{"id":56120,"date":"2023-09-02T10:16:45","date_gmt":"2023-09-02T14:16:45","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/doug-nolands-weekly-commentary-curious-market-action\/"},"modified":"2023-09-02T10:16:47","modified_gmt":"2023-09-02T14:16:47","slug":"doug-nolands-weekly-commentary-curious-market-action","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=56120","title":{"rendered":"Doug Noland’s Weekly Commentary: Curious Market Action"},"content":{"rendered":"
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S&P 500 futures were up 0.7% immediately following the release of Friday\u2019s August payrolls data. Non-farm job gains of 187,000 were marginally above the 170,000 consensus estimate (with July\u2019s gain revised 30k lower). At 0.2% (0.24%), the increase in Average Hourly Earnings was below the 0.3% forecast and July\u2019s 0.4% – and was the weakest reading since February 2022. A jump in re-entrant boosted the Labor Force Participation Rate two-tenths to a higher-than-expected 62.8% (high since February 2020). Unexpectedly, the Unemployment Rate increased a market-pleasing three-tenths to 3.8%.<\/span><\/p>\n

From the perspective of the pundits, the data was close to perfect. Slowing wage and job growth makes life easier for the Federal Reserve. No more hikes needed \u2013 no tough decisions. For the markets, data offered further confirmation of the coveted \u201csoft landing.\u201d Friday morning from Bloomberg: \u201cGoldilocks Is Back as Wall Street\u2019s Jobs-Day Gift.\u201d Financial Times: \u201cUS Jobs Data Raises Hope of Goldilocks Scenario as Economy Cools.\u201d Real Money: \u201cThe Fed Must Be Jumping for Joy After a Goldilocks Jobs Report.\u201d<\/span><\/p>\n

Jubilant jumping about was short-lived. The first clue was the 10-year Treasury bond\u2019s muted response to payroll data. The immediate five bps yield decline had fully reversed within an hour. Jumps in the ISM Manufacturing Survey\u2019s Employment (48.5 vs. July\u2019s 44.4) and Price (48.4 vs. 42.6) Components didn\u2019t help. Ten-year Treasury yields ended the session up seven bps to 4.18%.<\/p>\n

Bond enthusiasts must feel that life is unfair. Tuesday\u2019s \u201cJOLTS\u201d job openings data (8.827 million) were much weaker-than-expected, dropping to the lowest level since March 2021. Conference Board Consumer Confidence was reported 10 points below expectations at 106 (down 8 from July). The Present Situation component fell eight to a 2023-low 144.8. ADP\u2019s August job gains were reported Wednesday at a weaker-than-expected 177k (expectations 195k), the fewest jobs added since March. And a revision to the Q2 GDP Price Index (2.0% vs. 2.2%) reduced second quarter growth to 2.1% (from first reading 2.4%).<\/p>\n

For all the weaker data, 10-year bond yields declined a measly six bps this week, with Friday\u2019s closing yield (4.18%) only 16 bps below the 16-year closing high (4.34%) from nine sessions ago (August 21st). And there are some curious happenings in the bond market.<\/p>\n

Bonds are just not seeing much benefit from changes in Fed rate policy expectations. As of Tuesday, markets saw a 22% probability of a rate hike at the Fed\u2019s September 20th meeting, with an additional 48% for the November 1st meeting. This 70% probability for one additional Fed increase had sunk to 38% by Friday\u2019s close (7% for September and 31% November). The rates market says the Fed\u2019s tightening cycle is likely over, yet bonds are conflicted.<\/p>\n

It’s as if the bond market views the \u201csoft landing\u201d Goldilocks scenario with increasing wariness. Just not feeling it. As splendidly as it plays with equites and for the Fed doves, is it constructive for the bond market? Bonds these days yearn for the good old decades, where everything seemed to go their way.<\/p>\n

My take: The so-called \u201csoft landing\u201d will not cut it. Goldilocks is a myth. After all, inflationary forces have taken hold throughout the U.S. economy. It would now require a significant tightening of financial conditions to quash the unfolding inflationary cycle. Recent tempering of wage gains doesn\u2019t negate the strongest compensation momentum in decades. Importantly, labor markets remain sufficiently tight to further embolden unions and workers alike. And especially with the U.S. economy having evolved over recent decades to be services dominant, wage growth today plays a pivotal inflationary role.<\/p>\n

For an economy with inflationary dynamics maintaining robust momentum, financial conditions remain too loose. And at this spirited phase of the Speculative Cycle, risk markets will overreact to data supportive of the bullish narrative. The Nasdaq100 surged 3.7% this week, boosting 2023 gains to 41.6%.<\/p>\n

To be sure, economic resilience owes everything to loose conditions. Now, economic softening only stokes speculative impulses. This works to exacerbate loose conditions, underpinning both growth and pricing pressures. Moreover, market \u201crisk on\u201d ensures strong corporate debt issuance.<\/p>\n

September 1 \u2013 Bloomberg (Alyce Andres): \u201cPreparations for an onslaught of corporate supply next week have weighed in Treasuries today\u2026 Banks that underwrite the bonds expect about $120 billion to be issued [this] month, much more than the $78 billion sold in September 2022\u2026 Expectations are for that number to get revised higher as the market is ripe for debt issuance. That\u2019s because investment-grade credit default swaps fell to an 18-month low this week.\u201d<\/em><\/p>\n

Corporate risk premiums narrowed further this week. Investment-grade spreads (to Treasuries) were little changed at 1.19 percentage points (near low since February \u201822), with high yield spreads narrowing 14 bps to 3.66 \u2013 the low since April \u201922. Investment-grade CDS traded down to 62 bps in Wednesday trading, just above lows back to February 2022. High yield CDS dropped 16 this week to 422 bps, trading at about the same level as in April 2022 (as the Fed commenced \u201ctightening\u201d).<\/p>\n

That longer-term bonds reacted tepidly to weak data supports the secular new paradigm thesis. Notably, 30-year long bond Treasury yields were up a basis point this week to 4.30%, even as two-year yields sank 20 bps to 4.87%. Central bankers are also not oblivious to New Cycle Dynamics.<\/p>\n

August 27 \u2013 Associated Press (Christopher Rugaber): \u201cRising trade barriers. Aging populations. A broad transition from carbon-spewing fossil fuels to renewable energy. The prevalence of such trends across the world could intensify global inflation pressures in the coming years and make it harder for the Federal Reserve and other central banks to meet their inflation targets. That concern was a theme sounded in several high-profile speeches and economic studies presented Friday and Saturday at the Fed\u2019s annual conference\u2026 in Jackson Hole, Wyoming\u2026 \u2018The new environment sets the stage for larger relative price shocks than we saw before the pandemic,\u201d Christine Lagarde\u2026 said\u2026 \u2018If we face both higher investment needs and greater supply constraints, we are likely to see stronger price pressures in markets like commodities \u2014 especially for the metals and minerals that are crucial for green technologies.\u2019\u201d<\/em><\/p>\n

And perhaps the bond market is not finding recent Chinese developments all that comforting. So-called Chinese \u201cdeflation\u201d (despite $4.25 TN one-year growth in Aggregate Financing!) and ineffectual \u201cpiece meal\u201d policy measures have clear potential to evolve into massive fiscal and monetary stimulus. Increasingly, a desperate Beijing rises each morning to throw new stimulus measures against the wall: policy and lending rate reductions, mortgage rate resets, and various measures to ease apartment buying and borrowing requirements, fiscal stimulus, and policies to boost local government finances and the stock market. Beijing is also implementing a variety of measures to bolster its frail currency.<\/p>\n

August 29 \u2013 Bloomberg: \u201cChina is flashing new signs of financial stress almost on a daily basis, with a property giant making fresh efforts to avoid default and a state-run bad debt manager suffering a bond slump on worries about its own health. In the latest indication of its liquidity struggle, Country Garden Holdings Co. has proposed a grace period of 40 calendar days for a maturing yuan bond as it seeks to win creditor support to stretch payment into 2026. Meantime, China Great Wall Asset Management Co.\u2019s dollar bonds fell by the most this year Tuesday, as analysts raised concerns over a delay in releasing 2022 earnings. The ceaseless warning signals from credit markets are adding to broader concerns about the world\u2019s second-largest economy\u2026\u201d<\/em><\/p>\n

After opening Monday trading up 5% (following Sunday\u2019s stimulus announcements), the Shanghai Composite ended the week with only a 2.3% gain. It’s worth noting that, despite a growing list of stimulus measures, China\u2019s dollar high yield bond index traded this week at 2023 highs (20.31%) \u2013 as did the Asian High Yield Index (16.12%).<\/p>\n

August 30 \u2013 Bloomberg (Harry Suhartono): \u201cYield premiums on high-grade Asian dollar bonds were on course for the sharpest monthly jump since March, as concerns about China\u2019s ailing economy and property woes weighed on demand. The credit spreads have widened by 15 bps so far in August, set for the biggest such move since March\u2026, while the yield premium on dollar notes from Chinese investment-grade issuers increased by 20 bps. More than two dozen bonds with the biggest spreads blowout are from Chinese borrowers or those with significant exposure to the country.\u201d<\/em><\/p>\n

Let\u2019s return to Friday\u2019s interesting trading action. Along with the upward reversal in Treasury yields, the dollar also caught a bid. After initially trading lower on the payrolls release, the Dollar Index reversed a full percent higher to end the session up 0.6% – reversing the loss from earlier in the week. Despite weaker data, global markets continue to indicate vulnerability to the rising bond yields and strong dollar scenario. This development would be problematic for emerging markets, especially in the event of a disorderly decline in the Chinese renminbi.<\/p>\n

The final week of the summer did not disappoint the bullish crowd. Yet the change of seasons is known to bring a shift in market focus. China is on an ominous trajectory. It\u2019s unclear how long Beijing can maintain a semblance of control. Global bond markets don\u2019t look out of the woods. Inflation risks remain elevated.<\/p>\n

By this point, the levered players have become so conditioned to disregard risk – more confident than ever in central bank liquidity backstops. It\u2019s therefore reasonable to assume that risk aversion can be held at bay longer than would typically be the case. But this only elevates the risk of an eventual major de-risking\/deleveraging eruption. Surging global yields and a China accident provide decent potential catalysts.<\/p>\n

For the Week:<\/h2>\n

The S&P500 jumped 2.5% (up 17.6% y-t-d), and the Dow rose 1.4% (up 5.1%). The Utilities fell 1.7% (down 12.9%). The Banks rallied 2.9% (down 18.3%), and the Broker\/Dealers gained 2.2% (up 13.5%). The Transports added 1.4% (up 18.2%). The S&P 400 Midcaps surged 3.5% (up 9.8%), and the small cap Russell 2000 jumped 3.6% (up 9.1%). The Nasdaq100 advanced 3.7% (up 41.6%). The Semiconductors surged 5.4% (up 45.4%). The Biotechs rose 1.8% (up 1.1%). With bullion rising $25, the HUI gold equities index gained 2.1% (down 1.7%).<\/p>\n

Three-month Treasury bill rates ended the week at 5.275%. Two-year government yields dropped 20 bps this week to 4.87% (up 45bps y-t-d). Five-year T-note yields fell 14 bps to 4.29% (up 29bps). Ten-year Treasury yields declined six bps to 4.18% (up 30bps). Long bond yields added a basis point to 4.30% (up 33bps). Benchmark Fannie Mae MBS yields dropped 19 bps to 5.89% (up 50bps).<\/p>\n

Greek 10-year yields declined four bps to 3.83% (down 74bps y-t-d). Italian yields were unchanged at 4.24% (down 46bps). Spain’s 10-year yields slipped a basis point to 3.58% (up 6bps). German bund yields declined a basis point to 2.55% (up 11bps). French yields dipped two bps to 3.07% (up 9bps). The French to German 10-year bond spread narrowed one to 52 bps. U.K. 10-year gilt yields declined a basis point to 4.43% (up 76bps). U.K.’s FTSE equities index rose 1.7% (up 0.2% y-t-d).<\/p>\n

Japan’s Nikkei Equities Index jumped 3.4% (up 25.4% y-t-d). Japanese 10-year “JGB” yields declined three bps to 0.63% (up 21bps y-t-d). France’s CAC40 increased 0.9% (up 12.7%). The German DAX equities index increased 1.3% (up 13.8%). Spain’s IBEX 35 equities index rose 1.2% (up 14.8%). Italy’s FTSE MIB index gained 1.6% (up 20.9%). EM equities were mostly higher. Brazil’s Bovespa index rose 1.8% (up 7.5%), while Mexico’s Bolsa index was little changed (up 9.7%). South Korea’s Kospi index advanced 1.8% (up 14.6%). India’s Sensex equities index increased 0.8% (up 7.5%). China’s Shanghai Exchange Index rallied 2.3% (up 1.4%). Turkey’s Borsa Istanbul National 100 index jumped 4.4% (up 46.2%). Russia’s MICEX equities index gained 2.3% (up 50.0%).<\/p>\n

Investment-grade bond funds posted outflows of $971 million, while junk bond funds reported inflows of $1.214 billion (from Lipper).<\/p>\n

Federal Reserve Credit declined $19.9bn last week to $8.087 TN. Fed Credit was down $813bn from the June 22nd, 2022, peak. Over the past 207 weeks, Fed Credit expanded $4.360 TN, or 117%. Fed Credit inflated $5.277 TN, or 188%, over the past 564 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt declined $4.5bn last week to a one-month low $3.436 TN. “Custody holdings” were up $45bn, or 1.3%, y-o-y.<\/p>\n

Total money market fund assets increased $14bn to a record $5.583 TN, with a 25-week gain of $689bn (29% annualized). Total money funds were up $1.015 TN, or 22.2%, y-o-y.<\/p>\n

Total Commercial Paper jumped $21.7bn to a five-month high $1.185 TN. CP was down $14bn, or 1.2%, over the past year.<\/p>\n

Freddie Mac 30-year fixed mortgage rates declined eight bps to 7.22% (up 156bps y-o-y). Fifteen-year rates dipped four bps to 6.69% (up 171bps). Five-year hybrid ARM rates dropped 28 bps to 6.83% (up 232bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates slipping three bps to 7.55% (up 145bps).<\/p>\n

Currency Watch:<\/h2>\n

August 31 \u2013 Bloomberg: \u201cChina moved to support the yuan by increasing the supply of foreign currency in its local market, part of a multi-pronged effort by Beijing to restore confidence amid sluggish growth. Financial institutions will need to hold just 4% of their foreign-exchange deposits in reserve starting Sept. 15\u2026, compared to the current level of 6%. The greater availability of overseas currency relative to the yuan effectively boosts the allure of the latter.\u201d<\/p>\n

August 28 \u2013 Reuters (Summer Zhen and Samuel Shen): \u201cDisillusioned with a weak stock market at home, geopolitical risks and a falling currency, Chinese investors are pouring money into investment products with exposure to overseas assets that will also help diversify their portfolios. Retail money has gushed into exchange traded funds (etfs) and mutual funds issued under the Qualified Domestic Institutional Investor (QDII) programme, one of the few channels for Chinese money to be invested abroad\u2026\u201d<\/p>\n

For the week, the U.S. Dollar Index was unchanged at 104.25 (up 0.7% y-t-d). On the upside, the Australian dollar increased 0.8%, the New Zealand dollar 0.6%, the South Korean won 0.5%, the Norwegian krone 0.4%, the Singapore dollar 0.3%, the Japanese yen 0.2%, the Swedish krona 0.1%, the British pound 0.1%, and the Canadian dollar 0.1%. On the downside, the Mexican peso declined 2.0%, the Brazilian real 1.5%, the South African rand 1.1%, the euro 0.2%, the Danish krone 0.1%, and the Swiss franc 0.1%. The Chinese (onshore) renminbi increased 0.29% versus the dollar (down 5.06%).<\/p>\n

Commodities Watch:<\/h2>\n

The Bloomberg Commodities Index gained 1.2% (down 5.4% y-t-d). Spot Gold jumped 1.3% to $1,940 (up 6.4%). Silver slipped 0.2% to $24.19 (up 1.0%). WTI crude rallied $5.72, or 7.2%, to $85.55 (up 7%). Gasoline sank 9.9% (up 5%), while Natural Gas jumped 8.9% to $2.77 (down 38%). Copper gained 1.8% (up 1%). Wheat dropped 4.3% (down 28%), and Corn lost 1.3% (down 32%). Bitcoin declined $250, or 1.0%, to $25,800 (up 56%).<\/p>\n

Global Bank Crisis Watch:<\/h2>\n

August 30 \u2013 Bloomberg (Hannah Levitt): \u201cUS regulators are quietly demanding that regional lenders shore up their liquidity planning, part of a ramp-up in efforts to tighten supervision in the wake of three bank failures earlier this year. The Federal Reserve has issued a slew of private warnings to lenders with assets of $100 billion to $250 billion, including Citizens Financial Group Inc., Fifth Third Bancorp and M&T Bank Corp\u2026The wide-ranging notices have touched on everything from lenders\u2019 capital and liquidity to their technology and compliance, the people said, asking not to be identified discussing confidential supervisory information.\u201d<\/p>\n

August 29 \u2013 CNBC (Hugh Son): \u201cU.S. regulators\u2026 unveiled plans to force regional banks to issue debt and bolster their so-called living wills, steps meant to protect the public in the event of more failures. American banks with at least $100 billion in assets would be subject to the new requirements, which makes them hold a layer of long-term debt to absorb losses in the event of a government seizure, according to a joint notice from the Treasury Department, Office of the Comptroller of the Currency, Federal Reserve and Federal Deposit Insurance Corp. The steps are part of regulators\u2019 response to the regional banking crisis that flared up in March, ultimately claiming three institutions and damaging the earnings power of many others.\u201d<\/p>\n

UK Watch:<\/h2>\n

August 28 \u2013 Financial Times (Robin Wigglesworth): \u201cA year ago the UK government made its first \u00a3828mn payment to the Bank of England to compensate for losses on its QE bond portfolio. Those payments have now topped \u00a330bn, and Deutsche Bank think they\u2019re going to get a LOT bigger over the next year. Central bank accounting is a funny business, given that these are institutions that can create money\u2026 However, the Bank of England has a pretty special arrangement with the UK government. Since 2009 it has promised the central bank that it would make good any losses it might suffer from QE, especially after it started sweeping any QE profits back to the Treasury in 2012.\u201d<\/p>\n

August 29 \u2013 Bloomberg (Damian Shepherd): \u201cUK home sales are on track to drop to the lowest since 2012 this year as stubbornly high mortgage rates grip the housing market. Residential transactions are set to fall over 20% from 2022\u2026 That\u2019s on the back of a plunge in deals funded by home loans, with mortgaged sales projected to drop 28% this year. \u2018It is the number of sales that have been hit hardest by higher borrowing costs, especially amongst mortgage reliant buyers,\u2019 said Richard Donnell, executive director at Zoopla. Meanwhile, \u2018house price growth has slowed rapidly over the last year as demand weakens,\u2019 he added.\u201d<\/p>\n

September 1 \u2013 Bloomberg (Lucy White): \u201cThe downturn gripping the UK housing market steepened in August as the cost-of-borrowing squeeze sapped demand\u2026 Nationwide Building Society said the average cost of a home fell 5.3% in August from its peak in the year ago, the fastest pace since July 2009\u2026\u201d<\/p>\n

August 29 \u2013 Bloomberg (Tom Rees): \u201cFirst-time buyers deserted the UK housing market in the second quarter after a surge in mortgage costs prevented many from getting a foot on the property ladder. The banking industry group UK Finance said loans for first-time buyers slumped 28% compared to the same period a year ago\u2026 It was lowest number of first-time buyer loans for the second quarter in a decade, aside from the period in 2020\u2026\u201d<\/p>\n

Market Instability Watch:<\/h2>\n

August 31 \u2013 Financial Times (Emma Boyde): \u201cThe surge in options trading linked to the US stock market in recent years is driving more volatile pricing activity and creating potential risks for short-term investors in some of the world\u2019s largest ETFs, analysts warn. A rapid increase in the use of very short-term options, known as \u2018zero-day-to-expiry\u2019 (0DTE) contracts, linked to the S&P 500 index and the world\u2019s largest tracker fund, the $402bn SPDR S&P 500 ETF (SPY), is driving price movements in ways that have raised concerns among academics and even highly experienced market participants. At least two more of the most popular US ETFs \u2014 Invesco\u2019s QQQ which follows the tech-heavy Nasdaq 100, and BlackRock\u2019s iShares Russell 2000 ETF (IWM), which tracks small-cap US equities \u2014 have also seen a huge increase in 0DTE trading activity… \u2018What that means is the fundamentals of the underlying stocks are mattering less to the movement of the index than one might have seen 10, 15, 20-years ago,\u2019 said Dave Nadig, financial futurist at VettaFi, a consultancy.\u201d<\/p>\n

August 31 \u2013 Financial Times (Robin Wigglesworth): \u201cMost ETFs are big, broad, boring and cheap beta. But there\u2019s now probably close to $200bn in leveraged and inverse ETFs, and their market impact is growing. Leveraged and inverse ETFs use derivatives and margin loans to either deliver extra juice to investors \u2014 say, three times the daily return of the underlying index \u2014 or the opposite of what the index does. \u2018Good\u2019 examples are things like TQQQ, the $20bn triple-leveraged Nasdaq ETF; TMF, a three-times leveraged Treasury bond ETF with $2.5bn in assets, and the $90mn SOXS, which delivers three times the losses of semiconductor shares. There are even single-name leveraged ETFs. It\u2019s basically all gone a bit mad.\u201d<\/p>\n

August 31 \u2013 Financial Times (Hudson Lockett): \u201cForeign investors sold a record $12bn worth of Chinese stocks in August as piecemeal support measures from Beijing failed to assuage concerns\u2026 The unprecedented outflows come as figures on Thursday showed China\u2019s manufacturing sector contracted for a fifth consecutive month, despite pledges from leaders in late July to deliver more substantial support measures for the vital property sector, which is typically responsible for about a quarter of annual economic activity.\u201d<\/p>\n

August 31 \u2013 Reuters (Jindong Zhang, Winni Zhou and Tom Westbrook): \u201cChinese exporters are using a complicated currency swap strategy to avoid converting their dollar earnings into yuan for fear of losing out on potential gains in the U.S. currency\u2026 China’s state banks are counterparties to some of these swap transactions that allow exporters to exchange their dollars for yuan, suggesting the country’s currency regulator is comfortable with these trades even as authorities try to curb intense pressure on the yuan in spot markets.\u201d<\/p>\n

Bubble and Mania Watch:<\/h2>\n

August 30 \u2013 Bloomberg (Allyson Versprille): \u201cAfter two years of fines, threats and lawsuits, Gary Gensler had crypto reeling. But a pair of recent legal setbacks have Wall Street\u2019s top cop on the defensive. The most stinging defeat for the Securities and Exchange Commission came on Tuesday when an appeals court overturned its decision to block Grayscale Investments LLC\u2019s proposed spot Bitcoin exchange-traded fund. The ruling cracks open the door for a suite of products the regulator has deemed unsafe for retail investors. The SEC may still appeal the ruling.\u201d<\/p>\n

August 30 \u2013 Bloomberg (Austin Weinstein): \u201cUS officials are looking at ways to give a broader swath of financial firms, including nonbank mortgage lenders, the ability to borrow from Federal Home Loan Banks. The closed-door discussions, which are part of a regulatory review of the sprawling $1.4 trillion FHLB network, may be a first step to giving many more companies access to a coveted financial backstop now reserved mostly for banks. Any expansion would ultimately need congressional action, and would likely require firms to agree to more government oversight\u2026\u201d<\/p>\n

Ukraine War Watch:<\/h2>\n

August 30 \u2013 Bloomberg (Daryna Krasnolutska): \u201cDrone attacks targeted multiple regions of Russia in a widespread retaliatory strike for the Kremlin\u2019s invasion of Ukraine, as the authorities in Kyiv battled the heaviest air assault the city has faced since the spring. Four Ilyushin Il-76 military transport planes were damaged at an airport in Russia\u2019s northwestern Pskov region\u2026 Russian air defenses claimed they shot down drones in five other regions including near Moscow, as well as in Sevastopol in occupied Crimea.\u201d<\/p>\n

U.S.\/Russia\/China\/Europe Geo Watch:<\/h2>\n

August 30 \u2013 Financial Times (Felicia Schwartz): \u201cThe White House has warned of \u2018actively advancing\u2019 arms talks between Russia and North Korea after Vladimir Putin\u2019s defence chief travelled to Pyongyang on a mission to secure ammunition for the invasion of Ukraine. Sergei Shoigu, Russia\u2019s minister of defence, was last month dispatched on the diplomatic mission to secure artillery munitions and an agreement to deepen military co-operation\u2026 Those talks have progressed to a new phase. After the visit, Putin, Russia\u2019s president, and North Korea\u2019s leader, Kim Jong Un, exchanged letters \u2018pledging to increase bilateral co-operation\u2019, Kirby said\u2026\u201d<\/p>\n

August 27 \u2013 Reuters (Karen Lema): \u201cChina’s \u2018aggressive behaviour\u2019 in the South China Sea, including the use of water canon by its coast guard against a Philippine vessel, must be challenged and checked, the commander of the U.S. Navy’s Seventh Fleet said\u2026 Vice Admiral Karl Thomas assured the Philippines of U.S. backing in the face of \u2018shared challenges\u2019 in the region, saying: \u2018My forces are out here for a reason.\u2019 The largest of the U.S. Navy’s forward-deployed fleets, the Seventh Fleet, headquartered in Japan, operates as many as 70 ships, has around 150 aircraft and more than 27,000 sailors.\u201d<\/p>\n

De-globalization and Iron Curtain Watch:<\/h2>\n

August 28 \u2013 Bloomberg (Selcuk Gokoluk and Colleen Goko): \u201cAt the BRICS summit in Johannesburg this week, a key item on the agenda was reducing dollar dependence across emerging markets. In bond sales, it\u2019s already happening. The sale of dollar bonds from developing countries sunk to the lowest since 2021 in August as global yields spiked to multi-year highs and 15 emerging nations traded at distressed levels. Only $1.4 billion has been raised in emerging debt this month, compared with $4.5 billion in August 2022 and average monthly sales of $15.4 billion this year.\u201d<\/p>\n

August 26 \u2013 CNBC (Evelyn Cheng): \u201cChina\u2019s dominance in rare earths makes U.S. supply chains vulnerable, U.S. Trade Representative Katherine Tai said\u2026 Rare earth metals are used in high-tech products such as electric car motors. Over the decades, China has built up its ability to process the metals \u2014 giving it enormous pricing power in a critical global market. \u2018What I want to draw your attention to is not just the vulnerabilities around China\u2019s investments [overseas], but the fact that China\u2019s dominant position in the world market now in [rare earths] means that it is able to turn on the faucet and turn off the faucet,\u2019 Tai said. \u2018And until we are able to access and create additional supply chains we remain entirely vulnerable to that leverage,\u2019 the U.S. trade representative said.\u201d<\/p>\n

Inflation Watch:<\/h2>\n

August 29 \u2013 Bloomberg (Sonja Wind): \u201cWestern economies probably can\u2019t escape inflation without a recession because their labor markets remain too tight, said JP Morgan Asset Management strategist Karen Ward\u2026 The former Bank of England economist who is an adviser to UK Chancellor of the Exchequer Jeremy Hunt said that such an outcome is likely because policymakers will need to keep borrowing costs high. \u2018Markets bought into this idea that we could have resilient growth across the west and yet all those inflation pressures would disappear on their own and the central banks could move from tightening to easing\u2026 Sadly, I think it is going to require that weakness.\u2019\u201d<\/p>\n

August 31 \u2013 CNBC (Jessica Dickler): \u201cThe battle against inflation is not over. As of July, 61% of adults still said they are living paycheck to paycheck, according to a new LendingClub report, slightly more than last year\u2019s 59%… Already, four out of five consumers\u2019 spending habits have been affected by inflation, according to TD Bank\u2019s annual consumer spending index. \u2018Consumers are undoubtedly continuing to feel the impact of inflation and rising interest rates,\u2019 said Chris Fred, TD Bank\u2019s head of credit cards and unsecured lending.\u201d<\/p>\n

August 31 \u2013 Associated Press (Harry Suhartono): \u201cAn inflation gauge closely tracked by the Federal Reserve remained low last month, adding to signs of cooling price increases and raising the likelihood that the Fed will leave interest rates unchanged when it next meets in late September\u2026 Prices rose just 0.2% from June to July, the third straight modest increase. Compared with a year earlier, prices rose 3.3% in July, up from a 3% annual increase in June. The year-over-year figure, though, is down sharply from the 7% peak it reached a year ago, though still above the Fed\u2019s 2% inflation target\u2026 Among individual items, the cost of groceries rose just 0.2% from June to July, though they\u2019re up 3.5% over the past year. Gas prices increased 0.3% in July but remain 22.3% lower than they were a year earlier.\u201d<\/p>\n

August 28 \u2013 Wall Street Journal (Beno\u00eet Morenne): \u201cIt\u2019s Groundhog Day at the pump. U.S. consumers in recent weeks have seen gasoline prices tick up to reach their highest levels so far this year\u2026 A gallon of regular gasoline averaged about $3.82 nationally on Sunday, about 60 cents higher than at the beginning of the year, according to OPIS\u2026 Diesel prices are down about 31 cents compared with early January but have gained more than 40 cents from a month ago. The ascent of oil prices could complicate the Federal Reserve\u2019s effort to lower inflation to 2%, economists say.\u201d<\/p>\n

August 25 \u2013 Reuters (Ananta Agarwal): \u201cPublicly listed U.S. homebuilders are raising prices on new construction, taking advantage of an acute shortage of previously owned homes in the market as owners defer upgrading due to high mortgage rates. Homebuilders are enjoying this turn of events after a gnarly second-half last year, when fears of rising interest rates slowing demand had forced them to cut prices and offer incentives to boost sales. The shortages have powered homebuilders’ earnings, sending their stocks soaring, with the S&P Composite 1500 Homebuilding Sub Index up 41.90% so far this year.\u201d<\/p>\n

August 28 \u2013 Wall Street Journal (Veronica Dagher): \u201cHomeowners are increasingly forgoing home insurance, gambling that the likelihood of a disaster isn\u2019t high enough to justify the cost of a policy. Some skipping insurance say they are doing so because they can no longer afford the rising premiums. The national average for home insurance based on $250,000 in dwelling coverage increased this year to $1,428 annually, up 20% from 2022\u2026 The risks of forgoing a policy are significant. When you don\u2019t have insurance and your home is destroyed by fire, you don\u2019t just lose your house and its contents. You might also have to pay for removing your home\u2019s remains as well as the costs to rebuild it.\u201d<\/p>\n

August 31 \u2013 Bloomberg (Tarso Veloso): \u201cThe cost to transport America\u2019s harvest from the Midwest to the rest of the world is soaring as shrinking water levels on the Mississippi River drive up barge freight rates \u2014 and the forecast for below-than-average rainfall offers no relief. Barge spot rates as of Aug. 29 in St. Louis are up 49% from last week and 42% from last year at $23.34 a ton. That\u2019s up 85% from the past 3-year average\u2026\u201d<\/p>\n

August 31 \u2013 Bloomberg (Pratik Parija): \u201cIndia received the lowest August rains since at least 1901, raising concerns about weaker crop output and the potential for more export restrictions following the South Asian nation\u2019s curbs on rice. The country received 162.7 millimeters (6.4 inches) of rainfall this month, 36% lower than normal\u2026\u201d<\/p>\n

August 30 \u2013 Reuters (Gus Trompiz and Rod Nickel): \u201cPasta lovers must brace to pay even higher prices for their favorite dish, as drought in Canada and bad weather in Europe damages crops of durum wheat and reduces supplies available to flour millers and food companies. Italy’s government called a crisis meeting in May as prices for the staple food jumped by more than double the national inflation rate. With global production of durum wheat headed for a 22-year low, Italy’s famed pasta makers have had to turn to unusual suppliers such as Turkey for their main ingredient.\u201d<\/p>\n

Biden Administration Watch:<\/h2>\n

August 30 \u2013 Financial Times (Brooke Masters): \u201cUS Securities and Exchange Commission chair Gary Gensler has hit the financial sector with more new major rules and regulatory proposals than any predecessor since the response to the 2008 global financial crisis, a new tally shows. Gensler\u2019s SEC has put forward 47 proposals that substantially affect market participants and adopted 22 of them in the first 850 days of his leadership, ending August 15\u2026 That is the most of both since Mary Schapiro, who oversaw the agency\u2019s initial response to the financial crisis after she became chair in January 2009 and put forward 59 proposals and 18 final rules.\u201d<\/p>\n

August 30 \u2013 Reuters (David Shepardson): \u201cU.S. Commerce Secretary Gina Raimondo talked up American firms’ desire to do business in China and her hopes for further engagement with Chinese officials on market access\u2026, after earlier comments over China being \u2018uninvestible.\u2019 At a press conference in Shanghai, Raimondo said she had not expected any breakthroughs on issues affecting U.S. firms such as Intel, Micron, Boeing, Visa and Mastercard in her first meetings with Chinese officials, but did hope to \u2018see some results\u2019 in the next few months as a result of her four-day visit to Beijing and Shanghai.\u201d<\/p>\n

Federal Reserve Watch:<\/h2>\n

August 26 \u2013 Reuters (Ann Saphir and Howard Schneider): \u201cBeating inflation will probably require one more U.S. interest-rate hike and then going on hold for \u2018a while,\u2019 Cleveland Federal Reserve Bank Loretta Mester said\u2026, adding that she may reassess her earlier view that rate cuts could start in late 2024\u2026 \u2018We just don’t want it to keep drifting farther out,\u2019 she said. Not only do fast-rising prices impose a high cost on Americans, she said; allowing inflation to fester also leaves the economy more vulnerable to future shock. \u2018The longer we let inflation remain above 2%, we’re building in a higher and higher price level,\u2019 she said, and that hurts American households. \u2018And I think that’s why timely matters to me.\u2019\u201d<\/p>\n

August 31 \u2013 Reuters (Ann Saphir): \u201cAtlanta Federal Reserve Bank President Raphael Bostic laid out a case\u2026 against any further U.S. interest rate hikes, saying monetary policy is already tight enough to bring inflation back down to 2% over a \u2018reasonable\u2019 period. \u2018I feel policy is appropriately restrictive,\u2019 Bostic said\u2026 \u2018We should be cautious and patient and let the restrictive policy continue to influence the economy, lest we risk tightening too much and inflicting unnecessary economic pain.\u2019\u201d<\/p>\n

U.S. Bubble Watch:<\/h2>\n

September 1 \u2013 CNBC (Jeff Cox): \u201cThe unemployment rate rose sharply in August\u2026 Nonfarm payrolls grew by a seasonally adjusted 187,000 for the month, above the\u2026 estimate for 170,000\u2026 However, the unemployment rate was 3.8%, up significantly from July and the highest since February 2022, and estimates for previous months showed sharp downward revision. That increase in the jobless level came as the labor force participation rate rose to 62.8%, the highest since February 2020\u2026 Average hourly earnings increased 0.2% for the month and 4.3% from a year ago. Both were below respective forecasts of 0.3% and 4.4% and another possible sign that inflation pressures are easing.\u201d<\/p>\n

August 30 \u2013 CNBC (Jesse Pound): \u201cJob creation in the United States slowed more than expected in August, according to ADP\u2026 The firm reported\u2026 private employers added 177,000 jobs in August, well below the revised total of 371,000 added in July. Economists\u2026 were expecting 200,000 jobs added in August. ADP also reported that pay growth slowed for workers who changed jobs and those who stayed in their current positions. \u2018This month\u2019s numbers are consistent with the pace of job creation before the pandemic,\u2019 Nela Richardson, chief economist at ADP, said… \u2018After two years of exceptional gains tied to the recovery, we\u2019re moving toward more sustainable growth in pay and employment as the economic effects of the pandemic recede.\u2019\u201d<\/p>\n

August 29 \u2013 Reuters (Lucia Mutikani): \u201cU.S. job openings dropped to the lowest level in nearly 2-1\/2 years in July as the labor market gradually slowed\u2026 The Job Openings and Labor Turnover Survey, or JOLTS report\u2026 also showed the number of people quitting their jobs dropped to levels last seen in early 2021\u2026 That was reinforced by a survey from the Conference Board showing consumers’ perceptions of the labor market cooled in August. Nevertheless, labor market conditions remain tight, with 1.51 job openings for every unemployed person in July, compared to 1.54 in June. While that was the lowest ratio since September 2021, it is well above the 1.0-1.2 range considered consistent with a jobs market that is not generating too much inflation.\u201d<\/p>\n

August 31 \u2013 Associated Press (Matt Ott): \u201cU.S. applications for unemployment benefits fell slightly last week as companies held on to employees in an economy that has largely withstood rapidly rising interest rates\u2026 The number of Americans applying for jobless benefits last fell week by 4,000, to 228,000 the week ending August 26\u2026\u201d<\/p>\n

August 27 \u2013 CNBC (Michael Wayland and Leslie Joseph): \u201cFrom writers\u2019 rooms to car factories, workers are pressing companies for higher pay and better quality of life. Many are willing to walk off the job to get there, and some are winning\u2026 Some, like UPS\u2019 workers\u2019 union, are nailing down record labor deals following threats of striking. Others have gone on strike to force the issue. Workers at key Boeing supplier Spirit AeroSystems in June approved a deal with the company after a brief work stoppage. Writers Guild of America members have now been on strike for more than 100 days.\u201d<\/p>\n

August 30 \u2013 Reuters (Mrinalika Roy): \u201cA tight U.S. labor market, expiration of cyclical contracts and high living costs have triggered tough negotiations for pay hikes and other benefits by workers and strikes and protests across industries. Some 295,500 workers have been involved in stoppages through July this year, putting 2023 on track to become the busiest year for strikes since 2019.\u201d<\/p>\n

August 29 \u2013 Reuters (Lucia Mutikani): \u201cU.S. consumer confidence fell more than expected in August after two straight monthly increases amid renewed concerns about inflation\u2026 The Conference Board said its consumer confidence index dropped to 106.1 this month from a downwardly revised 114.0 in July. Economists\u2026 had forecast the index retreating to 116.0 from the previously reported 117.0\u2026 \u2018Write-in responses showed that consumers were once again preoccupied with rising prices in general, and for groceries and gasoline in particular,\u2019 said Dana Peterson, chief economist at The Conference Board… \u2018The pullback in consumer confidence was evident across all age groups, and most notable among consumers with household incomes of $100,000 or more, as well as those earning less than $50,000.\u2019\u201d<\/p>\n

August 29 \u2013 Reuters (Safiyah Riddle): \u201cU.S. home prices rose on a monthly basis in June while annual prices were unchanged, adding to a growing body of evidence that housing costs have already begun to recover. The S&P CoreLogic Case-Shiller national home price index\u2026 increased month over month by 0.7% in June on a seasonally adjusted basis after rising by 0.8% in May. Another index tracking the 20 largest metro areas rose 0.9% on a monthly basis, topping estimates\u2026 for a 0.8% gain. On a year-over-year basis, the national price index was unchanged in June versus a 0.4% fall in May. The 20-city index was down by 1.2% in June after sliding 1.7% annually in May\u2026\u201d<\/p>\n

August 29 \u2013 Reuters (Amina Niasse): \u201cU.S. housing prices showed further signs of stabilizing in June, according to two reports\u2026 that signaled the lengthy run of softening sales prices may be bottoming out. Home purchase prices increased by 3.1% year-over-year in June, compared with a 2.9% rise in May\u2026 A separate national price index from S&P CoreLogic Case-Shiller was unchanged from a year earlier in June after posting year-over-year declines in the previous two months\u2026 House prices rose 3.0% between the second quarters of 2022 and 2023, FHFA said.\u201d<\/p>\n

August 30 \u2013 Associated Press (Paul Wiseman): \u201cThe U.S. economy expanded at a 2.1% annual pace from April through June, showing continued resilience in the face of higher borrowing costs for consumers and businesses\u2026 The government had previously estimated that the economy expanded at a 2.4% annual rate last quarter\u2026 Consumer spending, which accounts for about 70% of the U.S. economy, rose at a 1.7% annual pace in the April-June quarter \u2014 a decent gain, though down from 4.2% in the first three months of 2023. Excluding housing, business investment rose at a strong 6.1% annual rate last quarter. Investment in housing, hurt by higher mortgage rates, fell in the second quarter.\u201d<\/p>\n

August 31 \u2013 Washington Post (Tory Newmyer, Aaron Gregg and Jaclyn Peiser): \u201cMore Americans are falling behind on their car loan and credit card payments than at any time in more than a decade\u2026 The pain is most acute for lower-income earners, who have largely used whatever they managed to save during the pandemic with the help of government stimulus checks and breaks on obligations such as rent and student loans. \u2018The increase in delinquencies and defaults is symptomatic of the tough decisions that these households are having to make right now \u2014 whether to pay their credit card bills, their rent or buy groceries,\u2019 said Mark Zandi, chief economist at Moody’s Analytics\u2026 Lower-income borrowers caught in the pinch are resorting to some desperate measures\u2026 There are 70 million more credit card accounts open now than there were in 2019, and Americans’ total credit card debt just topped $1 trillion for the first time, according to the New York Fed.\u201d<\/p>\n

August 31 \u2013 Reuters: \u201cU.S. consumer spending accelerated in July, but slowing inflation strengthened expectations that the Federal Reserve would keep interest rates unchanged next month. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.8% last month\u2026 Data for June was revised up to show spending rising 0.6% instead of 0.5% as previously reported. Economists had forecast spending increasing 0.7%. Spending was boosted by outlays on both goods and services.\u201d<\/p>\n

August 29 \u2013 Bloomberg (Alex Tanzi): \u201cUS interest-rate hikes have dented a key source of consumer funds \u2014 home-equity build-ups. Cash-out refinances \u2014 where property owners borrow against the equity in their homes \u2014 fell to less than 17% of total mortgage loans in the second quarter, the smallest since late 2000\u2026 That compares with 46.1% in the first quarter of 2022, just as the Federal Reserve started its most aggressive interest rate-hike campaign in a generation\u2026 Over the past 20 years, close to 30% of mortgages on average was for home equity withdrawals.\u201d<\/p>\n

Fixed-Income Watch:<\/h2>\n

August 28 \u2013 Bloomberg (Elizabeth Stanton): \u201cThe auctions of two- and five-year Treasury notes Monday drew the highest yields since before the 2008 financial crisis\u2026 The $45 billion two-year auction at 11:30 a.m. New York time was awarded at 5.024%, eclipsing last month\u2019s result to become the highest since 2006. It will pay interest at a rate of 5%, also the most since that year.\u201d<\/p>\n

China Watch:<\/h2>\n

August 27 \u2013 Wall Street Journal (Karen Lema): \u201cIdeology is driving China\u2019s economic policy to a degree not seen since the country\u2019s opening to the West nearly half a century ago, deterring its leaders from taking steps to spur the sputtering economy. Economists and investors have been calling on Beijing to make bolder efforts to boost output\u2014especially by promoting consumer spending\u2026 But top leader Xi Jinping has deep-rooted philosophical objections to Western-style consumption-driven growth, people familiar with decision-making in Beijing say. Xi sees such growth as wasteful and at odds with his goal of making China a world-leading industrial and technological powerhouse, they say.\u201d<\/p>\n

September 1 \u2013 Reuters (Ziyi Tang, Clare Jim and Xie Yu): \u201cChina stepped up measures to boost the country’s faltering economy on Friday, with top banks paving the way for further cuts in lending rates and sources saying Beijing plans further action including relaxing home-purchase restrictions\u2026 The measures cheered investors, and analysts said they should prevent a further downturn in the ailing property sector.\u201d<\/p>\n

August 29 \u2013 Bloomberg (Ye Xie): \u201cBeijing is moving to stimulate China\u2019s economy in dribs and drabs. The latest measure will force banks to reduce interest rates on roughly $5 trillion of existing mortgage loans. It\u2019s another example of transferring wealth from lenders to borrowers. Small wonder that the financial sector is the least favorite among foreign investors, according to Bank of America\u2026\u201d<\/p>\n

August 26 \u2013 Reuters (Judy Hua and Joe Cash): \u201cChina halved the stamp duty on stock trading effective Monday in the latest attempt to boost the struggling market as a recovery sputters in the world’s second-biggest economy. The finance ministry said\u2026 it was reducing the 0.1% duty on stock trades \u2018in order to invigorate the capital market and boost investor confidence\u2019.\u201d<\/p>\n

August 30 \u2013 Reuters (Ziyi Tang, Liangping Gao and Clare Jim): \u201cTwo of China’s biggest cities eased mortgage curbs and the country’s top banks flagged mounting risks from the deepening property sector turmoil\u2026, as Beijing ramps up efforts to shore up the sputtering economy. Guangzhou, China’s fifth biggest city, and the tech hub of Shenzhen said that mortgage curbs would be eased, allowing home buyers to enjoy preferential loans for first-home purchases regardless of their previous credit record.\u201d<\/p>\n

August 31 \u2013 Reuters (Ellen Zhang and Ryan Woo): \u201cChina’s factory activity surprisingly returned to expansion in August, a private-sector survey showed\u2026 The Caixin\/S&P Global manufacturing purchasing managers’ index (PMI) rose to 51.0 in August from 49.2 in July, beating analysts’ forecasts of 49.3 and marking the highest reading since February.\u201d<\/p>\n

August 30 \u2013 Financial Times (Hudson Lockett and Thomas Hale): \u201cCountry Garden, once China\u2019s largest private property developer by sales, has revealed a record Rmb48.9bn ($6.7bn) loss for the first half of the year as it battles to survive the liquidity crisis afflicting the country\u2019s real estate sector. The six-month results\u2026 represent the highest ever losses for the group, until recently considered safer than many of its peers. They also highlight the dire outlook for an industry typically responsible for more than a quarter of economic activity in China.\u201d<\/p>\n

August 30 \u2013 Bloomberg: \u201cCountry Garden Holdings Co. warned that it may default on its debt and raised concerns about staying in business after the embattled Chinese developer posted a record first-half loss of almost $7 billion. The\u2026 company said that if its financial performance continues to deteriorate, the group might not be able to meet its debt obligations, \u2018which may result in default,\u2019 according to a filing… It also cited \u2018material uncertainties\u2019 that may cast \u2018significant doubt on the group\u2019s ability to continue as a going concern.\u2019 The warnings highlight how China\u2019s deepening real estate crisis has battered one of its property giants.\u201d<\/p>\n

August 31 \u2013 Bloomberg: \u201cA group of Country Garden Holdings Co. creditors is seeking to declare a default on a yuan bond, adding a fresh complication for the distressed Chinese developer whose liquidity crisis has shaken the nation\u2019s financial markets. Investors who say they collectively hold 10.5% of a yuan bond effectively due Sept. 4 have proposed the note be declared in default because of a recent downgrade\u2026\u201d<\/p>\n

August 30 \u2013 Bloomberg: \u201cChina has asked two of the nation\u2019s biggest financial firms to examine the books of Zhongrong International Trust Co., potentially paving the way for a state-led rescue of the troubled shadow lender\u2026 Citic Trust Co\u2026 and CCB Trust Co., backed by China Construction Bank Corp., will lead the effort to stabilize operations at Zhongrong\u2026 The plan underscores growing concern among policymakers about the $2.9 trillion trust sector\u2019s impact on financial stability amid disappointing economic growth and a worsening property slump.\u201d<\/p>\n

August 31 \u2013 Bloomberg: \u201cChina Evergrande Group\u2019s money management arm said it couldn\u2019t make payments for investment products this month due to a liquidity crunch. The developer said that it\u2019s been disposing assets to raise money for the payments, but due to setbacks it didn\u2019t receive proceeds and is unable to make the payments\u2026\u201d<\/p>\n

August 30 \u2013 Reuters (Ziyi Tang and Selena Li): \u201cTwo of China’s biggest banks\u2026 posted sluggish profit growth as the economy struggles to bounce back after the lifting of pandemic restrictions, with one saying local government financing vehicles (LGFV) had defaulted, hitting asset quality. Industrial and Commercial Bank of China Ltd (ICBC), the country’s biggest lender, and Bank of China (BOC) posted in exchange filings first half profit growth of 1.2% and 0.78%, respectively, from a year earlier. Chinese lenders are battling headwinds such as lower lending rates and pressure from the government to prop up the economy\u2026 \u2018Some regional financing platforms that are weak in fiscal backing, have experienced a series of risk events, including defaults,\u2019 said Liu Jiandong, BOC’s chief risk officer in a post-results press conference.\u201d<\/p>\n

September 1 \u2013 Reuters (Liangping Gao and Clare Jim): \u201cReal estate agents have been calling Daisy Wu non-stop to get her to buy an apartment in the southern Chinese city of Shenzhen, but the 28-year-old said she was too worried about the slowing economy to consider making a purchase. Wu’s concerns belie a raft of measures rolled out by the Beijing government this week to revive the economy and target the deepening crisis in its massive debt-riddled property sector… \u2018The loosening of mortgage rules doesn’t relieve me of any stress,\u2019 said Wu, who works for a pharmaceuticals firm. \u2018Companies are laying people off or even shutting down. My boyfriend and I are too afraid to buy.\u2019\u201d<\/p>\n

August 31 \u2013 Financial Times (Echo Wong, CK Tan and Peggy Ye): \u201cVacancies are rising in China\u2019s most exclusive office buildings as businesses look to reduce rental expenses during the country\u2019s disappointing economic recovery\u2026 \u2018Activity began to cool down again in the second quarter,\u2019 said Soho China, a Hong Kong-listed owner of office buildings in Beijing and Shanghai, as it reported a 93% fall in first-half profits… \u2018Rents and occupancy rates will be under continuous pressure.\u2019\u201d<\/p>\n

August 27 \u2013 Bloomberg: \u201cChina\u2019s slump is battering its commodities sector, with profits from coal mining to metals production continuing to decline as the property crisis worsens and the economy slows. The steel industry has been hardest hit, with profits at ferrous metals producers dropping 91% over the first seven months of the year\u2026 Base metals producers saw profits drop by 37% and coal miners by 26%, outstripping the broader 16% slump in China\u2019s industrial profitability.\u201d<\/p>\n

Central Banker Watch:<\/h2>\n

August 27 \u2013 Bloomberg (Matthew Boesler, Catarina Saraiva and Alexander Weber): \u201cThe world\u2019s top central bankers stressed the need to keep interest rates high until inflation is contained \u2014 and wrestled with deeper economic shifts that will make their jobs harder. At an annual Federal Reserve gathering in Jackson Hole, Wyoming, keynote speeches from Fed Chair Jerome Powell and European Central Bank President Christine Lagarde\u2026 laid out the challenges each is facing in deciding if they should extend historic strings of rate increases that began last year\u2026 Appearing on a Saturday panel at the confab, hosted by the Kansas City Fed in the heart of Grand Teton National Park, Bank of England Deputy Governor Ben Broadbent said UK rates may have to rise further\u2026\u201d<\/p>\n

August 28 \u2013 Reuters (Elizabeth Stanton): \u201cRecord levels of government debt, geopolitical tensions that threaten to split the global trading system, and the likely persistence of weak productivity gains may saddle the world with a slow-growth future that stunts development in some countries even before it starts. That sobering view of a post-pandemic global economy emerged from research organized by the Kansas City Federal Reserve and debated here this past weekend.\u201d<\/p>\n

August 28 \u2013 Bloomberg (Jana Randow and Marton Eder): \u201cThe European Central Bank hasn\u2019t defeated inflation and probably needs to raise interest rates again in September, according to Governing Council member Robert Holzmann. Chiming in with hawkish colleagues who are also pushing for another hike in borrowing costs, the Austrian governor said\u2026 the economy isn\u2019t in danger of a recession, and tight labor markets mean labor unions may clinch large wage increases. \u2018We\u2019re not yet in the clear when it comes to inflation,\u2019 Holzmann said\u2026 \u2018If there aren\u2019t any big surprises, I see a case for pushing on with rate increases without taking a pause.\u2019\u201d<\/p>\n

August 31 \u2013 Bloomberg (Alexander Weber): \u201cEuropean Central Bank Executive Board member Isabel Schnabel said growth prospects for the euro area are more dire than officials predicted in June, while underlying inflation remains \u2018stubbornly high.\u2019 Highlighting the challenge that the current state of the economy poses to policymakers\u2026 Recent developments \u2018point to growth prospects being weaker than foreseen in the baseline scenario,\u2019 she said. \u2018But underlying price pressures remain stubbornly high, with domestic factors now being the main drivers of inflation in the euro area.\u2019\u201d<\/p>\n

Global Bubble Watch:<\/h2>\n

August 28 \u2013 Bloomberg (Lorretta Chen): \u201cBank loan volumes in Asia Pacific have fallen to a six-year low due to rising interest rates and China\u2019s weak economy, reflecting a global trend but also creating space for the region\u2019s burgeoning private credit sector to grow. Syndicated, club and bilateral loans in ex-Japan Asia Pacific this year slid to $327 billion as of Aug. 28, the least since 2017\u2026 That\u2019s a 28% drop from a year ago, roughly matching the 29% decline globally.\u201d<\/p>\n

August 28 \u2013 Financial Times (Madison Darbyshire): \u201cFlows of money moving into so-called alternative investments have slowed down this year, defying a predicted boom for funds with portfolios outside traditional stocks and bonds. Alternative funds \u2014 which invest in assets such as private equity, hedge funds, real estate and credit \u2014 have raised $740bn since the start of the year, down 27% from $1.02tn in same period last year, according to\u2026 Preqin. The data shows how investor interest has moderated for a sector that was expected to double in size between 2021 to 2026, bringing assets under management to $26tn\u2026 Alternative funds raised $1.5tn in 2022 as a whole.\u201d<\/p>\n

Europe Watch:<\/h2>\n

August 31 \u2013 Bloomberg (Jana Randow, Alexander Weber and James Hirai): \u201cEuro-area inflation stopped slowing in August, presenting European Central Bank officials with a quandary as they weigh whether pressures are too persistent to risk a pause in interest-rate hiking. Consumer prices rose 5.3% from a year earlier, stuck more than 2 1\/2 times above the goal sought by policymakers, because of energy\u2026 An underlying measure stripping out volatile items slowed as expected to reach exactly the same level as the headline gauge.\u201d<\/p>\n

August 30 \u2013 Bloomberg (Sonja Wind): \u201cInflation slowed less than expected in Germany and quickened in Spain, offering European Central Bank officials a partial picture of the region\u2019s price pressures as they judge whether to raise interest rates again\u2026 Consumer prices in Germany, the region\u2019s biggest economy, rose 6.4% in August from a year earlier, exceeding the median estimate of 6.3%…\u201d<\/p>\n

August 29 \u2013 Financial Times (Martin Arnold): \u201cGerman wages rose at a record annual pace of 6.6% in the second quarter\u2026 The increase, which compared with wage growth of 5.6% in the previous quarter, was the highest since collection of the data began in 2008. It took German annual wage growth above the country\u2019s consumer price inflation rate \u2014 6.5% in the period \u2014 for the first time since 2021. \u2018Real wages have declined for three years. Now they are at least stagnant,\u2019 said Enzo Weber, head of research at the Institute for Employment Research…\u201d<\/p>\n

August 28 \u2013 Bloomberg (Libby Cherry and Greg Ritchie): \u201cInterest rates may be peaking in Europe, but for the consumers, companies and governments that borrowed trillions of euros during the era of ultra-low borrowing costs, there\u2019s still plenty of pain in store. Through the end of this decade, borrowers across the continent face repayment on a mountain of debt sold when financing costs were many times lower. Although the adjustment is painful in many places, including the US, it\u2019s a particular shock in Europe, where interest rates were below zero for eight years.\u201d<\/p>\n

August 28 \u2013 Financial Times (Martin Arnold): \u201cEurozone money supply has shrunk for the first time since 2010 as private sector lending stalls and deposits decline, in a financial squeeze that economists warn points to a further downturn ahead\u2026 As lending dries up and short-term deposits shrink, economic activity is expected to slow and inflationary pressures to cool. The latest data will feed into the debate at the ECB\u2019s governing council over whether it should pause interest rate rises for the first time since July 2022 at its next meeting on September 14.\u201d<\/p>\n

Japan Watch:<\/h2>\n

August 26 \u2013 Bloomberg (Catarina Saraiva and Toru Fujioka): \u201cBank of Japan Governor Kazuo Ueda said price growth remains slower than the central bank\u2019s goal, explaining why officials are continuing with their current monetary-policy strategy. \u2018We think underlying inflation is still a bit below our target of 2%,\u2019 Ueda said\u2026 \u2018This is why we are sticking with our current monetary easing framework.\u2019 Annual inflation, as measured by consumer prices excluding fresh food, registered 3.1% in July and the rate \u2018is expected to decline toward the end of the year,\u2019 Ueda said.\u201d<\/p>\n

August 28 \u2013 Reuters (Summer Zhen and Samuel Shen): \u201cJapan may be at an inflection point in its 25-year battle with deflation as price and wage rises show signs of broadening, the government said\u2026 The optimistic view echoes that of the Bank of Japan (BOJ), which has said corporate price- and wage-setting behaviour was changing, and could pave the way for phasing out the country’s massive fiscal and monetary support. \u2018Japan has seen price and wage rises broaden since the spring of 2022. Such changes suggest the economy is reaching a turning point in its 25-year battle with deflation,\u2019 the government said in its annual economic white paper. \u2018We shouldn’t dismiss the fact a window of opportunity may be opening to exit deflation,\u2019 as inflation perks up and public perceptions about persistent price declines abate, it said.\u201d<\/p>\n

August 28 \u2013 Bloomberg (Toru Fujioka): \u201cThe Japanese government highlighted progress toward stamping out deflation after battling it for a quarter century, and urged close cooperation with the Bank of Japan in its latest annual white paper on the economy. The Cabinet Office subtitled this year\u2019s paper \u2018inflation, wages getting into motion,\u2019 mentioning inflation for the first time in around 50 years. \u2018We shouldn\u2019t overlook the fact that a chance to end deflation is approaching,\u2019 the Cabinet Office said… \u2018The government needs to closely coordinate with the BOJ and navigate the economy by checking the macro economic environment carefully.\u2019\u201d<\/p>\n

August 29 \u2013 Bloomberg (Toru Fujioka): \u201cOne of the Bank of Japan\u2019s leading advocates for unwinding monetary stimulus indicated the central bank might attain its long sought-after goal of reaching 2% inflation by early next year, a development that he said could pave the way for an interest rate increase. \u2018The achievement is finally and clearly within sight after a decade of large-scale monetary easing aimed at attaining it,\u2019 Naoki Tamura, the board member, said\u2026 Tamura said\u2026 \u2018Removing the negative rate would naturally be one of the options,\u2019 Tamura told reporters. \u2018As long as rates are kept very low, that\u2019s still a continuation of monetary easing in my understanding.\u2019\u201d<\/p>\n

EM Watch:<\/h2>\n

August 27 \u2013 Wall Street Journal (Chelsey Dulaney and Eric Wallerstein): \u201cRising U.S. interest rates and China\u2019s economic sluggishness are dealing a double blow to emerging markets. Investors had expected developing economies from Brazil to Thailand to shine this year as U.S. interest rates fell, the dollar weakened and Chinese demand rebounded after three years of pandemic-driven lockdowns. Instead, the reverse happened: The Federal Reserve kept raising U.S. interest rates to slow inflation, driving the dollar higher. Separately, China\u2019s recovery faded amid fears its economy is entering an era of slower growth. Disappointed investors are now dumping assets across the developing world.\u201d<\/p>\n

August 29 \u2013 Reuters (Bernardo Caram): \u201cChinese investments in Brazil tanked 78% in 2022 compared with the previous year, hitting their lowest in 13 years\u2026, the Brazil-China Business Council (CEBC) said\u2026 China, Brazil’s largest trading partner, funnelled $1.3 billion in direct investments into the country last year, the lowest level since 2009, according to a CEBC study. The performance contrasts with overall foreign direct investment (FDI) in Brazil in 2022, which skyrocketed by 95% to $90.6 billion, highest in a decade.\u201d<\/p>\n

Leveraged Speculation Watch:<\/h2>\n

August 29 \u2013 Reuters (Nell Mackenzie and Carolina Mandl): \u201cHedge funds hold record exposure to the seven biggest tech stocks by market capitalization, according to\u2026 Goldman Sachs, in a week Nvidia hit an all-time high after beating revenue expectations. The largest seven U.S. stocks collectively now make up about 20% of the total net market value held by hedge funds tracked by Goldman Sachs. They have also been instrumental in the gains in the broader U.S. equity market this year\u2026 \u2018Hedge funds continue to embrace mega cap tech and the artificial intelligence theme,\u2019 Goldman Sachs’ prime brokerage said in a note\u2026\u201d<\/p>\n

August 30 \u2013 Bloomberg (Hema Parmar and Miles Weiss): \u201cNot so long ago, investors couldn\u2019t get enough of the Tiger Cubs, the hedge funds run by Julian Robertson\u2019s proteges. Now the flood of money has slowed to a trickle, after the portfolios posted some of their worst returns ever. Cash from US investors flowing into funds run by Steve Mandel, Philippe Laffont and Dan Sundheim has plunged, in some cases down 98% from the prior 12 months\u2026 It\u2019s a sharp reversal from years when a single one of them might take in hundreds of millions \u2014 if not billions \u2014 of fresh money.\u201d<\/p>\n

August 30 \u2013 Bloomberg (Nishant Kumar): \u201cEurope\u2019s biggest hedge fund startup in 2021, founded by two former Citadel money managers Niall O\u2019Keeffe and Tio Charbaghi, has suffered heavy losses. Their FIFTHDELTA hedge fund that bets on rising and falling stocks lost about 13% in July, extending declines for 2023 to as much as 29% before paring year-to-date losses to 25%… The setback marks a change in fortunes for the duo who started their hedge fund with $1.3 billion in July 2021 and closed it to new money on the first day of trading\u2026 It also shows the challenges that traders \u2014 especially long and short equity fund managers \u2014 face to replicate their success when they move out of established multi-manager hedge fund powerhouses like Citadel and Millennium to start on their own. Equity hedge funds tracked by Bloomberg were on an average up 6.6% through July this year.\u201d<\/p>\n

Social, Political, Environmental, Cybersecurity Instability Watch:<\/h2>\n

August 28 \u2013 Financial Times (George Steer): \u201cThis year\u2019s El Ni\u00f1o weather event is expected to compound the effects on global food prices of India\u2019s rice export ban and Russia\u2019s withdrawal from the Black Sea grain deal, potentially stoking inflation across emerging markets. Starting in September, the natural temperature fluctuation in the Pacific Ocean known as El Ni\u00f1o is forecast to bring months of extreme heat to parts of South Asia and Central America, as well as heavy rainfall over the Andes. The phenomenon typically disrupts crop cycles and is likely to add further strain to global food output and prices\u2026\u201d<\/p>\n

August 31 \u2013 Financial Times (Martha Muir and Steven Bernard): \u201cClimate scientists have warned that extreme wildfires are becoming more destructive and are expected to occur more frequently in areas typically considered safe from blazes, such as eastern Europe and even the Arctic. The comments from UK and Australian climate and fire modelling experts came at the end of a summer in which the northern hemisphere has been hit by a series of devastating wildfires, including a forest fire in Greece that is the largest ever recorded in the EU, and deadly blazes on the Hawaiian island of Maui.\u201d<\/p>\n

Geopolitical Watch:<\/h2>\n

August 31 \u2013 Reuters (Jindong Zhang, Winni Zhou and Tom Westbrook): \u201cNorth Korea conducted a simulated \u2018scorched-earth\u2019 nuclear strike on targets across South Korea\u2026, in reaction to allied exercises that it said amounted to plans for a pre-emptive nuclear attack by the United States. The state media reports spelled out in unusual detail how the North envisions a potential war, including countering any attack by striking the South with nuclear weapons, then sweeping in to occupy its territory.\u201d<\/p>\n

August 30 \u2013 Reuters (Hyunsu Yim): \u201cThe United States separately deployed B-1B bombers for joint drills with South Korea and Japan\u2026, as the three allies have stepped up responses to threats from North Korea. A U.S. B-1B flew alongside South Korean FA-50 jets and U.S. Air Force F-16 fighters as part of ongoing Ulchi Freedom Shield exercises\u2026 North Korea routinely denounces the annual military drills as a rehearsal for war. The allies have stressed that the exercises are defensive.\u201d<\/p>\n

September 1 \u2013 Bloomberg (Cliff Venzon): \u201cChina\u2019s vast territorial claims in the region has reignited opposition from its neighbors, after Beijing this week released a 2023 map showing a \u201810-dash line\u2019 demarcation on the South China Sea. China\u2019s Ministry of Natural Resources released the new map on Aug. 28, notably with a line on the east of Taiwan, which Beijing considers a renegade province. \u2018We received the news that now the nine-dash line has been extended to the 10-dash line,\u2019 Philippine President Ferdinand Marcos Jr. told reporters\u2026 as he vowed to continue defending the country\u2019s territory. Taiwan and Vietnam also aired objections, joining India, Malaysia and the Philippines\u2026\u201d<\/p>\n

August 31 \u2013 Reuters (Karen Lema, Ben Blanchard, Liz Lee and Khanh Vu): \u201cThe Philippines, Malaysia, Taiwan and Vietnam have rejected as baseless a map released by China that denotes its claims to sovereignty including in the South China Sea and which Beijing said\u2026 should be viewed rationally and objectively. China released the map on Monday of its famous U-shaped line covering about 90% of the South China Sea, a source of many of the disputes in one of the world’s most contested waterways, where more than $3 trillion of trade passes each year.\u201d<\/p>\n

August 30 \u2013 Bloomberg (Erica Yokoyama): \u201cJapan\u2019s Defense Ministry is seeking a record budget for the next fiscal year as the pacifist country is set to have some of the highest military spending in the world, with questions remaining as to how the government will finance the surge. The ministry said\u2026 it\u2019s seeking \u00a57.7 trillion ($52.6bn) for the fiscal year beginning in April 2024, up 13% from the previous year.\u201d<\/p>\n

\n

Original Post<\/em><\/strong><\/p>\n

Editor’s Note:<\/strong> The summary bullets for this article were chosen by Seeking Alpha editors.<\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

S&P 500 futures were up 0.7% immediately following the release of Friday\u2019s August payrolls data. Non-farm job gains of 187,000 were marginally above the 170,000 consensus estimate (with July\u2019s gain revised 30k lower). At 0.2% (0.24%), the increase in Average Hourly Earnings was below the 0.3% forecast and July\u2019s 0.4% – and was the weakest […]<\/p>\n","protected":false},"author":1,"featured_media":29526,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[236],"tags":[83],"class_list":["post-56120","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-news","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nDoug Noland's Weekly Commentary: Curious Market Action | iFintechWorld<\/title>\n<meta name=\"description\" content=\"S&P 500 futures were up 0.7% immediately following the release of Friday\u2019s August payrolls data. Non-farm job gains of 187,000 were marginally above\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=56120\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Doug Noland's Weekly Commentary: Curious Market Action | iFintechWorld\" \/>\n<meta property=\"og:description\" content=\"S&P 500 futures were up 0.7% immediately following the release of Friday\u2019s August payrolls data. 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