MARKET NEWS / CREDIT BUBBLE WEEKLY

June 30, 2023: Just the Facts

MARKET NEWS / CREDIT BUBBLE WEEKLY
June 30, 2023: Just the Facts
Doug Noland Posted on July 1, 2023

For the Week:

The S&P500 gained 2.3% (up 15.9% y-t-d), and the Dow rose 2.0% (up 3.8%). The Utilities increased 0.5% (down 8.1%). The Banks rallied 3.4% (down 20.5%), and the Broker/Dealers added 2.3% (up 5.0%). The Transports surged 5.7% (up 16.0%). The S&P 400 Midcaps jumped 4.3% (up 7.9%), and the small cap Russell 2000 rose 3.7% (up 7.2%). The Nasdaq100 advanced 1.9% (up 38.8%). The Semiconductors surged 4.7% (up 45.1%). The Biotechs dropped 2.9% (down 1.1%). With bullion little changed, the HUI gold equities index recovered 1.0% (up 1.8%).

Three-month Treasury bill rates ended the week at 5.135%. Two-year government yields surged 16 bps this week to 4.90% (up 47bps y-t-d). Five-year T-note yields gained 16 bps to to 4.15% (up 15bps). Ten-year Treasury yields rose 10 bps to 3.84% (down 4bps). Long bond yields increased five bps to 3.86% (down 11bps). Benchmark Fannie Mae MBS yields jumped 15 bps to 5.64% (up 25bps).

Greek 10-year yields gained seven bps to 3.65% (down 92bps y-t-d). Italian yields rose nine bps to 4.07% (down 63bps). Spain’s 10-year yields increased seven bps to 3.39% (down 13bps). German bund yields gained four bps to 2.39% (down 5bps). French yields rose five bps to 2.93% (down 5bps). The French to German 10-year bond spread widened one to 54 bps. U.K. 10-year gilt yields added another seven bps to 4.39% (up 72bps). U.K.’s FTSE equities index increased 0.9% (up 5.1% y-t-d).

Japan’s Nikkei Equities Index added 1.2% (up 27.2% y-t-d). Japanese 10-year “JGB” yields rose three bps to 0.40% (down 2bp y-t-d). France’s CAC40 surged 3.3% (up 14.3%). The German DAX equities index was up 2.0% (up 16.0%). Spain’s IBEX 35 equities index jumped 3.5% (up 16.6%). Italy’s FTSE MIB index surged 3.8% (up 19.1%). EM equities were mixed. Brazil’s Bovespa index declined 0.7% (up 7.6%), while Mexico’s Bolsa index added 0.3% (up 10.4%). South Korea’s Kospi index slipped 0.2% (up 14.7%). India’s Sensex equities index rallied 2.8% (up 6.4%). China’s Shanghai Exchange Index was little changed (up 3.7%). Turkey’s Borsa Istanbul National 100 index rose 3.2% (up 4.5%). Russia’s MICEX equities index was about unchanged (up 29.9%).

Investment-grade bond funds posted inflows of $0.919 million, while junk bond funds reported outflows of $730 million (from Lipper).

Federal Reserve Credit declined $17.2bn last week to $8.318 TN. Fed Credit was down $583bn from the June 22nd, 2022, peak. Over the past 198 weeks, Fed Credit expanded $4.591TN, or 123%. Fed Credit inflated $5.507 TN, or 196%, over the past 555 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt rose $7.0bn last week to $3.432 TN. “Custody holdings” were up $42bn, or 1.2%, y-o-y.

Total money market fund assets slipped $3.0bn to $5.431 TN, but have posted a 16-week gain of $537bn (36% annualized). Total money funds were up $900bn, or 19.9%, y-o-y.

Total Commercial Paper jumped $20.2bn to $1.164 TN. CP was down $6bn, or 0.5%, over the past year.

Freddie Mac 30-year fixed mortgage rates gained seven bps to 6.70% (up 100bps y-o-y). Fifteen-year rates rose eight bps to 6.11% (up 128bps). Five-year hybrid ARM rates increased 10 bps to 6.22% (up 172bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up 13 bps to 7.20% (up 142bps).

Currency Watch:

June 30 – Reuters (Tetsushi Kajimoto): “Japan will take appropriate steps should the yen weaken excessively, Finance Minister Shunichi Suzuki said… after the currency plumbed seven-month lows against the dollar. Suzuki warned against investors selling the yen too far as the currency weakened past 145 to the dollar, a level that made speculators wary of potential intervention by Japanese authorities. When the yen breached the 145 level last September, authorities intervened in markets to support the currency for the first time in 24 years.”

June 27 – Financial Times (Leo Lewis and Mary McDougall): “A sharp drop in the value of the yen is fuelling speculation among investors that Japanese authorities are preparing a ‘summer sequel’ of massive market intervention to support the currency. Finance minister Shunichi Suzuki said… authorities were watching market moves ‘with a strong sense of urgency’ and would ‘respond appropriately’ if the drop became excessive. A day earlier, Japan’s top currency diplomat Masato Kanda responded to reporters’ questions on the likelihood of intervention by saying he would not rule out any options. The comments followed the yen’s sharp decline this month as markets judged that the Bank of Japan was now unlikely to lift interest rates from just below zero this year. On Tuesday it slipped below ¥144 against the dollar for the first time since November…”

For the week, the U.S. Dollar Index was unchanged at 102.94 (down 0.5% y-t-d). For the week on the upside, the Norwegian krone gained 0.8%, the Mexican peso 0.3%, the Swiss franc 0.2%, and the euro 0.1%. On the downside, and the South Korean won declined 1.0%, the Swedish krona 0.9%, the South African rand 0.5%, the Canadian dollar 0.5%, the Japanese yen 0.4%, the New Zealand dollar 0.3%, the Australian dollar 0.2%, and the British pound 0.1%. The Chinese (onshore) renminbi declined 1.02% versus the dollar (down 4.90%).

Commodities Watch:

The Bloomberg Commodities Index declined 0.8% (down 10.0% y-t-d). Spot Gold was little changed at $1,919 (up 5.2%). Silver rallied 1.5% to $22.76 (up 5.0%). WTI crude recovered $1.31, or 1.9%, to $70.47 (down 12%). Gasoline rallied 4.6% (up 7%), and Natural Gas gained 1.9% to $2.78 (down 38%). Copper recovered 1.5% (5.0%). Wheat sank 13.2% (down 20%), and Corn dropped 11.8% (down 18%). Bitcoin slipped $330, or 1.1%, this week to $30,400 (up 84%).

Global Bank Crisis Watch:

June 28 – Financial Times (Stephen Gandel): “Bank of America is bearing the cost of decisions made three years ago to pump the majority of $670bn in pandemic-era deposit inflows into debt markets at a time when bonds traded at historically high prices and low yields. The moves left BofA, the second-largest US bank by assets, with more than $100bn in paper losses at the end of the first quarter, according to… the Federal Deposit Insurance Corporation. The sum far exceeds unrealised bond market losses reported by its largest peers. The differing results reflect strategies undertaken early in the Covid-19 pandemic, when banks absorbed a flood of deposits from savers. BofA put more money into bonds, while others parked a greater share in cash.”

June 28 – Financial Times (Joshua Franklin, Stephen Gandel and Colby Smith): “The largest US banks would lose $541bn in a hypothetical doomsday economic scenario but still have more than enough capital to absorb the losses, according to annual stress tests conducted by the Federal Reserve. The passing grades given by the Fed… to banks including JPMorgan Chase and Goldman Sachs lent support to claims from Wall Street executives and regulators that systemically important banks can withstand heavy losses. The results will also help determine how much capital banks have to hold in the next 12 months. As long as banks match or exceed the requirements, they are free from Fed restrictions on how much capital they can put towards shareholder dividends and stock buybacks.”

June 29 – Bloomberg (Ben Bain): “The top US bank regulators are asking lenders to work with credit-worthy borrowers that are facing stress in the commercial real estate market. Financial firms should ‘work prudently and constructively’ with good clients, the government agencies said… The statement from the Federal Reserve, Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and National Credit Union Administration updates guidance on workouts that the watchdogs issued in 2009.”

UK Crisis Watch:

June 29 – BBC (Michael Race): “Thames Water is in talks to secure extra funding as the government says it is ready to act in a worst case scenario if the company collapses. The water firm, which serves a quarter of the UK population, has billions in debt and is under pressure with its boss resigning unexpectedly on Tuesday. The government said ‘a lot of work is going on behind the scenes’ and it had a process in place ‘if necessary’.”

June 28 – Financial Times (Gill Plimmer, Jim Pickard and Michael O’Dwyer): “Ministers have discussed a temporary nationalisation of Thames Water as investors and the government braced for the potential collapse of the debt-laden utility. Wednesday’s contingency planning came a day after the abrupt exit of Thames Water chief executive Sarah Bentley, who was battling to turn round a company with a legacy of under-investment and £14bn of debt just as UK interest rates hit their highest level since 2008.”

June 30 – Bloomberg (Andrew Atkinson, Philip Aldrick and Tom Rees): “UK households drew down savings and repaid mortgages for the first time on record in the first three months of the year as living standards deteriorated once again in the face of soaring inflation. Adjusted for inflation, household disposable incomes per head fell 0.9%… Living standards have now shrunk for five of the past six quarters.”

June 26 – CNBC (Sam Meredith): “There is intensifying pressure on Britain’s government to do more to help struggling households, with the country’s shadow finance minister warning of a ‘mortgage catastrophe’ as millions are pushed to the brink of insolvency. The Bank of England last week hiked interest rates by 50 bps to 5%… The BOE’s 13th consecutive rate rise takes the base rate to the highest level since 2008. The surprise move… will affect millions of homeowners as the interest rates on many mortgages in the U.K. are directly linked to the central bank’s base rate. Renters, too, are likely to see their payments increase as buy-to-let landlords pass on higher mortgage repayments.”

Market Instability Watch:

June 26 – Bloomberg (Liz Capo McCormick, Michael Mackenzie and Ruth Carson): “The barrage of fresh Treasury bills poised to hit the market over the next few months is merely a prelude of what’s yet to come: a wave of longer-term debt sales that’s seen driving bond yields even higher. Sales of government notes and bonds are set to begin rising in August, with net new issuance estimated to top $1 trillion in 2023 and nearly double next year to fund a widening deficit. The Treasury is already in the middle of an estimated $1 trillion bump in bills as it seeks to replenish its cash coffers in the wake of the debt-limit deal. It’s an explosive mix for borrowing costs as debt sales are swelling and the Federal Reserve continues to reduce its balance sheet at a time when traditional buyers of Treasuries overseas are discouraged by currency hedging costs.”

June 28 – Bloomberg (Ruth Carson, Yumi Teso and Naomi Tajitsu): “Investors around the world have a warning for hedge funds embracing a popular, highly leveraged Treasuries trade: beware a sudden shift in the yield curve. With short-term US borrowing costs now topping their long-term equivalents by one percentage point, the yield curve is already heading for one of its longest and deepest inversions. A sharp reversal would threaten to upend the strategy, known as basis trade. The strategy, which seeks to exploit the pricing difference between cash bonds and futures, has been gaining in popularity this year after imploding spectacularly at the height of the pandemic in 2020. If the yield curve were to suddenly steepen, either because long-term yields rise or short-term rates slump, it would be enough to send traders scurrying to close the bets.”

June 29 – Bloomberg (Bill Dudley): “Yields on long-term US Treasury securities have risen, and prices have fallen, farther and faster over the past few years than at any time since the 1980s. This has wreaked no small amount of havoc — contributing, for example, to the recent demise of several regional banks. I have what might be disconcerting news: It’s not over. Since last fall, the 10-year Treasury yield has remained in a narrow range near its current level of 3.75%. There’s little reason for it to stay there, and many reasons to expect it to move considerably higher.”

June 30 – Bloomberg (Austin Weinstein and Katanga Johnson): “US officials are considering limits on the ability of large lenders to use Federal Home Loan Banks as a financial backstop, part of a broader proposal to overhaul the system. The changes, which are being discussed as part of a sweeping review by an American regulator, would amount to the most dramatic reshaping of the $1.6 trillion system in decades. The Federal Housing Finance Agency may still adjust its plans before announcing the recommendations in the coming months, according to people familiar… Reining in big lenders’ ability to borrow could also require congressional action. The FHLBs have emerged as a flash point after the institutions, which have implied support from the federal government, lent billions of dollars to Silicon Valley Bank, Signature Bank and First Republic Bank before they collapsed… Since their creation to boost home lending during the Great Depression, the FHLBs have morphed into a backstop for their members, while the system’s role in housing finance has diminished.”

June 30 – Financial Times (Kate Duguid): “Usage of a Federal Reserve facility that allows investors to park their cash overnight has dropped to its lowest level in a year, as US money market funds instead add to their holdings of government debt. Investors on Thursday stashed $1.93tn in the Fed’s overnight reverse repo facility (RRP)… That is the lowest amount in a year, down by more than $200bn this month. US government money market mutual funds, which manage $4.5tn, aim to offer clients an ultra-safe and ultra-liquid product that delivers relatively stable returns. They typically place most of their cash in short-term Treasury bills, but volatility in those yields in the last two years… has pushed money funds into RRP…”

Bubble and Mania Watch:

June 30 – Bloomberg (Ryan Vlastelica): “After a year marked by steep losses, the message as 2023 hits the halfway mark is clear: big tech is back. Megacaps have staged a near $5 trillion rebound, with this set to be the best first half of a year in the history of the Nasdaq 100 Index. And despite some concerns over elevated valuations, leading to the lowest level of analyst sentiment in years for key stocks, many investors see grounds for further gains.”

June 30 – Bloomberg (Amanda Albright and Eliyahu Kamisher): “California Governor Gavin Newsom for years had an enviable problem. His state was awash in cash. Thanks to the booming tech industry and federal money during the pandemic, California was spending record amounts and still ran a surplus — almost $100 billion last year… Now, following the tech bust and the end of Covid funding, the surplus has been replaced with a $32 billion deficit, forcing lawmakers to trim the state’s lofty climate change program, delay funding and increase internal borrowing. California is an extreme case of a state that relies heavily on its richest residents for its tax base. But it’s not alone: revenue in 16 other states is down this fiscal year through April, according to the Urban Institute, partly reflecting the volatility in markets and population shifts.”

June 29 – Bloomberg: “The world’s dealmakers are roughly $1 trillion down in one of the worst years for takeovers and stock market listings in a decade. That’s the year-on-year drop in the value of mergers and acquisitions and initial public offerings in the first half, a period in which inflationary pressures, financing constraints and geopolitical tensions nixed activity across regions and sectors… Deal volumes are down 42% year-on-year at $1.3 trillion… Excluding Covid-impacted 2020, that’s the smallest first-half total in a decade and below the average for the period. Private equity buyouts are flagging because of the lack of cheap debt and disagreements with sellers over price.”

June 27 – Wall Street Journal (Ben Dummett and Laura Cooper): “Megadeals are out. Little deals are in. Blackstone, KKR and other buyout giants are using their record war chests to snap up smaller companies in deals that typically are easier to accomplish in an era of soaring borrowing costs and economic uncertainty. Volatile markets and a cloudy economic outlook have made it harder for buyers and sellers to agree on the worth of a business. More expensive debt and a dearth of bank financing is also making large buyouts more challenging, bankers and private-equity deal makers say. So far this year, PE-backed deals have an average value of $65.9 million, the smallest for the comparable period since the global financial crisis, according to Refinitiv…”

June 26 – Financial Times (Tabby Kinder): “Clear evidence of just how tough venture capital land is getting emerged this month with setbacks for two high-profile industry firms. After almost a year of marketing new, multibillion-dollar funds, both Insight Partners and Tiger Global have failed to reach anywhere near their targets. After an already dismal year, it was a particularly painful augury for venture capital and start-ups. As one Silicon Valley veteran put it: ‘It was the first real sign that existing investors are saying ‘no más’.’ Insight, considered one of the highest-rated venture capital managers, has delivered an average net internal rate of return of 22% over time, according to one person familiar with the matter. But investors have committed just $2bn of a planned $20bn fund. That is a sharp fall from the $20bn that Insight raised in 2022.”

June 27 – Financial Times (Eric Platt): “Alternative asset managers such as Apollo, KKR and Blackstone are increasingly financing blue-chip companies, as businesses look for new sources of capital to help counteract the effects of higher interest rates and a slowing economy. The deals… underscore the growing reach of the private credit industry as it helps companies bypass traditional banks and bond markets to raise money. Private credit has boomed in the decade since the global financial crisis into a sector with $1.4tn in assets. Loans from private credit typically went to companies that were smaller or riskier. Now, alternative asset manager lenders are targeting larger, more stable companies. ‘Private credit is going investment grade,’ said Akhil Bansal, head of credit strategic solutions at Carlyle…”

June 25 – Financial Times (Joshua Oliver and Joshua Chaffin): “The 20-storey tower at 529 Fifth Avenue stands out from the other buildings around Grand Central Station for the surreal pink designs of an Alice in Wonderland-inspired art exhibit installed to fill vacant retail space on its ground floor. It is also remarkable as one among a small number of towers that have recently changed hands, giving a clue as to the value of Manhattan’s older offices now that the commercial real estate sector has emerged from a historic era of ultra-cheap money. Silverstein Properties sold the building three months ago for $105mn. In price per-square-foot terms, that was even less than a plot of land across the street commanded in 2015. ‘In New York, buildings are selling for less than the value of the land they sit on,’ said Will Silverman, managing director at Eastdil Secured… ‘We are seeing prices lower than they have been in 20 years in absolute dollar terms.’”

June 27 – Reuters (Eliyahu Kamisher): “U.S. electric truck manufacturer Lordstown Motors filed for bankruptcy protection… and put itself up for sale after failing to resolve a dispute over a promised investment from Taiwan’s Foxconn. Shares of Lordstown tumbled 35% in trading on the Nasdaq. The company’s bankruptcy is not the first among the crop of EV startups that went public during the pandemic-era SPAC boom. But Lordstown was a high-profile member of that class because it was challenging the core of the legacy Detroit automakers’ business of high-margin pickup trucks, and because of its location.”

June 26 – Bloomberg (Ksenia Galouchko): “One of Wall Street’s most bearish strategists said US equities are facing a wall of worry, which could fuel a sharp selloff in the near future… ‘The headwinds significantly outweigh the tailwinds and we believe risks for a major correction have rarely been higher,’ Wilson said…”

Ukraine War Watch:

June 24 – Reuters: “Heavily armed Russian mercenaries who advanced most of the way to Moscow began turning back on Saturday, de-escalating a major challenge to President Vladimir Putin’s grip on power, in a move their leader said would avoid bloodshed. Yevgeny Prigozhin, a former Putin ally and founder of the Wagner army, said his men reached within 125 miles of the capital. Earlier, Moscow deployed soldiers in preparation for their arrival and told residents to avoid going out. The Wagner fighters captured the city of Rostov hundreds of miles to the south before racing in convoy through the country, transporting tanks and armoured trucks and smashing through barricades set up to stop them, video showed.”

June 25 – Financial Times (Gideon Rachman): “The images that defined Volodymyr Zelenskyy as a leader were filmed on February 25 last year. As Russian troops closed in on Kyiv, the Ukrainian president walked the streets of the city with his close colleagues, reassuring citizens that: ‘All of us are here, protecting our independence and our country.’ Now contrast that with Vladimir Putin’s performance, as the Wagner militia briefly threatened to march on Moscow over the weekend. From the comfort of an office, the Russian president raged about ‘betrayal’ and ‘treason’. Then he disappeared. Rumours abounded that Putin had left Moscow. Kremlin officials later insisted he had been working in his office. The contrast between Zelenskyy and Putin was striking. On the one hand, courage, comradeship and a display of national unity. On the other, fear, isolation and division.”

June 26 – Financial Times (Max Seddon): “Vladimir Putin vowed to punish Yevgeny Prigozhin for ‘treason’ over the warlord’s armed uprising. Instead, the former Kremlin caterer and his Wagner group appeared to escape any harsh consequences after launching the first coup attempt in Russia for three decades. Prigozhin’s failed putsch ended abruptly, but it still exposed deep flaws at the heart of Putin’s regime, called the Russian president’s invasion of Ukraine into serious doubt, and raised the spectre of state collapse if unrest were to boil over again… ‘It’s a huge humiliation for Putin, of course. That’s obvious,’ said a Russian oligarch who has known the president since the 1990s. ‘Thousands of people without any resistance are going from Rostov almost to Moscow, and nobody can do anything. Then [Putin] announced they would be punished, and they were not. That’s definitely a sign of weakness.’”

U.S./Russia/China/Europe Geo Watch:

June 28 – Axios (Bethany Allen-Ebrahimian): “The short-lived rebellion against Russian President Vladimir Putin over the weekend may sow doubts that Russia can be the stable, reliable partner China needs to achieve its ambitions, experts say. Why it matters: Beijing’s ability to achieve its goal of creating an alternative to the Western-led world order may depend in part on the survival of a Russian regime willing and able to support that goal. An unstable Russia would create a weaker security environment for Beijing and potentially hinder Kremlin support for China in the case of conflict with the West… The big picture: Chinese President Xi Jinping and Putin have cultivated a ‘no-limits’ partnership based on their shared desire to topple the U.S.-led world order and legitimize authoritarian alternatives to liberal democracy. ‘Strategic competition with the U.S. has been the dominant issue in Chinese foreign policy for decades,’ Yurii Poita, head of the Asia-Pacific section at Ukraine’s Center for Army, Conversion and Disarmament Studies, told Axios. A stable and reliable Russia is vital to Beijing’s strategy, Poita said. ‘Without Russia, I don’t think China could do it.’”

June 25 – Financial Times (Joe Leahy and Cheng Leng): “China has described Yevgeny Prigozhin’s attempted insurrection as Russia’s ‘internal affair’ as it tried to play down any potential impact on their close ties during a visit by Moscow’s deputy foreign minister Andrei Rudenko to Beijing. State media showed Chinese foreign minister Qin Gang smiling and walking with Rudenko on Sunday as China tried to gauge the impact of the rebellion by Prigozhin and his Wagner paramilitaries on the political stability of one of its most important allies.”

June 26 – Bloomberg (Lucille Liu, Rebecca Choong Wilkins and Kari Lindberg): “Ever since Russia invaded Ukraine last year, Xi Jinping’s gamble on a ‘no limits’ friendship with Vladimir Putin has looked like it could backfire. This weekend’s brief uprising against Moscow again underscored the risks facing the Chinese leader. China gave a vote of confidence in Putin on Sunday, noting the Russian president’s strong relationship with Xi while saying it was necessary to ‘safeguard the common interests of both sides’ amid a ‘complex and severe international situation.’ Asked directly about Putin’s deal with Wagner chief Yevgeny Prigozhin, China’s Foreign Ministry said it supports Russia’s bid to maintain ‘national stability’ in dealing with an ‘internal affair.’”

June 26 – Reuters (Sinead Cruise and Carolina Mandl): “Deutsche Bank has told clients it can no longer guarantee full access to Russian stocks that belong to them, underlining the challenges global investors face to recover stranded investments in the country’s companies. Germany’s largest bank said… it had uncovered a shortfall in the shares that back the depositary receipts (DRs) the bank had issued before the Ukraine invasion. The shares have been held in Russia by a different depositary bank.”

De-globalization and Iron Curtain Watch:

June 30 – Reuters (Brenda Goh): “U.S.-China tensions over semiconductors began with the Trump administration’s trade war and have ratcheted up under President Joe Biden’s leadership as Washington looks to undercut Beijing’s efforts to build its high-tech industry. The U.S. and the Netherlands are set to deliver a one-two punch to China’s chipmakers by further curbing sales of chipmaking equipment, including some from Dutch firm ASML, the global leader in the critical process of lithography… A separate report citing sources said U.S. officials are considering tightening an export control rule designed to slow the flow of AI semiconductors to China by clamping down on the amount of computing power the chips can have.”

June 29 – Bloomberg (Rebecca Choong Wilkins): “After months of restraint, China’s strategy is emerging to combat what President Xi Jinping calls containment. Beijing has passed a sweeping new foreign policy law. Read it as a declaration of intent, rather than anything fundamentally new — Xi is putting together a framework to push back against ‘Western hegemony’ and ensure his Communist Party tightens oversight of the government agencies at the front lines of implementation.”

June 27 – Financial Times (Thomas Hale): “China’s premier Li Qiang has criticised a western push to limit trade and business ties with the country and promoted international economic co-operation in a speech that described de-risking as a ‘false proposition’. ‘Governments should not over-reach themselves, still less stretch the concept of risk or turn it into an ideological tool,’ Li said in the keynote address… at a World Economic Forum event in which he criticised ‘the politicisation of economic issues’. Li warned that ‘some in the west’ were ‘hyping up . . . reducing dependencies and de-risking’ and said such efforts were ‘false propositions’, arguing that businesses were in the best position to assess risk.”
June 30 – Wall Street Journal (Kate O’Keeffe): “U.S. counterintelligence officials are amping up warnings to American executives about fresh dangers to doing business in China under an amended Chinese law to combat espionage. A bulletin being issued Friday by the National Counterintelligence and Security Center and viewed by The Wall Street Journal warns that the revised law is vague about what constitutes espionage and gives the government greater access to and control over companies’ data, potentially turning what would be considered normal business activities into criminal acts. The amended counterespionage law, which takes effect Saturday, has unsettled foreign businesses in China. The publication of those revisions this spring came amid a wave of raids, inspections and other acts by Chinese authorities against foreign, chiefly American businesses…”

June 25 – Financial Times (Cheng Leng in Hong Kong, Joe Leahy in Beijing and Samer Al-Atrush): “Saudi Arabia will send one of the biggest official delegations to this week’s ‘Summer Davos’ in China, as Beijing deepens co-operation with the Middle East to reboot the world’s second-largest economy after three years of Covid-19 lockdowns. The attendance of the 24-strong delegation, which will include six ministers and vice-ministers, at the first in-person World Economic Forum event in China in three years comes as the two countries seek alternative investment partners to the west.”

Inflation Watch:

June 27 – Reuters (Dawn Chmielewski, Danielle Broadway and Sachin Ravikumar): “Call it Beyflation. Or maybe Swiftflation. The cost of certain goods is retreating in some places, but that doesn’t include live music. Concert tickets have surged in price, to the point where economists are noticing. Fans are shelling out a fortune for tickets to see the world’s biggest music acts… A perusal of ticket-purchasing sites makes the sticker shock clear. On reseller Stubhub, the cheapest seat for a July Taylor Swift show in Seattle is $1,200; tickets for an August Mexico City show cost $500 each.”

June 29 – Financial Times (Martin Arnold in Frankfurt and Barney Jopson): “German inflation was higher than forecast this month, even as Spain became the first major eurozone economy to beat the European Central Bank’s 2% target in almost two years. The divergence between Germany’s 6.8% rate for June and the 1.6% recorded by Spain highlights the dilemma faced by the ECB, which is focused on core inflation, which excludes volatile energy and food prices.”

June 30 – Reuters (Francesco Canepa): “Inflation in the euro zone extended its decline in June as the cost of fuel tumbled, more than offsetting an acceleration in prices for services… The data, pointing to only the smallest drop in underlying inflation, was unlikely to sway the European Central Bank… Inflation in the 20 countries that share the euro fell to 5.5% this month from 6.1% in May…”

Biden Administration Watch:

June 28 – Reuters (Stephen Nellis and Karen Freifeld): “U.S. officials are considering tightening an export control rule designed to slow the flow of artificial intelligence chips to China by clamping down on the amount of computing power the chips can have, according to two people familiar… The Biden administration last October issued a sweeping set of rules designed to freeze China’s semiconductor industry in place while the U.S. pours billions of dollars in subsidies into its own chip industry. An update to those rules may come by late July, two sources said, but one cautioned that such U.S. actions involving China often get delayed.”

Federal Reserve Watch:

June 28 – Bloomberg (Jonnelle Marte): “Federal Reserve Chair Jerome Powell signaled policymakers could potentially raise interest rates in July and September to curb persistent price pressures and cool a surprisingly resilient US labor market. Asked whether Fed officials now anticipate they will raise rates every other meeting after skipping an upward move this month, Powell said that may or may not happen and that he wouldn’t rule out consecutive rate increases. He reiterated that most policymakers’ forecasts show they expect to hike at least two more times this year. ‘Although policy is restrictive it may not be restrictive enough and it has not been restrictive for long enough,’ Powell said…”

June 29 – Bloomberg (Peter O’Dwyer): “Federal Reserve official Raphael Bostic reiterated that he favors keeping borrowing costs on hold but that Chair Jerome Powell and other colleagues don’t agree with him. ‘There is time for us to wait and let our policy work,’ Bostic said… ‘I don’t see as much urgency to move as others, including my chair.’”

U.S. Bubble Watch:

June 29 – Bloomberg (Hannah Pedone): “US unemployment benefits applications fell last week by the most since October 2021 in a week that included the Juneteenth holiday. Initial jobless claims decreased by 26,000 to 239,000 in the week ended June 24… Continuing claims, which include those who have received unemployment benefits for more than one week, dropped to 1.7 million for the week ended June 17.”

June 28 – Reuters (Lucia Mutikani): “The U.S. trade deficit in goods narrowed in May as imports fell, but the improvement was probably insufficient to prevent trade from being a drag on economic growth in the second quarter… The goods trade deficit decreased 6.1% to $91.1 billion last month, leaving the bulk of April’s surge intact. ‘Even with the narrowing in May, the goods trade deficit is up by over 10% since March, and trade will likely be a drag on economic growth in the second quarter,’ said Abbey Omodunbi, a senior economist at PNC Financial…”

June 29 – CNBC (Jeff Cox): “The U.S. economy showed much stronger-than-expected growth in the first quarter than previously thought, according to a big upward revision… from the Commerce Department. Gross domestic product increased at a 2% annualized pace for the January-through-March period, up from the previous estimate of 1.3%… This was the third and final estimate for Q1 GDP. The growth rate was 2.6% in the fourth quarter.”

June 27 – Reuters (Lucia Mutikani): “U.S. consumer confidence increased in June to the highest level in nearly 1-1/2 years amid renewed labor market optimism, while business spending appeared to hold up in May… Hopes that the economy could avoid a downturn in the near-term were also bolstered by other reports on Tuesday signaling a housing market revival was likely underway, with new home sales racing to a 15-month high in May and monthly house prices rising again in April… The Conference Board said its consumer confidence index rose to 109.7 this month, the highest reading since January 2022, from 102.5 in May.”

June 27 – Dow Jones (Dean Seal): “Orders for long-lasting goods kept rising in May thanks to strong demand for transportation equipment and nondefense aircraft. New orders for products meant to last at least three years, including appliances, computers, cars and other manufactured goods, increased 1.7% in May from the month prior to a seasonally adjusted $288.2 billion… That was the third consecutive month of order growth after a revised 1.2% increase in April and 3.3% rise in March.”

June 27 – CNBC (Diana Olick): “Home prices peaked last June, falling sharply through the beginning of this year. Now, they’re recovering steadily. Home prices in April were still down 0.2% compared with April 2022, according to the S&P CoreLogic Case-Shiller national home price index. They were, however, 0.5% higher month to month… Prices are now just 2.4% below their June 2022 peak. Miami, Chicago, and Atlanta were still seeing big gains in April, with prices up 5.2%, 4.1% and 3.5% year over year, respectively.”

June 27 – Dow Jones (Emon Reiser): “Sales of new single-family houses in the U.S. climbed double digits in May, far exceeding economists’ expectations… Here are the main takeaways: New home sales increased 12.2% in May compared with the previous month to a seasonally adjusted annual rate of 763,000… Sales were 20% above the same month a year ago, when they stood at an adjusted annual rate of 636,000… The seasonally adjusted estimate of new houses for sale at the end of May was 428,000. This represents a slight decrease in supply to 6.7 months at the current sales rate.”

June 29 – Yahoo Finance (Dani Romero): “The number of homes on the market could not keep up with the demand last month, and buyers were forced to face off with each other. The National Association of Realtors’ index of pending home sales fell 2.7% to a reading of 76.5 in May…, far exceeding the 0.5% drop that Bloomberg economists forecasted. On a yearly basis, pending transactions plunged by 22.2%.”

June 27 – Bloomberg (Eliyahu Kamisher): “California Governor Gavin Newsom and state legislators reached a budget deal, agreeing on a $311 billion spending plan that covers a $32 billion shortfall without dipping into the state’s rainy-day reserves. The budget for the year starting in July contains some funding cuts, including for the governor’s signature climate change programs and zero-emission vehicle push, while it gives a boost for transit agencies struggling to rebound from the pandemic and stay afloat. A provision to set aside a $38 billion reserve will give the state its largest-ever buffer…”

June 27 – Reuters (Kanishka Singh): “Over $200 billion from the U.S. government’s COVID-19 relief programs were potentially stolen, a federal watchdog said…, adding that the U.S. Small Business Administration (SBA) had weakened its controls in a rush to disburse the funds. At least 17% of all funds related to the government’s coronavirus Economic Injury Disaster Loan (EIDL) and Paycheck Protection Program (PPP) schemes were disbursed to potentially fraudulent actors, according to a report released Tuesday by the SBA’s office of inspector general.”

Fixed Income Watch:

June 30 – Bloomberg (Carmen Arroyo and Rachel Butt): “US regional banks and finance companies are increasingly selling off their consumer loans as funding them gets harder and more expensive, flooding private credit firms and hedge funds with requests to buy the debt at a discount. Firms like Canyon Partners, Castlelake and Hyland Hill are seeing twice as many loans for sale now as at the end of last year… The loans coming across their desks include car debt and personal loans, from consumer lenders including LendingPoint, Best Egg and Upstart Holdings Inc., as well as regional banks… As finance companies and regional banks lose appetite for making consumer loans, hedge funds and other investors may end up with more opportunities to profit.”

June 25 – Wall Street Journal (Sam Goldfarb): “Low-rated companies are learning to live with higher interest rates, finding ways to tap bond markets while minimizing the hit to their borrowing costs. So far this year, companies such as American Airlines and Six Flags have issued $91 billion of speculative-grade bonds, according to PitchBook LCD, up 35% from the year-earlier period… But those bonds look different than during the borrowing boom of recent years. A full 62% of them have been secured—backed by collateral—offering investors greater protections if the company defaults. That is easily the highest percentage in records going back to 2005. The average maturity of the junk debt has also shrunk to 6.1 years, down from an average of 7.4 years over the previous decade…”

China Watch:

June 30 – Bloomberg: “It was meant to be the year China’s economy, unshackled from the world’s strictest Covid-19 controls, roared back to help power global growth. Instead, halfway through 2023, it’s facing a confluence of problems: Sluggish consumer spending, a crisis-ridden property market, flagging exports, record youth unemployment and towering local government debt. The impact of these strains is starting to reverberate around the globe… What’s worse, President Xi Jinping’s government doesn’t have great options to fix things. Beijing’s typical playbook of using large-scale stimulus to boost demand has led to massive oversupply in property and industry, and surging debt levels among local governments.”

June 30 – Bloomberg: “China’s economy lost more steam in June with manufacturing activity contracting again and other sectors failing to build momentum, as calls grow for more policy support. The official manufacturing purchasing managers’ index registered a reading of 49, falling into contraction for a third straight month… The non-manufacturing gauge… slipped to 53.2, still above the 50 mark signaling expansion but at a weaker pace than the previous month. ‘This set of PMI numbers was hardly comforting for the Chinese economy,’ Citigroup Inc. economists including Yu Xiangrong wrote…”

June 26 – Bloomberg: “China’s consumer-driven recovery is showing more signs of losing momentum as spending slows on everything from holiday travel to cars and homes, adding to expectations for more stimulus to support the economy. Domestic travel spending during the recent holiday for the dragon-boat festival was lower than pre-pandemic levels… Home sales figures are below the level in previous years, while estimates for June car sales showed a drop from a year ago… The holiday tourism data pointed to ‘fading post-Covid recovery momentum for in-person services,’ Lu Ting, chief China economist at Nomura…wrote… He noted the average spending per trip was about 16% lower than in 2019, ‘implying either a weaker intention to spend or less purchasing power.’”

June 27 – Bloomberg: “China is pushing back against mounting investor pessimism toward the world’s second-largest economy. The central bank stepped up support for China’s slumping currency on Tuesday by setting the daily reference rate far stronger than estimates. The move came a day after a prominent finance writer and two of his peers were suspended from a social media platform for spreading ‘negative and harmful information’ about the nation’s faltering stock market.”

June 27 – Wall Street Journal (Rebecca Feng and Cao Li): “China’s local government funding problems last year were even worse than most economists thought. At least $12 billion worse. That is the boost Chinese local governments got to their revenues after a series of fictitious sales of land and other state-owned assets, according to the country’s national audit office. The disclosure means that even the official data, which showed a sharp drop in land sales and local government revenues last year, painted a more positive picture than was accurate. Around 70 regions inflated their local fiscal revenues by selling state-owned assets and land to themselves, the national auditor said. Since these deals were done between local governments and their own entities, they didn’t actually raise revenue for local governments but simply moved money around. Around $8 billion of the deals were struck by county-level governments… Local governments in China have long relied on land sales as a major source of revenue. But after problems in the country’s property sector worsened last year, demand for land slowed dramatically.”

June 30 – Bloomberg: “Local government financing vehicles are again boosting land purchases in China, underscoring concern municipalities are using the firms to inflate values. LGFVs bought about 30% of land sales in May, up from around 22% in April, according to… Huachuang Securities. That was the first month-on-month increase this year after the firms pulled back from buying earlier… A faltering housing recovery is adding pressure on local governments relying on income from land sales. Real estate development investment, which includes land sales revenue, declined 7.2% in the first five months from a year earlier. LGFVs purchased more than half of residential land sales in 2022, spending 2.2 trillion yuan ($324bn) as cash-strapped developers retreated, according to Guangfa Securities… Local government income from land sales slumped 23% to 6.69 trillion yuan last year, the lowest annual take since 2018…”

June 26 – Bloomberg: “Two more Chinese developers have failed to meet dollar-bond payments, occurring amid renewed home-sales softness and a lack of aggressive stimulus. Central China Real Estate Ltd. said it didn’t pay interest on a note before the end of a grace period on Friday and that it would suspend payments on all offshore debt. Smaller peer Leading Holdings Group Ltd. disclosed in its own exchange filing Friday night that it hadn’t paid the entire $119.4 million of principal plus interest due on a dollar bond issued a year ago as part of a debt swap.”

June 29 – Bloomberg: “Almost 17% of people expect housing prices to fall in China next quarter, according to a regular survey of depositors conducted by the central bank. The 16.5% of people who see prices falling was higher than 14.4% of people who said that in the survey last quarter. 15.9% of people see home prices rising, down from 18.5% last quarter, while 54.2% see them being unchanged, basically the same as last quarter.”

June 26 – Bloomberg (Hallie Gu): “A heat wave in northern China is the latest threat to agricultural production in the country as the El Nino weather pattern brings hotter and drier conditions than normal. The mercury approached 107.6F in Beijing and Tianjin late last week, with fifteen other weather stations in northern provinces including Hebei and Shandong also reporting record heat.”

June 27 – Financial Times (Edward White and Hudson Lockett): “China is ramping up a crackdown on financial sector commentators, a move that erodes the space for independent analysis and data and challenges Beijing’s official narrative of the health of the world’s second-biggest economy. Wu Xiaobo, one of China’s most prominent economic commentators with nearly 5mn followers on Weibo, was blocked… alongside two unnamed writers… Sino Weibo… deleted Wu’s recent posts and said he had spread harmful information that undermined government policy, including manipulating unemployment rates and spreading false accusations against the securities market.”

June 27 – Bloomberg: “China banned a prominent finance writer and two of his peers from social media platform Weibo for commenting about the country’s stock market and unemployment rate. Wu Xiaobo and two other writers who weren’t fully named ‘attacked and undermined’ Chinese policy and spread ‘negative and harmful information,’ according to a statement by Sina Corp.’s Weibo…”

June 27 – Financial Times (Edward White in Seoul and Gloria Li): “Chinese companies from foodmakers to tech start-ups are rushing into the country’s energy storage sector, spurred by massive state spending on President Xi Jinping’s plan to achieve energy independence. The number of Chinese enterprises registered as energy storage companies has more than doubled in the past three years to nearly 109,000… Yijing Wang, founder of Hangzhou-based 2060 Advisory, a cleantech-focused investment advisory firm, said there was a ‘gold rush’, with a ‘dramatic’ increase in the number of entrepreneurs, state-backed and private-sector investors targeting battery technologies and projects.”

Central Banker Watch:

June 28 – Financial Times (Martin Arnold): “The world’s top central bank chiefs signalled their readiness to increase interest rates further and keep them high, as they warned tight labour markets are still pushing up wages and prices. The heads of the US Federal Reserve, the European Central Bank and the Bank of England warned at a conference in Sintra, Portugal, that more action may be needed to bring inflation down towards targets of about 2% despite some economists’ predictions that further rate rises could trigger a recession or financial crisis. ‘Although policy is restrictive, it may not be restrictive enough and it has not been restrictive for long enough,’ Fed chair Jay Powell told the… conference. ‘The labour market is really pulling the economy,’ he added, signalling the Fed could increase interest rates at its next two meetings after pausing this month.”

June 29 – Financial Times (Martin Arnold): “The UK’s stubbornly high inflation has convinced senior policymakers at the European Central Bank to maintain their aggressive stance on raising interest rates to avoid being accused of failing to contain price pressures. Several members of the ECB’s rate-setting governing council told the Financial Times that recent criticism of the Bank of England over its struggle to bring down inflation had served as a cautionary tale during private discussions at their annual conference in Sintra, Portugal. ‘We have seen what happened in the UK and we don’t want the same thing to happen to us,’ said a eurozone rate-setter. ‘It is better to sound a little more hawkish and be prudent about how fast inflation will fall than to be caught out by a negative surprise, which is a problem for a central bank.’”

June 25 – Bloomberg (Bastian Benrath): “The unprecedented cycle of global interest-rate increases is entering its most challenging stretch as inflation threatens to become entrenched, according to the Bank for International Settlements. ‘Despite the most intensive monetary policy tightening in recent memory, the last leg of the journey to restore price stability will be the hardest,’ the Basel-based institution said in its annual economic report… ‘Interest rates may need to stay higher for longer than the public and investors expect.’”

June 26 – Financial Times (Marc Jones): “The world’s central bank umbrella body, the Bank for International Settlements (BIS), called… for more interest rate hikes, warning the world economy was now at a crucial point as countries struggle to rein in inflation. Despite the relentless rise in rates over the last 18 months, inflation in many top economies remains stubbornly high, while the jump in borrowing costs triggered the most serious banking collapses since the financial crisis 15 years ago. ‘The global economy is at a critical juncture. Stern challenges must be addressed,’ Agustin Carstens, BIS general manager, said in the organisation’s annual report… ‘The time to obsessively pursue short term growth is past. Monetary policy must now restore price stability. Fiscal policy must consolidate.’ Claudio Borio, the head of BIS’s monetary and economics unit, added there was a risk an ‘inflationary psychology’ was now setting in…”

June 27 – Financial Times (Martin Arnold): “Christine Lagarde has urged the European Central Bank to persist with high interest rates to prevent prices staying above its target as a result of tight labour markets and a big increase in eurozone wages. The ECB president told its annual conference in Sintra, Portugal, that the eurozone had been hit by ‘overlapping inflationary shocks since the end of the pandemic’. By raising its benchmark interest rate from minus 0.5% last year to 3.5% this month, she said the ECB had ‘made significant progress’ in addressing high inflation but it ‘cannot declare victory yet’. Lagarde said the initial phase of inflation, in which the cost of supply shocks in energy and other commodity markets was passed on to consumers by companies, was fading. But a second phase driven by rising labour costs had emerged, with eurozone wages forecast to climb 14% by 2025.”

June 27 – Reuters (Balazs Koranyi and Francesco Canepa): “Euro zone inflation has entered a new phase which could linger for some time, European Central Bank President Christine Lagarde said… outlining a lengthy fight against price growth that must dampen demand and force firms to curb prices… The issue, Lagarde argued, is that what was initially a transitory, energy-shock driven inflation has now seeped into the broader economy and could linger. ‘It is unlikely that in the near future the central bank will be able to state with full confidence that the peak rates have been reached,’ Lagarde told the ECB Forum on Central Banking in Sintra, Portugal.”

June 28 – Bloomberg (Alexander Weber and Jana Randow): “Some hawkish European Central Bank officials are pondering options to speed up the reduction of the institution’s €5 trillion ($5.5 trillion) stash of bonds, according to people familiar… Accelerating the moves on bond holdings would add to the steps the ECB is already taking to tighten monetary policy and get inflation under control. The bulk of that battle has so far come from an unprecedented bout of interest-rate increases, something that President Christine Lagarde said… isn’t done yet. While some are open to considering sales of securities from the ECB’s portfolio to complement steps taken to date, others would prefer phasing out the reinvestments of bonds bought during the pandemic…”

Global Bubble Watch:

June 27 – Bloomberg (Michael Tobin, Eleanor Duncan and Tasos Vossos): “A feel-good rally that dragged down borrowing costs for the world’s worst rated bonds to a four-month low has come to an abrupt end. Bonds rated CCC — the lowest tier of junk, issued by companies including Carvana Co. and Altice France Holding SA — lost 0.86% in the June 19-23 period, the biggest slump since the March banking crisis… ‘Investors were believing in a Narnia world where central banks tightened enough to crush inflation but not to hurt growth,’ said Adam Darling, a fixed-income investment manager at Jupiter Asset Management. ‘That’s nonsense and it’s never been done before. The only way to get rid of this kind of inflation is recession.’”

June 28 – Bloomberg (Curtis Heinzl): “Surging construction costs in Canada are putting new pressure on home prices, worsening a severe affordability crunch, according to the nation’s largest lender. A gauge of residential construction prices has risen 51% since the first quarter of 2020, outpacing the 13% gain for the consumer price index, Royal Bank of Canada economists said… ‘The cost of building a home in Canada — or any structure for that matter — has never been higher,’ the economists said in the report, citing ‘dramatic jumps’ in concrete and structural steel prices since the start of the pandemic along with soaring lumber prices in 2021 and early 2022.”

Europe Watch:

June 29 – Reuters (Angelo Amante and Giuseppe Fonte): “The reluctance of Italy’s right-wing coalition to ratify reform of a vital euro zone bailout fund is rooted in a deep distrust of the European Union, analysts and lawmakers said, leaving Prime Minister Giorgia Meloni no easy way out of a political mess. Italy is the only euro zone country that has not yet given a green light to a treaty that revises the European Stability Mechanism (ESM) – a fund created in 2012 after the euro zone sovereign debt crisis to provide a financial firewall for members of the currency bloc.”

June 28 – Financial Times (Amy Kazmin and Martin Arnold): “Italian prime minister Giorgia Meloni has lashed out at the European Central Bank for its repeated interest rate rises, saying its ‘simplistic’ approach to combating inflation was likely to hurt European economies more than help them. Speaking to parliament…, Meloni argued that the eurozone’s persistently high inflation — which hit 6.1% in May but is projected to fall to 5.6% this month — was not a result of economic overheating, but a consequence of the energy price shock stemming from the war in Ukraine. Although she described the price rises as ‘a hateful hidden tax that hits the poorest and those on fixed income’, Meloni warned that the ECB’s strategy for trying to cool inflation was misguided.”

June 30 – Reuters (Layli Foroudi and Noemie Olive): “France saw unrest spread to major cities in a third night of riots on Thursday as President Emmanuel Macron fought to contain a mounting crisis triggered by the deadly police shooting of a teenager of Algerian and Moroccan descent during a traffic stop. Forty thousand police officers were deployed across France – nearly four times the numbers mobilised on Wednesday – but there were few signs that government appeals to de-escalate the violence would quell the widespread anger.”

Japan Watch:

June 29 – Bloomberg (Toru Fujioka and Craig Stirling): “Bank of Japan Governor Kazuo Ueda suggested it’s possible to start normalizing monetary policy if the BOJ becomes confident inflation will pick up next year. For now, underlying inflation remains below 2%, and the BOJ’s outlook is for price increases to slow toward the end of the year, Ueda said… He didn’t specify whether he was talking about the fiscal year that ends next March. ‘From there on, we are forecasting some increase in the rate of inflation into ’24 — but, we are less confident about the second part,’ he said.. ‘If we become reasonably sure that the second part is going to happen, that could be a good reason for a policy change.’”

June 26 – Reuters (Tetsushi Kajimoto): “Japan is not ruling out any options in responding appropriately to excessive currency moves, its top currency diplomat said…, stepping up warnings against recent yen weakening that was ‘rapid and one-sided’. Currencies should move in a stable way, reflecting fundamentals, the government said, after the yen weakened beyond 143 yen on Friday, a seven-month low versus the dollar, and fell to a 15-year low beyond 155 yen to the euro… ‘We have all options available and we are not ruling out any,” Vice Finance Minister for International Affairs Masato Kanda told reporters… ‘I won’t comment on what to do now.’”

Leveraged Speculation Watch:

June 30 – Reuters (Carolina Mandl and Nell Mackenzie): “Many macro hedge funds that bet on global economic trends are ending the first half of 2023 with losses… After a surprise crisis of regional U.S. banks roiled markets, those funds were down by 2.3% this year through May according to the HFRI Macro (Total) asset weighted index… Investors said some individual performances suggest it may be difficult for many funds to fully recover by the end of June. That performance compares with a gain of roughly 13% for the S&P and 0.1% for benchmark performance for hedge funds.”

Social, Political, Environmental, Cybersecurity Instability Watch:

June 26 – Reuters (Shadia Nasralla): “Global energy demand rose 1% last year and record renewables growth did nothing to shift the dominance of fossil fuels, which still accounted for 82% of supply, the industry’s Statistical Review of World Energy report said… Last year was marked by turmoil in the energy markets after Russia’s invasion of Ukraine, which helped to boost gas and coal prices to record levels in Europe and Asia.”

Geopolitical Watch:

June 25 – Reuters (Soo-hyang Choi): “North Korea held mass rallies in Pyongyang where people shouted slogans vowing a ‘war of revenge’ to destroy the United States, as it marked the 73rd anniversary of the outbreak of the Korean War… About 120,000 working people and students took part in the rallies held across the capital on Sunday… Photos released… showed a stadium crowded with people holding placards reading ‘The whole U.S. mainland is within our shooting range’ and ‘The imperialist U.S. is the destroyer of peace.’”

June 27 – Reuters (Ben Blanchard): “Taiwan spotted two Russian warships off its eastern coast on Tuesday and sent its own aircraft and ships to keep watch, the island’s defence ministry said… The ministry said the two frigates sailed in a northerly direction off Taiwan’s east coast and then ‘departed from our response zone’ in a southeasterly direction off the port city of Suao, which is home to a major Taiwanese naval base. Taiwan’s military sent aircraft and ships to keep watch and activated shore-based missile systems…”

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