Global Bubble deflation gathered additional momentum this week. The U.S./global tech Bubble collapse accelerated. Hit by panic “runs”, the historic cryptocurrency mania is coming completely unglued. And even more historic Chinese apartment, financial and economic Bubbles continue to falter.
Whether stocks, bonds, crypto, or corporate Credit, many are keen to spot a market bottom. There were some elements of “capitulation” this week. And next week’s option expiration creates the potential for a panicked unwind of bearish hedges and attendant short squeezes. Yet we’re only in the initial phase of what will prove a lengthy and most arduous remediation process. Think secular rather than cyclical – a crisis decades in the making. I am reminded of a quote from early in the “Roaring Twenties” bursting Bubble episode: “Everyone was prepared to hold their ground. But the ground gave way.”
Once again this week, it had all the appearances of one massive global “trade” unraveling. Clearly, de-risking/deleveraging shifted into higher gear. There is seemingly no place to hide.
After beginning the week at $34,000, Bitcoin traded down to $25,488 in early-Thursday panic selling. WSJ: “Crash of TerraUSD Shakes Crypto. ‘There Was a Run on the Bank.’”
May 12 – Wall Street Journal (Alexander Osipovich and Caitlin Ostroff): “The cryptocurrency TerraUSD had one job: Maintain its value at $1 per coin. Since it launched in 2020, it had mostly done that, rarely straying more than a fraction of a penny from its intended price. That made it an island of stability, a place where traders and investors could stash their funds in between forays into the otherwise frenzied crypto market. This week TerraUSD became part of the frenzy too, slumping by more than a third on Monday and then tumbling as low as 23 cents on Wednesday. The collapse saddled investors with billions of dollars in losses. It ricocheted back into other cryptocurrencies…”
Friday’s rally reduced Bitcoin’s loss for the week to $6,300, or 17.4%, boosting y-t-d losses to 36%. Bitcoin dropped 9.5% Monday, was little changed Tuesday, dropped 8.4% Wednesday, rallied 4.3% Thursday, and added about 4% Friday – trading over the past week with a high-to-low range of 30%. Ethereum fell 9.8% Monday, recovered 1.6%, sank 12.5%, fell 5.4% and then recovered 6.1% Friday – to end the week down 24.5%. XRP slumped 12.1%, recovered 2.0%, sank 27.6%, rallied 3.3% and then jumped 10.9% – to end the week down 29.2%.
There’s a lot of talk of a crypto trading bottom. It’s important to appreciate that it was Fed QE that stoked a significant speculative Bubble into a raging historic mania. Bitcoin was fading back in 2019. After trading up to $13,852 in June 2019, Bitcoin was down to $7,400 by October – just as the Fed reignited QE. Trillions of monetary inflation and disorder later find scores of cryptocurrencies, stable coins, tokens and the like. We are today witnessing one of the costs of extending a speculative mania – of aggressively creating liquidity that inherently gravitates to areas demonstrating strong inflationary biases (i.e. price inflation and speculative excess). Millions are now suffering losses, many losing meaningful amounts of their savings and retirement accounts.
Over the past couple years, the cryptocurrencies have morphed from a fringe financial instrument into a widely coveted asset for millions (tens of millions globally). If not for QE, I don’t believe there would have been such a rush by “DeFi” and Wall Street to build out platforms for widespread public participation. Without $5.0 TN of new liquidity, crypto doesn’t become a popular 401k holding. It doesn’t become collateral for mortgages and other loans. Never would it have become institutionally acceptable. Infrastructure would not have been aggressively developed that would so enticingly promote leveraging crypto assets. No QE, no endless “fortune favors the brave” commercials. And there would be less crypto mining and more electricity available for more productive uses.
The entire technology industry would be much different today had the Fed been committed to sound money and Credit. Instead, there were years of reckless overabundance of finance available for almost any endeavor or wild idea. The system is now burdened by unprecedented numbers of uneconomic companies and enterprises that are viable only so long as financial conditions remain exceptionally loose. Yet the halcyon days of exceptionally easy finance have run their fateful course, and it will be a very long time before we experience anything along the lines of the monetary madness experienced over recent years.
The Nasdaq100 sank 4.0% Monday, recovered 1.3% Tuesday, dropped 3.1% Wednesday, was little changed Thursday, and rallied 3.7% Friday. There was additional corroboration to the bursting Bubble thesis this week. The flow of speculative finance out of the sector accelerated, as financial conditions tighten by the week. The risk of a market accident is growing exponentially.
High-yield CDS traded to 500 bps this week for the first time since July 2020, with junk spreads (to Treasuries) the widest since November 2020. After outperforming in recent months, high-yield bonds have recently come under significant pressure. The iShares High Yield Corporate Bond ETF (HYG) has declined 1.81% so far this month, while the iShares Investment Grade Corporate Bond ETF (LQD) is down only 0.62%. The junk bond market has essentially been closed for new issuance. And, importantly, the leveraged loan market has rather quickly ground to a halt. With their floating rate structures, leveraged loans had remained resilient in the face of an aggressive rate hike cycle. That Bubble has burst, with major ramifications for the flow of finance into higher-risk companies and sectors.
May 13 – Bloomberg (Jeannine Amodeo): “The US leveraged loan market is in full risk-off mode, forcing bankers to put new offerings on ice until there’s more stability in prices. There’s just three loans in syndication and launches have ground to a halt as the market reels from widespread volatility… Secondary prices have sunk to 95 cents on the dollar on average, spiraling down to November 2020 lows, while loan funds just suffered the biggest weekly withdrawal since April 2020… Funds that invest in US leveraged loans posted the biggest outflow in about two years. The funds lost $598 million of cash for the week ended May 11, according Refinitiv Lipper data. That’s the biggest since the week ended April 8, 2020, during the early days of the pandemic…”
May 12 – Bloomberg (Mary Biekert): “Investors pulled $8.2 billion from U.S. corporate investment-grade bond funds in the biggest weekly exodus since April 2020 amid broad-based market volatility. The outflows for the week ended May 11 are also the fourth largest ever, according to… Refinitiv Lipper, and marks a stretch of seven weeks of withdrawals, the longest since a seven-week period beginning in November 2018. Corporate bond issuance is running well below expectations for the month as inflation-fueled volatility has narrowed windows to sell debt.”
I can’t emphasize enough the ramifications for what I believe is a historic reversal of speculative finance. Repeating a central tenet of my Bubble thesis, contemporary finance appears to function splendidly so long as speculative leverage is expanding and asset prices are inflating. It functions quite poorly in reverse, and it’s now in full reversal – de-risking/deleveraging – mode. And over the years, we’ve witnessed several problematic speculative deleveraging episodes spur dovish pivots, rate cuts, and ever larger QE that invariably thwarted Crisis Dynamics and resuscitated Bubble Dynamics.
Epic pandemic monetary inflation basically guaranteed eventual collapse. Not only did it stoke powerful inflation dynamics, it also spurred speculative Bubbles and manias that ran to perilous extremes. The system now faces historic Bubble collapses without – at least in the key initial phase – the prospect of Fed rate cuts and monetary stimulus.
Compounding the complex and high-risk U.S. backdrop, there are synchronized Bubble collapses unfolding across the globe. And nowhere are the stakes higher than in China, where Bubble deflation has entered the high-risk Acceleration Phase.
Aggregate Financing, China’s measure of broad-based Credit growth, expanded $134 billion in April, the weakest reading since February 2020’s $129 billion. Aggregate Financing was down from March’s $685 billion and about half of April 2021’s $274 billion. It was also only 40% of estimates.
New Bank Loans increased only $95 billion (42% below estimates), down from March’s $460 billion and 56% below April 2021’s $216 billion. Year-to-date Loan growth of $1.321 TN was down 1.8% from comparable 2021. At 10.9%, one-year growth was at the slowest pace since February 2006.
Corporate Loans expanded $85 billion, the weakest expansion since November, and down 23% from April 2021. Year-to-date growth of $1.125 TN, however, was 25% ahead of comparable 2021. Year-over-year growth slowed to 11.8%.
Importantly, Chinese Consumer Loans contracted $32 billion last month, down from April 2021’s $79 billion expansion. This places four-month (2022) growth at $153 billion, 66% below comparable 2021’s $455 billion. One-year growth dropped to 8.9%, the first single-digit rate in data back to 2007. It’s worth noting that one-year growth exceeded 15% every month from March 2009 through December 2019.
Government Bonds expanded $57 billion, slightly ahead of April 2021, but the weakest growth since July. Year-to-date growth of $292 billion was almost double comparable 2021. One-year growth increased to $1.172 TN, a 16.9% growth rate.
Analytically, there are a few salient points. Credit growth slowed dramatically in April, as the Chinese economy suffered from draconian lockdowns. Moreover, Consumer borrowing has recently collapsed. After averaging quarterly growth of $285 billion over the last 13 quarters, Consumer Loans increased only $29 billion during the past three months.
Lockdowns, of course, have been a major drag. Yet I believe the lending collapse is indicative of a momentous shift in housing buyer sentiment. The great Chinese apartment Bubble is bursting, and Beijing stimulus measures will now have only muted effects. The days of millions of Chinese borrowing aggressively to speculate in multiple apartment units have run their course. It’s now a matter of how quickly and dramatically prices adjust – along with how long before tens of millions of unoccupied units come to market.
The unfolding apartment bust is a worrying development from a systemic perspective. Ominously, China’s economy has weakened significantly despite ongoing massive Credit expansion. Even with a weak April, one-year growth in Aggregate Financing still exceeded $4.70 TN, or 10.2%. Aggregate Financing splurged an unprecedented $9.0 TN, or 23%, over the past two years, in end-of-cycle Credit mayhem. As China’s apartment and economic Bubbles deflate, the scope of financial and economic structural maladjustment is being revealed.
May 12 – Bloomberg (Shen Hong): “Sunac China Holdings Ltd.’s dollar bond default has prompted analysts to warn of a fresh wave of debt blowups by weaker developers as a liquidity crisis continues to plague the industry. High-yield dollar notes from Chinese issuers dropped for a record eight straight months through April. Issuance has tumbled as global money managers balk at extending credit… Refinancing concerns are flaring as defaults mount and inflation drives rates up globally. The country’s junk dollar notes, which are dominated by real estate firms, declined as much as 2 cents on the dollar Thursday…”
Despite a steady chorus of Beijing assurances, it was another brutal week in the ongoing Chinese developer bond collapse. Evergrande bond yields surged 1,152 bps (11.5 percentage points) to almost 129%, with a four-week gain of more than 22 percentage points. Longfor yields surged 465 bps to 72.11%, and Kaisa yields jumped 542 bps to 89.03% (to name only a few). Perhaps most troubling from a systemic perspective, Country Garden, China’s largest developer, saw yields surge 621 bps this week to a two-month high 20.85% (began 2022 at 6.6%).
While on the subject of “ominous,” Chinese CDS prices extended their surge. Industrial & Commercial Bank CDS jumped to 102 bps, exceeding the March 2020 spike high, to the highest level in data back to 2017. China Construction Bank CDS rose eight to 100 bps, matching the 2020 spike high. China Development Bank CDS rose eight to 97 bps, the high in data back to 2017. And Bank of China CDS rose nine to 99 bps, also exceeding the March 2020 spike.
China sovereign CDS traded to 87 bps in early-Friday trading, up from 40 bps to start the year and just below the 92 bps March 2020 high. The renminbi dropped another 1.8% this week to the lowest level versus the dollar since September 2020. Vaunted for its stability, the renminbi has suffered a brutal 6.22% loss since April 18th – the worst performance of any Asian currency.
With no indication Beijing is prepared to back away from “Covid zero,” there is now heightened risk of a precipitous drop in consumer/business sentiment and economic activity. The risk of destabilizing capital flight is high. It seems to boil down to one critical question: Can Beijing thwart collapse?
This week’s interplay between rapidly darkening Chinese prospects and tightening global financial conditions fueled a destabilizing “risk off” dynamic. Selloffs in equities and crypto currencies accelerated. The dollar melt-up powered higher, while many commodities reversed sharply lower. Industrial commodities were under heavy selling pressure, and the precious metals were sold aggressively. It had the appearance of aggressive hedge fund liquidations – de-risking and deleveraging. Losses at Tiger Global the tip of the iceberg?
Global bond yields reversed sharply lower. Ten-year Treasury yields sank 21 bps to 2.92%. Yields were down 28 bps in Italy, 25 bps in the UK, 24 bps in Sweden, 23 bps in Spain, 21 bps in New Zealand, and 18 bps in Germany. The five-year Treasury “breakeven” inflation rate fell 15 bps, while market expectations for the Fed funds rate at the December 14th FOMC meeting dropped 11 bps to 2.72%.
This week from Chair Powell: “So, I would say that we fully understand and appreciate how painful inflation is, and that we have the tools and the resolve to get it down to 2%, and that we’re going to do that. I will also say that the process of getting inflation down to 2% will also include some pain, but ultimately the most painful thing would be if we were to fail to deal with it and inflation were to get entrenched in the economy at high levels, and we know what that’s like.”
And from San Francisco Fed President Mary Daly: “I expect financial conditions to tighten even more… I would like to see continued tightening of financial conditions.”
For its inflation fight, the Fed seeks tighter financial conditions. Not appreciated is that, once commenced, the Fed will not control this process. Financial conditions are now tightening dramatically at the “periphery,” consistent with the “Periphery to Core” analytical framework.
Recall the abrupt tightening of subprime mortgage Credit that initiated the mortgage finance Bubble collapse. There are, however, critical differences between today’s “periphery” and 2007’s. The subprime eruption sparked a tightening of Credit at the fringe of mortgage finance. The impact was initially felt only by a segment of the housing market, while general financial and housing Bubbles were for a while bolstered by declining market yields. Meanwhile, the global economy was supported by powerful inflationary/expansionary dynamics in China and EM generally.
Today’s “periphery” is a vital source of finance for a much broader segment of the economy, particularly technology. High-yield finance (junk bonds, leveraged loans, venture capital, hedge fund leverage, crypto leverage, etc.) is today a key source of finance for our Bubble Economy’s Achilles heel – thousands of uneconomic, negative cash-flow companies and enterprises. Meanwhile, the global backdrop is one of myriad faltering Bubbles, certainly including historic Chinese financial and economic Bubbles. The global system is today acutely more fragile than back in 2008. Moreover, the current geopolitical is fraught with risk. And, finally, global central bankers have no solutions. The old inflationist remedies and schemes have turned lethal.
For the Week:
The S&P500 declined 2.4% (down 15.6% y-t-d), and the Dow fell 2.1% (down 11.4%). The Utilities declined 1.5% (down 1.9%). The Banks sank 4.6% (down 18.8%), and the Broker/Dealers dipped 1.4% (down 18.0%). The Transports lost 3.0% (down 12.3%). The S&P 400 Midcaps slumped 2.0% (down 14.5%), and the small cap Russell 2000 dropped 2.5% (down 20.2%). The Nasdaq100 fell 2.4% (down 24.1%). The Semiconductors slipped 0.4% (down 24.7%). The Biotechs dipped 0.2% (down 18.1%). With bullion down $72, the HUI gold index sank 9.7% (down 4.4%).
Three-month Treasury bill rates ended the week at 0.9275%. Two-year government yields fell 15 bps to 2.58% (up 185bps y-t-d). Five-year T-note yields dropped 21 bps to 2.87% (up 160bps). Ten-year Treasury yields sank 21 bps to 2.92% (up 141bps). Long bond yields declined 15 bps to 3.08% (up 118bps). Benchmark Fannie Mae MBS yields dropped 16 bps 4.16% (up 209bps).
Greek 10-year yields declined nine bps to 3.47% (up 216bps y-t-d). Ten-year Portuguese yields dropped 21 bps to 2.06% (up 160bps). Italian 10-year yields sank 28 bps to 2.85% (up 168bps). Spain’s 10-year yields fell 23 bps to 2.00% (up 144bps). German bund yields declined 18 bps to 0.95% (up 113bps). French yields dropped 20 bps to 1.46% (up 126bps). The French to German 10-year bond spread narrowed two to 51 bps. U.K. 10-year gilt yields sank 25 bps to 1.74% (up 77bps). U.K.’s FTSE equities index increased 0.4% (up 0.5% y-t-d).
Japan’s Nikkei Equities Index declined 2.1% (down 8.2% y-t-d). Japanese 10-year “JGB” yields were little changed at 0.25% (up 18bps y-t-d). France’s CAC40 rallied 1.7% (down 11.0%). The German DAX equities index recovered 2.6% (down 11.7%). Spain’s IBEX 35 equities index increased 0.2% (down 4.3%). Italy’s FTSE MIB index rallied 2.4% (down 12.1%). EM equities were mixed. Brazil’s Bovespa index gained 1.7% (up 2.0%), while the Mexico’s Bolsa index was little changed (down 6.9%). South Korea’s Kospi index fell 1.5% (down 12.5%). India’s Sensex equities index sank 3.7% (down 9.4%). China’s Shanghai Exchange Index rallied 2.8% (down 15.3%). Turkey’s Borsa Istanbul National 100 index lost 1.6% (up 30.2%). Russia’s MICEX equities index slumped 3.6% (down 39.1%).
Investment-grade bond funds saw outflows of $8.186 billion, while junk bond funds posted inflows of $169 million (from Lipper).
Federal Reserve Credit last week added $0.7bn to $8.905 TN. Over the past 139 weeks, Fed Credit expanded $5.178 TN, or 139%. Fed Credit inflated $6.094 Trillion, or 217%, over the past 496 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week declined $3.1bn to a four-month low $3.422 TN. “Custody holdings” were down $119bn, or 3.3%, y-o-y.
Total money market fund assets declined $8.9bn to $4.501 TN. Total money funds were down $15bn, or 0.3%, y-o-y.
Total Commercial Paper gained $9.4bn to $1.113 TN. CP was down $80.5bn, or 6.7%, over the past year.
Freddie Mac 30-year fixed mortgage rates increased three bps to 5.30% (up 236bps y-o-y) – the high since August 2009. Fifteen-year rates dipped four bps to 4.48% – near the high since December 2009 (up 222bps). Five-year hybrid ARM rates increased two bps to 3.98% (up 139bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up 17 bps to a more than decade-high 5.55% (up 248bps).
Currency Watch:
May 12 – Bloomberg (Tania Chen and Sydney Maki): “Hong Kong intervened to prop up its currency for the first time since 2019, putting further upward pressure on interest rates in an economy already reeling from strict pandemic border controls and a shaky property market. Capital outflows fueled by rising interest rates in the US sent the Hong Kong dollar to the weak end of its permitted 7.75-to-7.85 per greenback trading range late Wednesday. The Hong Kong Monetary Authority bought HK$4.08 billion on top of its HK$1.59 billion purchase to support the currency…”
May 10 – Bloomberg: “The dollar’s relentless advance to a two-year high is roiling Asian currencies and pushing policymakers into action to curb losses. From direct dollar selling to verbal intervention, authorities are deploying every tool from their armories to ward off currency threats. India and Taiwan have intervened in the market, while Japan has tried to talk up the yen. China tweaked policy parameters to slow the slide in the yuan and Hong Kong is likely to step in as its currency brushes near the lower end of its trading band.”
For the week, the U.S. Dollar Index gained 0.9% to 104.56 (up 9.3% y-t-d), trading this week to a new nine-year high. For the week on the upside, the Japanese yen increased 1.0%, the Brazilian real 0.4%, and the Mexican peso 0.1%. On the downside, the Norwegian krone declined 2.9%, the New Zealand dollar 2.1%, the Australian dollar 1.9%, the euro 1.3%, the Swiss franc 1.2%, the South African rand 1.0%, the Swedish krona 1.0%, the South Korean won 0.8%, the British pound 0.7%, the Singapore dollar 0.6%, and the Canadian dollar 0.4%. The Chinese (onshore) renminbi dropped 1.80% versus the dollar (down 6.38% y-t-d).
Commodities Watch:
May 11 – Wall Street Journal (Patrick Thomas and and Kurk Maltais): “Farmers are in a race against the clock to get their crops in the ground this week, with planting of corn, soybeans and wheat well behind their usual pace. Wet and cool temperatures in key parts of the Midwest have delayed farmers’ planting plans, leaving them days to get crops in the ground before they start to lose out on a bigger harvest. If they don’t, some grain traders say that already high prices for agricultural commodities could rise even more… The U.S. Department of Agriculture said 22% of corn was planted, compared with 50% for the previous-five-year average. For soybeans, 12% was planted, compared with the previous-five-year average of 24%, and 27% of spring wheat was in the ground compared with a typical 47%…”
The Bloomberg Commodities Index declined 1.6% (up 29.4% y-t-d). Spot Gold fell 3.8% to $1,812 (down 1.0%). Silver sank 5.6% to $21.11 (down 9.4%). WTI crude increased 72 cents to $110.49 (up 69%). Gasoline jumped 5.3% (up 78%), while Natural Gas fell 4.7% (up 105%). Copper dropped 2.2% (down 7%). Wheat surged 6.2% (up 53%), while Corn slipped 0.4% (up 32%). Bitcoin sank $6,300, or 17.4%, this week to $29,800 (down 36%).
Market Instability Watch:
May 9 – Financial Times (Colby Smith and Eric Platt): “A sharp increase in interest rates to tame fresh inflation shocks would pose a risk to the American economy, the Federal Reserve said… as it reported a ‘higher than normal’ chance that trading conditions in US financial markets will suddenly deteriorate. ‘Further adverse surprises in inflation and interest rates, particularly if accompanied by a decline in economic activity, could negatively affect the financial system,’ policymakers wrote in the Fed’s financial stability report, which is published twice a year in May and November. Consumer finances might be hit by job losses, higher interest rates and lower house prices, the Fed cautioned, with businesses also facing ‘higher delinquencies, bankruptcies and other forms of financial distress’.”
May 9 – Bloomberg (Matthew Boesler): “The Federal Reserve warned of deteriorating liquidity conditions across key financial markets amid rising risks from the war in Ukraine, monetary tightening and high inflation in a semi-annual report… ‘According to some measures, market liquidity has declined since late 2021 in the markets for recently-issued U.S. cash Treasury securities and for equity index futures,’ the U.S. central bank said in its Financial Stability Report. ‘While the recent deterioration in liquidity has not been as extreme as in some past episodes, the risk of a sudden significant deterioration appears higher than normal… In addition, since the Russian invasion of Ukraine, liquidity has been somewhat strained at times in oil futures markets, while markets for some other affected commodities have been subject to notable dysfunction.’ In a statement… Fed Governor Lael Brainard said the war ‘has sparked large price movements and margin calls in commodities market and highlighted a potential channel through which large financial institutions could be exposed to contagion.’”
May 10 – Wall Street Journal (Nathaniel Taplin): “China’s equity market has plummeted, capital outflows have accelerated, and its teetering real-estate sector is struggling with unwieldy debts. Meanwhile the Federal Reserve has begun hiking rates. The yuan is down 5% against the dollar since late April. For those with long memories, all of this calls to mind the most turbulent time in Chinese financial markets over the past decade: In 2015 and 2016 the yuan lost around 10% of its value, China’s foreign-exchange reserves fell by nearly a trillion dollars, and the country narrowly avoided a real-estate and industrial debt crisis. Is history about to repeat itself?”
May 9 – Financial Times (Steve Johnson): “Purchases of exchange traded funds fell in April to their lowest level since the depths of the Covid crisis… Net inflows to ETFs and exchange traded products globally slipped to $27.4bn in April, according to… BlackRock, down from $117.4bn in March and the lowest figure since March 2020. Equity funds were particularly badly hit, with inflows slowing to a trickle of just $2.8bn, compared to $76.2bn a month earlier… The souring mood was most noticeable in the US, with a net $25.6bn withdrawn from equity ETFs focused on Wall Street…”
May 12 – Bloomberg (Mary Biekert): “Investors pulled $8.2 billion from U.S. corporate investment-grade bond funds in the biggest weekly exodus since April 2020 amid broad-based market volatility. The outflows for the week ended May 11 are also the fourth largest ever, according to… Refinitiv Lipper, and marks a stretch of seven weeks of withdrawals, the longest since a seven-week period beginning in November 2018. Corporate bond issuance is running well below expectations for the month as inflation-fueled volatility has narrowed windows to sell debt.”
May 13 – Reuters (Gaurav Dogra and Patturaja Murugaboopathy): “Global equity funds witnessed a surge in outflows in the week ended May 11… In a fifth straight week of net selling, investors liquidated global equity funds worth $10.53 billion, compared with just $1.65 billion worth of net selling in the previous week, according to Refinitiv Lipper… U.S. equity funds witnessed net selling worth $8.46 billion, European funds saw disposal of $4.33 billion, but investors were net buyers in Asian funds worth $2.23 billion.”
May 11 – Financial Times (Ian Johnston): “European corporate debt has been hit by its heaviest pullback on record as fears over persistently high inflation and the threat of a recession send traders dashing out of the market. Bonds issued by highly rated companies in the eurozone have lost investors more than 10% since the peak nine months ago, marking by far the biggest decline since at least 2000 for an asset class typically expected to deliver much steadier returns than stock markets…”
Bursting Bubble/Mania Watch:
May 12 – New York Times (David Yaffe-Bellany, Erin Griffith and Ephrat Livni): “The price of Bitcoin plunged to its lowest point since 2020. Coinbase, the large cryptocurrency exchange, tanked in value. A cryptocurrency that promoted itself as a stable means of exchange collapsed. And more than $300 billion was wiped out by a crash in cryptocurrency prices since Monday. The crypto world went into a full meltdown this week in a sell-off that graphically illustrated the risks of the experimental and unregulated digital currencies. Even as celebrities such as Kim Kardashian and tech moguls like Elon Musk have talked up crypto, the accelerating declines of virtual currencies like Bitcoin and Ether show that, in some cases, two years of financial gains can disappear overnight.”
May 12 – CNBC (Ryan Browne): “Bitcoin fell below $26,000 for the first time in 16 months, amid a broader sell-off in cryptocurrencies that erased more than $200 billion from the entire market in a single day. The price of bitcoin plunged as low as $25,401.29 on Thursday morning… That marks the first time the cryptocurrency has sunk below the $27,000 level since Dec. 26, 2020… Ether, the second-biggest digital currency, tanked to as low as $1,704.05 per coin. It’s the first time the token has fallen beneath the $2,000 mark since June 2021.”
May 9 – Financial Times (Scott Chipolina): “Bitcoin has tumbled below $30,000 for the first time since July as interest rate rises send investors fleeing from the riskiest corners of global financial markets… Other digital assets have also come under heavy pressure in recent weeks, pushing the market value of the top 500 digital assets down by half from the record reached in November 2021 to $1.6tn, CryptoCompare data collated by the Financial Times show.”
May 11 – Bloomberg (Emily Nicolle): “A celebrated experiment that combined math and software to get a digital currency to behave like a dollar is crashing in dramatic fashion, posing the biggest test yet to decentralized finance and the will of its backers to defend it. TerraUSD, or UST, is an algorithmic stablecoin, meaning it uses a complex combination of code, trader incentives, smart contracts and no small amount of faith to maintain its peg of one-to-one to the dollar. It does this by working with a crypto token in the same ecosystem, Luna, which can be swapped for UST and vice versa by traders to keep the price of UST where it should be.”
May 9 – Financial Times (Ortenca Aliaj, Nikou Asgari and Joshua Franklin): “Goldman Sachs has paused new Spac offerings, said people familiar with the matter, in another blow to blank-cheque companies as regulators close in on the once-booming market. The move marks a retreat for the Wall Street investment bank, which last year ranked as the second-biggest underwriter for special purpose acquisition companies, helping sponsors raise almost $16bn, according to data from Refinitiv. Goldman will also stop working with a majority of the Spacs that it helped take public…”
May 10 – Wall Street Journal (Heather Gillers): “State and local government retirement funds started the year with their worst quarterly returns since the beginning of the pandemic. Things have only gone downhill since. Losses across both stock and bond markets delivered a double blow to the funds that manage more than $4.5 trillion in retirement savings for America’s teachers, firefighters and other public workers. These retirement plans returned a median minus 4.01% in the first quarter, according to… Wilshire Trust Universe Comparison Service… Recent losses have further eroded their holdings. ‘It’s a tough period,’ said Jay Bowen, manager of the Tampa Firefighters and Police Officers Pension Fund. ‘Nobody is immune.’”
Russia/Ukraine Watch:
May 9 – Financial Times (Max Seddon and Roman Olearchyk): “Vladimir Putin has claimed Russia was forced to ‘strike back pre-emptively’ against Ukraine, adding that the Kremlin’s troops were ‘fighting on their own land’ in the conflict, just as Soviet forces did in the second world war. In his speech at the annual Victory Day parade in Moscow’s Red Square, Russia’s president sought to justify his invasion by claiming his country had to defend itself against an imminent attack. He also hinted that he would lay claim to more Ukrainian territory, including lands currently occupied by the Kremlin’s forces.”
May 10 – Bloomberg (Peter Martin and Tony Capaccio): “Russian President Vladimir Putin’s decision to focus his military’s efforts in eastern Ukraine is probably a ‘temporary shift to regain the initiative,’ the U.S.’s top intelligence official told senators… ‘We assess President Putin is preparing for prolonged conflict in Ukraine during which he still intends to achieve goals beyond the Donbas’ region’, Avril Haines, the director of national intelligence, told… the Senate Armed Services Committee… Haines said that Putin likely aims to extend a Russian land bridge in Ukraine from the eastern region of Donbas through to Moldova’s breakaway region of Transnistria. The next few months could see the conflict enter an increasingly ‘unpredictable’ and ‘potentially escalatory’ trajectory, including ad hoc decision-making in Russia, Haines said.”
May 10 – Financial Times (Felicia Schwartz): “The US believes Russian president Vladimir Putin has not changed his aims in Ukraine and that his focus on the south-eastern Donbas region is a temporary shift ‘to regain the initiative’ after failing to capture Kyiv. Speaking to lawmakers in Washington, DC…, director of national intelligence Avril Haines said the US ‘is not confident’ that the fight in the Donbas will ‘effectively end the war’. ‘We assess President Putin is preparing for prolonged conflict in Ukraine during which he still intends to achieve goals beyond the Donbas,’ she said…”
May 11 – Associated Press (Elena Becatoros and Jon Gambrell): “Russia pummeled the vital port of Odesa, Ukrainian officials said…, in an apparent effort to disrupt supply lines and Western weapons shipments as Ukraine’s foreign minister appeared to suggest the country could expand its war aims. With the war now in its 11th week and Kyiv bogging down Russian forces and even staging a counteroffensive, Foreign Minister Dmytro Kuleba seemed to indicate that the country could go beyond merely pushing Russia back to areas it or its allies held on the day of the Feb. 24 invasion.”
May 10 – Reuters: “Belarus will deploy special operations troops in three areas near its southern border with Ukraine, the armed forces said… as President Alexander Lukashenko talked up the role of Russian-made missiles in boosting the country’s defences. A close ally of Russia, Belarus said in March that its armed forces were not taking part in what Moscow calls its ‘special operation’ in Ukraine, but it did serve as a launchpad for Russia to send thousands of troops across the border on Feb. 24. Minsk has complained for months about NATO countries amassing soldiers near its borders – Poland, Lithuania and Latvia are all members of the alliance – and is increasing the amount and intensity of its own military exercises in response. ‘The United States and its allies continue to build up their military presence on the state borders of the Republic of Belarus,’ Chief of General Staff Viktor Gulevich said.”
May 10 – Reuters (Guy Faulconbridge): “Asked if Russia would rule out a preemptive tactical nuclear strike on Ukraine, Russia’s deputy foreign minister said… a decision on the possible use of nuclear weapons was clearly set out in Russia’s military doctrine, RIA reported. ‘We have a military doctrine – everything is written there,’ Alexander Grushko was quoted by state news agency RIA…. Russia’s official military deployment principles allow for the use of nuclear weapons if they – or other types of weapons of mass destruction – are used against it, or if the Russian state faces an existential threat from conventional weapons.”
Economic War/ Iron Curtain Watch:
May 9 – New York Times (Emma Bubola and Eduardo Medina): “Leaders of the Group of 7 nations pledged during a virtual meeting on Sunday with President Volodymyr Zelensky to ban or phase out Russian oil, aiming to still further erode Russia’s economic standing as it pursues its invasion of Ukraine. The group did not provide details but said in a statement that the plans would be enforced in a ‘timely and orderly fashion, and in ways that provide time for the world to secure alternative supplies.’”
May 12 – Reuters (Joseph Nasr and Markus Wacket): “Pressure on Europe to secure alternative gas supplies increased on Thursday as Moscow imposed sanctions on European subsidiaries of state-owned Gazprom a day after Ukraine stopped a major gas transit route. Gas prices surged, with the key European benchmark gaining 12% as buyers were unsettled by the mounting threats to Europe’s supply given its high dependence on Russia. Moscow has already cut off supply to Bulgaria and Poland and countries are racing to fill dwindling gas reserves before winter.”
May 12 – Bloomberg: “Russia has banned Gazprom PJSC from shipping gas to Europe through the Polish section of the Yamal pipeline in retaliation for international sanctions, potentially putting the continent’s energy security further at risk… The Yamal-Europe pipeline, barely used this year, has been seen as a potential alternative route in case Russian transits via Ukraine stop during the chaos of war.”
May 7 – Bloomberg (Giulia Morpurgo and Libby Cherry): “Russia narrowly avoided a debt default last week, but markets are still priced like it’s on the brink. Bonds are stuck at distressed levels and five-year credit default swaps put an 87% chance of a default. Those odds are lower than in April, but still elevated. The reason? The trend of international governments toward tougher sanctions and more widespread restrictions is keeping investors in the dark about the likelihood of them getting their hands on the future payments they’re owed. Even if Moscow keeps pushing to get money through the labyrinth of rules, success is far from guaranteed.”
May 11 – Bloomberg (Ewa Krukowska and Alberto Nardelli): “The European Union’s executive arm is set to bolster renewables and energy savings goals as part of a 195 billion-euro ($205bn) plan to end its dependency on Russian fossil fuels by 2027. The European Commission will propose raising its clean energy target for 2030 to 45% from the current 40% when it puts forward a package to implement its RePowerEU strategy on May 18…”
U.S./Russia Watch:
May 12 – Fox News (Greg Norman): “Former Russian President Dmitry Medvedev is warning… that the ‘pumping of Ukraine by NATO countries with weapons’ brings the risk of the conflict ‘turning into a full-fledged nuclear war.’ Medvedev, who now is the deputy chairman of Russia’s Security Council, wrote in a Telegram post that such an escalation would be a ‘catastrophic scenario for everyone.’ ‘The pumping of Ukraine by NATO countries with weapons, the training of its troops to use Western equipment, the dispatch of mercenaries and the conduct of exercises by the countries of the Alliance near our borders increase the likelihood of a direct and open conflict between NATO and Russia instead of their ‘war by proxy,’’ he said.”
May 11 – Reuters: “Former Russian president Dmitry Medvedev accused the United States… of waging a ‘proxy war’ against Russia after the House of Representatives approved a $40 billion aid package for Ukraine, and said the U.S. economy would suffer. Writing on the messenger app Telegram, Medvedev said that the bill approved by the House on Tuesday read more was a bid ‘to deal a serious defeat to our country and limit its economic development and political influence in the world.’ Medvedev said: ‘It won’t work. The printing press by which America is constantly increasing its already inflated government debt will break faster.’”
China/Russia/U.S. Watch:
May 9 – Bloomberg: “Chinese imports from Russia surged to a record in April, likely due to soaring global energy prices, while exports fell to the lowest level since the early months of the pandemic. Chinese companies bought $8.9 billion worth of goods from Russia in April, an almost 57% jump from the same month a year ago.”
May 8 – Reuters: “China’s armed forces carried out another round of exercises near Taiwan last week to improve joint combat operations, the People’s Liberation Army said…, after the Chinese-claimed island reported a spike in activity… The People’s Liberation Army’s Eastern Theatre Command said in a statement that naval and air force assets carried out drills from Friday to Sunday to the east and southwest of Taiwan to ‘further test and improve the joint combat capability of multiple services and arms’.”
May 10 – Reuters (Ben Blanchard): “China’s military said… that it had monitored and warned a U.S. warship that had sailed through the sensitive Taiwan Strait, a mission that happened shortly after China carried out drills near the island. The U.S. Navy’s 7th Fleet said the guided-missile cruiser USS Port Royal conducted a ‘routine’ Taiwan Strait transit through international waters ‘in accordance with international law’ on Tuesday, the second such mission in two weeks.”
May 10 – Reuters (Eduardo Baptista, Daphne Psaledakis, Simon Lewis and David Brunnstrom): “China’s Foreign Ministry… slammed the United States for changing the wording on the State Department website about Taiwan, saying ‘political manipulation’ will not succeed in changing the status quo over the island. The State Department website’s section on relations with Taiwan has removed wording on not supporting Taiwan independence and on acknowledging Beijing’s position that Taiwan is part of China. Washington said the update did not reflect a change in policy.”
Europe/Russia/China Watch:
May 12 – Reuters (Elaine Lies): “European Union leaders said… the EU wants to become a bigger actor in Asia, which they termed a ‘theatre of tensions’, warning of an increasingly assertive China even as they called on Beijing to defend the multilateral global order. The call came in a joint news conference in Tokyo after an EU-Japan summit featuring European Commission President Ursula von der Leyen, European Council President Charles Michel and Japanese Prime Minister Fumio Kishida. It also came a day after Beijing warned the summit not to ‘speak ill’ of China.”
Inflation Watch:
May 11 – Associated Press (Christopher Rugaber): “Inflation eased slightly in April after months of relentless increases but remained near a four-decade high, making it hard for millions of American households to keep up with surging prices. Consumer prices jumped 8.3% last month from a year ago… That was below the 8.5% year-over-year surge in March, which was the highest since 1981. On a monthly basis, prices rose 0.3% from March to April, the smallest rise in eight months… In April, a fallback in gas prices helped slow overall inflation… But since then, gas prices have surged to a record $4.40 a gallon. Grocery prices, too, are still soaring, in part because Russia’s invasion of Ukraine has heightened the cost of wheat and other grains. Food prices rose 1% from March to April and nearly 11% from a year ago. That year-over-year increase is the biggest since 1980.”
May 9 – Reuters (Lindsay Dunsmuir): “U.S. consumers’ inflation expectations one year from now dipped in April but their view of inflation over the medium-term rose and household spending expectations also climbed to a record high, according to a Federal Reserve Bank of New York survey… Median expectations for where inflation will be in one year fell 0.3 percentage point to 6.3%, while they increased to 3.9%, a rise of 0.2 percentage point, over a three-year outlook.”
May 12 – Associated Press (Christopher Rugaber): “U.S. producer prices soared 11% in April from a year earlier, a hefty gain that indicates high inflation will remain a burden for consumers and businesses in the months ahead. The… producer price index — which measures inflation before it reaches consumers — climbed 0.5% in April from March. That is a slowdown from the previous month, however, when it jumped 1.6%.”
May 13 – Bloomberg (Gerson Freitas Jr, Barbara J Powell and Chunzi Xu): “From record gasoline prices to higher airfares to fears of diesel rationing ahead, America’s runaway energy market is disquieting both US travelers and the wider economy. But the chief driver isn’t high crude prices or even the rebound in demand: It’s simply too few refineries turning oil into usable fuels. More than 1 million barrels a day of the country’s oil refining capacity — or about 5% overall — has shut since the beginning of the pandemic. Elsewhere in the world, capacity has shrunk by 2.13 million additional barrels a day, energy consultancy Turner, Mason & Co. estimates. And with no plans to bring new US plants online, even though refiners are reaping record profits, the supply squeeze is only going to get worse.”
May 12 – Bloomberg (Leslie Patton): “Feeling a bit cheated when you look down at your plate? It’s not just a figment of your imagination — portions at US restaurants are indeed getting smaller. Call it shrinkflation: when sizes shrink, but you’re paying the same price, or sometimes even more, for the meal or product. America’s restaurants are in the same boat as the rest of the country, battling the soaring food and fuel costs… Eateries have hiked prices, too. Government data… showed costs for food away from home have climbed 7.2% over the past 12 months.”
May 10 – Associated Press (Matthew Perrone and Heather Hollingsworth): “Parents across the U.S. are scrambling to find baby formula because supply disruptions and a massive safety recall have swept many leading brands off store shelves. Months of spot shortages at pharmacies and supermarkets have been exacerbated by the recall at Abbott, which was forced to shutter its largest U.S. formula manufacturing plant in February due to contamination concerns. On Monday, White House press secretary Jenn Psaki said the Food and Drug Administration was ‘working around the clock to address any possible shortages.’”
May 8 – Wall Street Journal (Melanie Evans): “Some hospitals grappling with rising nurse salaries are seeking to raise prices by up to 15%, touching off contract fights with health insurers and businesses and threatening higher premiums. HCA Healthcare Inc. and Universal Health Services Inc. are among the hospitals asking health plans to pay them more for care to offset mounting nurse costs… People familiar with negotiations say some hospitals are asking to increase their prices by 7.5% to 15%.”
May 11 – Bloomberg (Lucia Kassai): “The diesel crisis in the US may get worse this summer with the potential of shortages and rationing on the East Coast, said billionaire refinery and fuel station owner John Catsimatidis. ‘I wouldn’t be surprised to see diesel being rationed on the East Coast this summer,’ Catsimatidis, CEO of United Refining Co., said… ‘Right now inventories are low and we may see a shortage in coming months.’”
Biden Administration Watch:
May 9 – Reuters (Jeff Mason): “U.S. President Joe Biden said… he is worried that Russian President Vladimir Putin does not have a way out of the Ukraine war, and Biden said he was trying to figure out what to do about that… Biden said Putin is a very calculating man and the problem he worries about now is that the Russian leader ‘doesn’t have a way out right now, and I’m trying to figure out what we do about that.’”
May 10 – Reuters (Kylie Madry and Lisandra Paraguassu): “Mexican President Andres Manuel Lopez Obrador said… he would not attend the U.S.-hosted Summit of the Americas next month if all countries in the region were not invited, while Brazilian President Jair Bolsonaro is also likely to skip the meeting, sources told Reuters. The absence of the leaders of Latin America’s two biggest economies would be a blow for the get-together of regional heads of state, which is expected to tackle issues from migration to the environment but also showcase democracy in the hemisphere.”
May 10 – Politico (Victoria Guida): “The Senate… gave President Joe Biden his first official stamp on the Federal Reserve at a pivotal moment for the central bank. Lisa Cook, a Michigan State University economist, was approved on a party-line vote to become the first Black woman ever to get a vote on U.S. interest rate policy, two weeks after Lael Brainard, a Fed board member since 2014, was confirmed for the No. 2 job. Two more nominees, including Chair Jerome Powell, are expected to be easily confirmed soon. The vote for Cook was 51-50, with Vice President Kamala Harris casting the tie-breaking vote.”
Federal Reserve Watch:
May 12 – Financial times (Colby Smith): “Federal Reserve chair Jay Powell has warned bringing inflation down to the US central bank’s target of 2% will cause ‘some pain’, adding that tackling high prices without causing a recession may depend on factors outside of its control. The remarks from Powell, which constitute some of his most bearish comments to date, come amid significant uncertainty about the economic outlook as the Fed begins what is likely to be the fastest tightening of monetary policy in years.”
May 9 – Reuters (Howard Schneider): “The U.S. Federal Reserve can stick to half point interest rate hikes for the next two to three meetings then assess how the economy and inflation are responding before deciding whether further rises are needed, the Atlanta Fed president said. The half point increase approved by the Fed last week ‘is already a pretty aggressive move. I don’t think we need to be moving even more aggressively,’ Raphael Bostic said… ‘I think we can stay at this pace and this cadence and really see how the markets evolve… We are going to move a couple times, maybe two, maybe three times, see how the economy responds, see if inflation continues to move closer to our 2% target, then we can take a pause and see how things are going.’”
May 10 – Reuters (Francesco Canepa): “U.S. Federal Reserve Chair Jerome Powell’s signal that the central bank plans to raise interest rates by 50 bps at each of its next two policy meeting is sensible, New York Fed President John Williams said…, as he underscored the challenging environment in which policymakers seek to tame inflation. ‘I do think as a base case of thinking, 50 bps increases makes sense exactly as Chair Powell laid out,’ Williams told reporters… ‘We are removing accommodation pretty quickly…and that gives us a little space to move in something like the 50 bps increment at the next couple of meetings.’”
May 11 – Bloomberg (Steve Matthews): “Harshly criticized for being late in responding to surging inflation, Federal Reserve policy makers at one of their first in-person conferences of the Covid-19 era promised to unite behind Chair Jerome Powell’s strategy to tamp down prices. Speaking at the Federal Reserve Bank of Atlanta’s annual financial markets conference…, host President Raphael Bostic defended the decision to hold interest rates at zero for two years and double the balance sheet to $9 trillion, while promising to push aggressively against inflation near a 40-year high. Cleveland’s Loretta Mester, asked to reflect on lessons learned, didn’t list any and instead said the focus is on the future.”
May 10 – Bloomberg (Jonnelle Marte, Matthew Boesler and Steve Matthews): “Federal Reserve officials reinforced Chair Jerome Powell’s message that half-point interest-rate increases are on the table in June and July, but a larger move of 75 bps could be warranted later in the year. ‘We don’t rule out 75 forever,’ Cleveland Fed President Loretta Mester said… ‘When we get to that point in the second half of the year, if we don’t have inflation moving down we may have to speed up.’”
U.S. Bubble Watch:
May 10 – Financial Times (Imani Moise): “US households added $266bn to their debt balances in the first quarter, led by mortgage loans, in the largest single-quarter increase since 2006, according to the Federal Reserve Bank of New York. The borrowing took US household debt to $15.84tn, or $1.7tn above pre-pandemic levels… Household credit card balances declined by $15bn in the quarter as borrowers paid down some of last year’s holiday spending. But the seasonal decline was more modest than normal and credit card balances were still $71bn higher than a year before.”
May 10 – Reuters (Lucia Mutikani): “U.S. small business confidence held steady in April after three straight monthly declines, but owners remained worried about high inflation and worker shortages, a survey showed… The National Federation of Independent Business (NFIB) said its Small Business Optimism Index was unchanged at a reading of 93.2 last month. The index had declined since January. Thirty-two percent of owners reported that inflation was their single most important problem in operating their business. That was the largest share since the fourth quarter of 1980 and was up a point from March.”
May 13 – Bloomberg (Jordan Yadoo): “US consumer sentiment declined in early May to the lowest since 2011 as persistent concerns over inflation dimmed Americans’ views on the economy. The University of Michigan’s sentiment index fell to 59.1 from 65.2 in April… The figure was lower than all estimates…, which called for a median reading of 64. A gauge of current conditions dropped to 63.6, the lowest in 13 years, while a measure of future expectations declined 6.2 points, erasing most of April’s gains. Consumers expect prices to rise 5.4% over the next year, holding at a four-decade high for the third month in a row.”
May 8 – Wall Street Journal (Sebastian Herrera and Akane Otani): “The technology industry, which powered the U.S. economy during the pandemic and grew at tremendous scale during a decade of ultralow interest rates, is confronting one of the most punishing stretches in years. Global powerhouses and fledgling startups are feeling pain from a variety of economic, industry and market factors, spawning postpandemic turbulence in e-commerce, digital advertising, electric vehicles, ride-hailing and other segments. Companies that emerged as job-creating juggernauts in the past two years—collectively adding hundreds of thousands of workers to their payrolls in engineering, warehouse and delivery jobs—have begun to freeze hiring or even lay off employees.”
May 12 – Reuters (Tim McLaughlin): “After decades of struggle, the U.S. clean-energy business is booming, with soaring electric-car sales and fast growth in wind and solar power. That’s raising hopes for the fight against climate change. All this progress, however, could be derailed without a massive overhaul of America’s antiquated electric infrastructure – a task some industry experts say requires more than $2 trillion. The current network of transmission wires, substations and transformers is decaying with age and underinvestment… Power outages over the last six years have more than doubled in number compared to the previous six years… In the past two years, power systems have collapsed in Gulf Coast hurricanes, West Coast wildfires, Midwest heat waves and a Texas deep freeze, causing long and sometimes deadly outages.”
May 10 – Wall Street Journal (Orla McCaffrey): “Rising interest rates dealt a critical blow to mortgage originations in the first quarter. Lenders issued about $859 billion in mortgages in the first quarter, down 25% from the previous year, according to… the Federal Reserve Bank of New York… The quarter also marked the first time since early 2020 that originations fell below $1 trillion The main cause was a sizable drop in refinancings, which fell about 40% from a year ago. Purchase mortgages were roughly flat, a turnaround from two years of double-digit gains.”
May 11 – Reuters (Lindsay Dunsmuir): “The average interest rate on the most popular U.S. home loan rose to its highest level since 2009 last week and demand for mortgages jumped for a second straight week despite the rising costs… The average contract rate on a 30-year fixed-rate mortgage increased to 5.53% in the week ended May 6 from 5.36% a week earlier… It has now risen 242 basis points from 12 months ago, the sharpest rise in decades…”
May 11 – CNBC (Diana Olick): “It could be more listings on the market, or perhaps just fear that interest rates will move even higher, but homebuyers are showing more demand for mortgages. They are, however, turning even more to adjustable-rate mortgages (ARMs), which offer lower rates. That gives them an advantage as both rates and home prices continue to climb… At the start of this year, when rates were still hovering near record lows, the ARM share was just 3% of all purchase applications. At 11% that is the highest share since March 2008.”
May 10 – Reuters (Diana Olick): “One of the leanest housing markets in history might be putting on some fat. The supply of homes for sale could increase in the next few weeks, according to new data from Realtor.com. In April, inventory was 12% lower than in the same month last year, the smallest year-over-year decline since the end of 2019. Another reading for just the last week in April shows inventory down only about 3% from a year ago… New listings were down 0.9% in April compared with a year ago, and the number of active listings is still down 67% from pre-pandemic levels.”
May 13 – Bloomberg (Romy Varghese): “California Governor Gavin Newsom said… the state has a record $97.5 billion operating surplus, with $49.2 billion that can be used for any purpose. The discretionary spending figure surpasses the staggering $38 billion that lawmakers had at their disposal during the previous budget season, then considered the biggest.”
May 7 – CNBC (Jennifer Elias and Amelia Lucas): “After years of declining influence, unions are having a resurgence. Employees from companies across the country are increasingly organizing as a means of asking for more benefits, pay and safety from their employers. Between October 2021 and March of this year, union representation petitions filed at the NLRB increased 57% from the same period a year ago… Unfair labor practice charges increased 14% during the same period.”
Fixed-Income Bubble Watch:
May 11 – Wall Street Journal (Matt Wirz): “Shock waves from the stock market’s declines are spreading into junk bonds, sending prices tumbling and forcing some companies to cancel new deals. Average prices of U.S. high-yield bonds fell to around 91 cents on the dollar Monday, the lowest level since May of 2020 when pandemic shutdowns slammed the global economy… The selloff has punished companies with below-investment-grade credit ratings and poor reported earnings. It is also making it harder and more expensive for some to raise new debt for capital investments, acquisitions and refinancings.”
May 12 – Bloomberg (David Brooke and Mary Biekert): “The $1.2 trillion private credit market has sidestepped the turmoil affecting financial assets this year, allowing direct lenders to step in with loans to fund buyouts as other corners of credit seize up. But some on Wall Street are growing wary. Capital raising is at a record pace and firms are launching funds at an increasingly fast rate, as quick as every 15 to 18 months, according to… Intertrust Group. Lenders also have about $390 billion available to spend, the largest excess amount in the market’s short history, according to… Preqin. There’s a few reasons private credit has held up so well. One is that lenders aren’t susceptible to the same kind of outflows that can impact demand in the corporate bond and leveraged loan markets since investors must lock up cash for several years.”
Economic Dislocation Watch:
May 13 – Bloomberg: “China’s biggest chipmaker and a major iPhone supplier cut their outlooks for the second quarter, joining a growing list of manufacturers warning about the fallout from lockdowns aimed at containing the country’s worst Covid outbreak in two years… China’s Covid Zero strategy, which relies on a playbook of closed borders, quarantines, lockdowns and mass testing, is up-ending its giant manufacturing sector even as the rest of the world lives with Covid and opens up.”
May 10 – Yahoo Finance (Dani Romero): “The long-anticipated labor negotiations between the International Longshore and Warehouse Union (ILWU) and their employers represented by the Pacific Maritime Association (PMA) begin on Tuesday. The stakes are high for supply chains as the two parties involved represent 22,000 dockworkers and shipping companies that do business at 29 West Coast ports, which account for nearly 9% of the U.S. gross domestic product. While past contract disagreements caused disruptions, leaders from both the ILWU and PMA are downplaying those fears.”
May 9 – Reuters (Pavel Polityuk): “Ukraine’s president said… trade at the country’s ports was at a standstill and urged the international community to take immediate steps to end a Russian blockade to allow wheat shipments and prevent a global food crisis. Volodymyr Zelenskiy made the comments after speaking to European Council President Charles Michel, who was visiting Odesa – the major Black Sea port for exporting agricultural products where missiles struck tourist sites and destroyed buildings on Monday.”
May 10 – Reuters (Timothy Aeppel): “U.S. manufacturers are finding that their main weapon to fight supply chain snarls is greater inefficiency. Industrial companies reporting earnings over the past few weeks have described steps they’ve taken – from acquiring trucks to move their own goods to building products that sit around on factory floors waiting for missing semiconductors – to deal with delays and shortages that have dogged them over the past year.”
China Watch:
May 11 – Wall Street Journal (Lingling Wei): “For years, President Xi Jinping has sidelined China’s second most powerful political figure, Premier Li Keqiang. Now, Mr. Li is re-emerging as a force in his own right, a potential counterbalance atop the Chinese government that hasn’t been seen for nearly a decade. With China mired in its worst economic funk in recent memory, Mr. Li is helping press China’s authoritarian leader to dial back some measures that steered the country away from Western-style capitalism and contributed to China’s economic slowdown, according to government officials and advisers close to decision-making. Under Mr. Li’s influence, those people said, Beijing recently eased a regulatory crackdown on private technology firms, loosened lending to property developers and home buyers, and acted to help some manufacturers resume production when much of China has been forced into lockdowns by Mr. Xi’s zero-Covid approach.”
May 10 – Bloomberg: “China risks a ‘tsunami’ of coronavirus infections resulting in 1.6 million deaths if the government abandons its long-held Covid Zero policy and allows the highly-infectious omicron variant to spread unchecked, according to researchers at Shanghai’s Fudan University. The peer-reviewed study… found that the level of immunity induced by China’s March vaccination campaign would be ‘insufficient’ to prevent an omicron wave that would swamp intensive care capacity, given low vaccine rates among the elderly and the virus’s ability to evade immunity from existing shots… Without restrictions such as the country’s mass-testing drives and strict lockdowns, the spread of omicron could lead to 112.2 million symptomatic cases, 5.1 million hospital admissions and 1.6 million deaths…”
May 11 – Reuters (Martin Quin Pollard and Brenda Goh): “China hit back… against what it called ‘irresponsible’ comments by the head of the World Health Organization, who described the country’s uncompromising and increasingly painful ‘zero COVID’ policy as ‘not sustainable’… In rare public comments on a government’s policies, WHO Director-General Tedros Adhanom Ghebreyesus said… China’s zero-tolerance strategy is not sustainable and that it was time for a change in approach. Tedros’ comments were not covered in China’s state media and were censored on social media, with the only official response coming at a regular foreign ministry news conference. ‘We hope the relevant individual can view Chinese COVID policy objectively and rationally and know the facts, instead of making irresponsible remarks,’ spokesman Zhao Lijian said.”
May 8 – Associated Press (Joe McDonald): “China’s export growth tumbled in April as global demand weakened, adding to pressure on the world’s second-largest economy after Shanghai and other industrial cities were shut down to fight virus outbreaks. Exports rose 3.7% over a year earlier to $273.6 billion, down sharply from March’s 15.7% growth… Reflecting weak Chinese demand, imports crept up 0.7% to $222.5 billion, in line with the previous month’s growth below 1%.”
May 10 – Bloomberg: “China’s factory and consumer prices rose faster than expected in April as Covid lockdowns battered supply chains and pushed people to stockpile food. The producer price index rose 8% from a year earlier compared to 8.3% in March, official data showed Wednesday, above the median estimate of a 7.8% increase in a Bloomberg survey of economists. Consumer-price growth accelerated to 2.1% from 1.5% in the previous month, faster than a projected 1.8% gain.”
May 11 – Reuters (Zhang Yan, and Brenda Goh): “China’s overall vehicle sales for April plunged almost 48% from a year earlier as COVID-19 lockdowns hit factories and showrooms, but sales of electric vehicles surged and Chinese brands took share from global rivals. The monthly sales volume was the lowest for the month in a decade, underscoring the economic toll of the tough restrictions China put in place in April in Shanghai and other cities to control the spread of COVID.”
May 11 – Bloomberg: “Chinese Premier Li Keqiang urged officials to use fiscal and monetary policies to stabilize employment and the economy as the country reels from Covid outbreaks and rising inflationary pressure. The world’s second-largest economy came under greater downward pressure in April due to the latest virus outbreak and bigger-than-expected impact from international situations, China’s state broadcaster CCTV reported, citing a State Council meeting headed by Li.”
May 10 – Bloomberg: “Premier Li Keqiang’s warning of China’s ‘complicated and grave’ employment situation… was particularly dire, even for someone who has sounded the alarm for months. But it was also notable another reason: It didn’t mention President Xi Jinping’s Covid Zero strategy. Just days earlier, the Politburo Standing Committee — on which both Xi and Li sit — warned China’s citizens not to question Covid-control policies that have locked down cities across the country, including Shanghai. That statement, by contrast, contained no mention of the economy. Besides confusing local officials who must find a way to eliminate Covid and grow the economy, the mixed messages from China’s most powerful leaders raise questions about whether there’s a split at the top over the best way out of the pandemic.”
May 11 – Bloomberg: “China’s central bank is making stabilizing economic growth a top priority and will step up support for weak sectors, Deputy Governor Chen Yulu said. The People’s Bank of China has guided loan interest rates lower from an already low level, Chen said… He reiterated the PBOC’s pledge to use new policy tools to cushion the economy. ‘The PBOC will make stabilizing growth a more prominent priority, strengthen cross-cyclical policy adjustment, and accelerate to implement policy measures already announced, especially to actively plan new policy tools,’ said Chen.”
May 10 – Bloomberg: “China’s credit market can’t catch a break. A property debt crisis. Lockdowns that have dragged on the economy. And now monetary tightening by the Federal Reserve that’s driven up the dollar and threatens to draw more money away from emerging-market assets. Indicators for Chinese dollar bonds show the pain: The securities have lost a record of about 9% this year… Issuance of the Chinese securities has slid 38% in 2022 to the lowest in six years. The share of such note sales in the Asian dollar bond market has shrunk to the least since 2013 at 46%.”
May 10 – Financial Times (Hudson Lockett and Cheng Leng): “Fundraising by China-focused private equity investors has fallen to its lowest level in 13 years, as early-stage backers of the country’s start-up scene grapple with Beijing’s tech crackdown and zero-Covid policies. Venture capital and private equity funds concentrating on the Greater China region raised just $1.7bn in the first quarter of 2022, according to estimates from… Preqin, down more than 90% year on year. That marked the smallest haul since the depths of the global financial crisis in 2009. The steep drop in fundraising by the type of early-stage investors who helped Alibaba and Tencent become global brands underscored growing uncertainty over how to operate in China.”
May 10 – Bloomberg: “China’s provinces are set to sell a historic amount of new special bonds by the end of June as part of an infrastructure investment push intended to rescue an economy stymied by Covid outbreaks and lockdowns. Authorities have asked local governments to issue all of this year’s new special bonds, a key source of funding for public projects, by the end of next month… If that happens, as much as 2.25 trillion yuan ($336bn) worth of such bonds may be sold in May and June… That would be the highest amount for any two-month period in history.”
May 9 – Bloomberg (Maria Elena Vizcaino and Ye Xie): “BlackRock Inc. jettisoned its bullish stance on China as Covid lockdowns jeopardize the nation’s economic growth and trigger steep declines in local stock prices. The firm had held a ‘modest overweight’ view on Chinese assets as attractive valuations made up for the risks, BlackRock Investment Institute strategists… wrote… But the firm is now recommending a neutral stance on Chinese stocks and bonds as the response to the pandemic takes a growing toll. ‘The rapidly worsening outlook for China’s growth on widespread lockdowns to curtail a Covid spike has changed this,’ they wrote. ‘Lockdowns are set to curtail economic activity. China’s policy makers have heralded easing to prevent a growth slowdown — but have yet to fully act.’”
May 10 – Bloomberg (Cathy Chan and Hannah Levitt): “In the buttoned-down world of Wall Street research, JPMorgan Chase & Co.’s description of Chinese Internet companies was an instant shocker: ‘uninvestable.’ The evocative label helped erase about $200 billion from U.S. and Asian markets and prompted one Chinese technology company to downgrade JPMorgan’s underwriting role on an upcoming initial public offering. It was also never meant to see the light of day… JPMorgan editorial staff in charge of vetting the bank’s research asked for ‘uninvestable’ to be removed from 28 reports penned by technology analyst Alex Yao and his team before they were published on March 14, the people said.”
May 11 – New York Times (Keith Bradsher): “From village to village, the wheat crops in China have been inconsistent this season. One field on the flat plains east of Beijing was patchy, with knee-high emerald stalks in some spots while almost bald elsewhere, damaged by the torrential rains of last autumn. The next village over, a luxurious wheat crop was thriving after this spring’s bright sunshine and slow, soaking rains. China’s winter wheat harvest next month is one of the big uncertainties in a global economy already struggling with high commodity prices… If the Chinese harvest is bad in the coming weeks, it could drive food prices up further, compounding hunger and poverty in the world’s poorest countries.”
May 8 – Financial Times (Thomas Hale): “China said it would ‘strictly limit’ unnecessary outbound travel by its citizens amid escalating efforts to stamp out an outbreak of coronavirus that has already prompted weeks of city lockdowns. The National Immigration Authority’s announcement… also referred to the need to prevent people bringing the virus into China and comes on top of existing measures that heavily limit movement within and into the country.”
Central Banker Watch:
May 10 – Financial Times (Martin Arnold): “Germany’s central bank boss has called for eurozone interest rates to rise in July, warning that policymakers risk acting too late and being forced into a Paul Volcker-style ‘strong and abrupt’ increase in borrowing costs. Joachim Nagel said… there was ‘disturbing evidence that the increase in inflation is gaining momentum’. More consumers and companies expect prices to keep rising rapidly, which meant ‘the risk of acting too late is increasing notably’. The Bundesbank boss joins several fellow European Central Bank governing council members in calling for it to end net bond purchases at the end of June and raise its deposit rate in July.”
May 11 – Financial Times (Martin Arnold): “Christine Lagarde signalled that she would support raising the European Central Bank’s main interest rate in July, leading economists to declare that the first increase for more than a decade is almost certain to go ahead. The ECB president said… she expected the bank to stop expanding its balance sheet through bond purchases ‘early in the third quarter’ and to then raise rates ‘some time’ after that, which ‘could mean a period of only a few weeks’. Lagarde added that ‘actions that demonstrate our commitment to price stability’ would be critical in ensuring businesses’ and households’ expectations of future inflation did not rise further and test the central bank’s credibility. Eurozone inflation hit a record 7.5% in April — almost four times the central bank’s target of 2%.”
Global Bubble and Instability Watch:
May 12 – Wall Street Journal (Jason Douglas and David Harrison): “For decades, the world has depended on China as a massive factory floor and market. As the country’s economic growth crumbles, the pain is spreading globally. Lockdowns aimed at stamping out Covid-19 are throttling activity in the world’s second-largest economy. Overseas demand for China’s exports is fading as economies wrestle with surging prices and rising interest rates. The effects of China’s slowdown are showing up everywhere from German factories to Australian tourist spots. Exports are weakening in Asia as China’s neighbors watch their largest market sag. Companies including Apple Inc. and General Electric Co. warned investors about production and delivery problems stemming from China’s troubles, as well as dwindling sales.”
Europe Watch:
May 10 – Associated Press (Matthew Lee): “An interminable and unwinnable war in Europe? That’s what NATO leaders fear and are bracing for as Russia’s war in Ukraine grinds into its third month with little sign of a decisive military victory for either side and no resolution in sight. The possibility of a stalemate is fueling concerns that Ukraine may remain a deadly European battlefield and a source of continental and global instability for months, or even years, to come. Energy and food security are the most immediate worries, but massive Western support for Ukraine while the world is still emerging from coronavirus pandemic and struggling to deal with the effects of climate change could deepen the toll on the global economy. And should Russia choose to escalate, the risk of a broader conflict rises.”
EM Bubble Watch:
May 11 – Bloomberg (Andrew Rosati and Matthew Malinowski): “Latin American central banks will likely extend their monetary tightening campaigns beyond what was originally expected after inflation surged past forecasts in April, with steep increases in food and fuel costs stinging policy makers. Brazil’s consumer prices rose 12.13% from a year prior…, the fastest pace in nearly two decades… Headline inflation also topped forecasts in Peru, Colombia and Chile in the same month, as did the closely-watched core index in Mexico.”
May 9 – Reuters (Anthony Esposito): “Mexican headline inflation and the closely watched core index rose in April to their highest levels since January 2001…, data likely to prompt the central bank to hike its key interest rate again this week. Consumer prices rose 7.68% in the year through April and in the month alone increased 0.54%… The annual figure was still far above the Bank of Mexico’s target of 3%, plus or minus one percentage point, and compares to forecasts of 7.72%, according to a Reuters poll.”
May 13 – Bloomberg (Anup Roy and Ronojoy Mazumdar): “India’s headline inflation accelerated for a seventh month to the fastest since May 2014 on higher fuel and food costs, sending bond yields higher and spurring expectations the central bank will raise rates further to tame prices. Consumer prices increased 7.79% in April…”
May 11 – CNN (Iqbal Athas and Rhea Mogul): “Protesters in Sri Lanka have burned down homes belonging to 38 politicians as the crisis-hit country plunged further into chaos, with the government ordering troops to ‘shoot on sight.’ Police in the island nation said Tuesday that in addition to the destroyed homes, 75 others have been damaged as angry Sri Lankans continue to defy a nationwide curfew to protest against what they say is the government’s mishandling of the country’s worst economic crisis since 1948.”
Japan Watch:
May 10 – New York Times (Ben Dooley): “For years, as Japan tried to boost its chronically weak economic growth, it pursued what its central bank saw as a magic formula: stronger inflation and a weaker yen. It didn’t quite work as intended. Inflation never met the government’s modest target, despite rock-bottom interest rates and heaps of fiscal stimulus. Workers’ wages stagnated, and growth remained anemic. Now, Japan is suddenly getting what it wished for — just not in the way it had hoped. While overall inflation remains moderate, food and energy costs are rising rapidly, an outgrowth not of increased demand but of market turmoil related to the pandemic and Russia’s invasion of Ukraine. And the yen has hit a two-decade low against the dollar, a dizzying drop of more than 18% since September that has unnerved Japanese businesses.”
Leveraged Speculation Watch:
May 13 – Bloomberg (Tom Maloney and Katherine Burton): “Chase Coleman and other so-called Tiger Cubs made billions crowding into the same collection of high-flying technology stocks including Netflix Inc., Carvana Co. and Shopify Inc. Now those shares are in free-fall, along with the hedge funds that piled into them. Clients are angry that these well-known traders, who take pride in making money during good times and bad, failed to foresee this year’s collapse and profit from it. Coleman’s Tiger Global Management lost 44% through April, incinerating $16 billion of investor capital. Dan Sundheim’s D1 Capital Partners… lost 19% in his most popular portfolio.”
May 9 – Wall Street Journal (Laurence Fletcher): “Tiger Global has been hit by losses of about $17bn during this year’s technology stock sell-off, marking one of the biggest dollar declines for a hedge fund in history. The run of poor performance means the firm — one of the world’s biggest hedge funds and a big investor in high-growth, speculative companies whose shares have tumbled since their pandemic peaks — has in four months erased about two-thirds of its gains since its launch in 2001… ‘The magnitude of the loss is breathtaking, especially for a fund with ‘hedge’ in its name,’ said Andrew Beer, managing member at investment firm Dynamic Beta. ‘This shows how even the most talented and plugged-in tech investors failed to see the train coming down the tracks.’”
May 13 – Bloomberg (Nishant Kumar and Bei Hu): “Pelham Capital, a hedge fund specializing in betting on and against stocks, is in its deepest slump since its launch about 15 years ago as the sell off in equity markets accelerates. The firm’s main Pelham Long/Short Fund plunged about 7% in April, worsening its loss this year to 28%… That comes after a 12% decline in 2021.”
Covid Watch:
May 11 – Reuters (Maria Caspani): “The United States has now recorded more than 1 million COVID-19 deaths…, crossing a once-unthinkable milestone about two years after the first cases upended everyday life and quickly transformed it. The 1 million mark is a stark reminder of the staggering grief and loss caused by the pandemic even as the threat posed by the virus wanes in the minds of many people. It represents about one death for every 327 Americans, or more than the entire population of San Francisco or Seattle.”
May 13 – Bloomberg (Madison Muller): “As a stealth wave of Covid makes its way across the US, those who have so far evaded the virus are now falling ill — while others are catching Covid for a second, third or even fourth time. Several factors have conspired to make the state of the pandemic harder than ever to track. The rise of at-home tests, which rarely make it into official case numbers, have made keeping accurate count of positive cases impossible.”
Social, Political, Environmental, Cybersecurity Instability Watch:
May 10 – Reuters (Gloria Dickie): “The world faces a 50% chance of warming of 1.5 degrees Celsius above pre-industrial levels, if only briefly, by 2026, the World Meteorological Organization (WMO) said… That does not mean the world would be crossing the long-term warming threshold of 1.5C (2.7 degrees Fahrenheit), which scientists have set as the ceiling for avoiding catastrophic climate change. But a year of warming at 1.5C could offer a taste of what crossing that long-term threshold would be like.”
May 8 – Wall Street Journal (Katherine Blunt): “From California to Texas to Indiana, electric-grid operators are warning that power-generating capacity is struggling to keep up with demand, a gap that could lead to rolling blackouts during heat waves or other peak periods as soon as this year. California’s grid operator said Friday that it anticipates a shortfall in supplies this summer, especially if extreme heat, wildfires or delays in bringing new power sources online exacerbate the constraints. The Midcontinent Independent System Operator, or MISO, which oversees a large regional grid spanning much of the Midwest, said late last month that capacity shortages may force it to take emergency measures to meet summer demand… The risk of electricity shortages is rising throughout the U.S. as traditional power plants are being retired more quickly than they can be replaced by renewable energy and battery storage.”
May 9 – Bloomberg (Brian K. Sullivan and Naureen S. Malik): “Demand for electricity in Texas is forecast to surge to a level rarely seen outside of summer as a spring heat wave drives up temperatures and millions of people crank up air conditioners. The state’s main grid operator, Electric Reliability Council of Texas, said it has secured enough supply to meet power use throughout the day. Demand on the grid hit 67.3 gigawatts early afternoon Monday and is forecast to peak at 71.1 gigawatts at 5 p.m. local time. That’s about 3.7 gigawatts short of the all-time demand record for the state, set in August 2019.”
May 7 – CNN (Rachel Ramirez): “Against the backdrop of the water crisis in the Colorado River Basin, where the country’s largest reservoirs are plunging at an alarming rate, California’s two largest reservoirs — Shasta Lake and Lake Oroville — are facing a similar struggle. Years of low rainfall and snowpack and more intense heat waves have fed directly to the state’s multiyear, unrelenting drought conditions, rapidly draining statewide reservoirs. And according to this week’s report from the US Drought Monitor, the two major reservoirs are at ‘critically low levels’ at the point of the year when they should be the highest. This week, Shasta Lake is only at 40% of its total capacity, the lowest it has ever been at the start of May since record-keeping began in 1977. Meanwhile, further south, Lake Oroville is at 55% of its capacity…”
May 10 – Associated Press: “California’s water use jumped dramatically in March, state officials said…, as one of the driest stretches on record prompted a wave of homeowners to start watering their lawns earlier than usual in defiance of Gov. Gavin Newsom’s pleas for conservation amid a severe drought. Newsom last summer asked residents to voluntarily cut water use by 15% compared to 2020 as climate change intensified a drought that threatened to drain the state’s reservoirs to dangerously low levels.”
Geopolitical Watch:
May 13 – Bloomberg: “Turkey doesn’t favor Sweden and Finland’s membership in NATO, President Recep Tayyip Erdogan said, a statement that throws a potential wrench into the anticipated moves by both nations to apply to join the military alliance. It comes ahead of a meeting this weekend of NATO foreign ministers.”
May 9 – Bloomberg (Linda Lew): “The foreign ministers of the Group of Seven most industrialized nations expressed ‘grave concern’ over the process by which Hong Kong selected its next chief executive, calling it an assault on the fundamental freedoms of the former British colony that returned to Chinese control in 1997. The G-7 statement… came a day after John Lee, 64, a former police official who helped incumbent Chief Executive Carrie Lam crack down on massive and sometimes-violent democracy protests in 2019, was elected to the city’s top post in a near-unanimous ballot by a Beijing-controlled committee.”
May 12 – Financial Times (Nick Fildes): “Australia’s defence minister Peter Dutton has accused China of committing an ‘act of aggression’ after a People’s Liberation Army naval vessel came within 50 nautical miles of a naval communications centre. Australia’s department of defence said the Dongdiao Class intelligence ship Haiwangxing had entered the country’s exclusive economic zone… The vessel hugged the western Australian coastline and sailed close to Exmouth, where a cluster of radio towers is located at a naval base that is used by the US and other allies’ submarines, and was now travelling north-east.”
May 7 – Reuters (Joyce Lee and Kantaro Komiya): “North Korea fired a ballistic missile from a submarine on Saturday, South Korea said, an escalation just before the inauguration of a South Korean president who has vowed to take a hard line against the North and the visit of the U.S. president. South Korean military said North Korea fired what is believed to be a submarine-launched ballistic missile (SLBM) into the sea off its east coast…”
