular “terminal phase excess” creates quite a predicament. Manic speculative excesses and leveraged speculation ensure market fragility, as well as systemic frailty that significantly elevates crash risk. Last year’s only looser financial conditions fueled deeper economic structural maladjustment. The CBO is projecting a $1.9 TN, or 6.5%, federal deficit this fiscal year. I’ll take the over.
Friday’s much stronger-than-expected payroll data are further evidence of a U.S. “Bubble economy” at the cusp of overheating. And 2025 begins with the University of Michigan one-year consumer inflation expectations jumping to the highest level (3.3%) since 2008, confirming that inflation risk remains to the upside. This followed the ISM Services (December) Prices Paid component surging to a 22-month high (64.4).
I expect the bond market to be a major Issue 2025. This week’s 16 bps rise in 10-year Treasury yields pushed the year-to-date (7 sessions) yield jump to 19 bps. Importantly, 10-year yields are up 111 bps since the Fed commenced a 100 bps rate reduction in September. Yields are now at the highest level since October 2023. With 10-year yields approaching the 2023 high of 5%, it’s important to note a key difference between this year and the yield spike years 2023 and 2022: markets previously took comfort in the belief that the Fed could be counted on to halt hikes and begin rate slashing if surging market yields began to foment instability. Now what. The Fed aggressively cut rates, and market yields spiked (in their and the markets’ faces).
In notable contrast to recent years, Bubble “inflate or burst” comes with the caveat that 2024 ended with notable instability unfolding at the global Bubble’s “periphery”. After last year’s currency and bond market losses, EM entered 2025 already impaired and vulnerable to crisis dynamics.
The year is off to a rocky start. Local currency yield jumps include Romania 39 bps, Hungary 35 bps, South Africa 30 bps, Indonesia 20 bps, Cyprus 20 bps, Latvia 15 bps, and Poland 15 bps. Dollar-denominated “developing” debt remains under significant pressure. Year-to-date yield jumps include Colombia 40 bps, Ukraine 39 bps, Chile 22 bps, Saudi Arabia 20 bps, Peru 19 bps, Philippines 18 bps, Turkey 16 bps, Indonesia 13 bps, Panama 12 bps, and Mexico 11 bps. After a notably rough Q4, Brazil’s currency and bond market have nervously held their own to start the year.
Chinese markets are not holding their own. China’s Shanghai Composite has dropped 5.5% in seven sessions, with the growth oriented ChiNext index hit 7.8%. Chinese stocks have given back about half of the 35% Beijing-induced rally that followed September announcements of a laundry list of aggressive stimulus measures. Much improved Chinese sentiment lent some needed support to the increasingly vulnerable emerging markets.
January 10 – Bloomberg: “An escalation of China’s fight against bearish traders has failed to allay fears that the world’s second-largest economy is headed for a deflationary spiral. The renewed effort by authorities to prop up financial markets this week has drawn a muted response. The yuan is hovering near the weaker end of its trading band and the benchmark bond yield is just a few bps away from a record low. The MSCI China Index is poised to enter a bear market. That’s even after the People’s Bank of China undertook successive steps to engineer a reversal.”
It's understandable that Beijing would focus on orchestrating a potent lift in stock market enthusiasm as a key catalyst to spark a much-need economy-wide boost in consumer and business confidence (having repeatedly worked its magic in the U.S. and elsewhere!). But it’s an odd dynamic to have such an overhanded central government working urgently to manipulate financial market confidence.
China is a major Issue 2025. Beijing is trying to sustain unsustainable Bubble-period financial and economic structures – increasingly desperate to hold Bubble deflation at bay. China’s predicament is compared to the bursting of Japan’s 1980s Bubble. There are some parallels, but China’s Bubble dwarfs Japan’s in scope and global impact. Moreover, Tokyo came to recognize the damage that excesses were inflicting on Japan’s society and institutions, making the difficult but necessary decision to deflate its Bubble.
There is today, both domestically and internationally, too much at stake for China’s communist leadership and party for Beijing to even contemplate the consequences of Bubble deflation. Japan’s bursting Bubble barely registered geopolitically. China’s will trigger an earthquake.
If December estimates prove accurate, growth in China’s Aggregate Financing (metric of system Credit growth) expanded an enormous $4.35 TN last year. Huge ongoing expansion, still down from 2023’s $4.90 TN – with moderations in Credit growth the proverbial kiss of death for Bubbles. Beijing has been moving up the learning curve. They have hesitated to provide the massive stimulus market analysts have been demanding – the enormous scope of new debt that would be required to temporarily contain Bubble deflation.
January 10 – Bloomberg: “China’s central bank said it will suspend buying government bonds, its latest attempt to temper investor bets on weak economic growth that have undermined the currency and sapped confidence among businesses and consumers. The People’s Bank of China will halt purchases of sovereign debt this month… The central bank will pick a time to resume buying depending on market conditions…”
The renminbi is an Issue 2025. The unrelenting expansion of non-productive debt in China places its currency in harm’s way. Central bank liquidity; to inflate the stock market; to boost apartment buyer and consumer confidence; to support vulnerable local governments; to sustain a tottering Bubble Economy – all place the renminbi in serious harm’s way. The PBOC (and state-directed banks) currently have the currency pegged at the 7.30 level.
Beijing would surely prefer a carefully managed devaluation, especially as it prepares for additional tariffs. Losing control is anathema. China’s major banks have become big players in currency and derivatives trading. To what extent have derivatives been used in currency support operations to preserve its international reserve holdings? And the longer Beijing clings to the currency peg – the larger the buildup of bank and speculative derivative positions – and the greater the potential for a destabilizing currency market dislocation.
Over the years, I’ve pondered the question: Is China “developed” – or does it remain more a “developing” system vulnerable to crisis of confidence dynamics. EM central banks and governments traditionally lose the capacity to stimulate when focus turns to stabilizing a disorderly run on their currencies. It seems a pertinent issue to begin the new year.
With EM currencies and bonds under pressure, heightened Chinese instability would only accelerate crisis dynamics. Beijing pressed its bet on an already bloated export sector, determined to offset the deleterious effects of its bursting apartment Bubble – while meeting growth mandates. Now facing additional backlash from the U.S. and Europe, faltering demand from its “global south” trade partners would be a serious blow. Over the years, I’ve referred to China as the “king of EM.” There is today elevated risk that unfolding EM/China instability and crisis dynamics feed on each other, testing years of integration.
I expect the “Periphery and Core” analytical framework to be especially valuable in 2025. “Periphery” instability has recently made the leap to the “core.” EM central bank selling international reserve holdings (chiefly Treasuries) to accommodate de-risking/deleveraging and resulting “hot money” outflows is contributing to the surprising jump in U.S. and global market yields (in the face of central bank rate cuts). It’s worth noting that Fed holdings for foreign (chiefly central bank) owners of Treasury and Agency Debt dropped $49.4 billion in two weeks (to the low since May 2017), the largest drop back to (banking crisis) March 2023. Meanwhile, weakness gained noteworthy momentum this week at the periphery of the global “core.”
January 8 – Bloomberg (Greg Ritchie and James Hirai): “UK markets tumbled, pushing bond yields to the highest in more than a decade, as jitters over persistent inflationary pressures sparked unnerving comparisons with the 2022 gilt crisis. Benchmark 10-year yields jumped as much as 14 basis points to 4.82%, the highest since August 2008. The pound fell against all major currencies, slumping more than 1% versus the dollar, while UK stocks fell.”
Ominously, UK government “gilt” yields surge 25 bps this week to 4.84% - the high since July 29th, 2008. The pound sank 1.7% to a 14-month low. Recall the UK bond market was at the de-risking/deleveraging epicenter when the bond vigilantes put a quick end to Prime Minister Liz Truss and her government’s spend-thrift budget. That crisis was a reminder of the role leverage and derivatives play in contemporary bond markets. It was also an early warning of shifting global bond market dynamics, something governments globally would have been well-served heeding.
Risks are mounting that Trump administration budget plans could provoke a similar bond market revolt. De-risking/deleveraging equates to waning demand and liquidity throughout global markets. “Contagion” ensures heightened risk aversion. What markets are susceptible to reassessment of risk versus reward calculations? And when “risk off” turns more serious, what markets are vulnerable to destabilizing speculative deleveraging? In no way is the “core” immune.
“Basis trades” and “carry trades” are an Issue 2025. So far, confidence remains rock solid that the Fed will ensure a liquid and stable Treasury market. But the recent surprising yield spike must be at least somewhat unnerving. And an overheated economy with resurgent inflation would have the Fed thinking twice before coming aggressively to the markets’ defense. What’s more, Team Trump comes with layers of uncertainty. The bottom line: risks – marketplace instability and liquidity, Washington spending and budgets, the timing and scope of the Fed’s market liquidity backstop, the fraught geopolitical backdrop – are mounting to the point where they will be an increasing concern for the egregiously levered “basis trade” and speculative leverage more generally.
The historic AI/tech mania/Bubble is an Issue 2025. There are troubling parallels between the two “Roaring Twenties.” The original was notable for the unappreciated role speculative leverage (and resulting liquidity abundance) played in fueling epic technological advancement coupled with unrecognized deep structural maladjustment. The 1929 crash and crushing deleveraging unmasked the scope of financial excess, resource misallocation, spending distortions, and uneconomic Bubble-period investment.
AI is a spending black hole with potential to be one of history’s greatest technological advancements and investment theses. But it requires loose conditions, ample liquidity, risk embracing lenders and financiers, and massive outlays – all that must be sustained in the face of quite uncertain market, economic and geopolitical backdrops. Will there be enough “money” to go around? And will AI remain the top priority as things turn dicey?
January 10 – Bloomberg (Manya Saini): “U.S. insurance stocks slid on Friday as analysts estimated insured losses from the wildfires menacing Los Angeles could reach as high as $20 billion, potentially making it the costliest disaster in California's history… The fires, engulfing iconic Los Angeles neighborhoods and tearing through the Hollywood Hills, have so far killed 10 people and destroyed nearly 10,000 structures. Private forecaster AccuWeather estimated the damage and economic loss at $135 billion to $150 billion, portending an arduous recovery and a surge in homeowners' insurance costs.”
Only a few months after the devastating winds and historic flooding from hurricanes Helene and Milton, mother nature unleashes catastrophic wildfires that incinerate thousands of homes and businesses, along with entire communities. There will be investigations, reports and ample finger-pointing. Budget cuts, lack of equipment and manpower, old and deficient water infrastructure, defective energy infrastructure, lack of effective preparation, homeowner complacency, and so on.
Climate change has reached a critical juncture, and we should assume it only worsens from here. Preparation has not been a priority. Denial will be increasingly costly in life and property – increasingly untenable for societies at home and abroad. At least in the short term, pessimism comes easy for the issue of limiting carbon emissions. “Drill, baby, drill” has a political mandate. And don’t expect a world facing heightened financial and economic instability to be in the mood to sacrifice much for the good of the planet.
The old Fram oil filter commercial: “Pay me now or pay me later.” Necessary climate-related spending is an Issue 2025. If last year’s alarming hurricanes, flooding, and wildfires were not a sufficient wake-up call, the first week of the year provides horrific evidence of today’s climate reality. As a nation, we are woefully unprepared. One way or another, governments – local, state, and federal – will face enormous costs for upgrading systems and infrastructure necessary to protect residents and citizens. Households across the country will confront the harsh reality of higher insurance (and other) prices and expenses necessary for even minimal preparation.
Large areas of the country today face highly elevated risk of catastrophic losses. Since last April, the Los Angeles area has received 0.15 inches of rain.Much of Southern California now faces year-round dry and potent “Santa Ana” winds and potentially devastating wildfires. The entire West Coast faces newfound wildfire risks. With an increasingly balmy Gulf of Mexico, states all the way to North Carolina and beyond face unprecedented storm-related risks.
The polar vortex to begin 2025 is a reminder of energy infrastructure fragility. Even without AI, our nation’s power grid is not up for today’s climate change and geopolitical realities. With AI, it’s a colossal infrastructure spending and financing challenge. A world of unhinged AI and crypto mining seems more a Bubble phenomenon than practical reality.
January 10 – New York Times (Andrew Ross Sorkin, Ravi Mattu, Bernhard Warner, Sarah Kessler, Michael J. de la Merced, Lauren Hirsch and Benjamin Weiser): “The ferocious wildfires that have burned throughout the Los Angeles area continued to rage overnight, consuming an area twice the size of Manhattan. Forecasters expected ‘critical red flag’ conditions to continue on Friday before the hurricane-force winds that have fueled the blazes subside in the afternoon. The devastation has more people asking one hard question: Has this part of California become uninsurable?”
Is Southern California insurable? It raises a critical issue. Insurance works when loss claims are random and independent. Actuaries have historical data that provides the basis for pricing individual auto and homeowner policies, ensuring reserves for future losses, along with some residual profit. Years of data provide a good basis for predicting the number and expense of car accidents and house fires – or at least it used to work that way. Individual home fires in some areas are no longer random – they come in waves and tend to come in appealing (aka expensive) locations, such as Pacific Palisades and Malibu.
January 10 – Reuters (Andy Sullivan): “The Pacific Palisades area ravaged by wildfires in Los Angeles is one of the most expensive neighborhoods in the U.S., home to Hollywood A-Listers and multimillion dollar mansions. And ahead of this week's disaster, its insurance costs were among the most affordable in the country, according to a Reuters analysis… That may be about to change. The scale of losses anticipated in the wildfires now ringing Los Angeles, as well as regulatory changes enacted late last year, could spell an end to relatively cheap homeowners' insurance in areas like the Palisades that are at elevated risk for wildfires…”
Recent momentous changes in wildfire risk had the traditional insurance companies running for cover – just as the insurers ran for their lives from hurricane and flood risks around the Gulf. On the East Coast, climate-change losses literally come in “waves.” Random and independent are things of the past. Some critical insurance markets no longer work, so states such as California (fire) and Florida (wind and flood) have stepped in to provide affordable insurance. The state of California’s “FAIR” insurance plan now faces massive losses and a flimsy financial structure. And when states realize the unacceptable cost to taxpayers from writing high-risk insurance in a high-risk climate environment, it’s unclear today where homeowners in risky locations will turn.
I’ll assume the federal government will be on the hook for massive climate-related costs – losses, remediation, preparation, and infrastructure spending. I don’t see how climate change doesn’t become a factor in bloated budgets and inflationary pressures – likely an Issue 2025. With myriad risks percolating, will the bond market give a thumbs up or down to this year’s Washington budget process? Could the “crowding out” concept make a comeback after a few decades of dormancy?
Returning to failing insurance markets in California and nationally, I’m reminded of “A Derivatives Story.” In a March 2000 CBB, I shared the tale of a quiescent little town on a pristine river that succumbed to a speculative Bubble in selling flood insurance. Importantly, the newfound availability of affordable flood protection spurred risk-taking and a spectacular building boom along the water. Sadly, the inevitable arrival of flood waters triggered an insurance marketplace panic and collapse, along with catastrophic losses for scores of riverfront homeowners, the “insurers,” and the community at large.
For the past couple decades, the Fed, global central bank community, and governments worldwide have repeatedly bailed out faltering risk markets, ensuring ever more distorted market risk perceptions and a historic global Bubble. Similar to today’s California fire losses, market risks are uninsurable – neither random nor independent. Market losses come in “waves”, and the mispricing of market risk has for years promoted increasingly aggressive risk-taking – “careless building within the flood plain”. Derivatives markets are poised to be an Issue 2025. I expect market liquidity issues to be an Issue 2025, along with de-risking/deleveraging.
Deflating Bubbles will change so many things. Tighter financial conditions will be problematic for scores of profitless businesses and uneconomic ventures. An abrupt tightening would be particularly destabilizing for the historic “subprime” lending boom, including “private Credit,” leveraged lending, “decentralized finance,” venture capital, and private equity. Entire industries have blossomed on the notion that markets will indefinitely accommodate whatever financing needs are required. The AI Bubble – especially the buildout of data centers and energy infrastructure - is uniquely vulnerable to tighter Credit. Faltering Bubbles will reveal the fiscal train-wreck festering in California and elsewhere.
To wrap this up, today’s extraordinary geopolitical environment will unfortunately receive short shrift. Leave no doubt, geopolitical risks are an Issue 2025. The Trump tariffs will get things going. Hopefully, there will be positive developments in Ukraine. Meanwhile, I expect China to continue to tighten the noose around Taiwan’s neck. Will China test the new Trump administration, and perhaps link Taiwan’s status and U.S. military support to trade negotiations? It’s hard to believe Iran and its nuclear program won’t be an Issue 2025. Let's hope the relative lull in Middle East conflict is more than just a short-term development.
Mainly, when it comes to geopolitical risks, expect the unexpected from such an erratic and volatile world. It’s reasonable to expect that faltering Bubbles will exacerbate instability and global conflict.
The U.S. Bubble economy is a wildcard Issue 2025. A formidable head of steam seems to ensure the type of momentum that will keep the bond market irritable. Ditto for inflation. Isn't the bond market, after all, signaling a new paradigm of waning tolerance for fiscal profligacy? And all bets are off when market Bubbles falter. Acute financial fragility is an Issue 2025. Beyond derivatives and levered finance, the ETF universe, replete with epic risk misperceptions (“moneyness of risk assets”), remains an accident waiting to happen. I worry about the ballooning money market fund complex. The entire tech Bubble is so vulnerable to an unexpected tightening of financial conditions.
How the Trump administration reacts to financial instability is an Issue 2025. Don’t expect supportive words for Powell and the Fed. There will be intense pressure on the Fed to cut rates and restart QE. It will be fascinating to watch how all this plays with today’s reconditioned bond market. And it’s interesting to see a hedge fund “master of the universe” back at the helm at Treasury. This undoubtedly provides some comfort for the levered speculators and “basis trade” players.
Ten days away from day one. From a purely analytical perspective, 2025 appears destined for uniqueness, greatness and perhaps infamy. I’m excited for the intensity that comes with extremely challenging analysis. Interesting to see the precious metals and commodities handily outperform financial assets this week. May we live in interesting times.
For the Week:
The S&P500 dropped 1.9% (down 0.9% y-t-d), and the Dow fell 1.9% (down 1.4%). The Utilities lost 1.1% (up 0.2%). The Banks fell 2.3% (down 1.2%), and the Broker/Dealers slumped 3.0% (down 0.8%). The Transports dipped 0.5% (up 0.2%). The S&P 400 Midcaps fell 1.7% (down 0.7%), and the small cap Russell 2000 dropped 3.5% (down 1.8%). The Nasdaq100 lost 2.2% (down 0.8%). The Semiconductors fell 2.4% (up 1.2%). The Biotechs rose 1.6% (up 3.0%). With bullion rising $50, the HUI gold index jumped 3.1% (up 6.5%).
Three-month Treasury bill rates ended the week at 4.215%. Two-year government yields rose 10 bps to 4.38% (up 14bps y-t-d). Five-year T-note yields jumped 16 bps to 4.57% (up 19bps). Ten-year Treasury yields gained 16 bps to 4.76% (up 19bps). Long bond yields rose 14 bps to 4.95% (up 16bps). Benchmark Fannie Mae MBS yields jumped 18 bps to 6.06% (up 22bps).
Italian 10-year yields surged 18 bps to 3.77% (up 25bps y-t-d). Greek 10-year yields rose 17 bps to 3.41% (up 19bps). Spain's 10-year yields gained 16 bps to 3.27% (up 20bps). German bund yields jumped 17 bps to 2.60% (up 23bps). French yields bps rose 14 to 3.43% (up 23bps). The French to German 10-year bond spread narrowed three to 83 bps. U.K. 10-year gilt yields surged 25 bps to 4.84% (up 27bps). U.K.'s FTSE equities index increased 0.3% (up 0.9% y-t-d).
Japan's Nikkei 225 Equities Index fell 1.8% (down 1.8% y-t-d). Japanese 10-year "JGB" yields jumped 10 bps to 1.20% (up 10bps y-t-d). France's CAC40 gained 2.0% (up 0.7%). The German DAX equities index rose 1.6% (up 1.5%). Spain's IBEX 35 equities index increased 0.6% (up 1.1%). Italy's FTSE MIB index rallied 2.8% (up 2.6%). EM equities were mixed. Brazil's Bovespa index increased 0.3% (down 1.2%), and Mexico's Bolsa index rallied 1.3% (up 0.2%). South Korea's Kospi rallied 3.0% (up 4.8%). India's Sensex equities index slumped 2.3% (down 1.4%). China's Shanghai Exchange Index fell 1.3% (down 5.5%). Turkey's Borsa Istanbul National 100 index declined 1.6% (up 0.8%).
Federal Reserve Credit declined $12.2 billion last week to $6.807 TN. Fed Credit was down $2.082 TN from the June 22, 2022, peak. Over the past 278 weeks, Fed Credit expanded $3.081 TN, or 83%. Fed Credit inflated $3.996 TN, or 142%, over the past 635 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt dropped $27.1 billion last week to $3.248 TN - the low back to May, 2017. "Custody holdings" were down $136 billion y-o-y, or 4.0%.
Total money market fund assets surged $68.7 billion to a record $6.916 TN. Money funds were up $782 billion over 23 weeks (29% annualized) and $951 billion y-o-y (16%).
Total Commercial Paper recovered $59.3 billion to $1.147 TN. CP was down $83 billion, or 6.8%, over the past year.
Freddie Mac 30-year fixed mortgage rates increased two bps this week to a six-week high 6.93% (up 27bps y-o-y). Fifteen-year rates added a basis point to 6.14% (up 27bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down 23 bps to 7.09% (up 3bps).
Currency Watch:
January 6 – Bloomberg: “China reaffirmed its support for the yuan after the currency’s slide last week fanned speculation policymakers would allow it to depreciate faster. The People’s Bank of China set its daily reference rate stronger than the line of 7.2 per dollar, defying speculation it would weaken the so-called fixing. In addition, a PBOC-backed newspaper said central bank communication had showed a clearer resolve to stabilize the currency.”
January 7 – Bloomberg: “Yuan funding costs in Hong Kong surged to levels unseen in years, signaling concern that Beijing’s efforts to stabilize the currency may lead to tighter liquidity in the offshore market. The offshore yuan’s overnight interbank interest rate in Hong Kong rose to 8.1% on Tuesday, the highest since June 2021… Tighter cash conditions make it more expensive for traders to short the currency, effectively damping bearish bets. ‘The People’s Bank of China may keep the overnight Hibor at over 4% for a longer time,’ said Zhaopeng Xing, a strategist at Australia & New Zealand Banking Group.”
January 8 – Financial Times (Arjun Neil Alim, Cheng Leng and Joseph Cotterill): “China is to launch its largest sale of offshore bills in a move to support the renminbi, as Wall Street boosts its bets against the currency over weakness in the world’s second-largest economy and Donald Trump’s threat of tariffs. The People’s Bank of China… said it would sell Rmb60bn ($8.2bn) of bills in Hong Kong in January, its largest single sale since auctions began in… 2018. The bill sale will have the effect of soaking up renminbi liquidity and making it more expensive for traders to bet against the currency in markets outside China.”
January 6 – Bloomberg (Erica Yokoyama): “Japan flagged its concern over sudden and one-sided moves in the currency market in its first warning to speculators in 2025 after the yen hit its lowest level since July. ‘We will take appropriate action if there are excessive movements in the currency market,’ Finance Minister Katsunobu Kato told reporters…, in a veiled threat of direct intervention. Kato said he is ‘deeply concerned’ about recent moves, including those driven by speculators.”
For the week, the U.S. Dollar Index added 0.6% to 109.65 (up 1.1% y-t-d). For the week on the upside, the Brazilian real rallied 1.3%, and the Canadian dollar increased 0.2%. On the downside, the South African rand declined 2.0%, the British pound 1.7%, the Australian dollar 1.1%, the New Zealand dollar 1.0%, the Swedish krona 1.0%, the Norwegian krone 1.0%, the Swiss franc 0.9%, the euro 0.6%, the Mexican peso 0.4%, the Japanese yen 0.3%, and the Singapore dollar 0.1%. The Chinese (onshore) renminbi declined 0.15% versus the dollar (down 0.45% y-t-d).
Commodities Watch:
January 7 – Bloomberg (Sybilla Gross): “China’s central bank expanded its gold reserves for a second month in December, signaling renewed appetite after temporarily pausing purchases last year as prices soared. Bullion held by the People’s Bank of China rose to 73.29 million fine troy ounces in December, from 72.96 million in the previous month… The purchase shows the PBOC is still keen to diversify its reserves even with gold at historically expensive levels.”
The Bloomberg Commodities Index surged 4.1% (up 4.1% y-t-d). Spot Gold rallied 1.9% to $2,690 (up 2.5%). Silver jumped 2.6% to $30.4077 (up 5.2%). WTI crude surged $2.61, or 3.5%, to $76.57 (up 7%). Gasoline gained 1.0% (up 3%), and Natural Gas rallied 18.9% to $3.99 (up 10%). Copper surged 5.7% (up 7%). Wheat increased 0.3% (down 4%), and Corn jumped 4.4% (up 3%). Bitcoin dropped $3,590 or 3.7%, to $94,350 (up 0.7%).
Trump Administration Watch:
January 7 – Wall Street Journal (Alex Leary, Tarini Parti and Vivian Salama): “President-elect Donald Trump declined to rule out using military or economic coercion to gain control of Greenland and the Panama Canal, ratcheting up his campaign to expand America’s global footprint. ‘I’m not going to commit to that now. It might be that you’ll have to do something,’ Trump said… He was responding to a question about whether he could offer reassurances that he wouldn’t leverage U.S. military and economic might to get his way. Since winning the election, Trump has repeatedly raised the idea of taking over the Panama Canal from Panama and taking control of Greenland from Denmark. He has also said that Canada should become the 51st U.S. state…”
January 7 – Bloomberg (Thomas Seal): “It no longer sounds like a joke. US President-elect Donald Trump escalated his remarks about making Canada part of the US during a press conference... And he reiterated that he intends to put ‘substantial’ tariffs on goods from Canada and Mexico. Asked if he would use military force to annex Canada, he replied ‘no — economic force. Because Canada and the United States, that would really be something. You get rid of that artificially-drawn line and you take a look at what that looks like, and it would also be much better for national security — don’t forget, we basically protect Canada.’”
January 6 – Reuters (David Morgan and Andy Sullivan): “Republicans in the U.S. Congress were at odds over how to proceed with President-elect Donald Trump's agenda…, as Trump himself called for quick action to pass his tax-cut, border security and energy priorities. With narrow majorities in the House of Representatives and the Senate, Republicans must decide whether to divide his wide-ranging legislative goals into separate measures to ensure quick action or combine them in one sprawling package that could take months to finalize. ‘I would prefer one, but I will do whatever needs to be done to get it passed,’ Trump said... ‘I'm open to either way as long as we get something passed as quickly as possible.’ No. 2 House Republican Steve Scalise said a two-bill approach could endanger Trump's agenda, given a House Republican majority that will soon narrow from 219 seats to 217-215 and the potential for party infighting with the departure of two lawmakers to serve in Trump's cabinet.”
January 4 – Wall Street Journal (Richard Rubin and Siobhan Hughes): “Republicans look increasingly likely to try combining all of their top legislative priorities—tax cuts, spending cuts and border security—into a single large bill, aiming to push President-elect Donald Trump’s agenda through Congress in one fell swoop. The one-bill approach attempts to unite the Republican Party’s disparate factions, and it could require months of delicate negotiations… The GOP will have a 53-47 Senate majority and, at best, a 220-215 House advantage after vacant seats get filled. The momentum for one bill counters the push for a two-bill strategy from many Senate Republicans and top Trump aide Stephen Miller.”
January 8 – Financial Times (Ian Johnston, Adrienne Klasa, Anne-Sylvaine Chassany, Henry Foy and Richard Milne): “European leaders warned Donald Trump not to meddle with the continent’s borders…, a day after the US president-elect refused to rule out taking Greenland by force. The comments by German Chancellor Olaf Scholz and France’s foreign minister Jean-Noël Barrot came a day after Trump set out his designs on Greenland and the Panama Canal. Greenland, the world’s largest island, is an autonomous Danish territory that is not itself part of the EU. ‘Borders must not be moved by force,’ Scholz said, arguing that ‘the principle of inviolability of borders applies to every country, regardless of whether it is to the east or west of us’.”
January 7 - Financial Times (Richard Milne): “Denmark’s prime minister has said that Greenland is ‘not for sale’ after Donald Trump expressed a renewed interest in buying the Arctic island… But in an effort to defuse possible tensions with Trump, Mette Frederiksen stressed that she was keen to co-operate with Washington in the Arctic — even as the US president-elect’s son arrived there on a visit. ‘We need a very, very close co-operation with the US. On the other hand, I would like everyone to respect that Greenlanders are a people. It is their country that is at stake here,’ she told TV2, adding that Greenland had to decide its own fate.”
January 7 – CNN (Stephen Collinson): “Elon Musk’s personal foreign policy of promoting far-right parties is sparking outrage among leaders in Europe and handing them a dilemma: How do they rebuke the tech titan without angering his new patron — Donald Trump? Musk could easily be dismissed as a mischievous antagonist who simply loves to shock and is pursuing his own obsessions one X post at a time. But he’s not just some troll. He’s the world’s richest man, owns some of the globe’s most strategic and influential businesses, and is wielding a mighty social media network. Musk is highlighting his enormous influence as a populist force galvanizing political provocateurs as a kind of one-man supranational non-state power.”
January 7 – Wall Street Journal (Max Colchester and Bertrand Benoit): “Elon Musk is throwing grenades into Europe’s political mainstream over issues ranging from immigration to free speech, creating a dilemma for governments as they try to respond to the tech billionaire and key adviser to the incoming Trump administration. In recent days and weeks, Musk has weighed in with a series of incendiary social-media posts on European politics, including supporting a far-right party ahead of an election in Germany, accusing the British prime minister of being complicit in rape, denouncing judges in Italy and slamming the European Commission. The stream of posts from the world’s richest man has morphed into a diplomatic headache and caught several mainstream European political parties on the back foot.”
January 7 – Bloomberg (Alex Wickham, Michael Nienaber, Joshua Green, and Arne Delfs): “Having successfully worked to get his candidate elected in the US, Elon Musk is setting his sights on Europe. In a series of posts on his X platform in recent weeks, the billionaire backer of Donald Trump has honed in on Germany and the UK, criticized the respective governments, questioned laws they’ve enacted and cast doubt on their economic competence. He’s personally insulted each country’s political leader, calling Chancellor Olaf Scholz a ‘fool,’ Germany’s president a ‘tyrant’ and accusing Prime Minister Keir Starmer of being ‘complicit in the rape of Britain.’ He’s embraced misinformation and conspiracy theories, skipping over the mainstream opposition to give his backing to the far-right as champions of ‘political realism.’ It’s far from clear what his motivations may be in trashing relations with core US allies in fellow Group of Seven nations where he has significant business interests…”
January 6 – Associated Press (Christopher Rugaber): “The Federal Reserve’s top financial regulator said… he would resign next month, avoiding a potential confrontation with the incoming Trump administration and Republicans in the Senate. Fed governor Michael Barr said… he would step down as vice chair for supervision Feb. 28, or earlier if a successor was confirmed. Yet Barr said he would remain on the Fed’s board of governors. His term as governor lasts until 2032. Barr oversaw the proposal of tough new rules for the largest U.S. banks, which would have required them to significantly increase their financial reserves.”
January 7 – Yahoo Finance (Jennifer Schonberger): “The surprise departure of Federal Reserve vice chair for supervision Michael Barr is focusing new attention on Michelle Bowman, named by analysts as the person most likely to become the Fed’s new top banking cop. The conservative Fed governor and former state banking commissioner of Kansas ‘seems like the likely choice,’ Stifel chief Washington policy strategist Brian Gardner said… What helps Bowman's chances… is that there currently is no empty seat on the Fed's board of governors for Trump to fill with an outsider.”
Trade War Watch:
January 8 – Reuters (Greta Rosen Fondahn, Lucy Raitano, Alun John, Dhara Ranasinghe, Rodrigo Campos and Marc Jones): “From China to Europe, Canada to Mexico, world markets are already reeling from Donald Trump's promise to hike tariffs when he becomes US president in less than two weeks. The president-elect is considering declaring a national economic emergency to smooth the way for his proposals, CNN reported… Trump has pledged tariffs of as much as 10% on global imports and 60% on Chinese goods, plus a 25% import surcharge on Canadian and Mexican products. Experts say duties at those levels would upend trade flows, raise costs, and draw retaliation.”
Taiwan Watch:
January 5 – Bloomberg (Yian Lee): “Taiwan suspects a Chinese-owned cargo vessel damaged an undersea cable near its northeastern coast Friday, in an alleged act of sabotage that highlights the vulnerabilities of Taipei’s offshore communications infrastructure. The ship is owned by a Hong Kong-registered company whose director is a mainland Chinese citizen… The incident followed another Chinese vessel’s suspected involvement in the breakages of data cables in the Baltic Sea in November.”
Market Instability Watch:
January 6 – Bloomberg (David Finnerty and Ruth Carson): “Monday started quietly in the $300 billion-plus currency options market until political headlines triggered the most hectic trading day in nearly two months — a taste of what may lie in store for 2025. Volumes surged to $108 billion by the close of trade, surpassing even the activity seen on the Federal Reserve and Bank of Japan monetary policy announcement days last month… Two of the drivers for the spike-up in trading: headlines on Canadian Prime Minister Justin Trudeau’s resignation and potential US tariffs.”
January 7 – Bloomberg (James Hirai): “The UK’s long-term borrowing costs surged to the highest level in more than a quarter of a century, raising the prospect of Chancellor of the Exchequer Rachel Reeves needing to raise taxes again in order to meet her fiscal rules. The yield on 30-year gilts climbed as much as six bps to 5.24% on Tuesday after the first of a string of bond sales due over the coming weeks. The yield was last higher in 1998 when Tony Blair was prime minister and the Bank of England was slashing interest rates from a six-year peak to contain the global fallout from the Asian currency crisis and Russian debt default.”
January 8 – Financial Times (Ian Smith, Sam Fleming and Harriet Clarfelt): “Bond markets have entered a new era of antagonism with governments, fund managers say, as investors sell sovereign debt in big economies such as the UK, France and the US amid a deluge of borrowing. The UK’s heavy-borrowing budget in October has triggered sell-offs in the gilt market, pushing the 10-year yield to its highest level since 2008 and 30-year interest costs to the most this century. France’s political crisis has driven its borrowing costs above those of Greece… In the US, the Treasury market has been hit by concerns that president-elect Donald Trump will borrow freely and cut taxes... ‘There is a revival of bond market activism,’ said Robert Dishner, senior portfolio manager at Neuberger Berman. ‘The markets aren’t used to this as it usually happens in the corporate space,’ he said, adding that pressure had ‘transferred’ to indebted sovereigns.”
January 9 – Financial Times (Jim Pickard, Ian Smith and William Sandlund): “The British government sought to quell tumult in UK bond markets… by vowing to stick to its fiscal rules, as borrowing costs hit their highest level since the financial crisis. Darren Jones, number two at the UK Treasury, told MPs that ‘UK gilt markets continue to function in an orderly way’, as the 10-year gilt yield rose to 4.93%, its highest since 2008, and the pound dropped as much as 1% against the dollar to its lowest for more than a year. ‘There should be no doubt of the government’s commitment to economic stability and sound public finances,’ Jones said. ‘This is why meeting the fiscal rules is non-negotiable.’”
January 8 – Bloomberg (Sydney Maki and Alice Gledhill): “The 20-year Treasury bond offered a grim warning as a selloff fueled by inflationary angst gripped global debt markets: 5% yields are already here. The 20-year yield, a laggard on the US government debt curve since its re-introduction in 2020, topped 5% Wednesday for the first time since 2023. The move, fueled in part by concern that President-elect Donald Trump’s policies will rekindle price pressures and lead to wider deficits, indicates what’s potentially next in the $28 trillion Treasury market.”
January 8 – Reuters (Karen Brettell): “Longer-term U.S. Treasury yields have surged to multi-month highs, outpacing a rise in shorter-dated yields, with some of the disparity reflecting anticipation that the incoming Trump administration will need to change the current focus on relying more on short-term debt, traders say… ‘The market is building more term premium into the long end to account for the fiscal situation, the deficit, and potentially a lot more issuance in the long end of the curve as they unwind the Yellen policy,’ said Dan Mulholland, head of rates – trading and sales at Crews & Associates.”
January 7 – Bloomberg (Joanne Wong and Finbarr Flynn): “Investors in China’s $11 trillion government bond market have never been so pessimistic about the world’s second-largest economy, with some now piling into bets on a deflationary spiral mirroring Japan’s in the 1990s. Yields on Chinese sovereign bonds maturing in 10 years have tumbled in recent weeks to all-time lows, creating an unprecedented 300-bps gap with US peers… The plunge, which has dragged Chinese yields far below levels reached during the 2008 global financial crisis and the Covid pandemic, underscores growing concern that policymakers will fail to stop China from sliding into an economic malaise that could last decades.”
January 6 – Bloomberg (Betty Hou): “China’s yield discount to the US has expanded to a fresh record, aggravating the challenge for a central bank that’s already fighting gravity to support the yuan. The combination of a relentless rally in China’s government bonds and a selloff in US notes has resulted in an unprecedented 300-bps gap between the two countries’ sovereign yields. That’s set to add even more pressure on the yuan by increasing the risk of capital outflows, just as the currency slid toward a record low in offshore trading this week.”
Global Credit Bubble Watch:
January 7 – Bloomberg (Tasos Vossos and Caleb Mutua): “Borrowers are flooding global debt markets at an unprecedented pace as they seek to take advantage of demand from credit-hungry managers that are so flush with cash they have already driven corporate bond spreads to a near 30-year low. With debt markets in risk-on mode, Europe’s bond market saw a record number of borrowers raising funding on Tuesday, while Wall Street is forecasting a potential January record of $200 billion in the US. Investors have the appetite - and the cash - to snap up even more. The strong demand is also fueling a borrowing blitz in the leveraged loan market, with over $33 billion of deals launched in the US this week…”
January 8 – Financial Times (Harriet Clarfelt and Will Schmitt): “Corporate borrowers kicked off 2025 with a record $83bn in dollar bond sales, capitalising on buoyant investor demand to raise debt ahead of any market volatility sparked by Donald Trump’s return to power. Borrowing in the US dollar investment-grade and high-yield bond markets reached $83.4bn by January 8, the highest year-to-date figure since 1990, according to… LSEG.”
January 7 – Bloomberg (Ronan Martin): “A record number of borrowers are selling bonds in Europe on Tuesday, returning from the holidays to take advantage of spreads that are near the tightest in three years. There are 28 issuers looking to raise at least €30.4 billion ($31.7bn)… That’s the most borrowers ever in a single day, according to the data, which goes back a decade.”
AI Bubble Watch:
January 6 – Bloomberg (Sarah McBride): “Venture capitalists put $97 billion into artificial intelligence startups in the US last year — a new record in a year of multibillion-dollar megarounds for companies like Elon Musk’s xAI, OpenAI and Anthropic. The AI-focused deals represent an increasing share of all startup investment, according to… PitchBook... Almost half of the total $209 billion raised by US startups last year went to AI companies…, the highest portion on record. The total amount of funding for startups ticked up for the year, rising by about one-third from 2023. Meanwhile, VCs themselves raised $76.1 billion for 508 funds, the lowest number since 2014, and the lowest dollar amount since 2019.”
Bubble and Mania Watch:
January 10 – Bloomberg (Michael Msika): “Investors are piling into safer assets, with money market funds getting the bulk of weekly inflows, while Treasuries were also in demand, Bank of America says. Money market funds drew $143.2b inflows, the largest since April 2020, stock funds $25.6b, bond funds $21.6b, crypto $1.4b, while $500m exited from gold in the week to Jan. 8… In flows to know: Treasuries had biggest inflow since Aug. at $6.2b; Bank loans had record weekly inflow of $3.1b… EM equities had biggest inflow since Oct. at $3.5b; Tech had 1st inflow in 6 weeks at $2.3b.”
January 6 – Associated Press (Tran Nguyen): “California Gov. Gavin Newsom has proposed a $322 billion budget without a deficit, a welcome change after two years of significant budget shortfalls… But the budget… is mostly a placeholder as California waits to see if incoming President Donald Trump will follow through on threats to revoke billions in federal dollars, which could force lawmakers to make painful cuts to essential programs. About a third of California’s budget relies on funding from the federal government, including tens of billions of dollars to provide health care services. Trump takes office on Jan. 20, and Newsom must sign the final budget by the end of June.”
January 7 – Bloomberg (Will Kubzansky and Denitsa Tsekova): “US bond markets are signaling that equity bulls may be a little too exuberant now. Stocks are close to the most overvalued against corporate credit and Treasuries in about two decades. The earnings yield on S&P 500 shares, the inverse of the price-earnings ratio, is at its lowest level compared with Treasury yields since 2002, signaling that equities are at their most expensive relative to fixed income in decades. For company debt, the S&P 500’s earnings yield, at 3.7%, is close to the lowest relative to the 5.6% yield of BBB rated dollar corporate bonds since 2008.”
January 3 – Financial Times (John Plender): “The recent growth of private markets has been a phenomenon. Indeed, private funds, which include venture capital, private equity, private debt, infrastructure, commodities and real estate, now dominate financial activity. According to consultants McKinsey, private markets’ assets under management reached $13.1tn in mid-2023 and have grown at close to 20% a year since 2018.”
January 7 – Bloomberg (Bailey Lipschultz): “Wall Street kicked off the 2025 IPO market with a flurry of paperwork paving the way for some of the year’s biggest potential deals. The latest came Monday, when Smithfield Foods Inc. filed for an initial public offering… Several others snuck in before the 2024 calendar flipped over, such as Venture Global Inc. — one of the biggest suppliers of liquefied natural gas in the US — whose IPO could raise more than $3 billion… Including those mentioned here, at least nine companies targeting IPOs in 2025 may each raise $1 billion or more for a total of around $18 billion…”
January 10 – Wall Street Journal (Carol Ryan): “Think 15% vacancy rates are only a problem for owners of office towers? America has a serious housing shortage, but not for the type of apartments that real-estate investors have been building in record numbers. The national vacancy rate for multifamily apartments reached 8% in the last quarter of 2024—higher than it was before the pandemic… Part of the problem is a herd mentality that saw real-estate developers pile into the same cities to build the same kinds of properties.”
Inflation Watch:
January 10 – Bloomberg (Vince Golle): “US consumers’ long-term inflation expectations jumped to the highest since 2008 on concerns about potential tariffs from the incoming Trump administration. Americans expect prices will climb at an annual rate of 3.3% over the next five to 10 years, up from the 3% expected last month, according to the University of Michigan’s… released... They also see costs rising 3.3% over the next year, up 0.5 percentage point from December. As a result, the preliminary January sentiment index slipped to 73.2 from 74… ‘Nearly one-third of consumers spontaneously mentioned tariffs, up from 24% in December and less than 2% prior to the election,’ Joanne Hsu, director of the survey, said…”
January 6 – Bloomberg (Brendan Murray): “Spot container rates for shipping goods to the US from Asia have spiked over the past month as companies look to avoid higher tariffs and pad their inventories ahead of a strike threatening to close ports responsible for roughly half of the nation’s seaborne trade volumes. Booking a 40-foot container to the US West Coast from Asia went for $6,000 as of Jan. 1, a 50% jump from $4,004 a month earlier… The rate to the East Coast was $7,100, a 31% increase. The market is tightening on ‘a lot of uncertainty,’ said Emily Stausbøll, a senior shipping analyst at Xeneta… ‘2024 was an extremely challenging year for shippers and life isn’t getting any easier as we head into 2025.’”
January 7 – Associated Press (Mike Schneider): “A major grower said this week it was abandoning its citrus growing operations, reflecting the headwinds Florida’s signature crops are facing following a series of hurricanes and tree diseases. Alico Inc. announced… it planned to wind down its citrus operations after the current crop is harvested later this year… The Fort Myers-based company owns 53,371 acres across eight counties in Florida… The company said its citrus production had declined by 73% over the past decade.”
Federal Reserve Watch:
January 10 – Bloomberg (Ye Xie): “Economists at Bank of America Corp. said the Federal Reserve’s monetary policy easing campaign is over and there’s risk the central bank’s next move will be a rate increase. Based on stronger-than-expected December employment data…, economists led by Aditya Bhave no longer expect the Fed to cut rates this year… ‘After a very strong December jobs report, we think the cutting cycle is over,’ the economists wrote. ‘The conversation should move to hikes’ in the event that inflation as measured by the annual growth rate of the price index for core personal consumer expenditures exceeds 3% and inflation expectations drift higher…”
January 8 – Financial Times (James Politi and Harriet Clarfelt): “Federal Reserve officials indicated that the US central bank will have to take a ‘careful approach’ in cutting interest rates further due to the rising risk that inflation will remain persistently higher than its 2% target. In minutes from the December Fed meeting…, officials noted the elevated policy uncertainty as Donald Trump’s second presidency is set to begin... ‘Participants indicated that the committee was at or near the point at which it would be appropriate to slow the pace of policy easing,’ the minutes said. ‘Most participants remarked that, with the stance of monetary policy now significantly less restrictive, the committee could take a careful approach in considering adjustments to the stance of monetary policy,’ the minutes said.”
January 8 – Yahoo Finance (Jennifer Schonberger): “Almost all Federal Reserve officials agreed in their last meeting that ‘upside risks to the inflation outlook had increased’ due in part to the ‘likely effects’ of expected changes in trade and immigration policies, according to meeting minutes… They noted ‘the likelihood that elevated inflation could be more persistent had increased,’ according to the minutes… ‘As reasons for this judgment, participants cited recent stronger-than expected readings on inflation and the likely effects of potential changes in trade and immigration policy’…”
January 8 – Bloomberg (Amara Omeokwe): “Federal Reserve Governor Christopher Waller said he believes inflation will continue to cool toward the central bank’s 2% target, prompting his support for additional interest-rate cuts this year. ‘As always, the extent of further easing will depend on what the data tell us about progress toward 2% inflation, but my bottom-line message is that I believe more cuts will be appropriate,’ Waller said…”
January 6 – Reuters (Ann Saphir): “Two Federal Reserve policymakers… said they feel the U.S. central bank's job of taming inflation is not yet done, but also signaled they do not want to risk damaging the labor market as they try to finish that job… ‘We are fully aware that we are not there yet - no one is popping champagne anywhere,’ Kugler said... ‘And at the same time ... we want the unemployment rate to stay where it is’ and not increase rapidly… ‘At this point, I would not want to see further slowing in the labor market — maybe gradually moving around in bumps and chunks on a given month, but certainly not additional slowing in the labor market,’ said Daly…”
January 6 – Bloomberg (Amara Omeokwe): “Federal Reserve Governor Lisa Cook said policymakers can proceed more cautiously with interest-rate cuts, citing a sturdy labor market and lingering inflation pressures. ‘Since September, the labor market has been somewhat more resilient, while inflation has been stickier than I assumed at that time,’ Cook said... ‘Thus, I think we can afford to proceed more cautiously with further cuts.’”
January 10 – Bloomberg (Jonnelle Marte): “Federal Reserve Bank of Philadelphia President Patrick Harker said officials are on track to lower interest rates this year, but the exact timing will depend on what happens with the economy. Harker said it’s taking longer than expected to bring inflation to the Fed’s 2% target and that progress has been uneven... ‘I still see us on a downward policy rate path. Looking at everything before me now, I am not about to walk off this path or turn around,’ Harker said.”
U.S. Economic Bubble Watch:
January 10 – Associated Press (Paul Wiseman): “U.S. hiring picked up unexpectedly in December as employers added a strong 256,000 jobs… Job growth was up last month from 212,000 in November. For all of 2024, the economy added 2.2 million jobs, a solid number but down from 3 million in 2023, 4.5 million in 2022 and a record 6.4 million in 2021… The monthly numbers beat forecasters’ expectation of around 155,000 new jobs and 4.2% unemployment. Healthcare companies added 46,000 jobs, retailers 43,000 and government agencies at the federal, state and local 33,000… Average hourly wages rose 0.3% from November and 3.9% from a year earlier.”
January 8 – Bloomberg (Brian K. Sullivan): “The wildfires raging out of control around Los Angeles will likely cause between $52 billion to $57 billion in damages and economic loss, according to a preliminary estimate by AccuWeather Inc. The blazes burning around Santa Monica and Malibu are consuming some of the most expensive real estate in the US, affecting areas where the median home value is more than $2 million… Fires fanned by hurricane-force wind gusts may spread flames deeper into these neighborhoods destroying more homes.”
January 9 – Bloomberg (Stephan Kahl): “As 2025 begins with wildfires wreaking devastation across Los Angeles, it’s now clear that insured losses from natural catastrophes last year soared to the highest since 2017. At $140 billion, insured losses globally were more than double the 30-year average of roughly $60 billion, according to… Munich Re… Hurricanes Milton and Helene, which ripped through the US, ended up being the costliest natural disasters of 2024, the report shows. And this year may already be on track to exceed those losses, as wildfires in the Los Angeles area threaten to be the most financially damaging in history.”
January 7 – Bloomberg (Alexandre Tanzi): “Growth at US service providers quickened in December, reflecting stronger business activity that helped push a price measure to the highest since early 2023. The Institute for Supply Management’s index of services advanced 2 points to 54.1 last month... The measure of prices paid for materials and services rose more than 6 points to 64.4… Fifteen of the 18 services industries reported an increase in prices paid in December, while none indicated a decline... ‘General optimism expressed across many industries, but tariff concerns elicited the most panelist comments,’ said Steve Miller, chair of the Institute for Supply Management Services Business Survey Committee.”
January 6 – CNBC (Melissa Repko): “Online spending rose 8.7% during the holiday season from last year, according to… Adobe Analytics, as deals and the use of AI-powered chatbots helped inspire purchases. Sales on retailers’ websites and apps totaled $241.4 billion from Nov. 1 to Dec. 31… One of the newer factors nudging spending is AI-powered shopping assistants such as ChatGPT and its competitors. Traffic to retail sites that came from generative AI-powered chatbots shot up by 1,300% compared with the year-ago holiday season…”
January 7 – Bloomberg (Mark Niquette): “The US trade deficit widened in November, reflecting the biggest jump in imports since March 2022 as companies accelerated shipments ahead of a possible dockworkers’ strike and in anticipation of potential tariffs by the Trump administration. The gap in goods and services trade grew 6.2% from the prior month to $78.2 billion… The value of imports increased 3.4% from a month earlier to $351.6 billion. Exports rose 2.7%.”
January 7 – Associated Press (Paul Wiseman): “U.S. job openings rose unexpectedly in November… Openings rose to 8.1 million in November, the most since February and up from 7.8 million in October, the Labor Department reported… Openings were up in professional and business services, a broad category that includes managerial and technical workers, and in finance and insurance. They fell in the information industry, which includes publishers and telecommunications companies.”
January 8 – Reuters (Lucia Mutikani): “The number of Americans filing new applications for unemployment benefits fell to an 11-month low last week, pointing to a stable labor market, though a slowdown in hiring has led some laid-off workers to experience long bouts of joblessness… Initial claims for state unemployment benefits dropped 10,000 to a seasonally adjusted 201,000 for the week ended Jan. 4, the lowest level since February 2024…”
January 8 – Reuters (Lucia Mutikani): “U.S. private payrolls growth slowed sharply in December, the ADP National Employment Report showed… Private payrolls rose by 122,000 jobs last month after increasing by an unrevised 146,000 in November. Economists… had forecast private employment rising by 140,000.”
January 4 – Yahoo Finance (Adriana Belmonte): “Workers across 21 states welcomed the new year by seeing their hourly minimum wages rise. The federal minimum wage is $7.25 an hour, a rate that has remained unchanged since July 2009… In the meantime, states have taken measures into their own hands over the past 15 years. Starting Jan. 1, 2025, three states — Delaware, Illinois, and Rhode Island — joined the group of states with a $15 minimum wage…”
January 8 – Associated Press (Paul Wiseman): “U.S. longshoremen reached a contract agreement with ports and shippers…, averting a potential strike that could have damaged the American economy. The International Longshoremen’s Association union and the U.S. Maritime Alliance of ports and shipping companies said they had reached a tentative agreement for a six-year contract… Union members and alliance members must still ratify the agreement. Until then, the existing contract will continue to be in effect.”
January 3 – Associated Press (Tom Krisher): “New vehicle sales in the U.S. rose 2.7% last year as prices and interest rates eased a bit… Despite high sales prices that averaged more than $47,000, automakers sold just over 16 million vehicles in the U.S. last year, Motorintelligence.com said... It was the best year for sales since 2019… But prices were still 27% above what they were in 2019.”
January 8 – Bloomberg (Vince Golle): “US consumer debt outstanding unexpectedly fell in November by the most in over a year as credit-card balances plunged. Total credit dropped $7.5 billion after a revised $17.3 billion gain in October…”
Fixed Income Watch:
January 8 – Bloomberg (Shankar Ramakrishnan and Matt Tracy): “U.S. corporate debt markets continued to be peppered by new bond offerings… as rising Treasury yields increased demand for debt and pushed companies to get their funding done now before any further increase in borrowing costs… ‘There is a rush among companies to get their funding done now to avoid increasing borrowing costs with Treasury yields rising consistently over the past week,’ said Clayton Triick, head of portfolio management at Angel Oak Capital Advisors.”
January 6 – Financial Times (Will Schmitt): “US corporate bankruptcies have hit their highest level since the aftermath of the global financial crisis as elevated interest rates and weakened consumer demand punish struggling groups. At least 686 US companies filed for bankruptcy in 2024, up about 8% from 2023 and higher than any year since the 828 filings in 2010, according to… S&P Global Market Intelligence. Out-of-court manoeuvres seeking to stave off bankruptcy also increased last year, outnumbering bankruptcies by about two to one, according to Fitch Ratings.”
China Watch:
January 10 – New York Times (Keith Bradsher): “In a striking sign of the Chinese economy’s stagnation, the central bank said… it had temporarily stopped buying government bonds. The central bank’s unexpected action is aimed at braking a recent shift by investors toward purchasing bonds while shunning riskier assets… The decision to stop buying government bonds is especially unusual because interest rates have been rising lately in most of the world, in response to inflation fears. The concern about the Chinese economy is the opposite: chronically low inflation that is a hallmark of stagnation.”
January 10 – Bloomberg: “China will see a ‘significant increase’ in fiscal deficit while it has ample fiscal policy room and tools to deal with new domestic and external problems, Vice Minister of Finance Liao Min says… Liao says the direction of fiscal policy in 2025 will be ‘clear and very proactive’. China will speed up the implementation of fiscal policy in 2025. Increase in fiscal deficit ratio will inject momentum into the economy’s growth.”
January 7 – Bloomberg: “China will subsidize more consumer products and boost funding for industrial equipment upgrades, ramping up a program aimed at bolstering domestic consumption in the face of growing headwinds for exports. Consumers will qualify for a 15% subsidy for buying new mobile phones, tablets and smartwatches under 6,000 yuan ($818) this year…”
January 8 – Bloomberg: “China Vanke Co., one of the country’s largest property developers, is facing a record deluge of debt coming due as worries grow about its liquidity with the property market stuck in a deep slump. Vanke has about $4.9 billion in yuan- and dollar-denominated bonds maturing or facing redemption options in 2025, its highest annual amount ever, and the most for any Chinese developer this year… The obligations account for more than half of its outstanding public debt.”
January 5 – Reuters: “China’s services activity expanded at the fastest pace in seven months in December, driven by a surge in domestic demand, but orders from abroad declined, reflecting growing trade risks to the economy, a private sector survey showed… The Caixin/S&P Global services purchasing managers' index (PMI) rose to 52.2 in December from 51.5 the previous month. The growth pace was the fastest since May 2024…”
January 6 – Reuters: “China's main stock exchanges asked some large mutual funds to restrict stock selling at the start of the year…, as authorities sought to calm markets heading into a tricky period for the world's second-largest economy. At least four large mutual funds received calls from the Shanghai and Shenzhen stock exchanges on Dec. 31 and Jan. 2 and 3, asking them to buy more stocks than they sold each day.”
Europe Watch:
January 6 – Financial Times (Adrienne Klasa): “The new French government has signalled it is willing to push for fewer spending cuts and tax increases in fraught budget talks with parliamentary groups that toppled the previous cabinet over belt-tightening efforts. French economy minister Eric Lombard told France Inter radio… that ‘in order to protect growth’, the new target would be to reach a public deficit of between 5 and 5.5% of national output in 2025, slightly higher than the 5% of GDP envisaged by the previous government. Lombard argued that, since the 2024 deficit was now expected to have reached 6.1% of GDP, it would be too punitive for the economy to aim for cuts totalling more than 1% of GDP this year.”
January 7 – Bloomberg (Alexander Weber): “German inflation accelerated more than anticipated last month, backing the European Central Bank’s plans to keep cutting interest rates only gradually. Consumer prices rose 2.8% from a year ago in December, up from 2.4% in the previous month. That’s higher than all but one estimate in a Bloomberg survey of 21 analysts. The acceleration was driven by energy and food costs…”
January 7 – Financial Times (Olaf Storbeck and George Steer): “Eurozone inflation rose to 2.4% in December, marking the third rise in as many months and damping hopes of a big rate cut by the European Central Bank later this month… The latest rise leaves inflation above the ECB’s 2% goal and means that the odds of a jumbo 50 bps cut from rate-setters later this month have come down even further.”
January 6 – Bloomberg (Eamon Akil Farhat and Priscila Azevedo Rocha): “Europe is burning through gas reserves more quickly than at any point in the last seven years as cold weather ramps up heating needs, with temperatures expected to drop again this week. The region’s vast underground storage sites… are just over 70% full compared with about 86% a year ago.”
Japan Watch:
January 7 – Reuters (Makiko Yamazaki and Kentaro Sugiyama): “Large Japanese firms are likely to increase wages by about 5% on average in 2025, the same as last year, the chair of a major business lobby said… while pledging efforts to spread the wage growth momentum to smaller firms. Prime Minister Shigeru Ishiba sees strong wage growth as key to supporting a fragile economic recovery.”
Emerging Markets Watch:
January 6 – Bloomberg (Vinícius Andrade and Giovanna Bellotti Azevedo): “A debt-sale bonanza that saw Latin American borrowers rush to global markets at the fastest pace in three years is set to peter out in 2025. Record government bond sales, a slew of first-time borrowers and a pickup in Argentina corporate transactions propelled $127 billion of issuance abroad last year, a 42% jump from 2023. The biggest underwriters of those deals are forecasting a similar, or even slightly higher number this year.”
January 7 – Bloomberg (Martha Viotti Beck and Leda Alvim): “Brazil’s government is weighing additional spending cuts after a much-anticipated package of reductions failed to soothe investor worries about President Luiz Inacio Lula da Silva’s commitment to fiscal responsibility. Finance Minister Fernando Haddad pledged… the government would continue to work on new ways to control spending, saying… he ‘will not rest until the fiscal situation is resolved.’”
Social, Political, Environmental, Cybersecurity Instability Watch:
January 8 – Bloomberg (Leslie Kaufman): “The conflagrations tearing across Los Angeles are on track to be among the most expensive wildfire disasters in US history, draining insurance coffers and threatening California’s massive state-sponsored insurance program. Losses from the fires ‘could push insurance markets over the brink in California,’ said Michael Wara, a senior researcher for climate and energy at Stanford University and a wildfire expert. It’s an unprecedented test of the FAIR plan, the state-sponsored insurer of last resort. Pacific Palisades is the high-cost neighborhood at the center of the Palisades Fire. The FAIR plan has seen its exposure there skyrocket to $5.89 billion. Its policies in one ZIP code central to Pacific Palisades grew 85% between 2023 and 2024.”
January 9 – Financial Times (Lee Harris): “Hurricanes, fires and other disasters caused $320bn in losses in 2024, or about a third more than the year before, highlighting the toll taken by climate change and property development in areas hit by extreme weather… About $140bn of these losses were covered by insurance, Munich Re reported…, making last year the most expensive for the industry since 2017… While the 40% of economic losses which were insured was higher than the historical average of about 30%, this still left a large ‘protection gap’. Facing high payouts, insurers have retreated from some of the most exposed markets. Rates for property and casualty insurance have soared…”
January 9 – Bloomberg (Eric Roston): “Scientists sounded the alarm long before last year ended that 2024 would become the hottest year on record and almost certainly the first to surpass the 1.5C limit to global warming, set out as a goal in the Paris Agreement. Now both of those milestones are expected to be confirmed… in official statistical releases from scientific agencies, including the US National Oceanic and Atmospheric Administration... What’s puzzled scientists is the clear acceleration in rising temperatures, even as the evidence of the fast-warming atmosphere became impossible to miss. The hottest day ever recorded happened on July 21, 2024 — a record that held until July 22. The planetary heatspike was made 2.5 times more likely by greenhouse gases, according to researchers.”
January 7 – Yahoo Finance (David Hollerith): “JPMorgan Chase said… it’s leaving the Net Zero Banking Alliance, completing a mass exodus of Wall Street banks from a key climate group… JPMorgan's decision comes after similar exits in recent days and weeks by Morgan Stanley, Citigroup, Bank of America, Wells Fargo, and Goldman Sachs. The NZBA was formed in 2021 as part of the Glasgow Financial Alliance for Net Zero, and a number of banks touted their initial membership…”
January 4 – Wall Street Journal (Dustin Volz, Aruna Viswanatha, Sarah Krouse and Drew FitzGerald): “The message from President Biden’s national security adviser was startling. Chinese hackers had gained the ability to shut down dozens of U.S. ports, power grids and other infrastructure targets at will, Jake Sullivan told telecommunications and technology executives at a secret meeting at the White House in the fall of 2023… What no one at the briefing knew, including Sullivan: China’s hackers were already working their way deep inside U.S. telecom networks, too. The two massive hacking operations have upended the West’s understanding of what Beijing wants, while revealing the astonishing skill level and stealth of its keyboard warriors—once seen as the cyber equivalent of noisy, drunken burglars.”
Geopolitical Watch:
January 6 – Bloomberg (Samy Adghirni): “French President Emmanuel Macron warned that Iran’s nuclear program is on a potentially irreversible course, nearing a point of no return. ‘The acceleration of [Iran’s] nuclear program is leading us very close to the breaking point,’ Macron said… The country has sufficient material to fuel a handful of warheads, should its government take the political decision to move toward nuclear weapons… ‘The Iranian question is undoubtedly one of the main issues on which we will be re-engaging in dialogue with the new American administration,’ Macron said…”
January 6 – Axios (Barak Ravid): “Iran's recent nuclear advances give President-elect Trump a crucial decision to make in his first months in office: Try to neutralize the threat through negotiations and pressure, or order a military strike. Trump's decision in 2018 to withdraw from an Obama-era nuclear deal prompted Tehran to accelerate its nuclear program, such that it's now a de facto ‘nuclear threshold state.’ Officials and diplomats from the U.S., EU and Israel all… expect Trump to face an Iran crisis in 2025. Trump and his advisers are planning to quickly return to the ‘maximum pressure’ campaign they conducted against Iran between 2018 and 2020. Several Trump advisers privately concede Iran's program is now so far along that the strategy might not be effective. That makes a military option a real possibility.”
The S&P500 dropped 1.9% (down 0.9% y-t-d), and the Dow fell 1.9% (down 1.4%). The Utilities lost 1.1% (up 0.2%). The Banks fell 2.3% (down 1.2%), and the Broker/Dealers slumped 3.0% (down 0.8%). The Transports dipped 0.5% (up 0.2%). The S&P 400 Midcaps fell 1.7% (down 0.7%), and the small cap Russell 2000 dropped 3.5% (down 1.8%). The Nasdaq100 lost 2.2% (down 0.8%). The Semiconductors fell 2.4% (up 1.2%). The Biotechs rose 1.6% (up 3.0%). With bullion rising $50, the HUI gold index jumped 3.1% (up 6.5%).
Three-month Treasury bill rates ended the week at 4.215%. Two-year government yields rose 10 bps to 4.38% (up 14bps y-t-d). Five-year T-note yields jumped 16 bps to 4.57% (up 19bps). Ten-year Treasury yields gained 16 bps to 4.76% (up 19bps). Long bond yields rose 14 bps to 4.95% (up 16bps). Benchmark Fannie Mae MBS yields jumped 18 bps to 6.06% (up 22bps).
Italian 10-year yields surged 18 bps to 3.77% (up 25bps y-t-d). Greek 10-year yields rose 17 bps to 3.41% (up 19bps). Spain's 10-year yields gained 16 bps to 3.27% (up 20bps). German bund yields jumped 17 bps to 2.60% (up 23bps). French yields bps rose 14 to 3.43% (up 23bps). The French to German 10-year bond spread narrowed three to 83 bps. U.K. 10-year gilt yields surged 25 bps to 4.84% (up 27bps). U.K.'s FTSE equities index increased 0.3% (up 0.9% y-t-d).
Japan's Nikkei 225 Equities Index fell 1.8% (down 1.8% y-t-d). Japanese 10-year "JGB" yields jumped 10 bps to 1.20% (up 10bps y-t-d). France's CAC40 gained 2.0% (up 0.7%). The German DAX equities index rose 1.6% (up 1.5%). Spain's IBEX 35 equities index increased 0.6% (up 1.1%). Italy's FTSE MIB index rallied 2.8% (up 2.6%). EM equities were mixed. Brazil's Bovespa index increased 0.3% (down 1.2%), and Mexico's Bolsa index rallied 1.3% (up 0.2%). South Korea's Kospi rallied 3.0% (up 4.8%). India's Sensex equities index slumped 2.3% (down 1.4%). China's Shanghai Exchange Index fell 1.3% (down 5.5%). Turkey's Borsa Istanbul National 100 index declined 1.6% (up 0.8%).
Federal Reserve Credit declined $12.2 billion last week to $6.807 TN. Fed Credit was down $2.082 TN from the June 22, 2022, peak. Over the past 278 weeks, Fed Credit expanded $3.081 TN, or 83%. Fed Credit inflated $3.996 TN, or 142%, over the past 635 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt dropped $27.1 billion last week to $3.248 TN - the low back to May, 2017. "Custody holdings" were down $136 billion y-o-y, or 4.0%.
Total money market fund assets surged $68.7 billion to a record $6.916 TN. Money funds were up $782 billion over 23 weeks (29% annualized) and $951 billion y-o-y (16%).
Total Commercial Paper recovered $59.3 billion to $1.147 TN. CP was down $83 billion, or 6.8%, over the past year.
Freddie Mac 30-year fixed mortgage rates increased two bps this week to a six-week high 6.93% (up 27bps y-o-y). Fifteen-year rates added a basis point to 6.14% (up 27bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down 23 bps to 7.09% (up 3bps).
Currency Watch:
January 6 – Bloomberg: “China reaffirmed its support for the yuan after the currency’s slide last week fanned speculation policymakers would allow it to depreciate faster. The People’s Bank of China set its daily reference rate stronger than the line of 7.2 per dollar, defying speculation it would weaken the so-called fixing. In addition, a PBOC-backed newspaper said central bank communication had showed a clearer resolve to stabilize the currency.”
January 7 – Bloomberg: “Yuan funding costs in Hong Kong surged to levels unseen in years, signaling concern that Beijing’s efforts to stabilize the currency may lead to tighter liquidity in the offshore market. The offshore yuan’s overnight interbank interest rate in Hong Kong rose to 8.1% on Tuesday, the highest since June 2021… Tighter cash conditions make it more expensive for traders to short the currency, effectively damping bearish bets. ‘The People’s Bank of China may keep the overnight Hibor at over 4% for a longer time,’ said Zhaopeng Xing, a strategist at Australia & New Zealand Banking Group.”
January 8 – Financial Times (Arjun Neil Alim, Cheng Leng and Joseph Cotterill): “China is to launch its largest sale of offshore bills in a move to support the renminbi, as Wall Street boosts its bets against the currency over weakness in the world’s second-largest economy and Donald Trump’s threat of tariffs. The People’s Bank of China… said it would sell Rmb60bn ($8.2bn) of bills in Hong Kong in January, its largest single sale since auctions began in… 2018. The bill sale will have the effect of soaking up renminbi liquidity and making it more expensive for traders to bet against the currency in markets outside China.”
January 6 – Bloomberg (Erica Yokoyama): “Japan flagged its concern over sudden and one-sided moves in the currency market in its first warning to speculators in 2025 after the yen hit its lowest level since July. ‘We will take appropriate action if there are excessive movements in the currency market,’ Finance Minister Katsunobu Kato told reporters…, in a veiled threat of direct intervention. Kato said he is ‘deeply concerned’ about recent moves, including those driven by speculators.”
For the week, the U.S. Dollar Index added 0.6% to 109.65 (up 1.1% y-t-d). For the week on the upside, the Brazilian real rallied 1.3%, and the Canadian dollar increased 0.2%. On the downside, the South African rand declined 2.0%, the British pound 1.7%, the Australian dollar 1.1%, the New Zealand dollar 1.0%, the Swedish krona 1.0%, the Norwegian krone 1.0%, the Swiss franc 0.9%, the euro 0.6%, the Mexican peso 0.4%, the Japanese yen 0.3%, and the Singapore dollar 0.1%. The Chinese (onshore) renminbi declined 0.15% versus the dollar (down 0.45% y-t-d).
Commodities Watch:
January 7 – Bloomberg (Sybilla Gross): “China’s central bank expanded its gold reserves for a second month in December, signaling renewed appetite after temporarily pausing purchases last year as prices soared. Bullion held by the People’s Bank of China rose to 73.29 million fine troy ounces in December, from 72.96 million in the previous month… The purchase shows the PBOC is still keen to diversify its reserves even with gold at historically expensive levels.”
The Bloomberg Commodities Index surged 4.1% (up 4.1% y-t-d). Spot Gold rallied 1.9% to $2,690 (up 2.5%). Silver jumped 2.6% to $30.4077 (up 5.2%). WTI crude surged $2.61, or 3.5%, to $76.57 (up 7%). Gasoline gained 1.0% (up 3%), and Natural Gas rallied 18.9% to $3.99 (up 10%). Copper surged 5.7% (up 7%). Wheat increased 0.3% (down 4%), and Corn jumped 4.4% (up 3%). Bitcoin dropped $3,590 or 3.7%, to $94,350 (up 0.7%).
Trump Administration Watch:
January 7 – Wall Street Journal (Alex Leary, Tarini Parti and Vivian Salama): “President-elect Donald Trump declined to rule out using military or economic coercion to gain control of Greenland and the Panama Canal, ratcheting up his campaign to expand America’s global footprint. ‘I’m not going to commit to that now. It might be that you’ll have to do something,’ Trump said… He was responding to a question about whether he could offer reassurances that he wouldn’t leverage U.S. military and economic might to get his way. Since winning the election, Trump has repeatedly raised the idea of taking over the Panama Canal from Panama and taking control of Greenland from Denmark. He has also said that Canada should become the 51st U.S. state…”
January 7 – Bloomberg (Thomas Seal): “It no longer sounds like a joke. US President-elect Donald Trump escalated his remarks about making Canada part of the US during a press conference... And he reiterated that he intends to put ‘substantial’ tariffs on goods from Canada and Mexico. Asked if he would use military force to annex Canada, he replied ‘no — economic force. Because Canada and the United States, that would really be something. You get rid of that artificially-drawn line and you take a look at what that looks like, and it would also be much better for national security — don’t forget, we basically protect Canada.’”
January 6 – Reuters (David Morgan and Andy Sullivan): “Republicans in the U.S. Congress were at odds over how to proceed with President-elect Donald Trump's agenda…, as Trump himself called for quick action to pass his tax-cut, border security and energy priorities. With narrow majorities in the House of Representatives and the Senate, Republicans must decide whether to divide his wide-ranging legislative goals into separate measures to ensure quick action or combine them in one sprawling package that could take months to finalize. ‘I would prefer one, but I will do whatever needs to be done to get it passed,’ Trump said... ‘I'm open to either way as long as we get something passed as quickly as possible.’ No. 2 House Republican Steve Scalise said a two-bill approach could endanger Trump's agenda, given a House Republican majority that will soon narrow from 219 seats to 217-215 and the potential for party infighting with the departure of two lawmakers to serve in Trump's cabinet.”
January 4 – Wall Street Journal (Richard Rubin and Siobhan Hughes): “Republicans look increasingly likely to try combining all of their top legislative priorities—tax cuts, spending cuts and border security—into a single large bill, aiming to push President-elect Donald Trump’s agenda through Congress in one fell swoop. The one-bill approach attempts to unite the Republican Party’s disparate factions, and it could require months of delicate negotiations… The GOP will have a 53-47 Senate majority and, at best, a 220-215 House advantage after vacant seats get filled. The momentum for one bill counters the push for a two-bill strategy from many Senate Republicans and top Trump aide Stephen Miller.”
January 8 – Financial Times (Ian Johnston, Adrienne Klasa, Anne-Sylvaine Chassany, Henry Foy and Richard Milne): “European leaders warned Donald Trump not to meddle with the continent’s borders…, a day after the US president-elect refused to rule out taking Greenland by force. The comments by German Chancellor Olaf Scholz and France’s foreign minister Jean-Noël Barrot came a day after Trump set out his designs on Greenland and the Panama Canal. Greenland, the world’s largest island, is an autonomous Danish territory that is not itself part of the EU. ‘Borders must not be moved by force,’ Scholz said, arguing that ‘the principle of inviolability of borders applies to every country, regardless of whether it is to the east or west of us’.”
January 7 - Financial Times (Richard Milne): “Denmark’s prime minister has said that Greenland is ‘not for sale’ after Donald Trump expressed a renewed interest in buying the Arctic island… But in an effort to defuse possible tensions with Trump, Mette Frederiksen stressed that she was keen to co-operate with Washington in the Arctic — even as the US president-elect’s son arrived there on a visit. ‘We need a very, very close co-operation with the US. On the other hand, I would like everyone to respect that Greenlanders are a people. It is their country that is at stake here,’ she told TV2, adding that Greenland had to decide its own fate.”
January 7 – CNN (Stephen Collinson): “Elon Musk’s personal foreign policy of promoting far-right parties is sparking outrage among leaders in Europe and handing them a dilemma: How do they rebuke the tech titan without angering his new patron — Donald Trump? Musk could easily be dismissed as a mischievous antagonist who simply loves to shock and is pursuing his own obsessions one X post at a time. But he’s not just some troll. He’s the world’s richest man, owns some of the globe’s most strategic and influential businesses, and is wielding a mighty social media network. Musk is highlighting his enormous influence as a populist force galvanizing political provocateurs as a kind of one-man supranational non-state power.”
January 7 – Wall Street Journal (Max Colchester and Bertrand Benoit): “Elon Musk is throwing grenades into Europe’s political mainstream over issues ranging from immigration to free speech, creating a dilemma for governments as they try to respond to the tech billionaire and key adviser to the incoming Trump administration. In recent days and weeks, Musk has weighed in with a series of incendiary social-media posts on European politics, including supporting a far-right party ahead of an election in Germany, accusing the British prime minister of being complicit in rape, denouncing judges in Italy and slamming the European Commission. The stream of posts from the world’s richest man has morphed into a diplomatic headache and caught several mainstream European political parties on the back foot.”
January 7 – Bloomberg (Alex Wickham, Michael Nienaber, Joshua Green, and Arne Delfs): “Having successfully worked to get his candidate elected in the US, Elon Musk is setting his sights on Europe. In a series of posts on his X platform in recent weeks, the billionaire backer of Donald Trump has honed in on Germany and the UK, criticized the respective governments, questioned laws they’ve enacted and cast doubt on their economic competence. He’s personally insulted each country’s political leader, calling Chancellor Olaf Scholz a ‘fool,’ Germany’s president a ‘tyrant’ and accusing Prime Minister Keir Starmer of being ‘complicit in the rape of Britain.’ He’s embraced misinformation and conspiracy theories, skipping over the mainstream opposition to give his backing to the far-right as champions of ‘political realism.’ It’s far from clear what his motivations may be in trashing relations with core US allies in fellow Group of Seven nations where he has significant business interests…”
January 6 – Associated Press (Christopher Rugaber): “The Federal Reserve’s top financial regulator said… he would resign next month, avoiding a potential confrontation with the incoming Trump administration and Republicans in the Senate. Fed governor Michael Barr said… he would step down as vice chair for supervision Feb. 28, or earlier if a successor was confirmed. Yet Barr said he would remain on the Fed’s board of governors. His term as governor lasts until 2032. Barr oversaw the proposal of tough new rules for the largest U.S. banks, which would have required them to significantly increase their financial reserves.”
January 7 – Yahoo Finance (Jennifer Schonberger): “The surprise departure of Federal Reserve vice chair for supervision Michael Barr is focusing new attention on Michelle Bowman, named by analysts as the person most likely to become the Fed’s new top banking cop. The conservative Fed governor and former state banking commissioner of Kansas ‘seems like the likely choice,’ Stifel chief Washington policy strategist Brian Gardner said… What helps Bowman's chances… is that there currently is no empty seat on the Fed's board of governors for Trump to fill with an outsider.”
Trade War Watch:
January 8 – Reuters (Greta Rosen Fondahn, Lucy Raitano, Alun John, Dhara Ranasinghe, Rodrigo Campos and Marc Jones): “From China to Europe, Canada to Mexico, world markets are already reeling from Donald Trump's promise to hike tariffs when he becomes US president in less than two weeks. The president-elect is considering declaring a national economic emergency to smooth the way for his proposals, CNN reported… Trump has pledged tariffs of as much as 10% on global imports and 60% on Chinese goods, plus a 25% import surcharge on Canadian and Mexican products. Experts say duties at those levels would upend trade flows, raise costs, and draw retaliation.”
Taiwan Watch:
January 5 – Bloomberg (Yian Lee): “Taiwan suspects a Chinese-owned cargo vessel damaged an undersea cable near its northeastern coast Friday, in an alleged act of sabotage that highlights the vulnerabilities of Taipei’s offshore communications infrastructure. The ship is owned by a Hong Kong-registered company whose director is a mainland Chinese citizen… The incident followed another Chinese vessel’s suspected involvement in the breakages of data cables in the Baltic Sea in November.”
Market Instability Watch:
January 6 – Bloomberg (David Finnerty and Ruth Carson): “Monday started quietly in the $300 billion-plus currency options market until political headlines triggered the most hectic trading day in nearly two months — a taste of what may lie in store for 2025. Volumes surged to $108 billion by the close of trade, surpassing even the activity seen on the Federal Reserve and Bank of Japan monetary policy announcement days last month… Two of the drivers for the spike-up in trading: headlines on Canadian Prime Minister Justin Trudeau’s resignation and potential US tariffs.”
January 7 – Bloomberg (James Hirai): “The UK’s long-term borrowing costs surged to the highest level in more than a quarter of a century, raising the prospect of Chancellor of the Exchequer Rachel Reeves needing to raise taxes again in order to meet her fiscal rules. The yield on 30-year gilts climbed as much as six bps to 5.24% on Tuesday after the first of a string of bond sales due over the coming weeks. The yield was last higher in 1998 when Tony Blair was prime minister and the Bank of England was slashing interest rates from a six-year peak to contain the global fallout from the Asian currency crisis and Russian debt default.”
January 8 – Financial Times (Ian Smith, Sam Fleming and Harriet Clarfelt): “Bond markets have entered a new era of antagonism with governments, fund managers say, as investors sell sovereign debt in big economies such as the UK, France and the US amid a deluge of borrowing. The UK’s heavy-borrowing budget in October has triggered sell-offs in the gilt market, pushing the 10-year yield to its highest level since 2008 and 30-year interest costs to the most this century. France’s political crisis has driven its borrowing costs above those of Greece… In the US, the Treasury market has been hit by concerns that president-elect Donald Trump will borrow freely and cut taxes... ‘There is a revival of bond market activism,’ said Robert Dishner, senior portfolio manager at Neuberger Berman. ‘The markets aren’t used to this as it usually happens in the corporate space,’ he said, adding that pressure had ‘transferred’ to indebted sovereigns.”
January 9 – Financial Times (Jim Pickard, Ian Smith and William Sandlund): “The British government sought to quell tumult in UK bond markets… by vowing to stick to its fiscal rules, as borrowing costs hit their highest level since the financial crisis. Darren Jones, number two at the UK Treasury, told MPs that ‘UK gilt markets continue to function in an orderly way’, as the 10-year gilt yield rose to 4.93%, its highest since 2008, and the pound dropped as much as 1% against the dollar to its lowest for more than a year. ‘There should be no doubt of the government’s commitment to economic stability and sound public finances,’ Jones said. ‘This is why meeting the fiscal rules is non-negotiable.’”
January 8 – Bloomberg (Sydney Maki and Alice Gledhill): “The 20-year Treasury bond offered a grim warning as a selloff fueled by inflationary angst gripped global debt markets: 5% yields are already here. The 20-year yield, a laggard on the US government debt curve since its re-introduction in 2020, topped 5% Wednesday for the first time since 2023. The move, fueled in part by concern that President-elect Donald Trump’s policies will rekindle price pressures and lead to wider deficits, indicates what’s potentially next in the $28 trillion Treasury market.”
January 8 – Reuters (Karen Brettell): “Longer-term U.S. Treasury yields have surged to multi-month highs, outpacing a rise in shorter-dated yields, with some of the disparity reflecting anticipation that the incoming Trump administration will need to change the current focus on relying more on short-term debt, traders say… ‘The market is building more term premium into the long end to account for the fiscal situation, the deficit, and potentially a lot more issuance in the long end of the curve as they unwind the Yellen policy,’ said Dan Mulholland, head of rates – trading and sales at Crews & Associates.”
January 7 – Bloomberg (Joanne Wong and Finbarr Flynn): “Investors in China’s $11 trillion government bond market have never been so pessimistic about the world’s second-largest economy, with some now piling into bets on a deflationary spiral mirroring Japan’s in the 1990s. Yields on Chinese sovereign bonds maturing in 10 years have tumbled in recent weeks to all-time lows, creating an unprecedented 300-bps gap with US peers… The plunge, which has dragged Chinese yields far below levels reached during the 2008 global financial crisis and the Covid pandemic, underscores growing concern that policymakers will fail to stop China from sliding into an economic malaise that could last decades.”
January 6 – Bloomberg (Betty Hou): “China’s yield discount to the US has expanded to a fresh record, aggravating the challenge for a central bank that’s already fighting gravity to support the yuan. The combination of a relentless rally in China’s government bonds and a selloff in US notes has resulted in an unprecedented 300-bps gap between the two countries’ sovereign yields. That’s set to add even more pressure on the yuan by increasing the risk of capital outflows, just as the currency slid toward a record low in offshore trading this week.”
Global Credit Bubble Watch:
January 7 – Bloomberg (Tasos Vossos and Caleb Mutua): “Borrowers are flooding global debt markets at an unprecedented pace as they seek to take advantage of demand from credit-hungry managers that are so flush with cash they have already driven corporate bond spreads to a near 30-year low. With debt markets in risk-on mode, Europe’s bond market saw a record number of borrowers raising funding on Tuesday, while Wall Street is forecasting a potential January record of $200 billion in the US. Investors have the appetite - and the cash - to snap up even more. The strong demand is also fueling a borrowing blitz in the leveraged loan market, with over $33 billion of deals launched in the US this week…”
January 8 – Financial Times (Harriet Clarfelt and Will Schmitt): “Corporate borrowers kicked off 2025 with a record $83bn in dollar bond sales, capitalising on buoyant investor demand to raise debt ahead of any market volatility sparked by Donald Trump’s return to power. Borrowing in the US dollar investment-grade and high-yield bond markets reached $83.4bn by January 8, the highest year-to-date figure since 1990, according to… LSEG.”
January 7 – Bloomberg (Ronan Martin): “A record number of borrowers are selling bonds in Europe on Tuesday, returning from the holidays to take advantage of spreads that are near the tightest in three years. There are 28 issuers looking to raise at least €30.4 billion ($31.7bn)… That’s the most borrowers ever in a single day, according to the data, which goes back a decade.”
AI Bubble Watch:
January 6 – Bloomberg (Sarah McBride): “Venture capitalists put $97 billion into artificial intelligence startups in the US last year — a new record in a year of multibillion-dollar megarounds for companies like Elon Musk’s xAI, OpenAI and Anthropic. The AI-focused deals represent an increasing share of all startup investment, according to… PitchBook... Almost half of the total $209 billion raised by US startups last year went to AI companies…, the highest portion on record. The total amount of funding for startups ticked up for the year, rising by about one-third from 2023. Meanwhile, VCs themselves raised $76.1 billion for 508 funds, the lowest number since 2014, and the lowest dollar amount since 2019.”
Bubble and Mania Watch:
January 10 – Bloomberg (Michael Msika): “Investors are piling into safer assets, with money market funds getting the bulk of weekly inflows, while Treasuries were also in demand, Bank of America says. Money market funds drew $143.2b inflows, the largest since April 2020, stock funds $25.6b, bond funds $21.6b, crypto $1.4b, while $500m exited from gold in the week to Jan. 8… In flows to know: Treasuries had biggest inflow since Aug. at $6.2b; Bank loans had record weekly inflow of $3.1b… EM equities had biggest inflow since Oct. at $3.5b; Tech had 1st inflow in 6 weeks at $2.3b.”
January 6 – Associated Press (Tran Nguyen): “California Gov. Gavin Newsom has proposed a $322 billion budget without a deficit, a welcome change after two years of significant budget shortfalls… But the budget… is mostly a placeholder as California waits to see if incoming President Donald Trump will follow through on threats to revoke billions in federal dollars, which could force lawmakers to make painful cuts to essential programs. About a third of California’s budget relies on funding from the federal government, including tens of billions of dollars to provide health care services. Trump takes office on Jan. 20, and Newsom must sign the final budget by the end of June.”
January 7 – Bloomberg (Will Kubzansky and Denitsa Tsekova): “US bond markets are signaling that equity bulls may be a little too exuberant now. Stocks are close to the most overvalued against corporate credit and Treasuries in about two decades. The earnings yield on S&P 500 shares, the inverse of the price-earnings ratio, is at its lowest level compared with Treasury yields since 2002, signaling that equities are at their most expensive relative to fixed income in decades. For company debt, the S&P 500’s earnings yield, at 3.7%, is close to the lowest relative to the 5.6% yield of BBB rated dollar corporate bonds since 2008.”
January 3 – Financial Times (John Plender): “The recent growth of private markets has been a phenomenon. Indeed, private funds, which include venture capital, private equity, private debt, infrastructure, commodities and real estate, now dominate financial activity. According to consultants McKinsey, private markets’ assets under management reached $13.1tn in mid-2023 and have grown at close to 20% a year since 2018.”
January 7 – Bloomberg (Bailey Lipschultz): “Wall Street kicked off the 2025 IPO market with a flurry of paperwork paving the way for some of the year’s biggest potential deals. The latest came Monday, when Smithfield Foods Inc. filed for an initial public offering… Several others snuck in before the 2024 calendar flipped over, such as Venture Global Inc. — one of the biggest suppliers of liquefied natural gas in the US — whose IPO could raise more than $3 billion… Including those mentioned here, at least nine companies targeting IPOs in 2025 may each raise $1 billion or more for a total of around $18 billion…”
January 10 – Wall Street Journal (Carol Ryan): “Think 15% vacancy rates are only a problem for owners of office towers? America has a serious housing shortage, but not for the type of apartments that real-estate investors have been building in record numbers. The national vacancy rate for multifamily apartments reached 8% in the last quarter of 2024—higher than it was before the pandemic… Part of the problem is a herd mentality that saw real-estate developers pile into the same cities to build the same kinds of properties.”
Inflation Watch:
January 10 – Bloomberg (Vince Golle): “US consumers’ long-term inflation expectations jumped to the highest since 2008 on concerns about potential tariffs from the incoming Trump administration. Americans expect prices will climb at an annual rate of 3.3% over the next five to 10 years, up from the 3% expected last month, according to the University of Michigan’s… released... They also see costs rising 3.3% over the next year, up 0.5 percentage point from December. As a result, the preliminary January sentiment index slipped to 73.2 from 74… ‘Nearly one-third of consumers spontaneously mentioned tariffs, up from 24% in December and less than 2% prior to the election,’ Joanne Hsu, director of the survey, said…”
January 6 – Bloomberg (Brendan Murray): “Spot container rates for shipping goods to the US from Asia have spiked over the past month as companies look to avoid higher tariffs and pad their inventories ahead of a strike threatening to close ports responsible for roughly half of the nation’s seaborne trade volumes. Booking a 40-foot container to the US West Coast from Asia went for $6,000 as of Jan. 1, a 50% jump from $4,004 a month earlier… The rate to the East Coast was $7,100, a 31% increase. The market is tightening on ‘a lot of uncertainty,’ said Emily Stausbøll, a senior shipping analyst at Xeneta… ‘2024 was an extremely challenging year for shippers and life isn’t getting any easier as we head into 2025.’”
January 7 – Associated Press (Mike Schneider): “A major grower said this week it was abandoning its citrus growing operations, reflecting the headwinds Florida’s signature crops are facing following a series of hurricanes and tree diseases. Alico Inc. announced… it planned to wind down its citrus operations after the current crop is harvested later this year… The Fort Myers-based company owns 53,371 acres across eight counties in Florida… The company said its citrus production had declined by 73% over the past decade.”
Federal Reserve Watch:
January 10 – Bloomberg (Ye Xie): “Economists at Bank of America Corp. said the Federal Reserve’s monetary policy easing campaign is over and there’s risk the central bank’s next move will be a rate increase. Based on stronger-than-expected December employment data…, economists led by Aditya Bhave no longer expect the Fed to cut rates this year… ‘After a very strong December jobs report, we think the cutting cycle is over,’ the economists wrote. ‘The conversation should move to hikes’ in the event that inflation as measured by the annual growth rate of the price index for core personal consumer expenditures exceeds 3% and inflation expectations drift higher…”
January 8 – Financial Times (James Politi and Harriet Clarfelt): “Federal Reserve officials indicated that the US central bank will have to take a ‘careful approach’ in cutting interest rates further due to the rising risk that inflation will remain persistently higher than its 2% target. In minutes from the December Fed meeting…, officials noted the elevated policy uncertainty as Donald Trump’s second presidency is set to begin... ‘Participants indicated that the committee was at or near the point at which it would be appropriate to slow the pace of policy easing,’ the minutes said. ‘Most participants remarked that, with the stance of monetary policy now significantly less restrictive, the committee could take a careful approach in considering adjustments to the stance of monetary policy,’ the minutes said.”
January 8 – Yahoo Finance (Jennifer Schonberger): “Almost all Federal Reserve officials agreed in their last meeting that ‘upside risks to the inflation outlook had increased’ due in part to the ‘likely effects’ of expected changes in trade and immigration policies, according to meeting minutes… They noted ‘the likelihood that elevated inflation could be more persistent had increased,’ according to the minutes… ‘As reasons for this judgment, participants cited recent stronger-than expected readings on inflation and the likely effects of potential changes in trade and immigration policy’…”
January 8 – Bloomberg (Amara Omeokwe): “Federal Reserve Governor Christopher Waller said he believes inflation will continue to cool toward the central bank’s 2% target, prompting his support for additional interest-rate cuts this year. ‘As always, the extent of further easing will depend on what the data tell us about progress toward 2% inflation, but my bottom-line message is that I believe more cuts will be appropriate,’ Waller said…”
January 6 – Reuters (Ann Saphir): “Two Federal Reserve policymakers… said they feel the U.S. central bank's job of taming inflation is not yet done, but also signaled they do not want to risk damaging the labor market as they try to finish that job… ‘We are fully aware that we are not there yet - no one is popping champagne anywhere,’ Kugler said... ‘And at the same time ... we want the unemployment rate to stay where it is’ and not increase rapidly… ‘At this point, I would not want to see further slowing in the labor market — maybe gradually moving around in bumps and chunks on a given month, but certainly not additional slowing in the labor market,’ said Daly…”
January 6 – Bloomberg (Amara Omeokwe): “Federal Reserve Governor Lisa Cook said policymakers can proceed more cautiously with interest-rate cuts, citing a sturdy labor market and lingering inflation pressures. ‘Since September, the labor market has been somewhat more resilient, while inflation has been stickier than I assumed at that time,’ Cook said... ‘Thus, I think we can afford to proceed more cautiously with further cuts.’”
January 10 – Bloomberg (Jonnelle Marte): “Federal Reserve Bank of Philadelphia President Patrick Harker said officials are on track to lower interest rates this year, but the exact timing will depend on what happens with the economy. Harker said it’s taking longer than expected to bring inflation to the Fed’s 2% target and that progress has been uneven... ‘I still see us on a downward policy rate path. Looking at everything before me now, I am not about to walk off this path or turn around,’ Harker said.”
U.S. Economic Bubble Watch:
January 10 – Associated Press (Paul Wiseman): “U.S. hiring picked up unexpectedly in December as employers added a strong 256,000 jobs… Job growth was up last month from 212,000 in November. For all of 2024, the economy added 2.2 million jobs, a solid number but down from 3 million in 2023, 4.5 million in 2022 and a record 6.4 million in 2021… The monthly numbers beat forecasters’ expectation of around 155,000 new jobs and 4.2% unemployment. Healthcare companies added 46,000 jobs, retailers 43,000 and government agencies at the federal, state and local 33,000… Average hourly wages rose 0.3% from November and 3.9% from a year earlier.”
January 8 – Bloomberg (Brian K. Sullivan): “The wildfires raging out of control around Los Angeles will likely cause between $52 billion to $57 billion in damages and economic loss, according to a preliminary estimate by AccuWeather Inc. The blazes burning around Santa Monica and Malibu are consuming some of the most expensive real estate in the US, affecting areas where the median home value is more than $2 million… Fires fanned by hurricane-force wind gusts may spread flames deeper into these neighborhoods destroying more homes.”
January 9 – Bloomberg (Stephan Kahl): “As 2025 begins with wildfires wreaking devastation across Los Angeles, it’s now clear that insured losses from natural catastrophes last year soared to the highest since 2017. At $140 billion, insured losses globally were more than double the 30-year average of roughly $60 billion, according to… Munich Re… Hurricanes Milton and Helene, which ripped through the US, ended up being the costliest natural disasters of 2024, the report shows. And this year may already be on track to exceed those losses, as wildfires in the Los Angeles area threaten to be the most financially damaging in history.”
January 7 – Bloomberg (Alexandre Tanzi): “Growth at US service providers quickened in December, reflecting stronger business activity that helped push a price measure to the highest since early 2023. The Institute for Supply Management’s index of services advanced 2 points to 54.1 last month... The measure of prices paid for materials and services rose more than 6 points to 64.4… Fifteen of the 18 services industries reported an increase in prices paid in December, while none indicated a decline... ‘General optimism expressed across many industries, but tariff concerns elicited the most panelist comments,’ said Steve Miller, chair of the Institute for Supply Management Services Business Survey Committee.”
January 6 – CNBC (Melissa Repko): “Online spending rose 8.7% during the holiday season from last year, according to… Adobe Analytics, as deals and the use of AI-powered chatbots helped inspire purchases. Sales on retailers’ websites and apps totaled $241.4 billion from Nov. 1 to Dec. 31… One of the newer factors nudging spending is AI-powered shopping assistants such as ChatGPT and its competitors. Traffic to retail sites that came from generative AI-powered chatbots shot up by 1,300% compared with the year-ago holiday season…”
January 7 – Bloomberg (Mark Niquette): “The US trade deficit widened in November, reflecting the biggest jump in imports since March 2022 as companies accelerated shipments ahead of a possible dockworkers’ strike and in anticipation of potential tariffs by the Trump administration. The gap in goods and services trade grew 6.2% from the prior month to $78.2 billion… The value of imports increased 3.4% from a month earlier to $351.6 billion. Exports rose 2.7%.”
January 7 – Associated Press (Paul Wiseman): “U.S. job openings rose unexpectedly in November… Openings rose to 8.1 million in November, the most since February and up from 7.8 million in October, the Labor Department reported… Openings were up in professional and business services, a broad category that includes managerial and technical workers, and in finance and insurance. They fell in the information industry, which includes publishers and telecommunications companies.”
January 8 – Reuters (Lucia Mutikani): “The number of Americans filing new applications for unemployment benefits fell to an 11-month low last week, pointing to a stable labor market, though a slowdown in hiring has led some laid-off workers to experience long bouts of joblessness… Initial claims for state unemployment benefits dropped 10,000 to a seasonally adjusted 201,000 for the week ended Jan. 4, the lowest level since February 2024…”
January 8 – Reuters (Lucia Mutikani): “U.S. private payrolls growth slowed sharply in December, the ADP National Employment Report showed… Private payrolls rose by 122,000 jobs last month after increasing by an unrevised 146,000 in November. Economists… had forecast private employment rising by 140,000.”
January 4 – Yahoo Finance (Adriana Belmonte): “Workers across 21 states welcomed the new year by seeing their hourly minimum wages rise. The federal minimum wage is $7.25 an hour, a rate that has remained unchanged since July 2009… In the meantime, states have taken measures into their own hands over the past 15 years. Starting Jan. 1, 2025, three states — Delaware, Illinois, and Rhode Island — joined the group of states with a $15 minimum wage…”
January 8 – Associated Press (Paul Wiseman): “U.S. longshoremen reached a contract agreement with ports and shippers…, averting a potential strike that could have damaged the American economy. The International Longshoremen’s Association union and the U.S. Maritime Alliance of ports and shipping companies said they had reached a tentative agreement for a six-year contract… Union members and alliance members must still ratify the agreement. Until then, the existing contract will continue to be in effect.”
January 3 – Associated Press (Tom Krisher): “New vehicle sales in the U.S. rose 2.7% last year as prices and interest rates eased a bit… Despite high sales prices that averaged more than $47,000, automakers sold just over 16 million vehicles in the U.S. last year, Motorintelligence.com said... It was the best year for sales since 2019… But prices were still 27% above what they were in 2019.”
January 8 – Bloomberg (Vince Golle): “US consumer debt outstanding unexpectedly fell in November by the most in over a year as credit-card balances plunged. Total credit dropped $7.5 billion after a revised $17.3 billion gain in October…”
Fixed Income Watch:
January 8 – Bloomberg (Shankar Ramakrishnan and Matt Tracy): “U.S. corporate debt markets continued to be peppered by new bond offerings… as rising Treasury yields increased demand for debt and pushed companies to get their funding done now before any further increase in borrowing costs… ‘There is a rush among companies to get their funding done now to avoid increasing borrowing costs with Treasury yields rising consistently over the past week,’ said Clayton Triick, head of portfolio management at Angel Oak Capital Advisors.”
January 6 – Financial Times (Will Schmitt): “US corporate bankruptcies have hit their highest level since the aftermath of the global financial crisis as elevated interest rates and weakened consumer demand punish struggling groups. At least 686 US companies filed for bankruptcy in 2024, up about 8% from 2023 and higher than any year since the 828 filings in 2010, according to… S&P Global Market Intelligence. Out-of-court manoeuvres seeking to stave off bankruptcy also increased last year, outnumbering bankruptcies by about two to one, according to Fitch Ratings.”
China Watch:
January 10 – New York Times (Keith Bradsher): “In a striking sign of the Chinese economy’s stagnation, the central bank said… it had temporarily stopped buying government bonds. The central bank’s unexpected action is aimed at braking a recent shift by investors toward purchasing bonds while shunning riskier assets… The decision to stop buying government bonds is especially unusual because interest rates have been rising lately in most of the world, in response to inflation fears. The concern about the Chinese economy is the opposite: chronically low inflation that is a hallmark of stagnation.”
January 10 – Bloomberg: “China will see a ‘significant increase’ in fiscal deficit while it has ample fiscal policy room and tools to deal with new domestic and external problems, Vice Minister of Finance Liao Min says… Liao says the direction of fiscal policy in 2025 will be ‘clear and very proactive’. China will speed up the implementation of fiscal policy in 2025. Increase in fiscal deficit ratio will inject momentum into the economy’s growth.”
January 7 – Bloomberg: “China will subsidize more consumer products and boost funding for industrial equipment upgrades, ramping up a program aimed at bolstering domestic consumption in the face of growing headwinds for exports. Consumers will qualify for a 15% subsidy for buying new mobile phones, tablets and smartwatches under 6,000 yuan ($818) this year…”
January 8 – Bloomberg: “China Vanke Co., one of the country’s largest property developers, is facing a record deluge of debt coming due as worries grow about its liquidity with the property market stuck in a deep slump. Vanke has about $4.9 billion in yuan- and dollar-denominated bonds maturing or facing redemption options in 2025, its highest annual amount ever, and the most for any Chinese developer this year… The obligations account for more than half of its outstanding public debt.”
January 5 – Reuters: “China’s services activity expanded at the fastest pace in seven months in December, driven by a surge in domestic demand, but orders from abroad declined, reflecting growing trade risks to the economy, a private sector survey showed… The Caixin/S&P Global services purchasing managers' index (PMI) rose to 52.2 in December from 51.5 the previous month. The growth pace was the fastest since May 2024…”
January 6 – Reuters: “China's main stock exchanges asked some large mutual funds to restrict stock selling at the start of the year…, as authorities sought to calm markets heading into a tricky period for the world's second-largest economy. At least four large mutual funds received calls from the Shanghai and Shenzhen stock exchanges on Dec. 31 and Jan. 2 and 3, asking them to buy more stocks than they sold each day.”
Europe Watch:
January 6 – Financial Times (Adrienne Klasa): “The new French government has signalled it is willing to push for fewer spending cuts and tax increases in fraught budget talks with parliamentary groups that toppled the previous cabinet over belt-tightening efforts. French economy minister Eric Lombard told France Inter radio… that ‘in order to protect growth’, the new target would be to reach a public deficit of between 5 and 5.5% of national output in 2025, slightly higher than the 5% of GDP envisaged by the previous government. Lombard argued that, since the 2024 deficit was now expected to have reached 6.1% of GDP, it would be too punitive for the economy to aim for cuts totalling more than 1% of GDP this year.”
January 7 – Bloomberg (Alexander Weber): “German inflation accelerated more than anticipated last month, backing the European Central Bank’s plans to keep cutting interest rates only gradually. Consumer prices rose 2.8% from a year ago in December, up from 2.4% in the previous month. That’s higher than all but one estimate in a Bloomberg survey of 21 analysts. The acceleration was driven by energy and food costs…”
January 7 – Financial Times (Olaf Storbeck and George Steer): “Eurozone inflation rose to 2.4% in December, marking the third rise in as many months and damping hopes of a big rate cut by the European Central Bank later this month… The latest rise leaves inflation above the ECB’s 2% goal and means that the odds of a jumbo 50 bps cut from rate-setters later this month have come down even further.”
January 6 – Bloomberg (Eamon Akil Farhat and Priscila Azevedo Rocha): “Europe is burning through gas reserves more quickly than at any point in the last seven years as cold weather ramps up heating needs, with temperatures expected to drop again this week. The region’s vast underground storage sites… are just over 70% full compared with about 86% a year ago.”
Japan Watch:
January 7 – Reuters (Makiko Yamazaki and Kentaro Sugiyama): “Large Japanese firms are likely to increase wages by about 5% on average in 2025, the same as last year, the chair of a major business lobby said… while pledging efforts to spread the wage growth momentum to smaller firms. Prime Minister Shigeru Ishiba sees strong wage growth as key to supporting a fragile economic recovery.”
Emerging Markets Watch:
January 6 – Bloomberg (Vinícius Andrade and Giovanna Bellotti Azevedo): “A debt-sale bonanza that saw Latin American borrowers rush to global markets at the fastest pace in three years is set to peter out in 2025. Record government bond sales, a slew of first-time borrowers and a pickup in Argentina corporate transactions propelled $127 billion of issuance abroad last year, a 42% jump from 2023. The biggest underwriters of those deals are forecasting a similar, or even slightly higher number this year.”
January 7 – Bloomberg (Martha Viotti Beck and Leda Alvim): “Brazil’s government is weighing additional spending cuts after a much-anticipated package of reductions failed to soothe investor worries about President Luiz Inacio Lula da Silva’s commitment to fiscal responsibility. Finance Minister Fernando Haddad pledged… the government would continue to work on new ways to control spending, saying… he ‘will not rest until the fiscal situation is resolved.’”
Social, Political, Environmental, Cybersecurity Instability Watch:
January 8 – Bloomberg (Leslie Kaufman): “The conflagrations tearing across Los Angeles are on track to be among the most expensive wildfire disasters in US history, draining insurance coffers and threatening California’s massive state-sponsored insurance program. Losses from the fires ‘could push insurance markets over the brink in California,’ said Michael Wara, a senior researcher for climate and energy at Stanford University and a wildfire expert. It’s an unprecedented test of the FAIR plan, the state-sponsored insurer of last resort. Pacific Palisades is the high-cost neighborhood at the center of the Palisades Fire. The FAIR plan has seen its exposure there skyrocket to $5.89 billion. Its policies in one ZIP code central to Pacific Palisades grew 85% between 2023 and 2024.”
January 9 – Financial Times (Lee Harris): “Hurricanes, fires and other disasters caused $320bn in losses in 2024, or about a third more than the year before, highlighting the toll taken by climate change and property development in areas hit by extreme weather… About $140bn of these losses were covered by insurance, Munich Re reported…, making last year the most expensive for the industry since 2017… While the 40% of economic losses which were insured was higher than the historical average of about 30%, this still left a large ‘protection gap’. Facing high payouts, insurers have retreated from some of the most exposed markets. Rates for property and casualty insurance have soared…”
January 9 – Bloomberg (Eric Roston): “Scientists sounded the alarm long before last year ended that 2024 would become the hottest year on record and almost certainly the first to surpass the 1.5C limit to global warming, set out as a goal in the Paris Agreement. Now both of those milestones are expected to be confirmed… in official statistical releases from scientific agencies, including the US National Oceanic and Atmospheric Administration... What’s puzzled scientists is the clear acceleration in rising temperatures, even as the evidence of the fast-warming atmosphere became impossible to miss. The hottest day ever recorded happened on July 21, 2024 — a record that held until July 22. The planetary heatspike was made 2.5 times more likely by greenhouse gases, according to researchers.”
January 7 – Yahoo Finance (David Hollerith): “JPMorgan Chase said… it’s leaving the Net Zero Banking Alliance, completing a mass exodus of Wall Street banks from a key climate group… JPMorgan's decision comes after similar exits in recent days and weeks by Morgan Stanley, Citigroup, Bank of America, Wells Fargo, and Goldman Sachs. The NZBA was formed in 2021 as part of the Glasgow Financial Alliance for Net Zero, and a number of banks touted their initial membership…”
January 4 – Wall Street Journal (Dustin Volz, Aruna Viswanatha, Sarah Krouse and Drew FitzGerald): “The message from President Biden’s national security adviser was startling. Chinese hackers had gained the ability to shut down dozens of U.S. ports, power grids and other infrastructure targets at will, Jake Sullivan told telecommunications and technology executives at a secret meeting at the White House in the fall of 2023… What no one at the briefing knew, including Sullivan: China’s hackers were already working their way deep inside U.S. telecom networks, too. The two massive hacking operations have upended the West’s understanding of what Beijing wants, while revealing the astonishing skill level and stealth of its keyboard warriors—once seen as the cyber equivalent of noisy, drunken burglars.”
Geopolitical Watch:
January 6 – Bloomberg (Samy Adghirni): “French President Emmanuel Macron warned that Iran’s nuclear program is on a potentially irreversible course, nearing a point of no return. ‘The acceleration of [Iran’s] nuclear program is leading us very close to the breaking point,’ Macron said… The country has sufficient material to fuel a handful of warheads, should its government take the political decision to move toward nuclear weapons… ‘The Iranian question is undoubtedly one of the main issues on which we will be re-engaging in dialogue with the new American administration,’ Macron said…”
January 6 – Axios (Barak Ravid): “Iran's recent nuclear advances give President-elect Trump a crucial decision to make in his first months in office: Try to neutralize the threat through negotiations and pressure, or order a military strike. Trump's decision in 2018 to withdraw from an Obama-era nuclear deal prompted Tehran to accelerate its nuclear program, such that it's now a de facto ‘nuclear threshold state.’ Officials and diplomats from the U.S., EU and Israel all… expect Trump to face an Iran crisis in 2025. Trump and his advisers are planning to quickly return to the ‘maximum pressure’ campaign they conducted against Iran between 2018 and 2020. Several Trump advisers privately concede Iran's program is now so far along that the strategy might not be effective. That makes a military option a real possibility.”
