Sure got the old neck stuck out this time. Markets have rallied, financial conditions have loosened, and debt markets have reopened. I’m not dissuaded. The great Bubble is in trouble.
It was 15 months from the June 2007 (subprime eruption) mortgage finance Bubble piercing to the cataclysmic 2008 crisis. Over that drawn out “process,” crisis dynamics at the “periphery” ebbed and flowed as they gravitated toward the precious “core.” Aggressive rate cuts and various measures somewhat impeded the process, yet nothing could alter the reality of Trillions of suspect debt, egregious speculative leverage, and associated fatal market structure issues (i.e., derivatives and the “repo” market). There was no rectifying acute financial and economic fragilities that had accumulated over the Bubble period.
Crisis dynamics take fateful turns when perceived safe and liquid “money” succumbs to a crisis of confidence and panic. Historically, bank runs triggered acute financial and economic crises. In September 2008, it was a panicked run on “money,” more specifically Lehman Brothers and Wall Street “repo” liabilities.
Today’s crisis dynamics have key differences from 2008. In general, market-based mortgage Credit had a significantly outsized role in total system Credit going into 2008. This created latent vulnerability to the reversal of speculative flows and deleveraging, along with an associated tightening of market financial conditions. At the same time, the “core” was underpinned by rock solid perceptions of “moneyness” for Treasuries, Federal Reserve Credit, and the dollar more generally. The robust “core” afforded Washington extraordinary crisis-fighting capacity that should no longer be taken for granted.
In one respect, today’s Credit dynamics seem more robust. Massive fiscal deficits ensure system Credit growth remains dominated by the expansion of “core” Treasury securities. This, at least initially, insulates Credit expansion from the type of “risk off” market dynamics and reversal of speculative flows that doomed the mortgage finance Bubble back in the second half of 2007. Relative stability at the “core” initially stalled crisis dynamics that erupted at the “periphery.”
But there is today an important caveat. This cycle’s egregious excesses – over-issuance, speculative leverage, and Credit debasement – have flourished at the “core” – especially within Treasury and agency securities markets. Moreover, there are serious issues associated with another key “core” Credit component – Federal Reserve liabilities. After ending 2007 at about $900 billion, total Fed assets today weigh in at $6.7 TN.
System stability today lacks the paramount underpinnings provided by a strong foundation. Ending June 2007 at 72.5, the dollar index rallied to a high of 88.5 on November 21st, 2008. From September 2007 to late October 2008, the Fed slashed rates 425 bps to 1%, but the dollar index rallied 10% during that period. And from June 2007 highs (5.30%) to the end of October 2008, 10-year Treasury yields sank 135 bps. Yields collapsed as the Fed cranked up QE, ending the year at 2.21%.
Today’s Treasury market behaves differently, fitting considering Treasury securities inflated (526%) from $4.5 TN to end 2007 to the $28.1 TN 2024 close. Longer-term Treasury bonds underperformed again this week. Ten-year yields rose seven bps to 4.39%, compared to the three bps increase in German bund yields (2.56%) and two bps rise in French (3.27%) and Spanish (3.21%) yields. Curiously, over the past six weeks of global market instability, 10-year Treasury yields were up 13 bps, while bund yields fell 17 bps. Meanwhile, the dollar index is down 3.5% over six weeks.
May 6 – Reuters (Rae Wee): “Taiwan’s currency is at three-year highs after notching unprecedented gains as insurance firms, pension funds and other investors quit U.S. dollar assets or scramble to hedge exposure. Analysts estimate billions of dollars’ worth of hedging or repatriation by life insurance firms could drive the Taiwan dollar even higher. The latest scramble by Taiwanese life insurers to protect their portfolios reflects an unwinding of massive U.S. dollar holdings by global investors, as U.S. President Donald Trump’s chaotic trade policies shake decades of unquestionable faith that investors had in the dollar’s dominance.”
After the May 1st close at 32.00, the U.S. dollar versus the Taiwan dollar sank 7.5% in two sessions to 29.6. Bloomberg headline: “Taiwan’s Markets Jolted as Currency Surges Most Since 1980s.” Monday’s jump was the biggest gain since the 2008 financial crisis. Taiwan’s central bank intervened to stabilize trading. As they tend to do, years of artificial stabilization measures fostered a market structure prone to an eruption of instability and dislocation.
Last August’s yen “carry trade” and derivative “swaps” eruption was an important development. Recent “swaps” market turmoil provides additional key evidence of serious market structure issues. And I see this week’s panic buying of Taiwan’s currency as further evidence of underlying global Bubble fragility.
May 6 – Reuters (Rae Wee and Samuel Shen): “A wave of dollar selling in Asia is an ominous sign for the greenback as the world’s export powerhouse starts to question a decades-long trend of investing its big trade surpluses in U.S. assets. Ripples from Friday and Monday’s record rally in the Taiwan dollar are now spreading outward, driving surges for currencies in Singapore, South Korea, Malaysia, China and Hong Kong. The moves sound a warning for the dollar because they suggest money is moving into Asia at scale and that a key pillar of dollar support is wobbling… ‘To me, it has a very sort of Asian-crisis-in-reverse feel to it,’ said Louis-Vincent Gave, founding partner of Gavekal Research… due to the speed of the currency moves.”
An unfolding dollar crisis of confidence is integral to the faltering Bubble thesis. The dollar index dropped 2.8% during peak deleveraging week April 11th, with “liberation day” unleashing a three-week drubbing (down 5.9% at April 21st lows). Importantly, the dollar index sank 3.5% the week following President Zelenskyy’s Oval Office humiliation – the largest weekly decline since November 2022. The Trump administration has been a crisis of confidence catalyst.
Market structure that solidified over years of Bubble excess has turned highly problematic. Decades of unrelenting U.S. Current Account deficits led to an unprecedented accumulation of dollar holdings across the globe. Powerful “core” (i.e., Treasuries and the Fed balance sheet) stabilization dynamics underpinned U.S. markets, incomes and corporate earnings, and economic growth – all working together to ensure the dollar maintained its unrivaled reserve currency stature. Speculative blow-off dynamics that took hold after the March 2023 bank bailout, culminating in the historic AI mania, elevated “American exceptionalism” and “king dollar” to unsupportable maniacal heights. Now the hangover.
May 8 – Bloomberg (Ruth Carson): “The dollar may face a $2.5 trillion ‘avalanche’ of selling as Asian countries unwind their stockpile of the world’s reserve currency, according to Stephen Jen. Asian exporters and investors may have amassed an ‘extremely large’ pile of dollars through the years, widening the region’s trade surplus with the US, Eurizon SLJ Capital’s Jen and Joana Freire wrote… As a US-led trade war deepens, some Asian investors might repatriate chunks of funds or ramp up levels of protection against a weakening dollar — potentially triggering an exodus from the world’s reserve currency. ‘We suspect these dollar hoardings by Asian exporters and institutional investors may be extremely large – possibly on the order of $2.5 trillion or so – and pose sharp downside risks to the dollar vis-à-vis these Asian currencies,’ Jen and Freire wrote.”
May 6 – Bloomberg (Shuli Ren): “As Asians liquidate their dollar assets and repatriate the proceeds, the unwind can be chaotic. However, that Taiwan’s currency extended its rally despite the central bank’s strenuous effort to calm markets points to something more structural. Wealthy, export-oriented Taiwan, for one thing, is engaged in a massive carry trade. In recent years, the domestic life insurance industry, a big business that is estimated to hold assets equivalent to 140% of gross domestic product, found that it could profitably borrow locally and shovel the proceeds into US dollars. At their peak, insurers were buying more than $50 billion in US assets a year, according to the Financial Times. Life insurance companies invest close to 70% of their money in foreign assets, but 83% of their funding is in the Taiwan dollar, according to Bank of America Merrill Lynch.”
Louis-Vincent Gave’s comment from the above Reuters article resonates: “To me, it has a very sort of Asian-crisis-in-reverse feel to it.” The 1995 Mexican bailout triggered speculative “blow-off” flows that pushed “Asian Tiger” Bubbles to precarious “terminal phase excess”. Currency weakness that quickly escalated into the July 1997 Thai baht dislocation unleashed crisis dynamics, soon to engulf the entire region in most devastating financial and economic crises.
Massive speculative positions accumulated during the enticing boom period. The reversal of flows quickly turned destabilizing. A frantic “hot money” exit soon depleted central bank international reserves. This sparked a panicked exodus from the entire region, with illiquidity, market dislocation, and absolute mayhem.
To what extent the Trillions of Asian (and global) flows over recent years into U.S. financial assets should be considered “hot money” is open to debate. But much was on the assumption of security, liquidity, stability, the rule of law and, generally, “U.S. exceptionalism.” America was viewed as unrivaled for financial, economic, and political stability. Washington – the three equal branches of government, the Federal Reserve, American norms and ideals – was perceived as ensuring enduring stability. Shifts in critical perceptions are integral to the bursting Bubble thesis.
May 8 – Bloomberg (Arjun Neil Alim, Cheng Leng, William Sandlund and Joseph Cotterill): “Asian investors have been rushing to shield themselves from big swings in the US dollar, putting upward pressure on their local currencies and forcing Hong Kong authorities to intervene in the market. Taiwan’s dollar has surged almost 6% against the greenback this month, posting the biggest single-day moves since the 1980s, while Hong Kong’s monetary authority spent the largest weekly amount since 2020 to stop the city state’s currency strengthening beyond a US dollar peg. ‘It is not even once in a decade — it has been a once in a lifetime event. It has been an extraordinary move’ in the Taiwan dollar in particular, said Mark Ledger-Evans, a portfolio manager at… Ninety One. The moves reflected uncertainty over what Chinese manufacturers, Taiwanese insurers and other Asian investors will do with the trillions of dollars of US assets built up due to surging exports to the US. These assets are now hostage to a weakening greenback.”
May 9 – Bloomberg (Chanyaporn Chanjaroen and Diana Li): “Some of Asia’s richest families are cutting exposure to US assets, saying President Donald Trump’s tariffs have made the world’s largest economy much less predictable. One family office managing assets for Chinese billionaires exited its US holdings entirely and will shift the proceeds to Asia. A senior executive at one of Europe’s largest private banks said the scale of the recent selloff from rich clients and institutions around the world is unprecedented over the past three decades and could be the beginning of a more persistent shift. A top bank executive in Asia got rid of 60% of US assets from his own portfolio, saying it’s safer to hold cash and gold. About 10 family offices and advisers to the ultra-rich who oversee billions of dollars told Bloomberg News they’re reducing their exposure or freezing investments, mostly in US equities and Treasuries. They cite rapid policy shifts, uncertainty and the risk of a recession… ‘For the first time, some families are considering partial divestment from US holdings,’ Henry Hau, chief executive officer of Hong-Kong based Infinity Family Office, said… ‘These families weathered the dot-com bubble, the Asian financial crisis, and the 2008 global crisis while maintaining faith in US assets. Now, however, they are exploring reallocating 20%-30% of their US portfolios to China and Europe.’”
It is important to connect the “swaps” market dislocation a few weeks back to this week’s Taiwanese dollar tumult. Tens of Trillions of risk have been (or plan to be) offloaded to derivatives markets. “Swaps” markets are key to hedging both interest-rate and currency risks – of which there are tremendous amounts in today’s dollar and Treasury markets. If Asian holders of Treasuries and other dollar assets move to de-risk, it’s unclear who will “take the other side of the trade.” As enormous amounts of risk are offloaded to the derivatives markets, it’s unclear what buyers will materialize when market weakness forces powerful self-reinforcing derivatives-related selling.
Recent interest-rate “swaps” instability in concert with a spike in Treasury yields was an important “canary.” The unparalleled expansion of Treasury debt over the past 16 years has created untenable risks that cannot be transferred to/hedged in derivatives markets. Faith in the functioning of derivative markets is in jeopardy, creating vulnerability to market illiquidity and dislocation.
Last summer’s (yen) and this week’s (Taiwan dollar) currency market dislocations are “canaries.” A massive currency mismatch, having developed over decades, is increasingly untenable. There’s way too much exchange-rate risk to transfer/hedge in “swaps” and currency derivatives marketplaces. Markets risk illiquidity and dislocation. Is it reasonable that Taiwan’s insurance companies – that have ballooned over recent years – will hold firm with their strategy of accepting U.S. dollar risk against insurance policies denominated in their local currency? A suspect strategy has finally turned problematic. Gradually, then suddenly. The first of many.
Acute market instability forced the administration’s hand. There was the tariff pause, along with Powell’s stay of execution. The President is seen as retreating from his aggressive tariff intentions to placate fragile markets. A steady drumbeat of positive headlines has buoyed market sentiment, including this week’s U.S./UK trade deal. Prospects of U.S. and Chinese officials entering negotiations and ending the current virtual trade embargo provided hope for a thaw in relations.
Vulnerable markets have coaxed a bout of best behavior. But I doubt the President is ready to negotiate away his lofty tariff aspirations. For now, it’s in both parties’ interests to present a constructive beginning to such important talks. Today’s exorbitant tariffs will be significantly reduced – and I assume cargo ships will be loaded up to begin their voyages across the mighty Pacific. Both sides will smile, partake in niceties, and offer hopeful headlines, while gearing up for protracted bare-knuckles hardball tactics. And this fraught relationship, with momentous ramifications, is integral to the burst Bubble thesis. Whether U.S./China trade restarts soon will likely not meaningfully impact the momentous upheaval unfolding with the post-WWII world order.
May 7 – Financial Times (Joe Leahy and Max Seddon): “Xi Jinping has drawn a parallel between modern-day US ‘hegemony’ and the ‘arrogant fascist forces’ of 80 years ago, ahead of Thursday’s Moscow summit with Vladimir Putin and second world war Victory Day celebrations. The Chinese and Russian presidents are using the meeting to signal the strength of their alliance against the US-led international order, as President Donald Trump unleashes tariffs on Beijing and tries to push Moscow towards a peace deal with Ukraine. Putin hailed Xi as his ‘dear friend’… the summit… got under way. Putin added that he would visit China this year for celebrations marking the anniversary of Japan’s defeat in the second world war. Xi added that China and Russia would work together to ‘decisively defend the interests and rights of our states and all developing countries… form an equal, balanced multi-polar world and inclusive, accessible economic globalisation’.”
Xi Jinping has serious domestic considerations. He needs to keep his massive manufacturing apparatus in constant motion. And I doubt Beijing is comfortable with the prospect of a strengthening currency. But Xi surely recognizes today’s extraordinary U.S. vulnerabilities and the strategic opportunity that a crisis of confidence in the dollar and American markets present.
Unlike other countries, the U.S. doesn’t have international reserves to use for timely currency interventions. But who needs reserves when you have QE? This is where the analysis turns “interesting.”
Inflation is already elevated, with high tariffs in the offing. The Fed is poised to be slow and likely stingy with the next round of market liquidity assistance. But a problematic scenario seems to have evolved from a remote to a real possibility: Would a disorderly dollar decline restrain the Fed’s QE crisis response? And how might the Treasury market respond to a faltering dollar coupled with an inhibited Federal Reserve (less appetite for huge Treasury purchase programs)? Or, how might the dollar and Treasury market respond to aggressive QE with both under pressure?
Might aggressive QE just work to create additional liquidity intent on exiting dollar assets – the dynamic that precludes EM central banks from QE crisis responses? Things could turn sour with a faltering dollar, a tariffs and weak currency-induced upside inflation surprise, surging Treasury yields, and all the de-risking/deleveraging that such a scenario would unleash.
Seeing all the ingredients for an evolving crisis of confidence, there’s little to justify a retreat from the bursting Bubble thesis. This historic Bubble was fueled by unprecedented Credit inflation at the foundation – the “core” – of global finance. To that end, highly destabilizing crises erupt when perceptions of safety and liquidity suddenly shift to fear and then panic. Latent fragility lives dormant in the realm of perceived money-like debt instruments. If international confidence in the dollar has waned and speculative flows have reversed, the highly levered Treasury market is increasingly vulnerable. History informs us that faith in “money” is all-powerful – until it isn’t. Gold jumped $84 this week to $3,325.
For the Week:
The S&P500 dipped 0.5% (down 3.8% y-t-d), and the Dow slipped 0.2% (down 3.0%). The Utilities gained 0.8% (up 7.5%).The Banks rose 0.9% (down 3.5%), and the Broker/Dealers jumped 2.9% (up 8.9%). The Transports declined 0.3% (down 11.7%). The S&P 400 Midcaps increased 0.5% (down 5.6%), while the small cap Russell 2000 was little changed (down 9.3%). The Nasdaq100 slipped 0.2% (down 4.5%). The Semiconductors advanced 1.6% (down 10.3%). The Biotechs sank 6.8% (down 7.7%). With bullion rallying $84, the HUI gold index surged 6.2% (up 45.2%).
Three-month Treasury bill rates ended the week at 4.2175%. Two-year government yields rose seven bps to 3.89% (down 35bps y-t-d). Five-year T-note yields gained eight bps to 4.00% (down 38bps). Ten-year Treasury yields rose seven bps to 4.39% (down 19bps). Long bond yields added four bps to 4.84% (up 5bps). Benchmark Fannie Mae MBS yields increased two bps to 5.71% (down 14bps).
Italian 10-year yields declined three bps to 3.61% (up 9bps y-t-d). Greek 10-year yields were unchanged at 3.36% (up 14bps). Spain’s 10-year yields added two bps to 3.21% (up 15bps). German bund yields gained three bps 2.56% (up 20bps). French yields increased two bps to 3.27% (up 7bps). The French to German 10-year bond spread was little changed at 71 bps. U.K. 10-year gilt yields rose six bps to 4.57% (unchanged). U.K.’s FTSE equities index declined 0.5% (up 4.7% y-t-d).
Japan’s Nikkei 225 Equities Index gained 1.8% (down 6.0% y-t-d). Japanese 10-year “JGB” yields jumped 11 bps to 1.37% (up 27bps y-t-d). France’s CAC40 slipped 0.3% (up 4.9%). The German DAX equities index jumped 1.8% (up 18.0%). Spain’s IBEX 35 equities index increased 0.8% (up 16.9%). Italy’s FTSE MIB index surged 2.7% (up 15.2%). EM equities were mostly higher. Brazil’s Bovespa index gained 1.0% (up 13.5%), and Mexico’s Bolsa index increased 1.4% (up 14.3%). South Korea’s Kospi added 0.7% (up 7.4%). India’s Sensex equities index fell 1.3% (up 1.2%). China’s Shanghai Exchange Index rallied 1.9% (down 0.3%). Turkey’s Borsa Istanbul National 100 index rose 2.4% (down 4.5%).
Federal Reserve Credit declined $4.0 billion last week to $6.663 TN. Fed Credit was down $2.238 TN from the June 22, 2022, peak. Over the past 295 weeks, Fed Credit expanded $2.936 TN, or 79%. Fed Credit inflated $3.852 TN, or 137%, over the past 652 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt dropped $7.5 billion last week to a three-month low $3.268 TN. “Custody holdings” were down $88.4 billion y-o-y, or 2.6%.
Total money market fund assets rose $37.6 billion to $6.946 TN. Money funds were up $812 billion over 41 weeks (16.8% annualized) and $945 billion y-o-y (15.7%).
Total Commercial Paper was little changed at a 16-year high $1.403 TN. CP has expanded $315 billion y-t-d and $74 billion, or 5.5%, y-o-y.
Freddie Mac 30-year fixed mortgage rates were unchanged this week at 6.76% (down 33bps y-o-y). Fifteen-year rates dipped three bps to 5.89% (down 49bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up one basis point to 6.92% (down 50bps).
Currency Watch:
For the week, the U.S. Dollar Index increased 0.3% to 100.34 (down 7.5% y-t-d). For the week on the upside, the South African rand increased 1.1%, the Mexican peso 0.7%, the Norwegian krone 0.5%, the British pound 0.3%, the South Korean won 0.2%, the Singapore dollar 0.1%, and the Brazilian real 0.1%. On the downside, the Canadian dollar declined 0.9%, the New Zealand dollar 0.6%, the Swedish krona 0.6%, the Swiss franc 0.5%, the Euro 0.4%, the Australian dollar 0.3%, and the Japanese yen 0.3%. The Chinese (onshore) renminbi increased 0.46% versus the dollar (up 0.84 y-t-d).
Commodities Watch:
May 7 – Bloomberg (Yihui Xie): “China expanded its gold reserves for a sixth straight month in April, underlining its push to boost holdings of the precious metal as prices trade near a record and the trade war rumbles on. Bullion held by the People’s Bank of China rose by about 70,000 troy ounces last month… In the latest six-month span, volumes have climbed by close to 1 million ounces, or about 30 tons.”
May 3 – New York Times (Stanley Reed): “Oil prices are falling. Economists are cutting forecasts for global economic growth. Oil giants are reporting lower profits. But on Saturday, eight countries that belong to the oil cartel known as OPEC Plus said they would add about 411,000 barrels of oil a day in June. The move, which follows a similar step… at their April meeting, is a major shift in policy that will ripple through the wider energy industry, hitting profits of oil companies and forcing cutbacks. The group said… the market was ‘healthy’ and noted that oil inventories remained low. Saudi Arabia, the de facto leader of OPEC Plus, is signaling that it is reluctant to hold back millions of barrels a day of oil that it could produce, especially when other members of the group, like Kazakhstan and Iraq, are not observing their agreed-upon production ceilings.”
The Bloomberg Commodities Index gained 1.3% (up 4.1% y-t-d). Spot Gold rallied 2.6% to $3,325 (up 26.7%). Silver recovered 2.2% to $32.7242 (up 13.2%). WTI crude rallied $2.73, or 4.7%, to $61.02 (down 15%). Gasoline surged 4.4% (up 4%), and Natural Gas jumped 4.5% to $3.795 (up 5%). Copper slipped 0.4% (up 16%). Wheat dropped 4.0% (down 8%), and Corn fell 4.3% (down 4%). Bitcoin surged $6,650, or 6.6%, to $103,170 (up 10.1%).
Market Instability Watch:
May 5 – Bloomberg (Betty Hou and Ruth Carson): “Taiwan’s dollar surged the most since 1988 as traders speculated that authorities might allow it to appreciate to help reach a trade deal with the US. The local dollar rose as much as 5% on Monday. In an emergency press briefing late Monday, Taiwan’s central bank sought to quell speculation about the currency’s surge, saying that the wild, two-day appreciation was partially attributable to market chatter and urged against irresponsible speculation… ‘Local exporters are panicking, and local lifers are under-hedged, while equity-related outflows have ceased,’ said Ju Wang, head of Greater China foreign-exchange and rates at BNP Paribas SA in Hong Kong. ‘The central bank remains the only buyer but has not been aggressively supporting the market, fueling speculation that currency valuation is part of the trade talks.’”
May 6 – Bloomberg (Chien-Hua Wan, Ruth Carson, and Betty Hou): “Two Taiwanese life insurers are taking opposite approaches to foreign-exchange hedging after a surge in the island’s currency put hundreds of billions of dollars of their US bond holdings under scrutiny. Fubon Life Insurance Co. has ‘enhanced’ hedging as the biggest one-day surge in the currency since the 1980s threatened to erode the US dollar-denominated assets of Taiwanese companies. Taishin Life Insurance Co. said the rising costs of such protection has stayed its hands from adding more… Bank of America strategist Chun Him Cheung wrote in a note to clients… ‘Either way, the past business model has now shown itself to be unsustainable.’”
May 5 – Bloomberg (Ruth Carson, Mark Cranfield, and Betty Hou): “A Taiwan-dollar derivative that’s popular with the island’s largest life insurers is pointing to further gains for the currency, even after a surge of as much as 5% Monday to a three-year high. The spread between the spot rate and one-year non-deliverable forwards on the Taiwan dollar-US dollar currency pair swelled to around 3,000 pips at one point on Monday, the widest level in at least two decades… The divergence is the latest sign of seemingly insatiable demand for the Taiwan dollar driven by speculation the authorities will allow it to appreciate to help advance trade talks with this US. That sentiment helped the local dollar post the biggest gain since 1988 on Monday. The rally also bolstered regional currencies including the Malaysian ringgit and Chinese yuan.”
May 6 – Bloomberg (John Cheng): “Taiwanese investors are fast pulling money out of local exchange-traded US bond funds, reversing an earlier trend that made them the biggest buyer group of such products in Asia. Yuanta US Treasury 20+ Year Bond ETF, the largest Taiwan-domiciled US fixed income exchange-traded fund, has seen outflows totaling NT$46.9 billion ($1.6 billion) in the first four months this year after strong inflows last year.”
May 5 – Bloomberg (Alexandra Harris): “Short-term debt issued by corporations surged in April as companies sought to bolster their liquidity in the wake of economic uncertainty wrought by the Trump Administration’s tariff policies, according to strategists at JPMorgan… Issuance of non-financial commercial paper swelled by $100 billion last month, which is above the monthly average of $27 billion seen from 2019 to 2024… At its peak, the gap between the highest-rated paper — known as Tier 1 — and T-bills stood at the widest level since August 2022. The spread to less credit-worthy paper — known as Tier 2 — reached its widest level since June 2023.”
May 7 – Bloomberg (Rachel Graf and Jeannine Amodeo): “As credit markets thaw and mergers pick back up, Wall Street bankers will get a chance to pitch to investors the nearly $6 billion in buyout-related debt they couldn’t sell during April’s trade turmoil. More than two dozen banks were stuck with acquisition financing left on their books after failing to find buyers before deals closed… The handful of junk deals announced over the past week will be a key test of investor appetite… At the same time, banks are underwriting new deals, including a $6.5 billion financing package for private equity firm 3G Capital’s purchase of Skechers.”
May 7 – Bloomberg (Nicholas Comfort): “Germany’s financial regulator will scrutinize potential dollar liquidity shortfalls at the country’s top banks after turmoil in the US Treasury market rattled global finance. BaFin ‘will be taking a closer look’ at currency mismatches at larger German banks, said Mark Branson… While the financial system weathered recent volatility, ‘there is still considerable potential for setbacks on the markets,’ he said. The haven status of US debt was called into question last month after US President Donald Trump unleashed a barrage of tariffs… ‘We supervisors need to ask ourselves what the dependencies are and what would happen if certain things didn’t work like in the past, either because of market movements or institutional changes,’ Branson told reporters…”
May 3 – Financial Times (Toby Nangle): “Canadian and Danish pension funds have been backing away from new US private equity allocations. And Chinese sovereign wealth funds have turned off their money tap to the industry more comprehensively. But even investors in countries that haven’t been threatened with annexation or been made subject to eye-watering tariffs should reassess their exposures to private equity. Critics have long caricatured American private equity as an outsized manager remuneration scheme attached to a basket of leveraged small cap stocks. This is not completely fair. But a combination of elevated borrowing costs, lofty US public stock valuations and a softer economic outlook all make for a hostile investment landscape and point to weaker returns. Moreover, the steep uptick in US policy uncertainty that has accompanied the first 100 days of Donald Trump’s second presidential term creates profound challenges for investors.”
Global Credit and Financial Bubble Watch:
May 7 – Bloomberg (Ted Mann, Shawn Donnan, and Nazmul Ahasan): “In city halls and state capitols across the US, officials are readying for President Donald Trump and Elon Musk’s aggressive cost-cutting campaign to land on their doorsteps. State and local governments… rely on federal dollars for the infrastructure investments, social programs and other projects that undergird their economies. Now, a wide swath of the $1 trillion in annual grants they receive from the federal government is under threat, creating deep uncertainty just as Trump’s trade war has raised fears of a punishing recession.”
May 7 – Bloomberg (Ethan M Steinberg): “UBS… lowered its forecast for US corporate debt issuance this year, citing volatility tied to President Donald Trump’s tariff rollout and a slower-than-expected pace of dealmaking. The bank’s research arm cut its estimate for blue-chip debt sales by $100 billion to $1.4 trillion… It now sees $250 billion of junk-bond issuance, down from $310 billion prior, and $400 billion in leveraged loan sales, versus $475 billion previously.”
May 5 – Bloomberg (Amanda Albright): “The Massachusetts Institute of Technology is the latest elite college to borrow money from the bond market as universities contend with threats to federal funding under President Donald Trump’s administration. MIT is joining Harvard, Stanford and Princeton in selling taxable bonds… Taxable bonds are often quicker to sell compared to tax-exempt bonds, which have restrictions on what the proceeds can be used for… The flurry of debt sales come as the Trump administration has frozen federal funding for universities including Harvard, Northwestern and Cornell.”
Trump Administration Watch:
May 9 – Bloomberg (Shawn Donnan): “The Trump administration is weighing a dramatic tariff reduction during weekend talks with China to de-escalate tensions and temper the economic pain both are already starting to feel. People familiar with preparations for the talks… say the US side has set a target of reducing tariffs below 60% as a first step that they feel China may be prepared to match. Progress in two days of scheduled discussions could see those cuts being implemented as soon as next week, they said.”
May 6 – Bloomberg (Josh Wingrove and Laura Dhillon Kane): “US President Donald Trump said he would prescribe tariff levels and trade concessions for partners looking to avoid higher duties, appearing to move away from the idea that he would engage in back-and-forth negotiations. ‘We’re going to put very fair numbers down, and we’re going to say, here’s — what this country, what we want. And congratulations, we have a deal. And they’ll either say ‘great,’ and they’ll start shopping, or they’ll say, ‘not good,’’ Trump said… ‘It’s going to be a very fair number, it’ll be a low number. We’re not looking to hurt countries,’ he added.”
May 5 – Associated Press (David McHugh, Christopher Rugaber and Yuri Kageyama): “The Trump administration says the sweeping tariffs it unveiled April 2, then postponed for 90 days, have a simple goal: Force other countries to drop their trade barriers to U.S. goods. Yet President Donald Trump’s definition of trade barriers includes a slew of issues well beyond the tariffs other countries impose on the U.S., including some areas not normally associated with trade disputes. Those include agricultural safety requirements, tax systems, currency exchange rates, product standards, legal requirements, and red tape at the border. He’s given countries three months to come up with concessions before tariffs ranging from 10% to more than 50% go into effect… On many issues it will be difficult, or in some cases impossible, for many countries to make a deal and lower their tariff rates.”
May 4 – Axios (Courtenay Brown): “President Trump said Sunday he would need to keep at least some tariffs on foreign goods in place to convince businesses to move production to the U.S. It suggests that the historic levies on nearly all goods coming into America would remain in some form — even as the White House says it intends to strike trade deals with a slew of nations, including China. Such a development would be a huge blow for the economy. It can take years for companies to re-shore manufacturing — and doing so would likely result in higher costs for businesses and consumers. Trump told NBC… he would not rule out the possibility that the tariffs announced in recent weeks might stick. ‘No, I wouldn’t do that because if somebody thought they were going to come off the table, why would they build in the United States?’”
May 7 – Bloomberg (Daniel Flatley): “Treasury Secretary Scott Bessent said he’s working with US legislators on outbound investment rules for China that would make clear what’s allowed and what’s not. ‘We talked about the importance of establishing a either red light or green light, and not having a yellow zone, for outbound investment,’ Bessent said…, referring to a discussion with two House representatives. ‘The outbound investment security program is an important national security tool in our effort to restrict the PRC from exploiting the benefits of US investment,’ he said… The topic of potential restrictions on American capital heading to China also came up in a separate House hearing Tuesday…”
May 5 – Reuters (David Lawder): “U.S. Treasury Secretary Scott Bessent… said President Donald Trump’s tariff, tax-cut and deregulation agenda would work together to drive long-term investment to the U.S. economy, adding that U.S. financial markets were ‘anti-fragile’ and would weather any short-term turbulence… ‘The primary components of the Trump economic agenda – trade, tax cuts, and deregulation – are not standalone policies. They are interlocking parts of an engine designed to drive long-term investment in the American economy,’ Bessent said.”
May 5 – Bloomberg (Daniel Flatley): “Treasury Secretary Scott Bessent touted the US as the ‘premier destination’ for global capital and argued that the Trump administration’s policies will solidify that position — countering the so-called sell America theme that materialized last month. ‘The United States is the premier destination for international capital,’ Bessent said… President Donald Trump’s trade, tax and deregulation agenda ‘push toward the same goal — to solidify our position as the home of global capital.’”
May 5 – Yahoo Finance (Brian Sozzi): “US Treasury Secretary Scott Bessent is making his pitch to nervous international investors. ‘We have uprooted government waste and harmful regulations. We have planted the seeds of private investment. And we have fertilized the ground with fresh tax legislation. Next, we harvest. And we want you to harvest with us,’ Treasury Secretary Scott Bessent said…”
May 6 – Axios (Zachary Basu): “President Trump’s grand economic vision relies on a simple tradeoff: that Americans will accept short-term personal sacrifice — higher prices, fewer options, slimmer profits — in service of long-term national strength. Trump is breaking sharply from free-market orthodoxy in his second term, blending bursts of anti-capitalism with a top-down, nationalist agenda for American dominance. Critics on the left and right warn of an emerging ‘MAGA Maoism’ — a movement that demands ideological purity, glorifies economic sacrifice, and embraces state power as a means to reshape society. Trump’s strongman instincts — and his deep skepticism of cultural elites and bureaucrats — have only intensified the provocative comparisons to China’s revolutionary leader. ‘MAGA Maoism is spreading through the populist right,’ former congressional speechwriter Rotimi Adeoye wrote…”
May 7 – Financial Times (Richard Milne): “Denmark has called in the US ambassador over a report that Washington is stepping up its espionage of politicians in Greenland and Copenhagen. Lars Løkke Rasmussen, Danish foreign minister, said… he had read the article in the Wall Street Journal with ‘deep concern’ as one did not spy on ‘friends’ and that he had contacted the US envoy to convey Copenhagen’s disquiet over the reported spying activity.”
China Trade War Watch:
May 7 – AFP: “Chinese President Xi Jinping on Thursday said Beijing would stand with Moscow in the face of ‘hegemonic bullying’ as he met Russian counterpart Vladimir Putin at the Kremlin. ‘In the face of the international counter-current of unilateralism and hegemonic bullying behaviour, China will work with Russia to shoulder the special responsibilities of major world powers,’ Xi told Putin.”
May 8 – Bloomberg (Felix Tam): “US should stop making threats and exerting pressure, and engage in talks with China on the basis of equality, mutual respect and benefit, according to a statement from the China’s Embassy in the United States. ‘China will never accept a situation where the US says one thing but does another, nor will China seek any agreement at the cost of principles or international fairness and justice,’ it adds. Says China’s position to firmly oppose the US abuse of tariffs is consistent. China will resolutely safeguard its legitimate rights and Interests. The talks are being held at the request of the US side, the embassy spokesperson says.”
May 3 – Financial Times (Annmarie Hordern): “US President Donald Trump said he believed trade negotiations launching this weekend with China would result in tangible progress, predicting Beijing would be willing to make concessions and saying he could consider cutting punishing tariffs against the country if there was significant momentum. ‘I think it’s going to be substantive,’ Trump told reporters…”
May 6 – Bloomberg (Lucia Kassai): “China halted purchases of US crude in March as trade tensions between the two countries ramped up, casting a shadow over demand for oil produced from American shale formations. The lack of such purchases by the world’s largest oil buyer compares with imports of 149,000 barrels of American crude a day in February… China’s vanishing appetite for US crude is bad news for shale producers, which already are warning that American production is set to decline amid a prolonged period of low oil prices…”
May 6 – Bloomberg: “China’s President Xi Jinping has called on European Union leaders to stand with it against unilateralism, in a veiled rebuke to US President Donald Trump’s efforts to upend the global world order. In a message to European Commission President Ursula von der Leyen and European Council President Antonio Costa on the 50th anniversary of the establishment of EU-China ties, Xi said the two sides need to ‘properly manage’ differences and deepen strategic communication. ‘China and the EU should uphold multilateralism, defend fairness and justice, oppose unilateral bullying,’ state media Xinhua cited Xi as saying… The two sides ‘should work together to address global challenges, and jointly promote an equitable and orderly multipolar world and an inclusive economic globalization,’ he added. Xi’s outreach is the latest sign of Beijing’s willingness to improve relations with Brussels…”
May 5 – Financial Times (Joe Leahy): “After China unilaterally dropped sanctions on several members of the European parliament last week, the government was very clear that it has not merely decided to play nice. Beijing insisted that the expected price for removing the sanctions… ‘Our joint effort… to uphold the multilateral trading system and promote trade liberalization… will bring much-needed stability and certainty to the world economy,’ said Guo Jiakun, China’s foreign ministry spokesperson. Beijing’s attempt at rapprochement with the EU is just one part of a frenzied global charm offensive that China has embarked on since US President Donald Trump unveiled his ‘liberation day’ tariffs on April 2.”
May 4 – Financial Times (William Langley, Rafe Uddin and Song Jung-a): “Chinese exporters are stepping up efforts to avoid tariffs imposed by US President Donald Trump by shipping their goods via third countries to conceal their true origin. Chinese social media platforms are awash with adverts offering ‘place-of-origin washing’, while an inflow of goods from China has raised alarm in neighbouring countries wary of becoming staging posts for trade actually destined for the US.”
May 5 – CBS (Megan Cerullo): “Temu, a low-cost retailer based in China, has overhauled its business model by halting shipments of Chinese-made goods to customers in the U.S. The move follows the May 2 expiration of the so-called de minimis exemption from tariffs for low-value parcels sent to the U.S. from abroad. The Trump administration’s move earlier this year to close the loophole means that Temu’s products sourced from China face sky-high tariffs, undermining the e-commerce platform’s appeal to U.S. consumers.”
Trade War Watch:
May 9 – Bloomberg (Justin Sink): “Commerce Secretary Howard Lutnick said that trade deals with South Korea and Japan could take significantly more time to complete than the framework agreement President Donald Trump announced Thursday with the UK… ‘You’ve got to spend an enormous amount of time with Japan, South Korea. These are not going to be fast deals,’ Lutnick said… Lutnick added that India has been ‘leaning in really hard’ and the country was ‘certainly’ a possibility to be among the next countries to reach an agreement. But, he cautioned, ‘this is a lot of work.’ ‘When you talk about India, it’s probably 7,000 lines’ of tariffs to be changed or modified under a hypothetical agreement, Lutnick said. ‘It just takes time, and it just takes work — so give us a chance, don’t be pushing and rushing.’”
May 4 – Wall Street Journal (Jeanne Whalen and Bob Tita): “Some small and midsize U.S. manufacturers are seeing an uptick in orders from companies looking to avoid paying new tariffs, stoking hope that the levies might boost their businesses over the longer-term. Trump’s tariffs have disrupted global trade… Yet those same new rules are making these manufacturers’ goods more price competitive with imports for the first time in years, they say. ‘We are swamped. We are running 24 hours a day, seven days a week in both Chicago and Cleveland,’ said Jack Schron, president of Jergens Inc., which makes manufacturing tools, including industrial screwdrivers, clamps and hoists.”
May 5 – Financial Times (Gideon Rachman): “Like Donald Trump, the EU prides itself on its mastery of the art of the deal. The trademark Brussels event is a summit that ends at three in the morning, with weary negotiators emerging with a complex new accord. The EU’s way of dealmaking is almost the precise opposite of the White House style. The US president is impulsive, fast-moving, makes extreme demands and is willing to break all the rules. The Europeans are legalistic, methodical and constantly looking for compromises and trade-offs. The Trump style is flashier and makes for better headlines. The EU’s is deadly dull but much more effective. The question of which kind of dealmaking… works better is more than a matter of pride. The future of the world economy could hang on it. Both the EU and the US are currently trying to come up with new trade deals. They also urgently need to settle their own differences before early July…”
May 7 – Bloomberg (Jorge Valero and Alberto Nardelli): “The European Union is planning to hit €95 billion ($108bn) of US exports with additional tariffs if ongoing trade talks with President Donald Trump’s team fail to yield a satisfactory result. The proposed retaliatory measures would especially target industrial goods including Boeing Co. aircraft, US-made cars and bourbon… The new proposal will be the subject of consultations with member states and other stakeholders through June 10 and could change before it’s finalized.”
May 5 – New York Times (Liz Alderman): “For motorcycle lovers in Sweden, Harley-Davidson is the hottest brand on the road. Jack Daniel’s whiskey beckons from the bar at British pubs. In France, Levi’s jeans are all about chic. But in the tumult of President Trump’s trade war with Europe, many European consumers are starting to avoid U.S. products and services in what appears to be a decisive and potentially long-term shift away from buying American, according to a new assessment by the European Central Bank… ‘The newly imposed U.S. trade tariffs on European products are causing European consumers to think twice about what’s in their shopping cart,’ the European Central Bank wrote… ‘Consumers are very willing to actively move away from U.S. products and services.’”
May 5 – Bloomberg (Alicia Clanton): “California warned that a plunge in international travel is set to hit tourism revenue after record spending from visitors last year. The most populous US state predicts that international visits could decline by over 9% this year due to negative global sentiment about President Donald Trump’s policies, according to… Visit California… Already, California saw a sharp year-over-year tourism decline in March… In 2024, tourists spent $157.3 billion at California businesses…”
May 7 – Financial Times (Michael Acton, Demetri Sevastopulo and James Politi): “The US intends to scrap a rule put in place by the Biden administration that aimed to limit exports of artificial intelligence chips and threatened to weigh on the sales of semiconductor groups such as Nvidia and AMD. A US official said… the planned regulation, which was due to take effect on May 15, was full of red tape that made it ‘unenforceable’. Instead, the Trump administration intends to overhaul the rule.”
May 5 – Associated Press (Jill Colvin and Jake Coyle): “President Donald Trump is opening a new salvo in his tariff war, targeting films made outside the U.S… Trump said he has authorized the Department of Commerce and the Office of the U.S. Trade Representative to slap a 100% tariff ‘on any and all Movies coming into our Country that are produced in Foreign Lands.’ ‘The Movie Industry in America is DYING a very fast death,’ he wrote… ‘This is a concerted effort by other Nations and, therefore, a National Security threat. It is, in addition to everything else, messaging and propaganda!’”
Budget Watch:
May 5 – Axios (Kana Inagaki, Peter Foster and Chan Ho-him): “The White House is signaling to GOP lawmakers that President Trump’s massive tax package isn’t an a la carte menu: It’s a prix fixe meal. While officials want the ‘one big, beautiful bill’ to include all of Trump’s tax priorities… The plan is to use the threat of tax increases for all Americans to convince Congress to pass all of their tax proposals… The White House reminded key lawmakers of the president’s tax priorities last week… That includes making Trump’s 2017 Tax Cut and Jobs Act permanent, as well as… no taxes on tips, Social Security payments and overtime. He also wants to include a trio of business-friendly tax cuts that surprised many Republicans when Treasury Secretary Scott Bessent called for them last week. That includes deductibility for auto loans for American-made cars and motorcycles, full expensing for new factories and a 15% corporate rate for corporations and pass-throughs that manufacture goods domestically.”
May 7 – Axios (Hans Nichols, Justin Green, Stef W. Kight): “House Speaker Mike Johnson is choosing his words very carefully, as he attempts to bridge the vast differences in his party over the ‘one big, beautiful bill.’ ‘I said ‘likely’ for a reason because it’s not a final decision,’ Johnson said… Four weeks after they agreed to the bill’s framework, House Republicans appear more interested in making demands than making deals. On multiple fronts, small but dug-in pockets of lawmakers are ready to tank the entire bill if Johnson can’t get everyone else to cave. Medicaid benefits: Moderates are rebelling against per-capita spending caps, as well as shifting some of the cost burden to the states. State and local tax deduction (SALT): Lawmakers are making slow progress at best on raising the cap above $10,000 a year. Some conservatives think it should be $0. Spending cuts: 32 House conservatives warned again… they’ll vote no without at least $2 trillion in cuts. The biggest target is Medicaid.”
May 5 – Bloomberg (Jarrell Dillard, Romaine Bostick, and Carol A Massar): “The head of the nonpartisan Congressional Budget Office said the US Treasury Department can likely keep paying the government’s bills until late summer before Congress must act to raise or suspend the debt ceiling. CBO Director Phillip Swagel said federal revenues appear to be tracking earlier projections… ‘We still have it as late in the summer — into August, into September,’ Swagel said…”
May 6 – Bloomberg (Erik Wasson): “The chairman of the House tax committee warned lawmakers from high-tax states demanding relief from a $10,000 cap on the state and local deduction that they will have to settle for an ‘unhappy’ compromise. House Ways and Means Committee Chairman Jason Smith said… he will strike a balance between those who want no limit on the SALT deduction and those who want no write-off at all. ‘The number we’ll find will probably make everyone unhappy,’ Smith, a Missouri Republican, said. ‘And so that means it’s probably the right number.’”
May 5 – Bloomberg (Anthony Capaccio): “The US may need to spend up to $542 billion over 20 years to develop and launch a network of space-based interceptors, the Congressional Budget Office said, putting a rough cost estimate on an unproven part of President Donald Trump’s proposed ‘Golden Dome’ defense system.”
New World Order Watch:
May 7 – Politico (Clea Caulcutt and Nette Nostlinger): “French President Emmanuel Macron and newly minted German Chancellor Friedrich Merz presented a shared vision for a well-armed and business-friendly Europe during their first formal meeting as peers… Fewer than 24 hours after formally becoming Germany’s new leader, Merz traveled to Paris to meet with Macron at the Elysée Palace on how the so-called Franco-German engine can help the European Union confront the myriad issues facing the bloc, including American retrenchment and the need for increased defense spending; supporting Ukraine in the war against Russia; and boosting European competitiveness. ‘We want to answer together the challenges that Europe faces,’ Macron said.”
May 8 – Financial Times (Laura Pitel): “Donald Trump’s ‘breach of values’ that have underpinned nearly a century of peace on the European continent represent an ‘epochal break’, Germany’s president has warned in a speech marking the 80 anniversary of the end of the second world war. Frank-Walter Steinmeier said the international community had responded to the horrors of the Holocaust by introducing rules to stem nationalism, promote co-operation and create a world order underpinned by international law. ‘All of this was never perfect, never undisputed,’ he told the Bundestag… ‘But the fact that the United States, which significantly shaped this order, is now turning away from it is a shock of an entirely new magnitude.’”
May 5 – Bloomberg (Samy Adghirni): “French President Emmanuel Macron made a plea to US-based researchers who have been affected by Donald Trump’s policies to choose Europe. ‘If you love freedom, come and do research here,’ Macron said… ‘No one could have thought that this great democracy, whose economic model relies so heavily on free science, innovation, and its ability over the past three decades to innovate more than the Europeans and to spread this innovation more widely, would make such a mistake.’ European Commission President Ursula von der Leyen… put forward a new $567 million incentives package for 2025-2027 aimed at making Europe a ‘magnet for researchers.’”
May 8 – Bloomberg (Greg Sullivan and Henry Meyer): “Taiwan President Lai Ching-te warned that Taiwan and Europe are under threat from new totalitarian powers in a speech aimed at underscoring Taipei’s alignment with the West amid growing threats from China. In a speech to commemorate the 80th anniversary of the Allied victory in the Second World War, Lai highlighted how both Taiwan and Europe are facing election interference, disruptions of their communications infrastructure and grey-zone tactics aimed at challenging established international norms and free markets… ‘History tells us that no matter what the reason or ideology, using military force to invade other countries is an unjust crime and is bound to fail… Those who unite to defend their homeland and partners of freedom and democracy will ultimately win.’ ‘Taiwan and Europe are now confronting a new totalitarian threat,’ he added.”
U.S./Russia/China/Europe/Iran Watch:
May 8 – Bloomberg (Greg Sullivan and Henry Meyer): “Russian President Vladimir Putin and his Chinese counterpart Xi Jinping held bilateral meetings in Moscow, emphasizing the alliance between their countries as they seek to upend the US-led world order. ‘Both countries are conducting an independent and autonomous foreign policy, and are interested in forming a more just and democratic, multipolar world order,’ Putin said during joint statements with Xi… China and Russia will continue to cooperate ‘and eliminate external interference,’ Xi said.”
May 8 – Reuters (Dmitry Antonov): “Chinese President Xi Jinping told Russia’s Vladimir Putin… their two countries should be ‘friends of steel’, as they pledged to raise cooperation to a new level and ‘decisively’ counter the influence of the United States. At talks in the Kremlin, the two leaders cast themselves as defenders of a new world order no longer dominated by the U.S. In a lengthy joint statement, they said they would deepen relations in all areas, including military ties, and ‘strengthen coordination in order to decisively counter Washington’s course of ‘dual containment’ of Russia and China’.”
Canada Friend and Ally Watch:
May 6 – Financial Times (Ilya Gridneff and James Politi): “Canadian Prime Minister Mark Carney told Donald Trump that his country was ‘not for sale’ as he rejected the US president’s push to make Canada the 51st US state during a meeting at the White House… ‘As you know from real estate, there are some places that are never for sale,’ Carney told Trump… ‘Having met with the owners of Canada over the course of the campaign… it’s not for sale. It won’t be for sale, ever.’ But in a sign that tensions are likely to persist between Washington and Ottawa, Trump responded by saying: ‘Never say never.’ ‘I’ve had many, many things that were not doable, and they ended up being doable, and only doable in a very friendly way,’ Trump said, adding: ‘Over time, we’ll see what happens.’”
May 6 – Bloomberg (Randy Thanthong-Knight): “Canadian exports to the US tumbled while shipments to other countries soared, underscoring the way tariffs are altering trade flows… The Trump administration’s duties on Canadian steel, aluminum, autos and other products, as well as Canada’s retaliatory levies on a range of American goods, led to a large pullback in activity between Canada and its largest trading partner in March. Canadian exports to the US plunged 6.6%, the biggest drop since the Covid-19 pandemic, while imports fell 2.9%… Exports to countries other than the US jumped 24.8%, however, almost entirely offsetting the decline in outbound shipments to Canada’s southern neighbor.”
Ukraine War Watch:
May 4 – Politico (Mari Eccles): “Russian President Vladimir Putin said Moscow has the ‘strength and means’ to bring its unprovoked war on Ukraine to a ‘logical conclusion.’ His comments… come as international efforts toward halting the hostilities in Ukraine have met with limited success, more than three years after Putin launched his full-scale invasion. ‘We have enough strength and means to bring what was started in 2022 to a logical conclusion with the outcome Russia requires,’ Putin said…”
May 6 – Reuters (Christian Lowe, Yuliia Dysa and Lidia Kelly): “A Ukrainian drone attack forced Moscow to close its airports for several hours, Russian officials said on Tuesday, before President Vladimir Putin will host several leaders to celebrate the 80th anniversary of the defeat of Nazi Germany. With Chinese President Xi Jinping expected to arrive in Moscow on Wednesday for a parade on May 9 to mark the anniversary, Russian war bloggers also reported a new Ukrainian armoured ground incursion into the Kursk region.”
May 7 – Wall Street Journal (Matthew Luxmoore and Jane Lytvynenko): “Ukraine and Russia stepped up strikes ahead of Moscow’s World War II commemorations…, with Russia closing more than a dozen airports and canceling scores of flights amid a wave of drone attacks. The drone attacks, which Ukraine says targeted military facilities, disrupted travel as world leaders began arriving in Moscow for the annual Victory Day parade that marks the Soviet victory over invading Nazi forces in 1945. Russia, meanwhile, struck the Ukrainian capital, Kyiv, overnight with a ballistic missile, followed by hours of drone strikes…”
May 7 – Politico (Felicia Schwartz and Robbie Gramer): “Vice President JD Vance said… Russia is ‘asking for too much’ to end its war with Ukraine, underscoring new frustrations in the Trump White House over its efforts to court Moscow on peace talks… Vance stressed that Russia is likely to have to make concessions — the latest sign that the Trump administration is willing to get more aggressive with Russian President Vladimir Putin. ‘The Russians are asking for a certain set of requirements, a certain set of concessions in order to end the conflict. We think they’re asking for too much,’ Vance said.”
Bubble and Mania Watch:
May 6 – Reuters (Sabrina Valle): “Bankers and CEOs hit the brakes on mergers and acquisitions after U.S. President Donald Trump launched a global trade war on April 2, with fewer deals getting signed than during the bleakest days of the COVID-19 pandemic and the 2008-2009 global financial crisis. The number of M&A contracts announced across the world – an indicator of global economic health – fell in April to the lowest level in more than 20 years, according to… Dealogic… In the U.S., the world’s largest M&A market, just 555 deals were signed last month, the fewest for any month since May 2009.”
May 7 – Reuters (Matt Tracy): “Moody’s ratings agency warned… of the rising risk that retail investors, who put their money into private credit assets, pose to the U.S. economy. Since the pandemic, the share of U.S. and global credit markets has gradually shifted from banks in the public markets to private credit firms, growing to hold over $2 trillion in assets under management since their inception in 2014, according to a… report by Moody’s… ‘Even as market volatility persists, alternative asset managers have continued to launch funds aimed at drawing retail investors into private credit and other types of private assets,’ Moody’s analysts wrote…”
May 6 – Bloomberg (Shankar Ramakrishnan): “Debt restructuring by financially stressed U.S. companies rose nearly 60% in April, data from JPMorgan showed…, as businesses faced pressure from rising tariffs, inflation and capital markets volatility. These operations are called distressed exchanges or liability management exercises and occur when companies in distress renegotiate or restructure their debt rather than filing for bankruptcy. There were $3.5 billion distressed exchanges in April compared to $2.2 billion in March and $1.6 billion in February… The first-quarter total was $8.4 billion. The volume of bonds trading with yields of more than 1,000 basis points over U.S. Treasuries rose by $18.4 billion in April over the prior month to $94.6 billion… That was a 10-month high and represented 7.2% of junk bonds, up from 6.6% a year earlier.”
Inflation Watch:
May 6 – Bloomberg (Andre Tartar, Denise Lu, Raeedah Wahid and Aaron Gordon): “On April 24, against the backdrop of towering cranes, dockworkers at the Port of Long Beach began unloading the OOCL Violet, a hulking shipping vessel carrying thousands of containers full of goods bound for the US. The Violet is one of the first ships confronting a harsh, new reality: a steep 145% tariff rate on nearly half of its Chinese cargo… The ship had already begun loading goods bound for the US prior to Trump’s April 2 tariff announcement. When the ship reached California, it carried cargo with a total estimated value of at least $564 million… About 40% of the goods were likely subject to the new 145% rate… The data suggests importing companies face at least $417 million in new tariffs for all goods on the ship. That’s on top of preexisting import fees.”
May 7 – CNBC (Michael Wayland): “A closely watched barometer for used vehicle pricing jumped last month to its highest level since October 2023 as consumers rushed purchases amid fears of price hikes due to auto tariffs. Cox Automotive’s Manheim Used Vehicle Value Index… increased 4.9% last month compared with a year earlier to a level of 208.2. It also marked a 2.7% increase from March. That’s a significant rise compared with a historically typical month-to-month index move of 0.2%, according to the auto data and logistics firm.”
May 3 – Wall Street Journal (Imani Moise): “People are rushing to dealerships to buy cars before tariff price increases, but that doesn’t mean they can get financing. Large auto lenders such as Wells Fargo and Capital One have tightened their standards over the past few years, meaning more people are getting rejected as demand rises. And some firms have tightened further in the past few months. Ally Financial, for example, received a record 3.8 million loan applications in the first quarter of 2025, but it approved fewer borrowers than the prior quarter. Credit Acceptance, which offers financing to borrowers with lower credit scores, said it is retrenching after seeing signs that newer borrowers are struggling to keep up with payments.”
May 7 – Bloomberg (Matthew Boesler): “Economists at Goldman Sachs… boosted their forecasts for US inflation this year and next, in part to account for a weaker dollar following the Trump administration’s tariff announcements. A key measure of underlying inflation will rise to 3.8% at the end of 2025 before decelerating to 2.7% at the end of 2026, up from previous estimates of 3.5% and 2.3%…”
May 5 – Axios (Sami Sparber): “Homebuyers have to earn over $50,000 more a year than renters to afford their monthly housing payments, according to… Redfin… A ‘triple whammy’ of rising home prices, high mortgage rates and a shortage of houses for sale is making it harder for renters to make the leap to homeownership… By the numbers: You need an annual income of around $116,600 to afford a mid-priced home — roughly 82% more than the $64,200 needed to afford a mid-priced apartment, the real estate site found. That gap has ballooned over the past few years. In comparison, the typical U.S. household earns an estimated $86,400.”
May 7 – Axios (Sami Sparber): “There are now 233 U.S. cities where a typical starter home costs at least $1 million — nearly triple the number from March 2020, according to… Zillow… It’s a sharp reminder that homeownership is slipping further out of reach, especially for younger people. The median age of first-time buyers is pushing 40, the oldest on record… Half of all states have at least one city with million-dollar starter homes, up from 10 states five years ago, Zillow found. Minnesota (Minnetonka Beach) and Rhode Island (New Shoreham) recently joined the list. California cities continue to dominate. Home prices are still climbing, though not as quickly as before, and mortgage rates remain stubbornly high.”
May 5 – Financial Times (Kana Inagaki, Peter Foster and Chan Ho-him): “European and Asian carmakers… face being saddled with steeper costs when shipping vehicles to the US, as Washington’s new port fee policy threatens to wreak havoc on the $150bn American seaborne car import market. Having been ensnared in the shipping war between Washington and Beijing, car carrier operators will have to pay $150 for every vehicle they have capacity to carry into the US from October. That could equate to additional fees of about $1.8bn a year for the car carrier sector, according to Clarksons Research. This comes after the US trade representative (USTR) in mid-April imposed a blanket fee on all non-US built vessels entering American ports, causing panic in the European, Japanese and South Korean shipping industries.”
Federal Reserve Watch:
May 7 – Associated Press (Christopher Rugaber): “The Federal Reserve kept its key interest rate unchanged…, brushing off President Donald Trump’s demands to lower borrowing costs, and said that the risks of both higher unemployment and higher inflation have risen, an unusual combination that puts the central bank in a difficult spot. The Fed kept its rate at 4.3% for the third straight meeting… Chair Jerome Powell underscored that the tariffs have dampened consumer and business sentiment but have yet to noticeably harm the economy. At the moment, Powell said, there’s too much uncertainty to say how the Fed should react to the duties.”
U.S. Economic Bubble Watch:
May 6 – Reuters (Lucia Mutikani): “The U.S. trade deficit widened to a record high in March as businesses boosted imports of goods ahead of President Donald Trump’s sweeping tariffs… The report… showed the nation imported a record amount of goods from 10 countries, including Mexico and Vietnam. Imports from China were, however, the lowest in five years… The trade gap jumped 14.0%, or $17.3 billion, to a record $140.5 billion… Imports vaulted 4.4% to an all-time high $419.0 billion. Goods imports soared 5.4% to a record $346.8 billion.”
May 5 – Bloomberg (Mark Niquette): “Activity at US service providers accelerated in April after a slumping in the prior month, while materials prices increased in response to escalating tariffs. The Institute for Supply Management’s index of services increased 0.8 point to 51.6 last month… The prices-paid gauge jumped by 4.2 points to a more than two-year high of 65.1. Nearly 40% of purchasing managers reported higher prices, the largest share since November 2022. The group’s new orders gauge increased 1.9 points to 52.3, the highest this year, and employment contracted at a slower pace. At the same time, a measure of business activity, which parallels the ISM’s factory output gauge, fell to the lowest level since June.”
May 8 – Bloomberg (Michael S. Derby): “Americans’ views on their current and future financial situations, as well as their expectations for future earnings and income, soured in April, amid mixed views on the outlook for inflation, the Federal Reserve Bank of New York said… In its latest Survey of Consumer Expectations, the bank found that last month… households’ perceptions of their current and future financial situations ‘deteriorated sharply.’ Survey respondents also projected slower gains in income and earnings…, and for unemployment to rise and for it to be harder to find a job. Spending expectations, however, rose in April versus March… Survey respondents projected year-ahead inflation at 3.6%, unchanged from March, while the three-year-ahead expectation rose to the highest level since July 2022 at 3.2%…”
May 6 – CNBC (Annie Nova): “The Trump administration resumed collection efforts on defaulted student loans… after a roughly five-year hiatus — and affected borrowers could begin feeling the financial consequences sooner than experts expected… The Education Department said it began this week alerting around 195,000 student loan borrowers in default that their federal benefits will be subject to garnishment in 30 days. Borrowers could have their benefits, including Social Security retirement checks, seized by the government as soon as June… The Treasury Department will send notices to 5.3 million defaulted borrowers about the collection activity of their wages ‘later this summer’…”
May 8 – Associated Press (Matt Ott): “The number of Americans applying for unemployment benefits fell last week despite heightened uncertainty about how President Donald Trump’s tariffs will impact the U.S. and global economies. Jobless claim applications fell by 13,000 to 228,000 for the week ending May 3… That’s in line with the 229,000… analysts forecast… The total number of Americans receiving unemployment benefits for the week of April 26 fell to 1.88 million, a decrease of 29,000.”
May 8 – Bloomberg (Augusta Saraiva): “US labor productivity fell in the first quarter for the first time in nearly three years as economic output declined, snapping a streak of efficiency gains that have helped temper the inflationary impact from employment costs. Productivity, or nonfarm employee output per hour, decreased at a 0.8% annualized rate after a revised 1.7% increase in the fourth quarter… Because of the decline in productivity, unit labor costs — what businesses pay employees to produce one unit of output — jumped 5.7% in the January-March period, the most in a year.”
May 7 – Bloomberg (Vince Golle): “US consumer borrowing increased in March by the most in three months, reflecting a pickup in credit-card balances as well as a solid rise in motor vehicle and other non-revolving loans. Total credit climbed nearly $10.2 billion after falling a revised $614 million in February… The monthly figures cap a quarter that saw the smallest annualized gain in credit in nearly a year. Non-revolving debt, such as loans for vehicle purchases and school tuition, increased about $8.3 billion.”
China Watch:
May 7 – Bloomberg (Yihui Xie): “China announced a barrage of measures meant to counter the blow to its economy from U.S. President Donald Trump ’s trade war, as the two sides prepared for talks later this week… ‘The U.S. has recently expressed a desire to negotiate with China. This meeting is being held at the request of the U.S. side,’ Foreign Ministry spokesperson Lin Jian told reporters… ‘Any form of pressure or coercion against China will not work,’ Lin said. ‘China will firmly safeguard its legitimate interests and uphold international fairness and justice. Please stay tuned for the specific details of the dialogue.’ By easing credit, China’s leaders are providing a ‘policy buffer’ for exporters as Beijing prepares for the talks, economists at ANZ Research said… ‘The authorities are prepared to have a protracted negotiation and hold a strong stance against protectionism’…”
May 6 – Reuters (Liangping Gao and Ryan Woo): “China’s services activity expanded at the slowest pace in seven months in April, with new orders growth slackening from March, weighed by uncertainty caused by U.S. tariffs, a private sector survey showed… The Caixin/S&P Global services purchasing managers’ index (PMI), fell to 50.7 from 51.9 in March, its lowest reading since September.”
May 9 – Bloomberg (Josh Xiao): “China’s overseas investment surged during the first months of Donald Trump’s presidency, as its factories expand their footprint abroad in the face of threats from US tariffs. Chinese firms increased their international assets by about $48 billion in the first quarter… That’s an increase of 28% from the same period in 2024. The data offers a glimpse into how corporate China navigated the early stages of the tariff war launched by Trump this year.”
Central Bank Watch:
May 7 – Associated Press (Pan Pylas): “The Bank of England cut its main interest rate by a quarter of a percentage point to 4.25% amid concerns over the potential shock to global growth emanating from the tariff policies of the Trump administration… Bank Gov. Andrew Bailey said inflationary pressures have continued to ease, paving the way for the fourth quarter-point rate cut since August. ‘The past few weeks have shown how unpredictable the global economy can be,’ he said. ‘That’s why we need to stick to a gradual and careful approach to further rate cuts.’”
Europe Watch:
May 6 – BBC (Paul Kirby and Jessica Parker): “Conservative leader Friedrich Merz has won a parliament vote to become Germany’s next chancellor at the second attempt. Merz had initially fallen six votes short of the absolute majority he needed… an unprecedented failure in post-war German history… After hours of uncertainty in the Bundestag, the parties and the president of the Bundestag agreed to hold a second vote, which Merz then won with 325 votes, a majority of nine.”
Japan Watch:
May 5 – Associated Press (Mari Yamaguchi and Didi Tang): “Just as Japan’s top trade negotiator traveled to Washington for another round of tariff talks last week, a bipartisan delegation bearing the name of ‘Japan-China Friendship’ wrapped up a visit to Beijing. A week earlier, the head of the junior party in Japan’s ruling coalition was in Beijing delivering a letter from Japanese Prime Minister Shigeru Ishiba addressed to Chinese President Xi Jinping… Among all U.S. allies being wooed by Beijing in its tariff stare-down with Washington, Japan stands out. It is a peculiar case not only for its staunch commitment to its alliance with the United States but also for its complicated and uneasy history with the neighboring Asian giant — particularly the war history from the 20th century that still casts a shadow over the politics of today.”
May 6 – Reuters (Kantaro Komiya): “Japan’s service sector activity returned to growth in April after stagnating the previous month, helped by improved orders, a stark contrast to continued weakness in manufacturing, a business survey showed… The final au Jibun Bank Japan Services purchasing managers’ index (PMI) rose to 52.4 in April from the neutral 50.0 level in March. The figure also overshot the flash reading of 52.2.”
Emerging Market Watch:
May 7 – Reuters (Marcela Ayres): “Brazil’s central bank raised interest rates by 50 bps… in a sixth straight hike that pushed borrowing costs to their highest in nearly 20 years, and left future steps open amid global uncertainties and sticky domestic inflation. The bank’s monetary policy committee… raised the Selic to 14.75% in a unanimous decision, matching forecasts…”
Leveraged Speculation Watch:
May 6 – Bloomberg (Nishant Kumar): “Said Haidar’s macro hedge fund suffered one of its worst monthly losses since it launched more than two decades ago as President Donald Trump’s tariff war set off high volatility in global markets. Haidar Jupiter Fund slumped an estimated 25% in April, its second-biggest monthly decline since the fund’s debut in 1999… The losses put the macro strategy down 17.6% for this year…”
Social, Political, Environmental, Cybersecurity Instability Watch:
May 8 – Financial Times (Attracta Mooney): “Scientists’ fears of a breach of the 1.5C warming level set down in the Paris accord escalated, after the latest data showing the monthly average global temperature had topped the threshold for 21 out of the past 22 months. The second-hottest April was recorded at 14.96C — or 1.51C above the estimated 1850-1900 average and just 0.07C cooler than the record April of 2024, the European earth service Copernicus said. The global average temperature over the 12-month period to the end of April was 1.58C above the pre-industrial level.”
Geopolitical Watch:
May 10 – Bloomberg (Kamran Haider, Sudhi Ranjan Sen and Khalid Qayum): “Pakistan’s army said it struck several Indian military sites early Saturday in retaliation for missile strikes on airbases, a significant escalation that moves the two nuclear-armed neighbors closer to all-out war. Early on Saturday, Pakistan said Indian jets had attacked three of its airbases with missiles, including Noor Air base in Rawalpindi, which holds the army’s headquarters and is located close to the capital Islamabad. Army spokesman Lieutenant General Ahmed Sharif Chaudhry said in a televised statement that all ‘air force assets’ were safe. Pakistan’s army said later that it had hit Indian airbases and other military sites in Punjab state and the Indian-controlled part of Kashmir region.”
May 6 – Financial Times (Krishn Kaushik and John Reed): “India has launched air strikes against its neighbour Pakistan over last month’s deadly attack on tourists in Indian-administered Kashmir by militants that New Delhi claimed were linked to Islamabad. The ‘precision strikes’ overnight on Wednesday at nine locations as far as 100km inside Pakistan to hit ‘terrorist infrastructure’ were the most extensive attacks by New Delhi against Islamabad in decades. Vowing to respond, Islamabad called the Indian strikes an ‘act of war’ and claimed to have shot down five Indian military jets and a combat drone. Kashmir has been a bone of contention between the two nuclear-armed neighbours since each country became independent from Britain in 1947. Both sides claim the entire region but each controls parts of it. India and Pakistan have fought three wars over Kashmir.”
May 7 – Associated Press (Munir Ahmed, Sheikh Saaliq, Rajesh Roy, Riazat Butt and Aljaz Hussain): “Pakistan said… it will avenge those killed by India’s missile strikes that New Delhi called retaliation for last month’s massacre of Indian tourists in India-controlled Kashmir. Pakistan called the strikes an act of war and claimed it downed several Indian fighter jets. The missiles killed 31 people, including women and children, in Pakistan-administered Kashmir and the country’s Punjab province, Pakistan’s military said. The strikes targeted at least nine sites ‘where terrorist attacks against India have been planned,’ India’s Defense Ministry said. Two mosques were hit. Pakistani Prime Minister Shehbaz Sharif said his country would avenge the dead but gave no details, fanning fears of all-out conflict between the nuclear-armed rivals. Already, it’s their worst confrontation since 2019, when they came close to war.”
