“In 1939, a brief proposal auspiciously titled ‘A Program for Monetary Reform’ was circulated among economists in the United States. Written in the wake of The Great Depression by a group of prominent American economists which included Irving Fisher and Paul Douglas, it included a stark criticism of the fractional reserve banking system in the United States, referring to it as ‘a chief loose screw in our present American money and banking system’ (Fisher et al., 1939). Despite this, the fractional reserve system remained then, and continues to remain status quo for all developed banking systems in the world. It has gathered many more critics over the years that attribute to it many disadvantages, such as a tendency for bank runs and moral hazard on behalf of lending institutions, among other negative externalities.” Sergey Alifanov, “On the Dangers Inherent in a Fractional Reserve Banking System”, Trinity College Dublin, 2015
Bank panics and Runs certainly predate the Great Depression. Notable examples in more distant history include the Dutch Tulip Bulb Mania (1637), Britain’s South Sea Bubble (1719), and France’s (John Law’s) spectacular Mississippi Bubble (1720). And Runs preceded banks as we think of them today, with panicked efforts to redeem goldsmith-issued notes. Carmen Reinhart and Kenneth Rogoff, in “This Time Is Different,” noted a panic and Run in Sicily, fourth century B.C.
Credit and economic crises invariably drew attention to the inherent fragility of fractional-reserve banking. Here a deposit into a bank would fund a loan that would become a new deposit at another bank, where it could then be lent again (and again). “Fractional reserve” denotes a requirement to hold a portion of a new deposit in reserve (not available for lending). For example, a 20% reserve requirement would mean that of a $100 deposit $80 would be available for funding a new loan. And when this new $80 financial claim became a deposit at another institution, a $64 loan could be made, and so on – a process referred to as the “money multiplier.”
Reserve requirements imposed to restrain Credit growth would invariably prove ineffective during periods of manic excess. Post-bust analysis would then target unhinged bank lending and resulting Credit and speculative excess as chiefly responsible for boom and bust dynamics. There was no pot of money available to satisfy throngs of panicked depositors rushing to pull their cash from troubled banks. There’s no pot of money in today’s troubled global markets.
“S&P 500 Closes the Book on its Steepest First-Half Slide Since 1970.” “Markets Post Worst First Half of a Year in Decades.” “Biggest Forex Rout Since ‘97 Puts Asia Central Banks in Bind.” “This was the Worst First Half for the Market in 50 Years and It’s All Because of One Thing — Inflation.”
Surging consumer inflation may have been the catalyst, but the unfolding crisis has been decades in the making. I’ll take exception with just a snippet from the opening quote from Sergey Alifanov: “The fractional reserve system… continues to remain status quo.” In the late-nineties, I began referring to the “infinite multiplier effect.” Market-based Credit had started proliferating outside the banking system, completely free from reserve and capital requirement constraints. Subtly, key systemic risk was shifting from banking system impairment to assets Bubbles and inevitable runs on market-based instruments. This risk has been masked for years by central bank inflationism.
The nineties ushered in unfettered Credit in a scope never previously experienced. History teaches that Credit is inherently unstable. I became convinced this new Credit mechanism was instability on steroids. The 1994 bond market/derivatives blowup, Mexico, the spectacular Asian Tiger boom and bust, Russia, LTCM, the tech Bubble…
Rather than recognizing and addressing this dangerous new financial innovation and evolving Market Structure, the Fed pivoted in the opposite direction: it commenced a transformative era of monetary management doctrine that specifically underpinned non-bank Credit and market-based finance. Habitual central bank-induced market recoveries (spurred by rate cuts, bailouts and later, QE) ensured this new financial structure and associated monetary doctrine enveloped the world. A Federal Reserve liquidity backstop (“Fed put”) took root and would grow to become deeply embedded in market perceptions, prices and structure for securities and derivatives markets (Market Structure).
What was to unfold over three decades was nothing short of history’s greatest period of Credit and speculative excess. Now the dreadful downside. Virtually everyone seems unaware of the extraordinary challenges ahead.
The establishment of the Federal Deposit Insurance Corporation’s (FDIC) (part of the Banking Act of 1933) essentially relegated bank Runs as a systemic issue to the history books. Meanwhile, Runs on a plethora of non-deposit financial instruments have been a recurring issue. For the most part, however, the Fed’s propensity to swiftly respond to heightened market stress with (progressively aggressive) stimulus measures ensured that bouts of “risk off” were reversed before panic gained perilous momentum. The Fed’s QE, zero rates and other bailout measures unleashed in late-2008 proved sufficient to sustain confidence in money market and mutual fund shares, along with financial assets generally.
The situation had turned significantly more alarming by March 2020. Over the preceding decade, Trillions had flowed into perceived safe and liquid financial instruments, certainly including ETF shares. Witnessing Bernanke’s policies of coercing savers into the risk markets (as a key mechanism for system reflation), I began warning of a “Moneyness of Risk Assets” dynamic (an offshoot of the mortgage finance Bubble period’s “Moneyness of Credit” fiasco).
The pandemic blindsided Bubble markets. There were dislocations and swift 20% losses for some popular ETF products, most notably for funds holding corporate debt and small cap equities. While investors assume their ETF shares are highly liquid “stores of value” (markets invariably move higher), underlying assets in many funds are liquidity-challenged. In the event of market panic, as was experienced in March 2020, entire assets classes face acute illiquidity. The Fed resorted to plans for aggressive purchases of shares of ETFs holding equities and corporate Credit. Confidence was again restored, and $5 TN of Fed QE then ensured that the flood of “money” into the ETF complex became a tsunami.
June 29 – Bloomberg (Steve Matthews): “Federal Reserve Chair Jerome Powell said the US economy is in ‘strong shape’ and the central bank can reduce inflation to 2% while maintaining a solid labor market, even though that task has become more challenging in recent months. He also vowed to ensure rapid price increases don’t become entrenched, saying that ‘we will not allow a transition from a low inflation environment to a high inflation environment.’ ‘We hope that growth will remain positive,’ Powell said… ‘Household and business finances are also in solid shape, and ‘overall the US economy is well positioned to withstand tighter monetary policy.’”
With institutional credibility on the line, Powell and Fed officials are displaying newfound resolve in their belated inflation fight. Understandably, markets fret the status of the beloved – the venerated “Fed put.” I can only assume the Fed recognizes the acute fragility that today permeates global markets, though there is little so far to indicate as much. New York Fed president John Williams, responsible for overseeing the Fed’s market operations and market-monitoring function, stated Tuesday on CNBC: “I’m not seeing any signs of a taper tantrum. The markets are functioning well.”
Markets are unwell, at home and abroad. Global markets a couple weeks back began to dislocate, before a rally took some pressure off. It was another rally with a short half-life, with pressure returning this week.
Global de-risking/deleveraging has attained important momentum. I suspect the global leveraged speculating community is increasingly impaired – and this impairment will manifest into heightened risk aversion interrupted by occasional bear market rallies. Importantly, the ongoing unwind of speculative leverage is methodically destroying liquidity. Segments of the markets are turning increasingly illiquid, raising the likelihood of contagion, panic and dislocation.
Ten-year Treasury yields sank 25 bps this week, and are now down 62 bps from the June 14th 3.50% intraday high. It’s a global phenomenon. German bund yields have dropped 65 bps in 13 sessions (June 16 intraday highs), with yields down a notable 21 bps this week. Swiss 10-year yields slumped 43 bps this week to a one-month low 0.81%. UK yields dropped 22 bps.
European periphery yields have collapsed since June 14th. Italian yields sank another 37 bps this week, and are down 110 bps from June 14th highs. Greek yields fell 27 bps this week (down 124 bps from June 14th highs), with yields this week sinking 25 bps in Portugal (down 85bps) and 28 bps in Spain (down 93bps).
Commodities markets remain under heavy selling pressure. The Bloomberg Commodities Index fell another 3.4% this week, with the index down 14% from June 9th highs. Copper is down 19% in four weeks, tin 24%, nickel 22%, zinc 14%, lead 13%, and aluminum 12%. The precious metals have not been immune to selling, with silver and platinum down 6.2% and 2.1% this week. Highfliers natural gas, wheat and corn have suffered the kind of brutal reversals that inflict a lot of speculator pain.
The simple explanation has markets responding to heightened recession risk. Yet I tend to see markets increasingly discounting the scenario of intensifying de-risking/deleveraging and attendant risks of illiquidity and dislocation.
Two-year Treasury yields traded at 3.13% intraday Wednesday, before sinking 40 bps to a Friday intraday low of 2.73% (ended week at 2.835%). The market’s implied rate for the Fed funds rate at the December 14th FOMC meeting traded up to 3.50% in Wednesday’s session, before sinking to a Friday low of 3.17% (ended week at 3.32%). The sharp reversal in yields and market rates coincided with Wednesday’s meeting of the world’s top central bankers at the ECB’s annual conference in Sintra, Portugal.
June 30 – Bloomberg (Craig Torres and Carolynn Look): “Risks are mounting that the world is shifting to a regime of higher inflation, forcing central bankers to tear up their playbook of the last 20 years. That was a key message from Federal Reserve Chair Jerome Powell and his European counterparts on Wednesday as they debated how to tackle persistent price pressures and slower growth. ‘I don’t think we are going to go back to that environment of low inflation’ European Central Bank President Christine Lagarde told the ECB’s annual forum in Sintra, Portugal. ‘There are forces that have been unleashed as a result of the pandemic, as a result of this massive geopolitical shock we are facing now that are going to change the picture and the landscape within which we operate,’ she said… Her comments, alongside those of Powell and Bank of England Governor Andrew Bailey, mean a potential upheaval of monetary policy practice.”
Leaders of the central bank community were all together and addressing, for the first time as a group, fundamental secular change. More from the above Bloomberg article: “The Fed chief warned of a ‘re-division of the world into competing geopolitical and economic camps, and a reversal of globalization’ that could result in lower productivity and growth. The risk of longer-lasting scarcity as the world reorders can already be seen.”
From the BOE’s Andrew Bailey: “It’s how you deal with a series of large supply shocks with no air gap between them, which of course feeds through into expectations. Put them all together, they’re not transitory in the traditional sense of the term.”
From Bundesbank President Jens Weidmann (earlier in the week): “The more persistent the shock proves to be, the more the delay in monetary tightening increases the risk that companies, households and workers will start to expect that high inflation is here to stay. In order to prevent de-anchoring, the persistence of inflation should be overstated rather than understated, and a forceful monetary policy response is advisable precisely when uncertainty about it is particularly high.”
And more from Powell: “The last ten years were so far the height of the disinflationary forces that we faced. That world seems to be gone now at least for the time being. We are living with different forces now and have to think about monetary policy in a very different way… If you want to know the lessons to be learned of the last ten years, look at our framework. Those were all based on a low inflation environment that we had. And now we are in this new world where it is quite different with higher inflation and many supply shocks and strong inflationary forces around the world.”
A “new world,” indeed. And the status of the “Fed put” – after three decades of becoming ever more explicit – is now officially indeterminate. Federal Reserve officials are these days focused on their inflation fight rather than how they might respond to market crisis. Of course, the Fed would surely muster a policy response. But these days markets must assume it will be a delayed response. Moreover, it’s reasonable to assume that the Fed would not initially come with the type of massive QE liquidity injections that faltering markets would require for stabilization.
New ballgame. The world is now in a serious de-risking/deleveraging episode, without the prospect of timely central bank liquidity injections. This, for one, profoundly alters the risk vs. return calculus for leveraged speculation, and I believe we are witnessing global players moving to reduce risk. And with the timing and scope of central bank liquidity support very much an open issue, this significantly raises the odds of self-reinforcing de-risking/deleveraging spurring contagion and illiquidity.
The “Periphery to Core Dynamic” has gained momentum globally. It’s worth noting June losses for EM currencies. The Chilean peso dropped 10.3%, the Brazilian real 10.0%, the Colombian peso 9.2%, the Polish zloty 4.8%, the South Korean won 4.7%, the Philippine peso 4.7%, the Argentine peso 4.0%, and the South African rand 3.9%. EM bonds have been clobbered, while key EM CDS prices jumped this week to highs since 2020.
Federal Reserve holdings for foreign owners (largely global central banks) of Treasury and Agency Debt last week dropped another $12.4 billion to the low back to 2020 ($3.391TN). The Run on EM markets is unleashing a dangerous dynamic. When global liquidity flows abundantly, financial flows originating from U.S. trade deficits and leveraged speculation often find their way into higher-yielding EM securities. These flows end up at EM central banks, where they are conveniently “recycled” back into U.S. markets through (chiefly) purchases of Treasuries, agencies and other debt securities.
This “infinite multiplier” dynamic works miraculously so long as liquidity remains abundant, asset prices are inflating, and leveraged speculation is expanding. But this dynamic breaks down in reverse. “Hot money” outflows are now forcing EM central banks to sell Treasuries to generate purchasing power to support their flagging currencies. This is taking an increasing toll on liquidity and the stability of global financial flows.
EM tightening cycle fragility (aka “taper tantrum”) is not a new phenomenon. This is, however, the first episode of highly levered (securities markets and real economies) EM systems facing global de-risking/deleveraging without a clear Fed and central banking community “put.” With the global liquidity backstop now nebulous, there is every reason for the leveraged speculators to move more aggressively in exiting levered EM “carry trades.” And resulting outflows lead to only weaker currencies, more EM central bank Treasury (and sovereign debt) sales, and greater stress on global financial stability.
Ominously, CDS prices surged this week in the Philippines (53bps), Indonesia (38bps), Malaysia (38bps), and India (19bps) – trading to highs since 2020. So-called “frontier” markets are at great risk. This week’s CDS spikes included Ethiopia (588bps), Angola (136bps), Pakistan (125bps), Mongolia (96bps), El Salvador (264bps), Iraq (90bps) and Senegal (80bps) – to name a few.
The risk of serious breakdown – a “seizing up” – of global financial flows appears to be rising rapidly. This risk is increasingly being reflected at the “Periphery of the Core.” At Thursday’s intraday high, U.S. high-yield CDS was up a blistering 62 bps w-t-d, back near the spike high from two weeks ago (and the high since May 2020). High-yield corporate spreads to Treasuries (Bloomberg Index) surged a notable 71 bps this week to 578 bps, with an alarming three-week gain of 140 bps – to highs since July 2020. Investment-grade CDS jumped seven this week to 101 bps, back near highs since May 2020, with investment-grade spreads 10 bps wider to 158 bps (high since June 2020). Posing clear systemic risk, the corporate debt market remains largely closed to new issuance.
As I have repeatedly posited, contemporary finance does not function well in reverse. The confluence of rising market yields, widening spreads, and surging CDS/derivatives prices is problematic for highly levered global securities markets.
I believe global “safe haven” sovereign yields have reversed sharply lower in response to rapidly rising market illiquidity and dislocation risk. This may offer a temporary reprieve to “risk off.” But the prospect of Crisis Dynamics and resulting global economic disruption is now fueling the liquidation of commodities and related sectors that had been performing well in the face of the general market bloodbath.
Market upheaval has turned systemic. No place is safe. And the Runs have commenced.
The Run on crypto assets is said not to pose general financial system risk. Perhaps that’s true, but it is likely a harbinger of what’s to come throughout the risk markets. Emerging markets appear vulnerable to a brutal contagion dynamic that could engulf the world. The relative stability of recent flows into U.S. equities is ominous. March 2020-style panic outflows and market dislocation pose significant systemic risk. How would the Fed respond today to a Run on the ETF complex?
Modern day Runs appear to have the potential to be every bit as destabilizing as the old bank Run. Keep in mind that contemporary financial crises have typically turned systemic in the money markets (i.e. Lehman “repos”). Crisis tends to erupt when perceived safe and liquid holdings (“money”) are suddenly recognized as at heightened risk. It’s this “moneyness” perception for all these financial instruments (i.e. ETF and mutual fund shares, derivatives and “structured finance”) that has me on edge. Myriad acutely vulnerable Bubbles and a Fed liquidity backstop blurred by newfound ambiguity. The New Cycle is off to a very troubling start.
For the Week:
For the week, the S&P500 fell 2.2% (down 19.7% y-t-d), and the Dow declined 1.3% (down 14.4%). The Utilities surged 4.2% (down 0.3%). The Banks lost 2.4% (down 22.4%), and the Broker/Dealers slumped 1.9% (down 21.2%). The Transports fell 1.9% (down 19.4%). The S&P 400 Midcaps declined 1.6% (down 19.2%), and the small cap Russell 2000 fell 2.2% (down 23.1%). The Nasdaq100 dropped 4.3% (down 29.0%), and the Semiconductors sank 9.6% (down 37.7%). The Biotechs were little changed (down 14.0%). With bullion down $20, the HUI gold index fell 4.6% (down 12.3%).
Three-month Treasury bill rates ended the week at 1.61%. Two-year government yields dropped 23 bps to 2.84% (up 210bps y-t-d). Five-year T-note yields sank 31 bps to 2.88% (up 162bps). Ten-year Treasury yields fell 25 bps to 2.88% (up 137bps). Long bond yields declined 16 bps to 3.11% (up 120bps). Benchmark Fannie Mae MBS yields dropped 26 bps to 4.25% (up 218bps).
Greek 10-year yields fell 27 bps to 3.49% (up 218bps y-t-d). Ten-year Portuguese yields dropped 25 bps to 2.27% (up 181bps). Italian 10-year yields sank 37 bps to 3.09% (up 192bps). Spain’s 10-year yields dropped 28 bps to 2.27% (up 171bps). German bund yields fell 21 bps to 1.23% (up 141bps). French yields declined 18 bps to 1.80% (up 160bps). The French to German 10-year bond spread widened three to 57 bps. U.K. 10-year gilt yields dropped 22 bps to 2.09% (up 112bps). U.K.’s FTSE equities index slipped 0.6% (down 2.9% y-t-d).
Japan’s Nikkei Equities Index fell 2.1% (down 9.9% y-t-d). Japanese 10-year “JGB” yields were unchanged at 0.23% (up 16bps y-t-d). France’s CAC40 tumbled 2.2% (down 17.1%). The German DAX equities Index lost 2.3% (down 19.3%). Spain’s IBEX 35 equities index dipped 0.8% (down 6.2%). Italy’s FTSE MIB index dropped 3.5% (down 21.9%). EM equities were mostly under pressure. Brazil’s Bovespa index increased 0.3% (down 5.6%), while Mexico’s Bolsa index was little changed (down 10.3%). South Korea’s Kospi index dropped 2.6% (down 22.6%). India’s Sensex equities index increased 0.3% (down 9.2%). China’s Shanghai Exchange Index gained 1.1% (down 6.9%). Turkey’s Borsa Istanbul National 100 index slumped 4.3% (up 31.6%). Russia’s MICEX equities index sank 7.7% (down 41.7%).
Investment-grade bond funds suffered outflows of $3.644 billion, and junk bond funds posted negative flows of $1.593 billion (from Lipper).
Federal Reserve Credit last week declined $11.2bn to $8.890 TN. Over the past 146 weeks, Fed Credit expanded $5.163 TN, or 139%. Fed Credit inflated $6.079 Trillion, or 216%, over the past 503 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week dropped $12.4bn to $3.391 TN. “Custody holdings” were down $132bn, or 3.7%, y-o-y.
Total money market fund assets declined $12bn to $4.531 TN. Total money funds were up $4bn, or 0.1%, y-o-y.
Total Commercial Paper jumped $26.1bn to a six-month high $1.170 TN. CP was up $61bn, or 5.5%, over the past year.
Freddie Mac 30-year fixed mortgage rates dropped 11 bps to 5.70% (up 272bps y-o-y). Fifteen-year rates fell nine bps to 4.83% (up 257bps). Five-year hybrid ARM rates rose nine bps to 4.50% (up 18bps) – the high back to September 2009. Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates down 11 bps to 5.78% (up 270bps).
June 29 – Bloomberg (Karl Lester M. Yap and Xiao Zibang): “The surge in the dollar has set Asian currencies on course for their worst quarter since 1997 and created a dilemma for central bankers. Policy makers already grappling with the fastest inflation in decades now face stark choices: forcefully raise borrowing costs to defend currencies and risk hurting growth, spend reserves that took years to build to intervene in foreign exchange markets, or simply step away and let the market run its course. ‘Central banks are thrust into a difficult position to tighten, even as the recovery from the pandemic is not yet complete and with the specter of a US recession ahead,’ said Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken… ‘Complicating the picture is the strong greenback, which adds to the pressure to tighten as weak currencies exacerbate imported inflation.’”
For the week, the U.S. Dollar Index increased 0.9% to 105.11 (up 9.9% y-t-d). For the week on the upside, the South Korean won increased 0.1%. On the downside, the South African rand declined 3.7%, the New Zealand dollar 2.0%, the Swedish krona 2.0%, the Mexican peso 2.0%, the Australian dollar 1.9%, the Brazilian real 1.9%, the Norwegian krone 1.4%, the British pound 1.4%, the euro 1.3%, the Singapore dollar 0.8%, the Swiss franc 0.3%, and the Canadian dollar 0.1%. The Chinese (onshore) renminbi slipped 0.17% versus the dollar (down 5.15% y-t-d).
June 27 – Reuters: “Two top OPEC oil producers, Saudi Arabia and the United Arab Emirates, can barely increase oil production, French President Emmanuel Macron… said he had been told by the UAE’s president. Saudi Arabia and the UAE have been perceived as the only two countries in the Organization of the Petroleum Exporting Countries (OPEC) with spare capacity to boost global deliveries that could reduce prices.”
The Bloomberg Commodities Index slumped 3.4% (up 18.1% y-t-d). Spot Gold declined 1.1% to $1,827 (down 1.2%). Silver dropped 6.2% to $19.85 (down 14.8%). WTI crude added 79 cents to $108.41 (up 44%). Gasoline dropped 5.6% (up 65%), and Natural Gas sank 8.4% (up 53%). Copper fell 3.4% (down 19%). Wheat sank 10.2% (up 9%), and Corn dropped 9.9% (up 2%). Bitcoin sank $1,700, or 8.0%, this week to $19,570 (down 58%).
Market Instability Watch:
June 29 – Financial Times (Scott Chipolina): “Crypto hedge fund Three Arrows Capital has fallen into liquidation, becoming the latest high-profile victim of the credit crisis sweeping through the digital asset market. Teneo was appointed this week as ‘joint liquidators’ of Three Arrows through a court order in the British Virgin Islands… The move to liquidate Three Arrows comes as tremors in the crypto market in recent weeks have intensified as global investors ditch speculative assets on concerns over slowing global growth and decisions by major central banks to sharply tighten monetary policy.”
June 27 – Bloomberg (Emily Nicolle and Olga Kharif): “For a generation of alienated techies, crypto’s all-for-one ethos was its biggest draw. Now panic is spreading across this universe — and that same ethos is posing what may be the biggest threat yet to its survival. What started this year in crypto markets as a ‘risk-off’ bout of selling… has exposed a web of interconnectedness that looks a little like the tangle of derivatives that brought down the global financial system in 2008. As Bitcoin slipped almost 70% from its record high, a panoply of altcoins also plummeted. The collapse of the Terra ecosystem — a much-hyped experiment in decentralized finance — began with its algorithmic stablecoin losing its peg to the US dollar, and ended with a bank run that made $40 billion of tokens virtually worthless. Crypto collateral that seemed valuable enough to support loans one day became deeply discounted or illiquid, putting the fates of a previously invincible hedge fund and several high-profile lenders in doubt.”
June 29 – Wall Street Journal (Eliot Brown and Caitlin Ostroff): “Celsius Network LLC CEO Alex Mashinsky built his cryptocurrency lender into a giant on a pitch that it was less risky than a bank with better returns for customers. But investor documents show the lender carried far more risk than a traditional bank. The lender issued numerous large loans backed by little collateral… The documents show that Celsius had little cushion in the event of a downturn, and made investments that would be difficult to quickly unwind if customers raced to withdraw their money… Celsius had $19 billion of assets and roughly $1 billion of equity as of last summer, before it raised new funds…”
June 27 – Reuters (Lisa Pauline Mattackal and Medha Singh): “Bitcoin miners have been forced to tap into their cryptocurrency stashes as a plunge in prices, rising energy costs and increased competition bite into profitability. The number of coins miners are sending to crypto exchanges has been steadily climbing since June 7, researchers at MacroHive noted, in a sign that ‘miners have been increasingly liquidating their coins on exchanges.’ Several publicly listed bitcoin miners collectively sold more than 100% of their entire output in May as the value of bitcoin tumbled 45%, an analysis by Arcane Research found.”
July 1 – Bloomberg (Jacqueline Poh): “Global companies have pulled more debt sales in the past six months than in all of 2020. More than 70 deals have been postponed or canceled so far in 2022, according to data compiled by Bloomberg. That’s compared with 37 during the full year of 2021, and 67 in 2020. While that’s as far back as our data goes, it’s likely been several years since so many companies withdrew from the market, given the recent era of cheap and plentiful money. Now, financial conditions are changing fast.”
June 30 – Bloomberg (Giulia Morpurgo): “A gauge measuring risk on European junk bonds crossed the threshold of 600 bps for the first time since April 2020, as central bankers reiterated concerns over inflation. The iTraxx Crossover, which tracks the cost of insuring European high yield bonds, jumped to as much as 605 bps on Wednesday, reaching its highest level since April 2020…”
June 27 – Bloomberg (Karl Lester M Yap): “After years of building their foreign-exchange reserves, central banks in Asia are tapping into their stockpiles to bolster their weakening currencies against a rising US dollar. Thai reserves slid to $221.4 billion as of June 17… That was the lowest in more than two years. Monthly figures show that Indonesia’s stash is at the smallest since November 2020. Reserves in South Korea and India are at their lowest in more than a year. Malaysia’s stockpile, meanwhile, has fallen the most since 2015. ‘Some countries would have used their reserves to stabilize their currencies when moves were excessive,’ said Rajeev De Mello, a global macro portfolio manager at GAMA Asset Management… ‘They know that they can’t reverse their currencies’ weakness against the USD, but they can smooth the declines.’”
June 29 – Bloomberg (Selcuk Gokoluk): “Developing-nation companies are relying on bond sales in their local currencies as global turbulence sparked by recession fears leave many issuers locked out of the market for eurobonds. Even as corporate issuance of dollar- and euro-denominated debt has plunged to $220 billion, the lowest volume for the year to date since 2015, sales of local-currency bonds topped $3 trillion in the first half of 2022… While local-currency debt has yielded losses this year, they’re less than half those seen for emerging-market bonds in hard currencies as international investors flee the asset class in the wake of Russia’s war in Ukraine, rising US rates and growing default risk.”
June 27 – Bloomberg (Swati Pandey): “The list of emerging-markets countries facing debt distress is quickly mounting as global interest rates rise, according to World Bank Group Chief Economist Carmen Reinhart. ‘With the low income countries, debt risks and debt crises are not hypothetical. We’re pretty much already there,’ Reinhart told Bloomberg… ‘Debt crises need to be resolved through meaningful debt reduction. If not, it’s a band-aid and it’s a band-aid that wears off very quickly.’”
June 27 – Bloomberg (Ruth Carson, Nishant Kumar, and Bei Hu): “In Tokyo’s financial circles, the trade is known as the widow-maker. And while it has done nothing but saddle young, cocksure investors from London to New York with crippling losses over the past two decades… they’re lining up once again to take a shot. The bet is simple: that the Bank of Japan, under growing pressure to stabilize the yen as it sinks to a 24-year low, will have to abandon its 0.25% cap on benchmark bond yields and let them soar, just as they already have in the US, Canada, Europe and across much of the developing world. The stakes are high. A surge in rates in Japan, home to millions of savers who invest in bonds around the world, would reverberate quickly across financial markets. Yields nearly everywhere would dart higher still, analysts say…”
June 27 – Bloomberg (Chikako Mogi): “Liquidity continues to worsen in Tokyo’s fragile bond market amid echos of the Bank of Japan’s robust defense against speculators betting it would tweak yield curve control. Volumes in front-month Japanese government bond futures fell to the lowest this year in local trading on Monday, more than 60% below the 12-month average, according to data compiled by Bloomberg. The BOJ’s recent move to clamp down on speculative selling has weakened the contracts’ usefulness as a hedging instrument, undermining trading activity.”
Bursting Bubble/Mania Watch:
June 30 – Wall Street Journal (Akane Otani): “Global markets closed out their most bruising first half of a year in decades, leaving investors bracing for the prospect of further losses. Accelerating inflation and rising interest rates fueled a monthslong rout that left few markets unscathed. The S&P 500 fell 21% through Thursday, suffering its worst first half of a year since 1970… Investment-grade bonds, as measured by the iShares Core U.S. Aggregate Bond exchange-traded fund, lost 11%—posting their worst start to a year in history.”
July 1 – Financial Times (Joe Rennison, Eric Platt, Nicholas Megaw and Kate Duguid): “Corporate fundraising cooled sharply in the first half of 2022 as a storm blowing across financial markets left bankers and corporate finance chiefs wary of issuing new stocks and debt. Businesses globally raised $4.9tn through new bonds, loans and equity in the first half of 2022, down 25% from the $6.6tn raised in the first half of 2021 — a record-setting period, according to… Refinitiv. The chill in capital markets underscores a powerful shift from exuberance to trepidation this year as central banks aggressively tighten monetary policy to temper persistently hot inflation.”
June 28 – Bloomberg (Crystal Tse and Katie Roof): “Companies last year defied the coronavirus pandemic to go public at a record pace. Now, market volatility, inflation and fears of a downturn have brought an abrupt end to the listing party. Companies have raised a combined $4.9 billion via US initial public offerings this year, less than 6% of the record sum raised in the first half of 2021… While 2021’s volume was an historical outlier, this year’s paltry total distantly trails the $47 billion five-year average for the period.”
June 29 – Bloomberg (Gowri Gurumurthy): “US junk-bond yields surged to a fresh 26-month high and spreads are back above 500 bps again amid renewed worries about global growth… That puts June on track for the biggest monthly loss since the onset of the pandemic in March 2020 with returns for the month so far at negative 5.66%… Supply is running at $67.3 billion — down about 76% from the same period a year ago — making this the slowest first-half since 2009…”
June 29 – Bloomberg (Olivia Raimonde and Gowri Gurumurthy): “Risk premiums on some of corporate America’s lowest-rated debt have breached distressed levels. Spreads on CCC rated bonds widened 36 bps Wednesday to 1,010 bps, the highest level since August 2020.”
June 27 – Bloomberg (Olivia Raimonde): “A drought in US junk-bond sales is showing few signs of ending, and strategists are cutting back forecasts for issuance this year. A single junk-bond issuer, FTAI Infrastructure, said on Monday that it planned to sell $500 million of notes, the first announced offering since June 16… Companies have only sold about $70 billion this year, down from more than $300 billion at the same time last year… New issuance may struggle to reach $200 billion in 2022, [Bloomberg’s] Hebert wrote, while BI last quarter forecast $275 billion and originally expected closer to $350 billion.”
June 24 – Bloomberg (Joshua Oliver, Scott Chipolina and Kadhim Shubber): “The deflating bubble in digital assets has exposed a fragile system of credit and leverage in crypto akin to the credit crisis that enveloped the traditional finance sector in 2008. Since its inception, crypto enthusiasts have promised a future of vast personal fortunes and the foundations for a new and better financial system, dismissing critics who questioned its value and utility as spreading ‘FUD’ — fear, uncertainty and doubt. But those emotions are now stalking the crypto industry as one by one, often-interlinked projects that locked up customers’ money face losses of millions of dollars and turn to the industry’s heavy hitters for rescue packages.”
June 30 – Bloomberg (Aaron Kirchfeld and Michelle F. Davis): “Six months on from their busiest-ever year, dealmakers are facing the reality that a slowdown in mergers and acquisitions may be more than a temporary blip. Global M&A values have fallen 17% year-on-year to $2.1 trillion, according to data compiled by Bloomberg. Rampant inflation, hawkish central banks, war in Ukraine and squeezed supply chains have combined to quickly cool the record levels of buying seen in 2021. Banks are also starting to pull back on lending for big-ticket transactions, choking off financing for private equity firms that fueled the boom. Deals are down across all major regions and most sectors, with an increasing number stalling altogether.”
June 28 – Bloomberg (Claire Ruckin): “Banks, after struggling for weeks to sell leveraged buyout debt on their books, are now charging so much to finance new LBOs that they are effectively cutting themselves out of transactions. Walgreens Boots Alliance Inc. is scrapping its potential sale of the Boots drugstore chain in the UK, in part because rising financing costs have cut into the prices that bidders were willing to pay… Banks’ appetite to finance new deals has soured, according to bankers, as rising interest rates and an economic slowdown bring leveraged loan and high yield markets to a virtual standstill. With the market in such dire shape, banks are deliberately pricing deals with terms that are unattractive to most borrowers — effectively, swinging to miss — according to several bankers… What’s more, some bankers have been warned that losing money on any new leveraged buyout commitments could result in job losses, they said.”
June 28 – MarketWatch (Steve Gelsi): “It’s all about price discipline and figuring out which acquisitions are must-have. While financial market turmoil in 2022 has created more opportunities to find interesting deals, M&A practitioners remain more cautious to hit the accelerator on acquisitions, a senior executive at an advisory firm told MarketWatch. ‘People will be disciplined on price,’ said James McVeigh, founder and CEO of Cyndx Networks LLC. ‘Investments that would have been nice to have will not get done. They’re just not going to do it and take on additional risk for non-essential assets…’ Private equity and venture capital deal volume fell to its lowest monthly totals in at least a year in May, with just under $53 billion in deals, which is down 30% from the year-ago period, according to S&P Global Market Intelligence. For the first five months of 2022, total value of deals fell about 7% to $401.53 billion, S&P said.”
July 1 – Bloomberg (Bailey Lipschultz): “A flurry of blank check mergers were called off over the past 24 hours as target firms and SPAC sponsors deal with market turmoil that has shaken the industry and capital markets. At least four special-purpose acquisition company tie-ups have been called off since the end of Thursday’s trading, bringing the year’s total to 30 breakups.”
July 1 – Financial Times (Anneka Treon): “The stock market has run out of exuberance, but private equity has not. That is leading to some extreme distortions in the correlations between the public and private markets. Stock markets are seeing large and fast declines… The private equity world remains more insulated, still primed after boom fundraising years with an abundance of ‘dry powder’ — uninvested but available money. Bain estimates the industry had its second-best fundraising year in its history, capping a five-year run that has netted $1.8tn in new buyout capital.”
June 29 – Bloomberg (Laura Benitez and Harry Wilson): “The magnitude of losses across global markets has spooked bond traders at banks. Many are slashing risk, and some are refusing to buy or sell with clients at all if it means they will have to hold the bonds even for a short while, according to market participants. The biggest global banks — including Citigroup Inc., Deutsche Bank AG, Goldman Sachs… and JPMorgan… — have been among those cutting back in parts of the debt markets in Europe and the US, the people said. The pullback means pockets of the market are grinding to a halt, posing a problem for asset managers seeking to divest from securities at quick notice to meet redemption requests across credit funds.”
June 29 – Wall Street Journal (Eric Wallerstein): “The role of bonds as a hedge to stocks is Wall Street canon. When those markets fall in tandem, investors tend to scramble for other, sometimes riskier, forms of protection. Investors have poured more than $21 billion into liquid alternative mutual and exchange-traded funds this year through May, according to Morningstar… That is on pace to beat last year’s record inflows of $38.3 billion. Sometimes called hedge funds for the masses, liquid alternative funds allow individual investors to diversify their portfolios using complex strategies, including everything from options to convertible-bond arbitrage. Roughly $192 billion currently sits in such funds, which are commonly referred to as liquid alts…”
June 27 – Wall Street Journal (Sam Goldfarb): “The collapse of a pandemic-era boom in bonds that can turn into stocks is punishing investors and pressuring some rapidly growing companies to start delivering profits. New sales of so-called convertible bonds have all but dried up, and the ICE BofA U.S. Convertible Index has slid about 18% this year… Issuance of convertible debt exploded during the pandemic because it allows young companies to raise money relatively cheaply without selling stock, which is unpopular with investors because it dilutes shareholders… Ultralow interest rates on benchmark government bonds, soaring valuations for growth stocks and heightened volatility all made convertible bonds especially attractive in recent years. The likes of Peloton Interactive Inc., Snap Inc. and Beyond Meat Inc. issued $190 billion of convertible bonds over 2020 and 2021, more than in the previous four years combined… An index of convertible bonds returned 46% in 2020… and returned another 6% last year. This year, though, has marked a complete reversal.”
July 1 – Bloomberg (Gillian Tan, Jan-Henrik Förster and Katie Roof): “Klarna Bank AB is in talks to raise new equity at a valuation as low as $6 billion, a fraction of the $45.6 billion it commanded last summer as it became Europe’s most valuable startup… The buy-now, pay-later giant is in talks with investors about the new funding round… The $6 billion figure is drastically lower than the $15 billion mark reported as being negotiated last month.”
Russia/Ukraine War Watch:
June 29 – Washington Examiner (Joel Gehrke): “Russian President Vladimir Putin has no interest in negotiations to end the war in Ukraine, trans-Atlantic officials say. Kremlin officials have accused Ukrainian President Volodymyr Zelensky of scuttling peace talks earlier this year, though Russian officials more recently demanded a total surrender by Ukrainian troops. A missile strike on a Ukrainian shopping mall, which coincided with the G-7 summit and eve of the NATO summit, sharpened the perception of Russian intransigence. ‘It’s a signal that on the other side, on Vladimir Putin’s mind, the idea of a dialogue, even of a ceasefire, is very, very far [away],’ Spanish Foreign Minister Jose Manuel Albares said…”
June 29 – Reuters (Alexandra Alper, Karen Freifeld and Jonathan Landay): “Russian President Vladimir Putin still wants to seize most of Ukraine, but his forces are so degraded by combat that they likely can only achieve incremental gains in the near term, the top U.S. intelligence officer… Director of National Intelligence Avril Haines, outlining the current U.S. intelligence assessment…, said that the consensus of U.S. spy agencies is that it will grind on ‘for an extended period of time.’ ‘In short, the picture remains pretty grim and Russia’s attitude toward the West is hardening…’”
June 27 – US News and World Report (Paul D. Shinkman): “The Pentagon… blasted Russian President Vladimir Putin’s assertions that he would provide nuclear-capable missiles to neighboring Belarus – an act of clear saber-rattling at a time Moscow seeks new advantages in the increasingly bloody conflict. ‘I can’t think of a more irresponsible thing for a senior leader to say than talk about the employment of nuclear weapons in this case,’ a senior defense official told reporters… The Russian leader stated on Saturday following a meeting with Belarusian President Alexander Lukashenko that the Kremlin would dispatch to the former Soviet nation Iskander-M missiles – which are capable of launching nuclear warheads – and would upgrade its fighter jets to be able to carry tactical nuclear weapons as well.”
June 29 – Reuters: “Russia’s space agency published the coordinates of Western defence headquarters including the U.S. Pentagon and the venue of NATO’s summit on Tuesday, saying Western satellite operators were working for Russia’s enemy – Ukraine. Dmitry Rogozin, head of Roscosmos, told the Russian RIA Novosti news agency: ‘The entire conglomerate of private and state orbital groupings is now working exclusively for our enemy.’”
Economic War/Iron Curtain Watch:
June 30 – Financial Times (Kate Duguid and Nikou Asgari): “Central banks are looking towards the renminbi to diversify their foreign currency holdings in a sign that geopolitical flare-ups could chip away at the dollar’s dominance. The proportion of central bank reserve managers that have invested in, or are interested in investing in, the renminbi increased from 81% last year to 85% this year, according to an annual survey by UBS of 30 leading central banks… ‘We’re seeing a gradual erosion of the dollar,’ said Massimiliano Castelli, head of strategy for global sovereign markets at UBS. ‘The picture that emerges is one of a multipolar currency system.’”
June 28 – Reuters (Angelo Amante and Sarah Marsh): “The Group of Seven economic powers have agreed to explore imposing a ban on transporting Russian oil that has been sold above a certain price…, aiming to deplete Moscow’s war chest. The war in Ukraine and its dramatic economic fallout, in particular soaring food and energy inflation, dominated this year’s summit of the group of rich democracies at a castle resort in the Bavarian Alps.”
June 28 – Associated Press (Zeke Miller and Geir Moulson): “Leaders of the world’s biggest developed economies said… they would explore far-reaching steps to cap Russia’s income from oil sales that are financing its invasion of Ukraine and struck a united stance to support Kyiv for ‘as long as it takes’ as the war grinds on. The final statement from the Group of Seven summit in Germany underlined their intent to impose ‘severe and immediate economic costs’ on Russia… ‘We remain steadfast in our commitment to our unprecedented coordination on sanctions for as long as necessary, acting in unison at every stage,’ the leaders said.”
July 1 – Reuters (Yuka Obayashi, Emily Chow and Ron Bousso): “President Vladimir Putin has raised the stakes in an economic war with the West and its allies with a decree that seizes full control of the Sakhalin-2 gas and oil project in Russia’s far east, a move that could force out Shell and Japanese investors. The order… creates a new firm to take over all rights and obligations of Sakhalin Energy Investment Co, in which Shell and two Japanese trading companies Mitsui and Mitsubishi hold just under 50%.”
June 29 – Reuters: “Russia hinted… that it had not dropped the idea of seizing Western-owned assets and businesses in the country, as a top official sharply criticised governments that have hit Moscow with sanctions. In a combative media briefing, Foreign Ministry spokesperson Maria Zakharova warned that Russia was prepared to ‘act accordingly’ if the West decided to use Russia’s frozen state assets – chief among them being around $300 billion of central bank foreign currency reserves.”
June 29 – Reuters (Sudarshan Varadhan, Aftab Ahmed and Nupur Anand): “India’s biggest cement producer, UltraTech Cement, is importing a cargo of Russian coal and paying using Chinese yuan…, a rare payment method that traders say could become more common. UltraTech is bringing in 157,000 tonnes of coal from Russian producer SUEK that loaded on the bulk carrier MV Mangas from the Russian Far East port of Vanino…”
June 29 – Financial Times (Henry Foy and Felicia Schwartz): “The US will significantly increase its military deployments in Europe with additional troops and weaponry, as part of the largest scaling up of Nato defences since the cold war in response to Russia’s invasion of Ukraine. President Joe Biden said the US would enhance its military presence in Europe ‘to defend every inch of allied territory’, at a summit of Nato leaders set to agree an overhaul of the alliance’s strategy for defending eastern Europe from Moscow. The US will establish a permanent headquarters for its 5th Army Corps in Poland, send 5,000 additional troops to Romania and increase rotational deployments in the Baltic states…”
June 27 – Financial Times (Henry Foy): “Nato will warn that China is a challenge to its members’ security in its new 10-year doctrine to be agreed this week, as the western alliance seeks to juggle emerging global threats with war on its eastern border. Beijing is set to be labelled ‘a challenge to our interests, our security and our values’ when Nato’s 30 leaders agree the alliance’s ‘strategic concept’ up to 2032 at a summit starting on Tuesday in Spain. Nato leaders will discuss how to balance the growing threat from China’s military advances and new cyber capabilities, as well as global crises including food and energy supply concerns, against the danger posed by Russia and its war in Ukraine.”
June 30 – Associated Press (Jill Lawless and Joseph Wilson and Sylvie Corbet): “NATO faced rebukes from Moscow and Beijing… after it declared Russia a ‘direct threat’ and said China posed ‘serious challenges’ to global stability. During a summit in Madrid, the Western military alliance described a world plunged into a dangerous phase of big-power competition and facing myriad threats, from cyberattacks to climate change. NATO Secretary-General Jens Stoltenberg said… member nations agreed on a ‘fundamental shift in our deterrence and defense’ and sent Moscow a clear message that the alliance had a firm line drawn on its eastern frontier. ‘We live in a more dangerous world and we live in a more unpredictable world, and we live in a world where we have a hot war going on in Europe,’ Stoltenberg said. ‘At the same time, we also know that this can get worse if this becomes a full scale war between Russia and NATO.’
June 27 – Reuters (Ronald Popeski and Lidia Kelly): “Any encroachment on the Crimea peninsula by a NATO member-state could amount to a declaration of war on Russia which could lead to ‘World War Three,’ Russia’s former president, Dmitry Medvedev, was quoted as saying… ‘For us, Crimea is a part of Russia. And that means forever. Any attempt to encroach on Crimea is a declaration of war against our country,’ Medvedev told the news website Argumenty i Fakty.”
June 30 – Reuters: “Russia’s Deputy Security Council Chairman Dmitry Medvedev said… in certain circumstances, sanctions against Moscow may be seen as an act of aggression and a justification for war. ‘I would like to point out once again that under certain circumstances such hostile measures can also qualify as an act of international aggression. And even as a casus belli (justification for war),’ Medvedev said, adding that Russia has the right to defend itself.”
June 26 – Financial Times (Chris Giles): “Leading economies are close to ‘tipping’ into a high-inflation world where rapid price rises are normal, dominate daily life and are difficult to quell, the Bank for International Settlements warned… In its annual report, the BIS, the influential body that operates banking services for the world’s central banks, said these transitions to high-inflation environments happened rarely, but were very hard to reverse. Diagnosing that many economies had already embarked on the process, the BIS recommended that central banks should not be shy of inflicting short-term pain and even recessions to prevent any move to a persistently high-inflation world.”
June 27 – Reuters (Tom Polansek): “U.S. farmers have cut back on using common weedkillers, hunted for substitutes to popular fungicides and changed planting plans over persistent shortages of agricultural chemicals that threaten to trim harvests. Spraying smaller volumes of herbicides and turning to less-effective fungicides increase the risk for weeds and diseases to dent crop production at a time when global grain supplies are already tight… Interviews with more than a dozen chemical dealers, manufacturers, farmers and weed specialists showed shortages disrupted U.S. growers’ production strategies and raised their costs. Shawn Inman, owner of distributor Spinner Ag…, said supplies are the tightest in his 24-year career. ‘This is off the charts,’ Inman said. ‘Everything was delayed, delayed, delayed.’ Shortages further reduce options for farmers battling weeds that developed resistance to glyphosate… after decades of overuse in the United States.”
Biden Administration Watch:
June 29 – Reuters (Alexandra Alper): “U.S. President Joe Biden’s administration added five companies in China to a trade blacklist… for allegedly supporting Russia’s military and defense industrial base, flexing its muscle to enforce sanctions against Moscow over its invasion of Ukraine. The Commerce Department… said the targeted companies had supplied items to Russian ‘entities of concern’ before the Feb. 24 invasion, adding that they ‘continue to contract to supply Russian entity listed and sanctioned parties.’”
Federal Reserve Watch:
June 29 – Wall Street Journal (Nick Timiraos and Tom Fairless): “Federal Reserve Chairman Jerome Powell said he was more concerned about the risk of failing to stamp out high inflation than about the possibility of raising interest rates too high and pushing the economy into a recession. ‘Is there a risk we would go too far? Certainly there’s a risk,’ Mr. Powell said… ‘The bigger mistake to make—let’s put it that way—would be to fail to restore price stability.’ Fed officials are raising rates at the most aggressive pace since the 1980s in part because of concerns that higher prices could change consumer psychology in ways that sustain high inflation.”
June 29 – Bloomberg (Howard Schneider and Balazs Koranyi): “The Federal Reserve will not let the economy slip into a ‘higher inflation regime’ even if it means raising interest rates to levels that put growth at risk, Fed Chair Jerome Powell said… in remarks emphasizing the U.S. central bank’s do-whatever-it-takes approach to tempering future price hikes. ‘The clock is kind of running on how long will you remain in a low-inflation regime … The risk is that because of the multiplicity of shocks you start to transition into a higher inflation regime, and our job is to literally prevent that from happening and we will prevent that from happening,’ Powell said…”
June 28 – Bloomberg (Jonnelle Marte and Catarina Saraiva): “Federal Reserve officials played down the risk that the US economy will tip into recession, even as they raise interest rates with another 75 bps hike on the table next month. New York Fed President John Williams and San Francisco’s Mary Daly both acknowledged… they had to cool the hottest inflation in 40 years, but insisted that a soft landing was still possible. ‘I see us tapping on the brakes to slow to a more sustainable pace, rather than slamming on the brakes, going over the handlebars and having the proverbial recession,’ Daly told an online event… ‘I wouldn’t be surprised, and it’s actually in my forecast, that growth will slip below 2%, but it won’t actually pivot down into negative territory for a long period of time.”
June 29 – Bloomberg (Reed Landberg): “The US Federal Reserve is ‘just at the beginning’ of raising interest rates to control inflation, the president of the institution’s Cleveland bank said. Loretta Mester said she wants to see the benchmark lending rate reach 3% to 3.5% this year and ‘a little bit above 4% next year’ to rein in price pressures even if that tips the economy into a recession. ‘There are risks of recession,’ Mester said… ‘We’re tightening monetary policy. My baseline forecast is for growth to be slower this year,’ but not a recession.”
June 29 – Reuters (Sudarshan Varadhan, Aftab Ahmed and Nupur Anand): “Federal Reserve policymakers… promised further rapid interest-rate hikes to bring down high inflation, but pushed back against growing fears among investors and economists that sharply higher borrowing costs will trigger a steep downturn. ‘Many are worried that the Fed might be acting too aggressively and maybe tip the economy into recession,’ San Francisco Fed President Mary Daly said… ‘I am myself worried that left unbridled, inflation would be a major constraint and threat to the U.S economy and continued expansion.’”
U.S. Bubble Watch:
June 30 – Bloomberg (Reade Pickert): “US inflation-adjusted consumer spending fell in May for the first time this year as persistent price pressures strain household budgets. Purchases of goods and services, adjusted for changes in prices, decreased 0.4% in May after a downwardly revised 0.3% gain a month earlier… Spending on services advanced while outlays for goods declined. The personal consumption expenditures price index, which the Federal Reserve uses for its inflation target, rose 0.6% from a month earlier and was up 6.3% since May 2021. The core PCE price index increased 0.3%, less than expected. It was up 4.7% from a year ago, the smallest gain since November.”
June 30 – Yahoo Finance (Alexandra Semenova): “Initial jobless claims ticked down last week, but were marginally higher than forecast, as investors continue to assess the labor market for potential signs of a slowdown. First-time filings for unemployment insurance in the U.S. totaled 231,000 for the week ended June 25, falling slightly from the prior week’s upwardly revised 233,000…”
June 27 – Reuters (Lucia Mutikani): “New orders for U.S.-made capital goods and shipments increased solidly in May, pointing to sustained strength in business spending on equipment in the second quarter, but rising interest rates and tighter financial conditions could slow momentum. The nearly broad rise in orders… occurred despite deteriorating business and consumer sentiment as well as heightened fears of a recession. The gains partly reflected higher prices… Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.5% last month. These so-called core capital goods orders gained 0.3% in April… Those orders were up 10.2% on a year-on-year basis in May. Last month’s increase reflected a 1.1% rise in machinery orders.”
June 28 – CNBC (Diana Olick): “Home price increases slowed ever so slightly in April, but it is the first potential sign of a cooling in prices. Prices rose 20.4% nationally in April compared with the same month a year ago, according to the S&P CoreLogic Case-Shiller Index. In March, home prices grew 20.6%… The 10-city composite annual increase was 19.7%, up from 19.5% in March. The 20-city composite posted a 21.2% annual gain, up from 21.1% in the previous month.”
June 27 – Bloomberg (Alex Tanzi): “US cities that saw some of the biggest jumps in home prices during the pandemic now have the largest shares of price cuts, according to… Zillow… Overall, the proportion of active real estate listings with lower prices has increased in all 50 of the largest US metropolitan markets tracked by Zillow. In these cities, 11.5% of homes saw a price cut in May, on average, up from 8.2% a year earlier. The share of lower listing prices rose the fastest in real estate hotspots like Salt Lake City, Las Vegas and Sacramento, California… Among the 50 metros in Zillow’s data, 32 had more than 10% of listings with a price decline.”
June 30 – Bloomberg (Prashant Gopal): “The housing slowdown is helping to solve one of the US real estate market’s most intractable problems: tight inventory. With fewer buyers competing, the number of active US listings jumped 18.7% in June from a year earlier, the largest annual increase in data going back to 2017, Realtor.com said… And new sellers entered the market at an even faster rate than before the pandemic housing rally began… Active listings more than doubled from a year earlier in metro areas including Austin, Texas; Phoenix; and Raleigh, North Carolina, the data show. They climbed 86% in Nashville, Tennessee, and 72% in the Riverside, California, region.”
June 29 – New York Times (Conor Dougherty): “For the past two years, anyone who had a home to sell could get practically any asking price. Good shape or bad, in cities and in exurbs, seemingly everything on the market had a line of eager buyers. Now, in the span of a few weeks, real estate agents have gone from managing bidding wars to watching properties sit without offers, and once-hot markets like Austin, Texas, and Boise, Idaho, are poised for big declines.”
July 1 – Wall Street Journal (Mike Colias and Nora Eckert): “Supply-chain kinks continued to suppress vehicle inventory and sales in the first half of the year, exacerbating a seller’s market that has pushed new-car prices to record highs. Sales of new vehicles in the U.S. during the first six months of 2022 were expected to have fallen about 17% from a year earlier, according to Cox Automotive… It has been a frustrating market for car shoppers, who have faced scarce availability and prices that often exceed the window sticker.”
June 28 – Bloomberg (Augusta Saraiva): “Public attention has waned two years into the crisis that disrupted global supply chains, giving the impression that everything is back to normal. On the ground, the US’s busiest port complex is still battling bottlenecks across the board. Responsible for 42% of all containerized trade with Asia, the US’s largest hubs of Los Angeles and Long Beach in Southern California are dealing with an influx of cargo as retailers stock up on back-to-school and holiday goods that’s coinciding with the easing of the lockdowns in China. All this is happening just as US railroads and warehouses remain clogged and thousands of dockworker contracts across the West Coast are set to expire this week.”
Fixed-Income Bubble Watch:
June 29 – Bloomberg (Caleb Mutua): “Companies like Celanese Corp. that are looking to borrow in the high-grade bond market are increasingly choosing to sell notes later, as sky-high yields make debt more expensive. The chemical maker, which is raising money to help fund an acquisition, decided to delay a bond sale until after the July 4 holiday… Oracle Corp., which may sell as much as $20 billion in investment-grade bonds to help fund its acquisition of Cerner Corp., used a $15.7 billion short-term loan facility earlier this month to fund the deal. The average yield on an investment-grade US corporate bond was 4.8% on Tuesday, hovering around the highest levels since 2009. With that high cost, bond sale volume has dropped 9% this year to about $716 billion…”
June 29 – New York Times (Vivian Wang): “The lockdown fueled anxiety, fear and depression among the city’s residents. Experts have warned that the mental health impact of the confinement will be long-lasting. June, for Shanghai, was supposed to be a time of triumph. After two months of strict lockdown, the authorities had declared the city’s recent coronavirus outbreak under control. Businesses and restaurants were finally reopening. State media trumpeted a return to normalcy, and on the first night of release, people milled in the streets, shouting, ‘Freedom!’ Julie Geng, a 25-year-old investment analyst in the city, could not bring herself to join. ‘I don’t think there’s anything worth celebrating,’ she said. She had spent part of April confined in a centralized quarantine facility after testing positive and the feeling of powerlessness was still fresh. ‘I feel there is no basic guarantee in life, and so much could change overnight,’ she said. ‘It makes me feel very fragile.’”
June 28 – Reuters (Evelyn Cheng): “Chinese businesses ranging from services to manufacturing reported a slowdown in the second quarter from the first, reflecting the prolonged impact of Covid controls. That’s according to the U.S.-based China Beige Book… ‘While most high-profile lockdowns were relaxed in May, June data do not show the powerhouse bounce-back most expected,’ according to a report… The analysis found few signs that government stimulus was having much of an effect yet… So far, there’s been little sign that stimulus has kicked in, especially in infrastructure, said [China Beige Book Managing Director Shehzad] Qaz. Transportation, construction companies aren’t telling you they’re getting new products,’ he said. ‘They’re telling you they’ve slowed investment, their new projects have actually slowed…’ ‘Weak domestic orders and expanding inventories indicate the presumed second-half improvement will be unpleasantly modest.’…”
June 27 – Bloomberg: “China’s economy showed some improvement in June as Covid restrictions were gradually eased, although the recovery remains muted. That’s the outlook based on Bloomberg’s aggregate index of eight early indicators for this month. The overall gauge returned to the neutral level after deteriorating for two straight months. Economic activity picked up in June after financial hub Shanghai lifted its lockdown… That can be seen in a rebound in small business confidence, which started growing again after contracting for two months. A survey of more than 500 smaller firms showed that ‘demand and production recovered strongly among manufacturing,’ and export-oriented smaller firms outperformed, according to Hunter Chan and Ding Shuang, economists at Standard Chartered Plc.”
July 1 – Bloomberg: “China announced another stimulus measure to finance infrastructure projects, part of its push to drive investment and increase employment in the second half of this year as the economy starts to recover from the effects of Covid lockdowns. The government will raise 300 billion yuan ($44.8bn) to finance infrastructure projects by selling financial bonds and other methods…”
June 28 – Reuters: “Retail car sales in China jumped 28% during June 20 to June 26 compared with the same period in May, data from the China Passenger Car Association (CPCA) showed. Sales of passenger vehicles in that period rose to 487,000 units, up 33% from a year earlier, the association said…”
June 28 – Bloomberg: “China’s resilient onshore credit market is increasingly signaling investor concerns about liquidity stress as a selloff in developers’ bonds builds ahead of a heavy quarter of debt maturities. Declines last week in the sector gathered pace Monday after a warning from Sunac China Holdings Ltd., the country’s fourth-largest builder by sales, that it may not be able to make a local-bond payment due this week. Some of its onshore notes hit fresh lows Monday while peers including Ronshine China Holdings Ltd. and Times China Holdings Ltd. saw some bonds plunge more than 20%.”
June 30 – Bloomberg: “China’s home sales slump eased for the first time this year as stepped-up supportive measures by local governments started to attract more buyers. The 100 biggest real estate developers saw new-home sales slide 43% in June from a year earlier to 733 billion yuan ($109bn), according to preliminary data from China Real Estate Information Corp. Compared with last month’s, however, their sales climbed 61.2%.”
June 29 – Reuters (Liangping Gao and Ryan Woo): “Chinese developers desperate to offload unsold homes are resorting to ‘fancy’ ways to lower prices, seemingly circumventing rules against excessive discounting, a government-backed newspaper reported… Developers in some small cities have offered to accept food including wheat, garlic, watermelons and peaches as down-payment substitutes, reducing the amount of cash buyers need upfront and effectively making properties cheaper.”
June 28 – Reuters (Ryan Woo, Roxanne Liu, Kevin Huang, Martin Quin Pollard, Stella Qiu, Jason Xue): “China slashed the quarantine time for inbound travellers by half…, in a major easing of COVID-19 curbs that have deterred cross-border travel and resulted in international flights running at just 2% of pre-pandemic levels. Quarantine at centralised facilities has been cut to seven days from 14, and subsequent at-home health monitoring has been reduced to three days from seven…”
June 28 – Reuters: “Chinese president Xi Jinping said the ruling Communist Party’s strategy to tackle the COVID-19 pandemic was ‘correct and effective’ and should be firmly adhered to, the official news agency, Xinhua… China, with its large population, would have suffered ‘unimaginable consequences’ had it adopted a strategy of ‘lying flat’, the agency quoted Xi as saying during a visit… to the central city of Wuhan…”
June 28 – Financial Times (Sun Yu): “Chinese university graduates are struggling to find work in the country’s worst labour market in years — unless they have degrees in Marxism. Despite being China’s ruling ideology, Marxism has for decades been an obscure major for students. But it is enjoying a revival under President Xi Jinping, who has urged Chinese Communist party cadres to ‘remember the original mission’… According to Yingjiesheng, a leading job search website for university graduates, there has been a 20% increase in openings that require a Marxism degree in the second quarter… compared with the same period last year. Marxism experts are being sought by employers ranging from government departments to private conglomerates.”
July 1 – Financial Times (Chan Ho-him, Gloria Li and Tom Mitchell): “China’s president Xi Jinping has warned that power in Hong Kong ‘must be administered only by patriots’ while navigating a ‘new stage of development, from chaos to order’ as he presided over the swearing-in ceremony of the territory’s new chief executive, John Lee. ‘No other places or countries in the world would allow those who are not patriotic, or even those who commit treason, to take the helm of their governments,’ the Chinese president added… Hong Kong was rocked by large and sometimes violent pro-democracy protests in 2019, which were brought to heel by a strict new security law.”
Central Banker Watch:
June 27 – Financial Times (Martin Arnold): “Christine Lagarde said the European Central Bank would act in ‘a determined and sustained manner’ to tackle record inflation in the eurozone, especially if there were signs of price expectations rising sharply among consumers and businesses. ‘Inflation in the euro area is undesirably high and it is projected to stay that way for some time to come,’ the ECB president told its annual forum…, hardening of her comments on price growth. ‘This is a great challenge for our monetary policy.” ‘Inflation pressures are broadening and intensifying,’ Lagarde added.”
June 28 – Reuters (Francesco Canepa and Balazs Koranyi): “The European Central Bank’s upcoming bond-buying programme will curb rising borrowing costs for vulnerable euro zone countries while keeping up pressure on their governments to repair their budgets, ECB President Christine Lagarde said… With the ECB nearing its first interest rate hike in over a decade, bond yields for Italy and other indebted countries have surged and the spread they pay over safe-haven Germany has widened.”
June 28 – Reuters (Francesco Canepa): “The European Central Bank will likely drain cash from the banking system to offset any bond purchases made to cap borrowing costs for indebted euro zone states, two sources told Reuters. Bond yields for Italy and other debt-laden countries have surged… The market turmoil has forced the ECB to speed up work on a new bond-buying scheme to curb yields. This leaves it in the difficult position of raising borrowing costs for the euro zone as a whole, while at the same time capping them for some of its weaker members. To avoid this apparent contradiction, the ECB is considering pairing the new bond-purchase scheme with auctions at which banks can park cash at the ECB for a more favourable interest rate than the ordinary rate on deposits, the sources with direct knowledge of the matter said.”
June 29 – Bloomberg (Jana Randow and Alexander Weber): “The European Central Bank may need to raise interest rates by more than it wants if record inflation prompts governments to spend ever-increasing amounts on shielding households, according to Governing Council member Pierre Wunsch. Support to cushion the spike in energy costs will probably outstrip what’s currently envisaged in economic projections, the hawkish official said… He warned that would also boost the danger of unwarranted panic in government bond markets, known as fragmentation… ‘If fiscal policy remains supportive, then we have to do more,’ said Wunsch, who heads Belgium’s central bank. ‘The end game is higher deficits and higher interest rates, and therefore also a higher risk of fragmentation.’”
June 29 – Bloomberg (Carolynn Look, Jana Randow and Alexander Weber): “European Central Bank policy makers preparing for the first interest-rate increases in more than a decade were handed conflicting signals on the inflation they’re trying to curb as price growth unexpectedly hit a record in Spain while easing off in Germany. Energy and food costs drove Spanish inflation to 10% last month… In Germany, meanwhile, cuts in fuel duty and discounted public-transport tickets helped slow the surge in prices.”
Global Bubble and Instability Watch:
June 27 – Bloomberg (Andrew Atkinson and David Goodman): “Britain under Prime Minister Boris Johnson is running into the biggest headwinds it’s faced since the 1970s, heaping pain on an economy still reeling from Brexit and the pandemic. After suffering from unprecedented shocks in recent years, the nation is succumbing to more intractable problems marked by plodding growth, surging inflation and a series of damaging strikes. The result is a plunge in consumer confidence that analysts warn may lead to a recession. Railway workers last week walked off the job in anger that their living standards are slipping, and criminal barristers are striking Monday. Teachers and doctors may be next.”
June 27 – Bloomberg (Theophilos Argitis): “Canadian consumer confidence levels have fallen to near crisis-era lows in an ominous sign for the nation’s economic outlook. The Bloomberg Nanos Canadian Confidence Index, a measure of sentiment based on weekly polling, declined for a ninth straight week to the lowest reading ever outside of the last two economic crises. The numbers suggest Canada’s households are beginning to buckle amid the weight of rising prices, higher interest rates and a housing correction…”
June 30 – Bloomberg (Swati Pandey): “Economists agree Australia’s housing prices are about to sink. What they’re not so aligned on is just how much a slide in the country’s A$10 trillion ($6.9 trillion) property market will drag the economy down with it. With interest rates rising and inflation yet to peak, few expect an economy that’s 60% fueled by consumption to escape unscathed from a housing correction. While some economists are talking of recession, others expect Australia’s consumers to withstand the reversal of a wealth effect that accelerated during the pandemic.”
July 1 – Bloomberg (Andrew Langley): “Euro-area inflation surged to a fresh record, surpassing expectations and bolstering calls for the kind of aggressive interest-rate increases being deployed by central banks across the world. Driven once more by soaring food and energy costs, consumer prices jumped 8.6% from a year earlier in June — up from 8.1% in May… The data reflect an escalating squeeze on households and firms across the 19-member currency bloc, where France, Italy and Spain reported new all-time highs this week.”
June 25 – Bloomberg (Diederik Baazil and Ben Sills): “Dutch Prime Minister Mark Rutte said Italy should take charge of managing the cost of its government debt in financial markets. ‘In the division of labor of the monetary system and bringing down the spread, the country has to make sure the fundamentals are alright,’ Rutte said… The remarks indicate reluctance to extend support to prevent Italy from slipping into a sovereign debt crisis.”
June 27 – Bloomberg (William Horobin): “France’s public finances have reached an ‘alert level’ amid rising interest rates, surging inflation and dwindling growth, Finance Minister Bruno Le Maire said. The candid warning comes as President Emmanuel Macron’s government seeks to negotiate a revised 2022 budget with opposition parties after he lost his majority at the National Assembly… ‘Not everything is possible, quite simply because we have reached an alert level for public finances,’ Le Maire said on BFM TV… ‘We used to be able to borrow at 0% or at negative rates, but today we are borrowing at more than 2%.’”
June 29 – Bloomberg (Alonso Soto): “Spanish inflation unexpectedly surged to a record, defying government efforts to rein it in and signaling intensifying price pressure as the European Central Bank gears up to raise interest rates for the first time in more than a decade. The surprise 10% reading for June dashes hopes that inflation in the euro zone’s fourth-biggest economy had peaked…”
July 1 – Reuters: “A sharp fall in new orders weighed on German manufacturing activity in June, darkening the outlook for Europe’s largest economy… S&P Global’s final Purchasing Managers’ Index (PMI) for manufacturing… fell to 52.0 in June from May’s final reading of 54.8… An index on new orders came in a 43.3, falling from 47.0 in May to hit the lowest level since May 2020…”
June 30 – Bloomberg (Isis Almeida and Vanessa Dezem): “Germany is in talks to bail out energy giant Uniper SE to stem broader fallout from Russia’s moves to slash natural gas deliveries. Uniper, the largest buyer of Russian gas in Germany, said it’s discussing a possible increase in state-backed loans or even equity investments to secure liquidity.”
June 29 – Bloomberg (Carolynn Look): “Germany more than doubled borrowing plans for next year amid mounting economic pressures from inflation and the war in Ukraine. Finance Minister Christian Lindner is targeting 17.2 billion euros ($18.1bn) in net borrowing in 2023, up from an earlier projection of 7.5 billion euros… The increase puts the government closer to the edge of constitutional debt limits, which have been breached for three consecutive years.”
EM Bubble Watch:
June 28 – Bloomberg: “Emerging market equities are on track for their worst first-half performance in 24 years, as investors fret over high inflation and a potential hit to the global economy from monetary tightening. The MSCI Emerging Markets Index has fallen about 17% this year through Monday, the second-steepest plunge for the period in data stretching back to 1993. The benchmark slid more than 20% during first six months of 1998 when the Asian financial crisis upended markets. A few months later, Russia defaulted on its local debt.”
June 27 – Bloomberg (Maria Elena Vizcaino): “Emerging markets are entering a new cycle of defaults as investors stare down the risk of recession, according to Goldman Sachs… Sri Lanka was probably the first of several developing-economy defaults on the horizon, said Kamakshya Trivedi, co-head of global FX and interest-rates research… Russia also defaulted on its foreign-currency sovereign debt on Monday. ‘This is one of these situations where time is not your friend,’ Trivedi said… ‘The longer this continues, a lot of these countries are going to have to dip into their reserves or try and get loans from other sources. It’s getting to be a pretty challenging place if you’re a high-yielding emerging market with a lot of dollar financing needs, currencies under pressure and the world as a whole seeing recession probabilities increase.’”
June 30 – Bloomberg (Andrea Jaramillo): “Colombian President-elect Gustavo Petro named Jose Antonio Ocampo as Finance Minister in a move that should help ease concerns among investors who have been bracing for unpredictable economic policies under the nation’s first leftist government.”
June 30 – Bloomberg (Oscar Medina): “Colombia’s central bank delivered its biggest interest rate increase in over two decades, potentially putting itself on a collision course with President-elect Gustavo Petro… The board unanimously raised rates by 150 bps to 7.5%… That’s the largest hike since the bank implemented its inflation-targeting strategy in 1999.”
July 1 – Reuters (Tetsushi Kajimoto and Leika Kihara): “Japanese policymakers worried about the yen sliding lower are increasingly also having to watch out for it rebounding, officials told Reuters, signalling that currency-market intervention is less likely than some investors expect. Japan has stepped up its warnings about sharp yen falls including a rare joint statement last month from the government and the central bank making clear their readiness to intervene if a drop is too swift.”
July 1 – Bloomberg (Yoshiaki Nohara): “The Bank of Japan’s decision to pass up an opportunity to ramp up its policy defenses points to a fear of triggering a further weakening of the embattled yen. The BOJ on Thursday kept its bond purchase plan unchanged for the July-September quarter, a move that surprised some market participants who had expected Governor Haruhiko Kuroda to show a clear intention to buy more in defense of recent pressure on yields.”
June 29 – Reuters (Leika Kihara and Kantaro Komiya): “Japan’s central bank has stumbled into a rare public relations storm that has dragged debate about its ultra-low interest rates out of sterile boardrooms and into tabloid and social media, amid surging household ire over rising living costs. Bank of Japan Governor Haruhiko Kuroda issued an unprecedented public apology and retraction earlier this month after comments that households were more ‘accepting’ of retail price hikes triggered a flurry of angry tweets. Once regarded for its masterful communication of complicated monetary policy to the world’s largest and shrewdest investors, Kuroda’s recent fumble shows the BOJ much less skilled at managing the wider public’s price expectations.”
June 28 – Reuters (Leika Kihara): “The Bank of Japan will maintain its ultra-loose monetary policy as the economy has not been affected much by the global inflationary trend, Governor Haruhiko Kuroda said, stressing the country’s 15-year experience with deflation is keeping wage growth subdued. Japan’s core consumer inflation hit 2.1% for two straight months in May, but the increase was due almost entirely to soaring energy prices, Kuroda was quoted as saying…”
Leveraged Speculation Watch:
June 29 – Bloomberg (Ben Stupples): “Family offices with at least $1 billion in assets are boosting their investments amid market swings fueled by recent geopolitical and macroeconomic turbulence, a Citigroup Inc. executive said. ‘Some of our very large family office clients are taking advantage of the volatility,’ said Luigi Pigorini, head of Europe, Middle East and Africa at Citi Global Wealth. They’re taking ‘big positions’ across all asset classes, including fixed-income and foreign exchange, he added.”
Social, Political, Environmental, Cybersecurity Instability Watch:
June 28 – Reuters (Karl Plume and Rod Nickel): “Eric Broten had planned to sow about 5,000 acres of corn this year on his farm in North Dakota, but persistent springtime rains limited him to just 3,500 in a state where a quarter or more of the planned corn could remain unsown… The difficulty planting corn… in the northern United States adds to a string of troubled crop harvests worldwide that point to multiple years of tight supplies and high food costs… Poor weather has also reduced grain harvests in China, India, South America and parts of Europe. Fertilizer shortages meanwhile are cutting yields of many crops around the globe. The world has perhaps never seen this level of simultaneous agricultural disruption, according to agriculture executives, industry analysts, farmers and economists interviewed by Reuters, meaning it may take years to return to global food security.”
June 29 – Reuters (Scott Disavino): “U.S. power companies are facing supply crunches that may hamper their ability to keep the lights on as the nation heads into the heat of summer and the peak hurricane season. Extreme weather events such as storms, wildfires and drought are becoming more common in the United States. Consumer power use is expected to hit all-time highs this summer, which could strain electric grids at a time when federal agencies are warning the weather could pose reliability issues. Utilities are warning of supply constraints for equipment, which could hamper efforts to restore power during outages. They are also having a tougher time rebuilding natural gas stockpiles for next winter as power generators burn record amounts of gas following the shutdown of dozens of coal plants in recent years and extreme drought cuts hydropower supplies in many Western states. ‘Increasingly frequent cold snaps, heat waves, drought and major storms continue to challenge the ability of our nation’s electric infrastructure to deliver reliable affordable energy to consumers,’ Richard Glick, chairman of the U.S. Federal Energy Regulatory Commission (FERC), said…”
June 28 – Reuters (Mrinalika Roy): “The fast-spreading BA.4 and BA.5 sub-variants of Omicron are estimated to make up a combined 52% of the coronavirus cases in the United States as of June 25, the U.S. Centers for Disease Control and Prevention (CDC) said… The two sublineages accounted for more than a third of U.S. cases for the week of June 18.”
June 30 – Associated Press: “The number of new coronavirus cases rose by 18% in the last week, with more than 4.1 million cases reported globally, according to the World Health Organization… COVID-related deaths increased in three regions: the Middle East, Southeast Asia and the Americas. The biggest weekly rise in new COVID-19 cases was seen in the Middle East, where they increased by 47%, according to the report released late Wednesday. Infections rose by about 32% in Europe and Southeast Asia, and by about 14% in the Americas, WHO said.”
June 28 – Reuters (Humeyra Pamuk and Anne Kauranen): “NATO ally Turkey lifted its veto over Finland and Sweden’s bid to join the Western alliance on Tuesday after the three nations agreed to protect each other’s security, ending a weeks-long drama that tested allied unity against Russia’s invasion of Ukraine. The breakthrough came after four hours of talks just before a NATO summit began in Madrid, averting an embarrassing impasse at the gathering of 30 leaders that aims to show resolve against Russia, now seen by the U.S.-led alliance as a direct security threat rather than a possible adversary.”
June 30 – Reuters (Christina Thykjaer): “British Foreign Secretary Liz Truss said… it was important that NATO and its allies make sure Taiwan can defend itself. ‘It is important that we make sure Taiwan can defend itself, we have to learn from Ukraine lessons,’ she said…”