Chair Powell: “So, what we said was that uncertainty about the economic outlook has diminished but remains elevated. Many, many surveys say that… And that’s actually a line from the Teal book, which you can see in five years. Remember to check that.”
Journalist: “Maybe the world will be over by then.”
Powell: “No. But if you think about it, tariff uncertainty really peaked in April, and since then has come down. And that’s really what that’s acknowledging. It’s diminished but still elevated, that it’s uncertainty. So, I think that’s an accurate statement.”
The Fed’s forecasting track record has been less than stellar over recent years. Hoping Powell’s pushback (“no”) on the end of the world within five years proves prescient.
Can a Powell press conference be simultaneously humdrum and extraordinary? It seemingly couldn’t be a more incredible environment: truly the most extreme uncertainty. The Trump administration’s policies, in particular tariffs, trade policy and immigration. “De-globalization” and a new world order. Acute geopolitical instability – the ongoing Ukraine/Russia war, and now Israel/Iran (with direct U.S. involvement likely), and the Middle East at the brink. And the unfolding U.S./China battle for global supremacy – just for starters.
It’s obvious what has most garnered the Fed’s attention: “Tariffs” was used 35 times during Chair Powell’s Wednesday post-meeting press conference.
“It takes some time for tariffs to work their way through the chain of distribution to the end consumer. A good example of that would be goods being sold at retailers today may have been imported several months ago, before tariffs were imposed. So, we’re beginning to see some effects, and we do expect to see more of them over the coming months… We do also see price increases in some of the relevant categories, like personal computers and audiovisual equipment, and things like that that are attributable to tariff increases.”
“The amount of the tariff effects, the size of the tariff effects, their duration and the time it will take are all highly uncertain.”
“And in particular, we feel like we’re going to learn a great deal more over the summer on tariffs. We hadn’t expected them to show up much by now, and they haven’t. And we will see the extent to which they do over coming months.”
“We’ll be watching the labor market very carefully for signs of weakness and strength, and tariffs for signs of what’s going to happen there.”
“What you start with is what’s the effective tariff rate overall, and people are managing to that. But the pass-through of tariffs to consumer price inflation is a whole process that’s very uncertain.”
“There are many parties in that chain. There’s the manufacturer, the exporter, the importer, the retailer, and the consumer. And each one of those is going to be trying not to be the one to pay for the tariff. But together, they will all pay for it together, or maybe one party will pay it all. But that process is very hard to predict… And we haven’t been through a situation like this, and I think we have to be humble about our ability to forecast it.”
“We’ve learned that tariffs are going to be substantially larger than forecasters generally thought. Our forecasts are generally not particularly different from those of other well-resourced forecasting operations. So, what we learned particularly in April was that substantially larger tariffs were coming, and that would mean higher inflation. That’s what happened. You saw 2.5% [SEP] forecast in December, you saw 2.8% in March, and you see 3.1% now.”
“So, I think we have to learn a little more about tariffs. I don’t know what the right way for us to react will be. I think it’s hard to know with any confidence how we should react until we see really the size of the effects, and then we could start to make a better judgment.”
“What we’re waiting for to reduce rates is to understand what will happen with, really, the tariff inflation. And there’s a lot of uncertainty about that.”
“Everyone that I know is forecasting a meaningful increase in inflation in coming months from tariffs, because someone has to pay for the tariffs. And it will be someone in that chain that I mentioned, between the manufacturer, the exporter, the importer, the retailer, ultimately somebody putting it into a good of some kind, or just the consumer buying it.”
“So, of course, this is something we sort of know is coming. We just don’t know the size of it. And again, the economy seems to be in solid shape. The labor market is not crying out for a rate cut. Businesses were in a bit of shock after April 2. But you talk to business people now, there’s a very different feeling now – that people are working their way through this and they understand how they’re going to go. And it feels much more positive and constructive than it did three months ago, let’s say.”
“It’s certainly a time of real change from a geopolitical standpoint, from a trade standpoint, from an immigration standpoint. You see this not just here but everywhere. So, there’s quite a lot going on. It doesn’t change the way we do monetary policy in the near-term…”
Tariff’s 35 to “stagflation’s” zero. Very real stagflation risk warranted a question (or two) and thoughtful response. More importantly, it was also a goose egg for “financial conditions.” Financial conditions are today the critical issue, which only weeks after April’s acute market instability has somehow completely vanished off the radar.
Last week’s CBB highlighted the Fed’s Q1 Z.1 data and the “real economy sphere vs. financial sphere” analytical precept. Some (virtually all) readers surely lacked the necessary zeal to slog through the tedium. I’m Back For a Second Attempt with data worthy of careful attention, hopefully with a more manageable allotment.
Broker/Dealer Assets expanded $490 billion, or 37.2% annualized, during Q1 to $5.759 TN. This was the strongest quarterly growth since Q1 2007 – to the highest level since Q3 2008. One-year growth was boosted to $614 billion, or 11.9%, the strongest annual expansion since 2007 ($619bn).
For Q1, Broker/Dealer Repo Assets surged a quarterly record $240 billion, or 56.8% annualized, surpassing (banking crisis) Q1 2023’s $199 billion – to a record $1.930 TN. Over 10 quarters, Repo Assets have ballooned $600 billion, or 45%. For some perspective, Broker/Dealer Repo Assets jumped $303 billion, or 21%, over 10 quarters for a September 2008 cycle peak of $1.778 TN.
Broker/Dealer Debt Securities holdings surged $145 billion, or 56% annualized, surpassing Q1 2008’s $1.111 TN to a record $1.174 TN (1-yr $233bn, 24.7%). Debt Securities were up $523 billion, or 82%, over 21 quarters. Broker/Dealer Agency Securities holdings ballooned $105 billion (91% ann.) during Q1 and an unprecedented $407 billion (255%) over one year – to a record $566 billion. Treasury holdings gained $33 billion (29% ann.) during Q1 and $97 billion (25%) y-o-y to a record $488 billion. Treasury holdings ballooned $260 billion, or 114%, over 21 quarters.
How did Wall Street finance such remarkable balance sheet expansion? Repo Liabilities ballooned $361 billion, or 61.8% annualized, during Q1 to $2.697 TN – the high since Q3 2008. Repo Liabilities inflated $1.083 TN, or 67%, over 10 quarters. For comparison, Broker/Dealer Repo Liabilities expanded $989 billion, or 46%, over 10 quarters to a Q3 2007 cycle peak of $3.132 TN.
Sticking with Repos, total system Repo Assets surged $717 billion, or 41% annualized, to a record $7.779 TN. One-year growth of $1.074 TN compares to peak mortgage finance Bubble 2007’s $655 billion (to $4.541 TN). Repo Assets ballooned $2.965 TN, or 62%, over 21 quarters.
Money Market Funds (MMF) are the largest holder of Repos. MMF Assets rose $155 billion, or 8.5%, during Q1 to a record $7.398 TN – with incredible one-year growth of $957 billion, or 14.9%. MMF Assets ballooned $2.314 TN (46%) over 10 quarters and an astounding $3.395 TN, or 85%, over 21 quarters. MMF Repo holdings surged $201 billion, or 31% annualized, during Q1 to $2.821 TN – with one-year growth of $440 billion, or 19%, and 21-quarter ballooning of $1.579 TN, or 127%.
As discussed in last week’s “Real Economy Sphere vs. Financial Sphere” analysis, the first quarter experienced remarkable divergence between slowing non-financial debt growth and rapid acceleration in financial sector borrowings. Listening to Powell’s press conference, questions focused on real economy risks (i.e., tariffs, labor, immigration, GDP, inflation…). Lacking was any discussion related to the booming financial sector. Considering Powell and the Fed’s focus on the full employment and stable prices “dual mandate,” the line of questioning is understandable. As usual, the Fed’s overarching responsibility to promote and safeguard financial stability has seemingly been relegated to history (aka ignored completely). And it is the perpetually overlooked “financial sphere” that poses clear and present danger to system stability.
Imagination time…
“Doug Noland from the Credit Bubble Bulletin. Chair Powell, thank you for taking our questions. First, are you concerned with the ongoing rapid growth in the “repo” market, Wall Street’s use of “repo” to finance huge balance sheet expansion, and the $2.3 TN growth in money market fund assets over the past two and a half years – financial sector ballooning reminiscent of the market backdrop leading up to the Great Financial Crisis? And, if I may, a follow-up question: Do you have concerns – does the Federal Reserve have concerns – for the “basis trade,” “carry trades,” and what appears trillions worth of speculative leverage throughout the Treasury and Credit market? The Financial Times reported that hedge funds hold $3.4 TN of Treasuries. Especially with massive deficit spending, elevated inflation risk, dollar weakness, and unprecedented uncertainty generally, how concerned are you about the potential for a disorderly unwind of this leverage?
And please accept my apology. I appreciate that we are limited to two questions. But I’ve waited decades for this opportunity. Please indulge me with one final question: All this speculative leverage has created liquidity over-abundance that has helped fuel another “subprime” Bubble, this time in “private Credit,” leveraged lending, and other high-risk corporate and consumer loans. How would you gauge the systemic risks associated with this interplay between speculative leverage, liquidity excess, and high-risk lending? Do you see this as a risk to financial and economic stability? Thank you.”
In response to the 2007 subprime blowup, the Fed slashed rates seven times – 325 bps – to an April 30th, 2008, rate of 2.0%. From a “real economy sphere” perspective, the Federal Reserve moved aggressively to loosen monetary policy ahead of looming economic fallout.
Bubbles are real phenomena. They have consequential characteristics and dynamics. Allowed to inflate over years to great excess, these characteristics and dynamics tend toward monumental. I often refer to late-stage “terminal phase excess.” The rapid expansion of increasingly unsound Credit coupled with manic speculative excess propels a parabolic rise in systemic risk.
Major Bubbles are a calamity for central bankers. “Real economy sphere” fragility beckons for monetary policy largess. Meanwhile, precarious late cycle “financial sphere” excess will feast on any loosening of conditions. There is simply no escaping this harsh reality: any modest “real economy” benefit from looser conditions will be overwhelmed by the disastrous consequences of extending terminal phase “financial sphere” excess.
The historical record lacks a thorough and accurate mortgage finance Bubble post mortem. Sound analysis would underscore that the Fed’s aggressive monetary easing extended “terminal phase” “financial sphere” excess. Instead of the system commencing requisite adjustment starting in mid-2007 (subprime eruption), aggressive policy easing stoked additional excess in key sectors beset with powerful inflationary biases – including “AAA” mortgage securities, the “repo” market, stocks, and key commodities (i.e., crude). I’m convinced that an final 15-month period of parabolic excess was a major factor that intensified crisis dynamics.
In the six quarters Q2 2007 through Q3 2008, Money Market Fund assets ballooned $1.002 TN, or 42% – with “repo” holdings surging 53% to $605 billion. Broker/Dealer “repo” assets jumped $303 billion, or 21%, to a record $1.778 TN. Outstanding GSE/Agency Securities rose $1.444 TN, or 22%, in six quarters. Between the end of Q1 2007 and the July 2, 2008 peak, the Bloomberg Commodities Index surged almost 39%. Crude oil spiked from $66 to a July 3, 2008, high of $145.
The Fed erred last year in slashing rates 100 bps starting on September 18th. The “real economy” didn’t require monetary accommodation. The overheated “financial sphere” took it and ran manically. Money Market Fund assets have surged $700 billion, or 11%, since the September cut. From the September 17th close to December 17th all-time high, the Bloomberg MAG7 index surged 29% – and closed this week 18% higher than 9/17. After closing September 17th at $116, Nvidia traded at an all-time high of $153 on January 7th – as AI went manic. Bitcoin inflated 75% in three months – and remains 72% higher. Gold has gained 31% since September 18th, silver 17%, and platinum 29%.
Powell posits that “uncertainty about the economic outlook has diminished.” The same certainly cannot be said for the “financial sphere.” After April’s abrupt tightening, loose financial conditions have returned with a vengeance. And when it comes to “terminal phase excess” and late-cycle “inflationary biases,” I would point to “private Credit.”
June 18 – Wall Street Journal (Matt Wirz): “An investment arm of insurer Prudential Financial will buy up to $500 million of consumer loans from technology-backed consumer lender Affirm Holdings for a period of three years. Most of the loans come due in six months and Affirm will be able to re-lend the investment throughout the life of the deal, allowing it to finance $3 billion of buy-now-pay-later loans. The deal is part of a growing wave of transactions pairing a handful of large private-credit investors with financial technology companies that are replacing banks as go-to lenders for the American public.”
A perilous late cycle “risk on/risk off” dynamic creates extraordinary instability and uncertainty. As we saw in April, latent fragilities mean “risk off” can quickly spiral into deleveraging, illiquidity, and market dislocation. But the unwind of bearish hedges and positioning (squeeze dynamic) triggered a speculative marketplace conditioned for “risk on”, “buy the dip” and FOMO buying. The corresponding loosening of financial conditions then stokes additional speculative leveraging, liquidity abundance, and high-risk lending. Such an overheated “financial sphere” inflating in an uber high-risk world is an accident waiting to happen.
For the Week:
The S&P500 slipped 0.2% (up 1.5% y-t-d), while the Dow was little changed (down 0.8%). The Utilities declined 1.4% (up 6.3%). The Banks surged 3.3% (up 3.1%), and the Broker/Dealers gained 1.5% (up 15.6%). The Transports added 0.5% (down 7.1%). The S&P 400 Midcaps increased 0.6% (down 3.1%), and the small cap Russell 2000 was 0.4% higher (down 5.4%). The Nasdaq100 was unchanged (up 2.9%). The Semiconductors rose 1.9% (up 4.6%). The Biotechs slumped 2.2% (down 3.8%). With bullion dropping $64, the HUI gold index retreated 2.4% (up 52.9%).
Three-month Treasury bill rates ended the week at 4.1975%. Two-year government yields declined four bps to 3.91% (down 33bps y-t-d). Five-year T-note yields dipped four bps to 3.96% (down 42bps). Ten-year Treasury yields slipped three bps to 4.38% (down 19bps). Long bond yields were little changed at 4.89% (up 11bps). Benchmark Fannie Mae MBS yields declined three bps to 5.69% (down 16bps).
Italian 10-year yields added a basis point to 3.50% (down 2bps y-t-d). Greek 10-year yields increased two bps to 3.29% (up 8bps). Spain’s 10-year yields rose six bps to 3.22% (up 16bps). German bund yields dipped two bps to 2.52% (up 15bps). French yields slipped one basis point to 3.25% (up 5bps). The French to German 10-year bond spread widened about one to 73 bps. U.K. 10-year gilt yields declined a basis point to 4.54% (down 3bps). U.K.’s FTSE equities index declined 0.9% (up 7.4% y-t-d).
Japan’s Nikkei 225 Equities Index rallied 1.5% (down 3.7% y-t-d). Japanese 10-year “JGB” yields dipped one basis point to 1.40% (up 30bps y-t-d). France’s CAC40 fell 1.2% (up 2.8%). The German DAX equities index declined 0.7% (up 17.3%). Spain’s IBEX 35 equities index slipped 0.4% (up 19.5%). Italy’s FTSE MIB index declined 0.5% (up 14.8%). EM equities were mixed. Brazil’s Bovespa index was little changed (up 14.0%), while Mexico’s Bolsa index slumped 2.0% (up 14.0%). South Korea’s Kospi surged 4.4% (up 25.9%). India’s Sensex equities index gained 1.6% (up 5.0%). China’s Shanghai Exchange Index declined 0.5% (up 0.2%). Turkey’s Borsa Istanbul National 100 index lost 1.2% (down 6.4%).
Federal Reserve Credit increased $4.1 billion last week to $6.632 TN. Fed Credit was down $2.258 TN from the June 22, 2022, peak. Over the past 301 weeks, Fed Credit expanded $2.905 TN, or 78%. Fed Credit inflated $3.821 TN, or 136%, over the past 658 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt dropped $6.6 billion last week to a new eight-year low of $3.226 TN. “Custody holdings” were down $53 billion y-o-y, or 2.5%.
Total money market fund assets gained $9 billion to $7.015 TN. Money funds were up $894 billion, or 14.6%, y-o-y.
Total Commercial Paper added $2.0 billion to a new 16-year high $1.473 TN. CP has expanded $385 billion y-t-d and $183 billion, or 14.2%, y-o-y.
Freddie Mac 30-year fixed mortgage rates dipped three bps to 6.81% (down 6bps y-o-y). Fifteen-year rates slipped a basis point to 5.96% (down 17bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates down one basis point to 6.95% (down 41bps).
Currency Watch:
June 16 – Bloomberg (Carter Johnson): “When Paula Comings, the head of currency sales for US Bancorp, talks to US importers, she increasingly hears the same message: Their foreign counterparties no longer want to be paid in dollars. Instead, they ask for settlement in euros, Chinese renminbi, the Mexican peso and the Canadian dollar, looking to limit their exposure to further swings in the greenback. ‘A lot of clients previously were reluctant because dollars were sacred in the eyes of the supplier,’ Comings said. ‘Now the vibe from overseas vendors seems to be, ‘Just give us our currency.’”
June 18 – New York Times (Keith Bradsher): “The governor of China’s central bank outlined a plan… for a global financial system that relies on several major currencies, not just the dollar, as Beijing steps up its campaign to weaken the U.S. dollar’s primacy. Pan Gongsheng, the governor of the People’s Bank of China, did not mention the dollar by name but gave an extended critique of the potential dangers of international reliance on a single country’s currency. In a coded reference to the United States, Mr. Pan cited the dangers posed by fiscal and regulatory problems in the country issuing the world’s main currency. These problems may ‘overflow to the world in the form of financial risks, and even evolve into an international financial crisis,’ he said.”
June 17 – Bloomberg: “People’s Bank of China Governor Pan Gongsheng laid out in the clearest terms yet his vision for the future of a new global currency order after decades of dollar dominance, predicting a more competitive system will take root in the years to come. ‘In the future, the global monetary system could continue to evolve toward a situation where a few sovereign currencies co-exist, compete and check and balance each other,’ Pan said… Pan said there have been discussions around the world on how to reduce excessive reliance on a single currency, adding that the yuan’s global status has risen in recent years. Confidence in the US is waning after months of President Donald Trump’s erratic policymaking.”
For the week, the U.S. Dollar Index recovered 0.6% to 98.707 (down 9.0% y-t-d). For the week on the upside, the Brazilian real increased 0.5%. On the downside, the Swedish krona declined 1.9%, the Norwegian krone 1.9%, the Japanese yen 1.4%, the Mexican peso 1.1%, the Canadian dollar 1.1%, the British pound 0.9%, the Swiss franc 0.8%, the New Zealand dollar 0.8%, the South Korean won 0.6%, the Australian dollar 0.5%, the Singapore dollar 0.4%, the South African rand 0.3%, and the euro 0.2%. The Chinese (onshore) renminbi slipped 0.02% versus the dollar (up 1.64% y-t-d).
Commodities Watch:
June 16 – New York Times (Jack Ryan): “A record share of the world’s central banks plans to accumulate more gold over the next 12 months, drawn by bullion’s performance during times of crisis and protection against inflation. In a survey of 72 monetary authorities, 43% said they expected their gold reserves to increase, up from 29% a year earlier and the highest figure in eight years… Central banks have been one of the most important drivers of a long-running gold rally that has seen prices double since late-2022. The pace of buying doubled after the invasion of Ukraine…”
The Bloomberg Commodities Index gained 1.4% (up 8.1% y-t-d). Spot Gold fell 1.9% to $3,368 (up 28.3%). Silver slipped 0.8% to $36.0105 (up 24.6%). WTI crude added 86 cents, or 1.2%, to $73.84 (up 3%). Gasoline jumped 4.6% (up 15%), and Natural Gas rallied 7.4% to $3.847 (up 7%). Copper added 0.3% (up 21%). Wheat surged 4.4% (up 3%), while Corn dropped 3.5% (down 7%). Bitcoin declined $2,300, or 2.2%, to $103,450 (up 10.4%).
Middle East War Watch:
June 19 – New York Times (David E. Sanger and Tyler Pager): “President Trump’s sudden announcement that he could take up to two weeks to decide whether to plunge the United States into the heart of the Israel-Iran conflict is being advertised by the White House as giving diplomacy one more chance to work. But it also opens a host of new military and covert options. Assuming he makes full use of it, Mr. Trump will now have time to determine whether six days of relentless bombing and killing by Israeli forces — which has taken out one of Iran’s two biggest uranium enrichment centers, much of its missile fleet and its most senior officers and nuclear scientists — has changed minds in Tehran.”
June 17 – Financial Times (Lauren Fedor, Demetri Sevastopulo and James Shotter): “Donald Trump called for Tehran’s ‘unconditional surrender’ in a series of bellicose comments that left the door open to the US joining Israeli strikes against Iran. The US president said his patience was ‘wearing thin’ and boasted Iran’s supreme leader Ayatollah Ali Khamenei was an ‘easy target’, in a series of posts made a day after he left the G7 summit in Canada early to focus on the war. ‘We are not going to take him out (kill!), at least not for now,’ Trump said. ‘But we don’t want missiles shot at civilians, or American soldiers.’”
June 16 – Axios (Barak Ravid): “President Trump called on Iranian civilians to ‘immediately evacuate Tehran’ on Monday evening… It’s not immediately clear what triggered Trump’s dramatic post on Truth Social or his early return from Canada… ‘Iran should have signed the ‘deal’ I told them to sign. What a shame, and waste of human life. Simply stated, IRAN CAN NOT HAVE A NUCLEAR WEAPON. I said it over and over again! Everyone should immediately evacuate Tehran!’ Trump wrote. Trump followed up with a post chiding “kooky Tucker Carlson” for not understanding that “IRAN CAN NOT HAVE A NUCLEAR WEAPON.’ Next, he posted: ‘AMERICA FIRST means many GREAT things, including the fact that, IRAN CAN NOT HAVE A NUCLEAR WEAPON. MAKE AMERICA GREAT AGAIN!!!’”
June 18 – Axios (Barak Ravid): “Iran’s supreme leader Ali Khamenei said in a televised speech that the Islamic Republic ‘will not surrender’ and threatened that if the U.S. takes military action against Iran, ‘it will undoubtedly cause irreparable consequences to them.’ Khamenei’s message was his first response to the demand made by President Trump… for the nation’s ‘unconditional surrender.’ Trump is considering joining Israel’s war against Iran and ordering military strikes to take out Iran’s nuclear program. ‘The Iranian nation stands firm against an imposed war, just as it will stand firm against an imposed peace, and this nation will not surrender to anyone in the face of imposition,’ Khamenei said… Khamenei added: ‘Intelligent people who know Iran, the Iranian nation, and its history will never speak to this nation in threatening language because the Iranian nation will not surrender, and the Americans should know that any U.S. military intervention will undoubtedly cause irreparable harm to them.’”
June 18 – Wall Street Journal (Shelby Holliday): “Israel is running low on defensive Arrow interceptors, according to a U.S. official, raising concern about the country’s ability to counter long-range ballistic missiles from Iran if the conflict isn’t resolved soon. The U.S. has been aware of the capacity problems for months…, and Washington has been augmenting Israel’s defenses with systems on the ground, at sea and in the air. Since the conflict escalated in June, the Pentagon has sent more missile defense assets into the region, and now there is concern about the U.S. burning through interceptors as well. ‘Neither the U.S. nor the Israelis can continue to sit and intercept missiles all day,’ said Tom Karako, director of the Missile Defense Project at the Center for Strategic and International Studies. ‘The Israelis and their friends need to move with all deliberate haste to do whatever needs to be done, because we cannot afford to sit and play catch.’”
June 18 – Reuters (Anna Hirtenstein): “The Front Tyne oil tanker was sailing through the Gulf between Iran and the United Arab Emirates on Sunday when just past 9:40 a.m. shiptracking data appeared to show the massive vessel in Russia, in fields better known for barley and sugar beets. By 4:15 p.m., the ship’s erratic signals indicated it was in southern Iran near the town of Bidkhun, before later placing it back and forth across the Gulf. Mass interference since the start of the conflict between Israel and Iran has affected nearly 1,000 ships in the Gulf, according to Windward, a shipping analysis firm. A collision involving tankers south of the Strait of Hormuz… occurred on Tuesday with both vessels catching fire… ‘There is usually no jamming in the Strait of Hormuz and now there is a lot,’ said Ami Daniel, chief executive of Windward.”
June 19 – Bloomberg (Stephen Stapczynski and Shery Ahn): “Shell Plc, one of the biggest traders of oil and natural gas, has contingency plans in case the conflict between Israel and Iran disrupts flows from the region, warning that a potential blockage of the Strait of Hormuz could deliver a substantial shock. ‘If that artery is blocked, for whatever reason, it has a huge impact on global trade,’ Chief Executive Officer Wael Sawan said… ‘We have plans in the eventuality that things deteriorate.’”
June 18 – Financial Times (Robert Wright): “Prices to charter large oil tankers sailing through the critical Strait of Hormuz have more than doubled since Israel launched an attack on Iran last week, amid shipowners’ reluctance to risk using the waterway. The price to charter a very large crude carrier — capable of carrying 2mn barrels of oil — from the Gulf to China leapt from $19,998 a day last Wednesday, two days before Israel’s attack, to $47,609 on Wednesday this week… The rise on the route has far outpaced a 12% increase in the wider Baltic Dirty Tanker Index of crude oil tanker rates globally over the same period.”
June 18 – Financial Times (Lee Harris): “Insurance prices for ships travelling through the Strait of Hormuz have jumped more than 60% since the start of the war between Israel and Iran as the conflict threatens shipping in a key chokepoint for crude oil. As of this week, the cost of hull and machinery insurance for ships passing through the strait… as well as the wider Gulf area had risen from 0.125% of the value of the ship to about 0.2%, according to the world’s largest insurance broker Marsh McLennan. This pushes the cost of cover for a $100mn ship from $125,000 to $200,000. Hull and machinery insurance covers damage to the ship itself, as opposed to cargo or third-party liability.”
June 17 – Bloomberg (Selcan Hacaoglu and Firat Kozok): “Turkish President Recep Tayyip Erdogan ordered officials to increase the production of medium and long-range missiles in light of the Israel-Iran conflict… The move comes as Israel and Iran exchange salvos for the fifth day in a row, raising fears about a spread of the war to other countries in the oil-rich Middle East… ‘We are making production plans to bring our medium and long-range missile stocks to a level of deterrence in light of recent developments,’ Erdogan said…”
Market Instability Watch:
June 17 – Business Insider (Christine Ji): “Foreign buyers of US Treasurys have been shedding their holdings, raising the possibility of more future turbulence for US government bonds, Bank of America titled said. In a report… titled ‘Foreign UST Demand Shows Cracks,’ the bank said that foreign investors, often central banks, are purchasing fewer Treasurys. Megan Swiber, rates strategist at Bank of America, wrote… that US dollar asset holdings have declined over $60 billion since the beginning of April. Foreign participation in the most recent US 20-year Treasury auction was the lowest since July 2020. ‘The foreign demand trajectory going forward is concerning, especially in light of more global investors looking to reduce US assets or increase hedge ratios,’ she wrote.”
June 15 – Bloomberg (Ruth Carson and Masaki Kondo): “Japan’s once-slumbering bond market has roared back to life with a burst of volatility that is echoing around the world. Major debt markets have moved in tandem with Japanese government bonds during the recent rout, with a spike in super-long yields in the Asian nation amplifying ructions fueled by global fears of widening fiscal deficits. The risk of more spillover is on the horizon. An analysis by Bloomberg shows that Treasuries have become more sensitive to moves in Tokyo, just as fluctuations in Japan’s $7.8 trillion debt market soar to the highest level in over two decades.”
June 19 – Reuters (Takaya Yamaguchi): “Japan’s government plans to cut sales of super-long bonds by about 10% from its original plan in a rare revision to its bond programme for the current fiscal year, trimming overall bond issuance as a result, a draft document… showed. The move aims to soothe market oversupply concerns, after weak demand at recent auctions and a surge in super-long yields to record highs last month rattled the bond market.”
June 18 – Financial Times (Kate Duguid): “Foreign investors’ stockpile of US government debt fell only modestly in April despite turbulence in the Treasury market driven by Donald Trump’s ‘liberation day’ tariff announcement. International holdings fell $36.1bn in April from the previous month to about $9tn, just shy of the record high hit in March… The muted change in foreign holdings in April signals international investors did not exit the market en masse, as some analysts had feared.”
Global Credit and Financial Bubble Watch:
June 18 – Bloomberg (Katanga Johnson): “The top US bank regulators plan to reduce a key capital buffer by up to 1.5 percentage points for the biggest lenders after concerns that it constrained their trading in the $29 trillion Treasuries market. The Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency are focusing on what’s known as the enhanced supplementary leverage ratio… This rule applies to the largest US banks…The proposal would lower a bank holding company’s capital requirement under the eSLR to a range of 3.5% to 4.5%, down from the current 5%…”
June 18 – Reuters (Davide Barbuscia and Pete Schroeder): “U.S. Treasury market participants hoping for a long-awaited shift in bank leverage rules may be in for a letdown if U.S. regulators choose to ease capital requirements rather than exclude U.S. government bonds from leverage calculations.”
June 16 – Bloomberg (Silla Brush and Benjamin Stupples): “Family offices want more of the private credit boom. More than half of 175 family offices around the world are optimistic about private credit and almost one-third said they intend to increase allocations to the asset this year, the most of any type of alternative investment, according to… BlackRock Inc. The super-wealthy also are increasingly bullish about infrastructure investing, with 30% saying they plan to commit more of their money to the market. While private equity remains a core investment for family offices, the last few years of lackluster performance, difficulty exiting investments and delayed or reduced returns of capital are taking a toll… That’s led the wealthy to become much pickier about selecting managers and deciding whether they’re worth the fees.”
June 18 – Bloomberg (Yiqin Shen and Anthony Hughes): “Convertible bonds in the US had their best week in more than four years, with surging demand enabling companies to tap the market at low prices rarely seen since the pandemic. Nearly $10 billion was raised across 10 convertible bond deals last week, making it the busiest since March 2021… The amount raised is about 10 times the five-year weekly average, propelling 2025’s volume ahead of last year’s pace despite a slow start…”Trump Administration Watch:
June 18 – Financial Times (Martha Muir and Amelia Pollard): “The US clean energy sector is facing a wave of collapses as Congress weighs a spending bill that would gut clean energy tax credits that have kept the industry afloat. Two major companies, residential solar provider Sunnova and financing firm Mosaic, filed for bankruptcy this month, with Sunnova citing ‘uncertainty over the nation’s commitment’ to solar power as a factor in its failure… Reality is sinking in for an industry that hoped the robust presence of clean energy projects in Republican areas would save it from cuts.”
Trump Administration Watch:
June 16 – Bloomberg (Josh Wingrove): “President Donald Trump directed federal officials to expand efforts to deport migrants in the largest US cities in the face of protests and court challenges, even as his administration is looking to ease the impact of the crackdown on key sectors of the American workforce. ‘ICE Officers are herewith ordered, by notice of this TRUTH, to do all in their power to achieve the very important goal of delivering the single largest Mass Deportation Program in History,’ Trump said… ‘In order to achieve this, we must expand efforts to detain and deport Illegal Aliens in America’s largest Cities, such as Los Angeles, Chicago, and New York, where Millions upon Millions of Illegal Aliens reside,’ he added… The president’s focus on large cities drew a quick response from California Governor Gavin Newsom… ‘His plan is clear: Incite violence and chaos in blue states, have an excuse to militarize our cities, demonize his opponents, keep breaking the law and consolidate power,’ Newsom said… ‘It’s illegal and we will not let it stand.’”
June 14 – Bloomberg (María Paula Mijares Torres and Eliyahu Kamisher): “Protesters filled streets in hundreds of cities across the US to oppose President Donald Trump’s administration on Saturday, as he held a military parade in Washington. Anti-Trump activists, including labor unions and civil-rights groups, organized the nationwide demonstrations under the banner of ‘No Kings,’ denouncing what they say are Trump’s authoritarian tendencies — and the parade being held on his 79th birthday. The nationwide protests were largely peaceful, with anti-Trump chants, banners opposing the president’s effort to deport undocumented immigrants, and people dancing in the streets.”
June 14 – Wall Street Journal (Aaron Zitner, Joshua Jamerson and Douglas Belkin): “The fragile nature of American unity was on display across the country Saturday. Joined by tens of thousands of spectators, President Trump presided over a military parade celebrating the 250th anniversary of the U.S. Army, a pageant of soldiers in Revolutionary War uniforms, Sherman tanks from World War II and heavy equipment from every modern military conflict. Hundreds of thousands of protesters used the day to take to the streets throughout the country to demonstrate against Trump’s policies. The events, organized under the slogan ‘No Kings,’ weren’t the only sign of America’s volatility. The shootings of two state lawmakers in Minnesota, one of them fatally, brought the menace of political violence to the day.”
June 19 – Associated Press (Paul Wiseman): “Farmers, cattle ranchers and hotel and restaurant managers breathed a sigh of relief last week when President Donald Trump ordered a pause to immigration raids that were disrupting those industries and scaring foreign-born workers off the job. ‘There was finally a sense of calm,’ said Rebecca Shi, CEO of the American Business Immigration Coalition. That respite didn’t last long. On Wednesday, Assistant Secretary of the Department of Homeland Security Tricia McLaughlin declared, ‘There will be no safe spaces for industries who harbor violent criminals or purposely try to undermine (immigration enforcement) efforts. Worksite enforcement remains a cornerstone of our efforts to safeguard public safety, national security and economic stability.’ The flipflop baffled businesses trying to figure out the government’s actual policy, and Shi says now ‘there’s fear and worry once more.’”
June 14 – Financial Times (James Politi, Stefania Palma and Steff Chávez): “Before a crowd of cheering soldiers at an event that seemed more like an election rally than an address to the troops, Donald Trump defended his decision to host the first large military parade in Washington since 1991. ‘A lot of people say we don’t want to do that. I say yes we do,’ he told the soldiers at Fort Bragg… ‘We want to show off a little bit.’ The commemoration of the Army’s 250th anniversary… will be an unsubtle projection of power by a commander-in-chief who revels in showmanship… The pageantry reflects the president’s growing fascination with military power as he tests his ability to deploy the armed forces to implement his domestic agenda in ways that echo authoritarian regimes…”
June 17 – New York Times (Roger Cohen): “President Trump said… President Emmanuel Macron of France ‘always gets it wrong,’ as simmering tensions between the two leaders over the Israel-Iran conflict blew up into insults. As he made an early exit from the Group of 7 meeting in Canada and flew back to Washington, Mr. Trump called Mr. Macron ‘publicity seeking.’ In a post on his Truth Social platform, Mr. Trump said the French leader ‘has no idea why I am on my way to Washington, but it certainly has nothing to do with a Cease Fire.’”
June 18 – Financial Times (Lauren Fedor): “Steve Bannon has warned Donald Trump not to authorise military action against Iran, saying US involvement in another war in the Middle East would ‘tear the country apart’. ‘My mantra right now: The Israelis have to finish what they started. They started this. They should finish it,’ said Bannon, who was chief strategist to Trump during his first administration and remains a prominent ally of the US president. ‘We can’t do this again. We’ll tear the country apart. We can’t have another Iraq.’”
China Trade War Watch:
June 14 – Bloomberg (Dayana Mustakr): “The trade agreement reached by US and China in London left export restrictions tied to national security unresolved, Reuters reported… Beijing hasn’t committed to granting export clearance for certain rare-earth magnets needed by US military suppliers in fighter jets and missile systems, according to the report. US officials also signaled they may seek to extend existing tariffs on China for a further 90 days beyond an Aug. 10 deadline agreed during previous talks in Geneva…”
June 15 – Bloomberg (David Fickling): “In retrospect, the symbolism of the moment was foreboding. On May 15, 2019, President Donald Trump signed an executive order banning US firms from doing business with Chinese telecommunications companies, including Huawei Technologies Co. Five days after that first broadside in a brewing trade-and-technology war, President Xi Jinping was photographed touring a factory producing rare-earth magnets. Such devices, his visit seemed to imply, could be a geopolitical weapon for China quite as potent as advanced semiconductors are for the US. Six years later, those battle lines are hardening. In the first major US-China trade dispute of Trump’s second term, Beijing was able to use its control of rare earths to force Washington to a deal last week. The magnets produced from them are essential for the lightweight, powerful motors driving everything from automated car seats to guided missiles.”
June 17 – Bloomberg (Mackenzie Hawkins, Miaojung Lin and Yian Lee): “Taiwan joined a yearslong US campaign to curtail China’s technological ascent when it blacklisted the country’s AI and chipmaking champions, an unprecedented step that may signal a resurgent effort to isolate its powerful neighbor’s semiconductor sector. Taipei this month added Huawei Technologies Co. and its main chipmaker Semiconductor Manufacturing International Corp. to its entity list, barring the island’s firms from doing business with the pair without a license. It was the first time Taiwanese officials have used that blacklist to sanction major Chinese firms…”
Trade War Watch:
June 17 – Wall Street Journal (Kim Mackrael, Vipal Monga and Natalie Andrews): “Leaders from some of America’s biggest trading partners traveled to the Group of Seven industrial nations summit in Canada this week hoping for deals with President Trump. They left empty-handed. A meeting with Japanese Prime Minister Shigeru Ishiba ended with a pledge for more talks. After discussing trade with European Commission President Ursula von der Leyen, Trump said he didn’t think the bloc was offering a fair deal. Canadian Prime Minister Mark Carney set a new 30-day timeline for a trade deal but couldn’t ink an agreement. ‘The fact that the Americans left there with no deals suggests that what they’re asking other countries to stomach is too high a price for them to pay,’ said Brian Clow, who was deputy chief of staff to Canada’s former Prime Minister Justin Trudeau. Some of America’s closest partners now face a ticking clock before a July 9 deadline that the U.S. has set to impose a global slate of higher tariffs, Trump’s so-called ‘reciprocal’ levies.”
June 16 – Reuters (Sergio Goncalves): “The European Union must keep a constructive position with the U.S. on trade tariffs to avoid an unwanted trade war, EU Council President Antonio Costa said… Costa said if the EU was subject to discriminatory measures it would have to respond and the ‘European Commission is prepared to respond, particularly in trade matters’. ‘We have to keep nerves of steel. I have great hope that, in the end, some line of rationality will guide political action… as no tariff will increase U.S. exports of goods or services to Europe,’ he said…”
June 17 – Reuters (Tim Kelly): “Japan’s Prime Minister Shigeru Ishiba said his country has not reached a comprehensive tariff agreement with the United States as some disagreements persist between the two nations. Ishiba, talking to reporters after the Group of Seven leaders’ summit…, emphasised the importance of securing a trade deal that benefits both countries while safeguarding Japan’s national interests.”
June 17 – Bloomberg (Sakura Murakami and Yoshiaki Nohara): “Japan will prioritize protecting its national interests in trade talks without rushing into a deal with the US, Japanese Prime Minister Shigeru Ishiba said… ‘It is important to proceed slowly but surely,’ Ishiba said… ‘I strongly believe that we must not prioritize reaching an early agreement at the expense of our national interests.’”
Budget Watch:
June 17 – Associated Press (Fatima Hussein and Lisa Mascaro): “President Donald Trump’s tax cuts package would increase deficits by $2.8 trillion over the next decade after including other economic effects, according to a fuller analysis of the House-passed measure released… by the Congressional Budget Office. The report, produced by the nonpartisan CBO and the Joint Committee on Taxation, factors in expected debt service costs and finds that the bill would increase interest rates and boost interest payments on the baseline projection of federal debt by $441 billion.”
June 16 – Axios (Stef W. Kight and Hans Nichols): “Senate Finance Committee Republicans published their text of President Trump’s ‘one big, beautiful bill’ Monday evening, which includes major tax reforms and even steeper Medicaid cuts than the House called for. This is the trickiest part of the GOP’s marquee legislation, which also includes raising the debt ceiling as well as border and military funding. Now, Senate GOP leaders will work to whip the votes needed to pass the full package before the July 4th break. The Senate is making some key changes to the House’s version of the bill… The Child Tax Credit would increase to just $2,200 — less than the $2,500 in the House version. It would make permanent various business and other tax incentives, including expensing of investments in equipment and R&D. Republican senators are proposing deeper cuts to Medicaid spending by lowering the provider tax that certain states are allowed to assess.”
June 18 – The Hill (Alexander Bolton): “Senate Majority Leader John Thune is facing strong pushback from members of the GOP conference over the Finance Committee’s piece of President Trump’s tax and spending bill, which largely ignores GOP senators’ concerns about Medicaid cuts and the quick phaseout of clean-energy tax credits. Senate Republicans who raised red flags over Medicaid spending cuts the House passed say they were blindsided by the Senate’s version of the bill, which would cut Medicaid by several hundred billion dollars beyond what the House proposed.”
June 18 – Bloomberg (Emily Birnbaum, Skylar Woodhouse and Joe Mathieu): “President Donald Trump expressed optimism that lawmakers could reach a compromise on the state and local tax deduction — a sticking point in his ‘One Big Beautiful Bill’ — even as a key SALT advocate insisted a deal had already been reached. Trump said… resolving the contentious debate over the SALT cap is imperative to passing his multitrillion dollar tax bill. ‘It’s very difficult, and I understand both sides, but we’ll just have to see, hopefully a compromise or something’s going to be made,’ Trump told reporters… New York Representative Mike Lawler… said… he is open to negotiating with the Senate to advance the tax bill, but insisted he would not agree to lower the $40,000 SALT cap deal reached in the House.
June 18 – Bloomberg (Gregory Korte and Daniel Flatley): “The Social Security trust fund will become unable to pay scheduled benefits to retirees and the disabled as soon as 2034, new projections show — one year earlier than last year’s estimates. The reports… from trustees of Social Security and Medicare funds ramp up the urgency to find a solution to the growing gap between contributions and benefits — or else today’s 59-year-olds will see an automatic 23% benefit cut when they reach full retirement age. The Medicare trust fund that covers seniors’ hospital care is also expected to be depleted in 2033, triggering an 11% cut in payments to hospitals and other facilities.”
June 18 – Bloomberg (Gregory Korte and Daniel Flatley): “The Social Security trust fund will become unable to pay scheduled benefits to retirees and the disabled as soon as 2034, new projections show — one year earlier than last year’s estimates. The reports… from trustees of Social Security and Medicare funds ramp up the urgency to find a solution to the growing gap between contributions and benefits — or else today’s 59-year-olds will see an automatic 23% benefit cut when they reach full retirement age. The Medicare trust fund that covers seniors’ hospital care is also expected to be depleted in 2033, triggering an 11% cut in payments to hospitals and other facilities. The worsening outlook reflects economic, demographic and legislative changes — and, critics say, a lack of political urgency from the White House and Congress.”
Constitution Watch:
June 18 – Bloomberg (Elizabeth Rembert, Amanda Albright and Simone Foxman): “The Trump administration is privately considering unleashing what advocates and critics agree would be one of its biggest cudgels yet to pressure colleges to end slews of programs and practices benefiting students who are racial minorities. The Treasury Department is weighing a change to Internal Revenue Service policies to allow the revocation of tax-exempt status for colleges that consider race in student admissions, scholarships and other areas… If enacted, it would take the administration’s reshaping of higher education well beyond the public battles with Harvard University and Columbia University. Nonprofit status is core to the finances of more than 1,500 private colleges and universities…”
U.S./Russia/China/Europe/Iran Watch:
June 19 – Reuters (Gleb Stolyarov and Yukun Zhang): “Russian President Vladimir Putin and Chinese President Xi Jinping both condemned Israel on Thursday over its strikes on Iran and agreed that de-escalation was needed, the Kremlin said after the two leaders spoke by telephone. Putin and Xi ‘strongly condemn Israel’s actions, which violate the U.N. Charter and other norms of international law,’ Kremlin aide Yuri Ushakov told reporters. “Both Moscow and Beijing fundamentally believe that there is no military solution to the current situation and issues related to Iran’s nuclear programme. ‘This solution must be achieved exclusively through political and diplomatic means,’ said Ushakov.”
June 19 – AFP (Gleb Stolyarov and Yukun Zhang): “Moscow issued its warning after Russian President Vladimir Putin and his Chinese counterpart Xi Jinping in a phone call condemned Israeli attacks on Iran and urged a diplomatic solution to the conflict. Israel launched an unprecedented wave of strikes at Iran last week, to which Tehran responded with missile and drone attacks… ‘We would like to particularly warn Washington against military intervention in the situation.’ Any US military action ‘would be an extremely dangerous step with truly unpredictable negative consequences’…”
June 18 – Bloomberg (Jenni Marsh): “Israel’s campaign to eliminate Iran’s nuclear program is emerging as another faultline in US-China ties, with Donald Trump and Xi Jinping picking opposite sides. The Chinese leader said… he was ‘deeply worried’ about the unravelling security situation in the Middle East, after his officials condemned Israel’s attack as a ‘violation of international law’… In stark contrast, hours later Trump issued a veiled death threat against Iran’s supreme leader, Ayatollah Ali Khamenei, declaring he wasn’t going to kill him — ‘for now’ — and demanding Iran’s total surrender. China’s siding with the Islamic Republic shouldn’t come as a surprise. Just as Washington has long backed Israel, Beijing has been moving closer to Iran, inking a $400 billion investment pact in 2021…”
June 16 – Bloomberg (Josh Xiao): “China warned the Iran-Israel conflict may spread wider instability in the Middle East, with Foreign Minister Wang Yi reaching out to both countries as their days-old conflict shows no end in sight. ‘If the conflict between Israel and Iran continues to escalate or even spill over, the other countries in the Middle East will inevitably bear the brunt,’ Chinese Foreign Ministry spokesman Guo Jiakun said… ‘China will continue to maintain communication with relevant parties and promote talks for peace, so as to prevent more turmoil in the region.’”
New World Order Watch:
June 18 – Bloomberg: “The US wants to revamp its trading relationship with China and the world by bringing many critical supply chains back onshore, the American ambassador to Beijing said. ‘Unfettered globalization has increasingly created single-source supply chain vulnerabilities,’ David Perdue… told a dinner in Washington… ‘We have all witnessed the extent to which our businesses have become overly dependent on China for components, inputs, intermediate goods and even entire supply chains,’ he said… The assessment echoes criticism by European Commission President Ursula von der Leyen, who said at the recent Group of Seven meeting that the world is experiencing a new ‘China Shock.’”
AI Bubble Watch:
June 18 – Bloomberg (Brunella Tipismana Urbano): “OpenAI Chief Executive Officer Sam Altman said Meta Platforms Inc. has offered his employees signing bonuses as high as $100 million, with even larger annual compensation packages, as it seeks to build a top artificial intelligence team. ‘It is crazy,’ Altman said… While Meta has sought to hire ‘a lot of people’ at OpenAI, ‘so far none of our best people have decided to take them up on that,’ Altman added.”
June 17 – Bloomberg (Carmen Arroyo and Jill R. Shah): “Elon Musk’s artificial intelligence startup xAI is burning through $1 billion a month as the cost of building its advanced AI models races ahead of the limited revenues, according to people… The rate at which the company is bleeding cash provides a stark illustration of the unprecedented financial demands of the artificial intelligence industry, particularly at xAI, where revenues have been slow to materialize. To cover the gap, Musk’s startup is currently trying to raise $9.3 billion in debt and equity…”
Bubble and Mania Watch:
June 18 – Reuters (Ariane Luthi): “Wealth grew disproportionately quickly last year in the United States, where over 379,000 people became new U.S. dollar millionaires, more than a 1,000 a day… Private individuals’ net worth rose 4.6% worldwide, and by over 11% in the Americas, driven by a stable U.S. dollar and upbeat financial markets, the 2025 Global Wealth Report by UBS (UBS) found. The United States accounted for almost 40% of global millionaires in 2024… Greater China – which the report defined as mainland China, Hong Kong and Taiwan – led last year for individuals with a net worth of $100,000 to $1 million, accounting for 28.2%, followed by Western Europe with 25.4% and North America with 20.9%.”
June 17 – Reuters (Sabrina Valle): “Private equity firms are holding about $1 trillion in unsold assets, PricewaterhouseCoopers (PwC) said… — capital that, in a typical market environment, would have been returned to investors. High interest rates in the United States, President Donald Trump’s on-again, off-again approach to tariff policy, and geopolitical uncertainties have eroded company valuations and contributed to firms holding onto portfolio firms far longer than expected. The capital tie-up is playing a role in the slowdown in dealmaking. Mergers and acquisitions, a key barometer of global economic health, have stalled this year. ‘Patience is wearing a little bit thin’ among limited partners (LP), said Kevin Desai, PwC U.S. deal platform leader… Despite entering 2025 with high hopes for an M&A rally under Trump, deal volume and value have remained largely flat year-over-year, with 4,535 deals totaling $567 billion through May, PwC said.”
June 16 – Bloomberg (Anthony Hughes): “Stocks of newly-public companies are surging in their first sessions at the fastest pace in three and a half years… Drone maker Airo Group Holdings Inc. ended Friday with a gain of 140%, a day after raising $60 million…, and coming barely a week after stablecoin issuer Circle Internet Group Inc. surged 168.5% immediately following its $1.2 billion IPO. With conservative cable channel Newsmax Inc.’s wild 735% opening gain in March, following its $75 million offering, three companies raising at least $50 million on US exchanges this year have more than doubled on their first trading day… That’s the most since nine US-listed debutantes managed the feat in 2021’s IPO boom.”
June 17 – Bloomberg (Dylan Sloan): “A blistering rally in a tiny, money-losing traditional Chinese medicine company’s stock has vaulted its founder’s net worth to among the world’s largest fortunes. The firm, Hong Kong-based Regencell Bioscience Holding Ltd., was for all intents and purposes trading as a microcap stock on the Nasdaq just eight weeks ago. But its shares have since exploded, gaining more than 82,000% since its Feb. 13 low. The move has boosted the value of Chief Executive Officer Yat-Gai Au’s 86% stake to $33.3 billion…”
Inflation Watch:
June 16 – Wall Street Journal (Arian Campo-Flores, Rebecca Picciotto, Patrick Thomas and Tarini Parti): “When federal agents raided Glenn Valley Foods in Omaha, Neb., last Tuesday, they arrested about 75 of the meat processor’s workers, roughly half of the production line. The following day, the plant was operating at about 15% of capacity, and a skeleton crew strained to fill orders. Chief Executive Gary Rohwer can’t see a future that doesn’t include immigrant workers. ‘Without them, there wouldn’t be an industry,’ he said. President Trump’s aggressive deportation push has slammed into an economic reality: Key industries in the U.S. rely heavily on workers living in the U.S. illegally, many of them for decades. That presents a major challenge for the administration unfolding in real time, with business leaders urging a softer approach while anti-immigration hard-liners demand more deportations.”
June 18 – Bloomberg (Keith Naughton): “Car buyers will bear the brunt of the $30 billion cost of President Donald Trump’s tariffs, driving up already high US auto prices by almost $2,000 per vehicle, according to consultant AlixPartners. The firm expects auto companies to pass along 80% of the cost of Trump’s tariffs — which it calculates as $1,760 more per car. AlixPartners, as part of its annual global automotive outlook, also cautioned that the administration’s anti-electric vehicle policies risk relegating American automakers to bit players in the global EV market.”
Federal Reserve Watch:
June 18 – Associated Press (Christopher Rugaber): “The Federal Reserve kept its key rate unchanged… as it waits for additional information on how tariffs and other potential disruptions will affect the economy this year. The Fed’s policymakers signaled they still expect to cut rates twice this year, even as they also project that President Donald Trump’s import duties will push inflation higher. They also expect growth to slow and unemployment to edge up, according to their latest quarterly projections… Fed Chair Jerome Powell said… tariffs are likely to reverse that progress and push inflation higher in the coming months. The Fed expects the bump to inflation will be temporary, but they want to see more data to be sure. ‘Increases in tariffs this year are likely to push up prices and weigh on economic activity,’ Powell said. ‘This is something we know is coming, we just don’t know the size of it.’”
June 18 – Wall Street Journal (Nick Timiraos): “Federal Reserve Chair Jerome Powell projected confidence when he insisted the central bank was in a good position to handle whatever the economy does next—all while repeatedly acknowledging the Fed has little idea what’s actually coming. The Fed is trying to see how the dust will settle from the aftereffects of President Trump’s April 2 ‘Liberation Day’ tariff announcements, among other policy changes. Most economists expect tariffs to lift prices over the coming months, and that is a worry for the Fed because officials still don’t feel as if they completely vanquished inflation after a three-year-long fight. ‘We haven’t been through a situation like this, and I think we have to be humble about our ability to forecast it,’ Powell said.”
June 18 – Financial Times (Claire Jones): “The Federal Reserve cut its outlook for the US economy…, with policymakers split on whether they would be able to reduce interest rates at all this year as Donald Trump’s tariffs bring risks of higher inflation. Fed officials… cut their forecasts for economic growth and boosted their outlook for inflation as Trump’s levies on America’s trading partners ricochet across the world’s largest economy. The Federal Open Market Committee held rates steady for the fourth meeting in a row at a range of 4.25-4.5%, despite the US president calling earlier on Wednesday for chair Jay Powell to slash borrowing costs by at least 2 percentage points. Just hours before the decision Trump called the Fed chair ‘stupid’ and asked whether he could ‘appoint myself’ to the central bank.”
June 18 – New York Times (Ben Casselman): “The most important word at the Federal Reserve’s meeting… may have been the one that its chair, Jerome H. Powell, never uttered publicly: stagflation. Economic projections released by Fed officials in conjunction with their meeting showed growth slowing sharply this year, unemployment rising and inflation picking back up. That is a painful mix for the public, and a challenging one for central bankers. The concept of stagflation, at least in the public consciousness, dates back to the 1970s, when the United States and other countries experienced a period of anemic growth and rapidly rising prices: stagnation combined with inflation.”
June 18 – Bloomberg (Maria Eloisa Capurro): “There are a lot of unknowns about the outlook for the economy and interest rates, but Federal Reserve Chair Jerome Powell signaled at least one thing seems certain: Higher prices are coming. Policymakers voted unanimously to hold interest rates steady for a fourth straight meeting… as they await clarity on whether tariffs will leave a one-time or more lasting mark on inflation. Powell said it’s still unclear how much of the bill will fall on the shoulders of consumers, but he expects to learn more about tariffs this summer. ‘Ultimately the cost of the tariff has to be paid, and some of it will fall on the end consumer,’ Powell said. ‘We know that’s coming, and we just want to see a little bit of that before we make judgments prematurely.’”
June 18 – Reuters (Lewis Krauskopf): “U.S. President Donald Trump has said that he would soon nominate Jerome Powell’s successor, with nearly a year left before the Federal Reserve chair’s term ends. Investors said that could present a risky proposition for markets. Trump has made no secret of his displeasure with Powell… While Trump has backed off from comments earlier this year that he could fire Powell…, he said earlier this month that a decision on the next Fed chair would be coming soon. Such an announcement, well before Powell’s term ends on May 2026, could cause significant unease in markets, investors said. The potential for a ‘shadow’ Fed chair who offers potentially clashing views with the sitting central bank leader on monetary policy could sow confusion. Any choice deemed as being under Trump’s thumb would alarm Wall Street…”
U.S. Economic Bubble Watch:
June 17 – CNBC (Jeff Cox): “Consumer spending pulled back sharply in May, weighed down by declining gas sales and looming unease over where the economy is headed… Retail sales declined 0.9%, even more than the 0.6% drop expected… The decline followed a 0.1% loss in April and came at a time of unease over tariffs and geopolitical tensions. Sales rose 3.3% from a year ago. Excluding autos, sales fell 0.3%, also worse than the estimate for a gain of 0.1%. However, excluding a series of items such as auto dealers, building materials suppliers, gas stations and others, sales increased 0.4%.”
June 18 – Associated Press (Paul Wiseman): “The number of Americans applying for unemployment benefits dipped to 245,000 last week, hovering at historically low levels… U.S. jobless claims ticked down from 250,000 the week before… The number of Americans collecting unemployment benefits the week of June 7 slid to 1.95 million.”
June 16 – Bloomberg (Justin Lahart and Te-Ping Chen): “The U.S. labor market is holding steady despite extraordinary economic upheaval. But it is a bad time to be a job seeker—especially if you are young. Recent college and high-school graduates are facing an employment crisis. The overall national unemployment rate remains around 4%, but for new college graduates looking for work, it is much higher: 6.6% over the past 12 months ending in May. That is about the highest level in a decade—excluding the pandemic unemployment spike—and up from 6% for the 12-month period a year earlier.”
June 18 – Reuters (Lucia Mutikani): “U.S. single-family homebuilding increased in May, but a sharp drop in permits for future construction pointed to subdued housing market conditions amid headwinds from tariffs and excess inventory of unsold homes. Single-family housing starts… rose 0.4% to a seasonally adjusted annual rate of 924,000 units last month… Permits for future construction of single-family housing dropped 2.7% to a rate of 898,000 units in May. Residential investment, which includes homebuilding, contracted slightly in the first quarter after rebounding in 2024 following steep declines in the prior two years caused by a surge in mortgage rates. ‘We appear on course for a substantial decline in real activity in the current quarter and perhaps further weakness in the summer,’ said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets.”
June 17 – Reuters (Dan Burns): “A gauge of U.S. homebuilder sentiment slid unexpectedly to its lowest level in two and a half years in June, with more than a third of residential construction firms cutting prices to lure buyers sidelined by high mortgage rates and economic uncertainty due to President Donald Trump’s tariffs. The National Association of Home Builders/Wells Fargo Housing Market Index fell to 32, the lowest reading since December 2022, from 34 in May… Measures of current sales conditions, future sales expectations and buyer foot traffic all fell. On a regional basis, the Northeast posted a small rise while the South, Midwest and West all declined.”
June 18 – CNBC (Diana Olick): “Weak consumer sentiment is weighing hard on the housing market, as potential homebuyers pull back. Applications for a mortgage to purchase a home fell 3% last week compared with the previous week, according to the Mortgage Bankers Association… Volume was still 14% higher than the same week one year ago.”
June 17 – Los Angeles Times (Kaitlyn Huamani): “President Trump’s trade war and recent immigration raids are expected to deliver a one-two punch to California’s economy. A new report by the UCLA Anderson forecast predicts that the state’s economy is likely to contract later this year due to fallout from global tariffs and immigration raids in Los Angeles and other cities that have rattled key sectors, including construction, hospitality and agriculture. The quarterly forecast… characterized the this year’s second quarter as ‘a period of significant volatility and uncertainty,’ driven by ‘dramatic policy shifts and financial market (over)reactions.’”
China Watch:
June 15 – Reuters (Joe Cash and Ellen Zhang): “China’s factory output growth hit a six-month low in May, while retail sales picked up steam, offering temporary relief for the world’s second-largest economy amid a fragile truce in its trade war with the United States…. Industrial output grew 5.8% from a year earlier…, slowing from 6.1% in April and missing expectations… It was the slowest growth since November last year. However, retail sales rose 6.4%, much quicker than a 5.1% increase in April and forecasts for a 5.0% expansion, marking the fastest growth since December 2023.”
June 15 – Bloomberg: “China’s new-home prices fell the most in seven months in May… New-home prices in 70 cities… dropped 0.22% from April, when they slid 0.12%, National Bureau of Statistics figures showed Monday. Values of used homes fell 0.5%, the sharpest decline in eight months.”
June 16 – Bloomberg: “China’s demand for new homes in cities is expected to stay at 75% below its 2017 peak in the coming years due to a shrinking population and expectations of price declines that have been hurting investment interest, according to Goldman Sachs… ‘Falling population and slowing urbanization suggest decreasing demographic demand for housing,” Goldman Sachs analysts wrote… ‘Investment demand in China could turn negative as owners sell vacant apartments.’ As a result, China’s annual urban demand for new residential properties will likely remain slightly below 5 million units over the next few years, substantially below a peak of 20 million units in 2017, they said.”
June 17 – Reuters (Liangping Gao and Ryan Woo): “Demand for new homes in China is likely to remain substantially below the market’s 2017 peak over the next few years, Goldman Sachs said… China’s property sector… entered a prolonged slump in 2021, with market sentiment hammered by the struggles of debt-laden developers trying to deliver homes for which buyers had already paid… ‘Our earlier estimates did not account for the fact that investment demand in China could turn negative as owners sell vacant apartments…,’ Goldman Sachs said. ‘Holders of investment properties are likely to be net sellers (to owner-occupiers) for the foreseeable future.’”
June 16 – Bloomberg: “Chinese carmakers’ pledge to make timely bill payments — an effort to appease officials’ growing scrutiny of a long-running price war — has left many suppliers skeptical about how readily they’ll follow through on their promises. After meeting with regulators in early June about the need for better self-regulation, the industry’s biggest names including BYD Co. and Zhejiang Geely Holding Group Co. said they’ll pay suppliers within 60 days. While that represents a shift toward global industry norms, it’s a major change for some carmakers, including BYD, whose payment cycles can stretch to hundreds of days.”
Central Bank Watch:
June 19 – Reuters (Alun John and Naomi Rovnick): “Central banks are grappling with elevated uncertainty about economic growth and inflation, complicating decision-making, especially for those trying to calibrate policy as they near the end of their rate-cutting cycles… Norway’s central bank on Thursday gave markets a shock by cutting interest rates, and even the U.S. Federal Reserve is warning not to put much weight on its policy projections. The Swiss National Bank cut its benchmark rate to 0% on Thursday, in response, it said, to falling inflation, a stronger Swiss franc and economic uncertainty caused by unpredictable U.S. trade policy. The big question is whether it will cut rates into negative territory next time.”
June 18 – Financial Times (Sam Fleming): “The Bank of England held interest rates at 4.25% but signalled a possible cut as soon as August… ‘Interest rates remain on a gradual downward path, although we’ve left them on hold today,’ said Andrew Bailey, the BoE’s governor. Thursday’s… decision came as policymakers wrestle with persistently strong inflation and the additional uncertainty posed by the escalating conflict between Israel and Iran, and its potential impact on oil prices.”
Europe Watch:
June 15 – Bloomberg (Ania Nussbaum): “President Emmanuel Macron said France would be available to conduct joint exercises to improve security in Greenland, the Danish territory coveted by US President Donald Trump. ‘Greenland is subject to preying ambitions,’ Macron told reporters in Nuuk, Greenland, Sunday alongside Danish Prime Minister Mette Frederiksen. ‘Everyone thinks — in France and in the EU — that Greenland shall neither be sold nor taken.’ The French President said a US annexation would be a ‘crazy’ scenario…”
Japan Watch:
June 17 – Bloomberg (Toru Fujioka and Sumio Ito): “The Bank of Japan unveiled a plan to step back from the bond market at a slower pace from next year to ensure market stability while sticking to a path of normalization that includes the possibility of more rate hikes. Governor Kazuo Ueda’s policy board stood pat on its benchmark policy rate of 0.5%… In a widely expected move the central bank said it would ease the pace of its cuts to monthly bond purchases from the next fiscal year to quarterly reductions of ¥200 billion ($1.34bn) from the current ¥400 billion. ‘We made our decision to ensure we’re not cutting purchases too fast in a way that would cause a negative impact on the economy through abnormal volatility in yields,’ Ueda said…”
Emerging Market Watch:
June 18 – Bloomberg (Martha Beck and Andrew Rosati): “Brazil’s central bank raised its key interest rate by a quarter-point and signaled borrowing costs will likely remain steady for a long period as board members gauge the impact of tight policy on inflation and activity. Central bankers… lifted the benchmark Selic to 15%…”
Social, Political, Environmental, Cybersecurity Instability Watch:
June 18 – Bloomberg (Jonathan Tirone and Annmarie Hordern): “The United Nations nuclear watchdog said the location of Iran’s near-bomb-grade stockpile of enriched uranium cannot currently be verified, as Israel’s ongoing military assault is preventing inspectors from doing their work. Iran’s 409 kilograms (902 pounds) of highly-enriched uranium — enough to produce 10 nuclear warheads — should theoretically be secured under an International Atomic Energy Agency seal at an underground facility at Isfahan. But IAEA Director General Rafael Mariano Grossi said… its whereabouts are now unclear, given Tehran warned him the stockpile could be moved in the event of an Israeli attack. ‘I’m not so sure,’ Grossi told Bloomberg… ‘In a time of war, all nuclear sites are closed. No inspections, no normal activity can take place.’”
June 16 – Associated Press (Stephanie Liechtenstein): “The head of the U.N. nuclear watchdog agency said Monday that there is a possibility of both radiological and chemical contamination within Iran’s main nuclear enrichment facility in Natanz following Israeli strikes, although radiation levels outside the complex are presently normal. The radiation poses a significant danger if uranium is inhaled or ingested, International Atomic Energy Agency Director-General Rafael Mariano Grossi said. The risk can be effectively managed with appropriate protective measures, such as using respiratory protection devices while inside the facilities, Grossi said.”
June 18 – Associated Press (Seth Borenstein): “Humans are on track to release so much greenhouse gas in less than three years that a key threshold for limiting global warming will be nearly unavoidable… The report predicts that society will have emitted enough carbon dioxide by early 2028 that crossing an important long-term temperature boundary will be more likely than not. The scientists calculate that by that point there will be enough of the heat-trapping gas in the atmosphere to create a 50-50 chance or greater that the world will be locked in to 1.5 degrees Celsius (2.7 degrees Fahrenheit) of long-term warming since preindustrial times. That level of gas accumulation, which comes from the burning of fuels like gasoline, oil and coal, is sooner than the same group of 60 international scientists calculated in a study last year.”
June 17 – Bloomberg (Eric Roston): “The US has spent nearly $1 trillion dollars on disaster recovery and other climate-related needs over the 12 months ending May 1, according to… Bloomberg Intelligence. That’s 3% of GDP that people likely would have spent on goods and services they’d prefer to have, and amounts to ‘a stealth tariff on consumer spending,’ analysts write. Hurricane Helene struck Florida in late September 2024 as the most powerful storm ever to hit the state’s panhandle. Its rampage was followed a week and a half later by Hurricane Milton. Those two storms caused $113 billion in damage, according to the National Oceanic and Atmospheric Administration. The Los Angeles fires in January added another $65 billion to the national total.”
June 16 – Financial Times (Patrick Temple-West): “The Trump administration has cut US government spending on health research to a 10-year low, forcing universities to dip into their endowment funds and hurting companies that sell lab supplies. Treasury department data shows cash disbursed from the National Institutes of Health dropped to $2.8bn in May, down 28% from April and the lowest absolute-dollar outlay since September 2014, according to Jefferies…”
