Ian Reynolds
Breaking: US Stocks and Dollar Surge on NFP Report
US Nonfarm Payrolls January 2024
Breaking: China Downdraft
China stocks swing wildly in chaotic end to worst week in years [Business Times]
China Gloom Spurs Record $2 Billion Rush Into Foreign Stock ETFs [Bloomberg]
Evergrande liquidated [Bloomberg]
China’s Lunar New Year Pork Gloom Exposes Deep Economic Trouble
Breaking: Trump Vs Obama
Speculation is mounting that former First Lady Michelle Obama is preparing to run to be President of the United States, in a move that involves convincing an ailing Joe Biden to step down.
Trump promises "largest domestic deportation operation in American history" within moments of his inauguration.
Breaking: The United States and Britain launched strikes against 36 Houthi targets in Yemen
US, Britain wage strikes against Iran-linked Houthis in Yemen [investing.com]
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Commercial Real Estate Woes Go Global
The US CRE issues are starting to impact the global economy and banking system.
Commercial real estate a top threat to financial system in 2024, U.S. regulators say [MarketWatch]
Commercial real estate problems have a habit of not being published. Partly because property is completely unregulated and partly because the first seller sparks a collapse so don't tell anyone. Remember the GFC.
That's why the stories leak out via X
The Xerox building in Washington DC just sold for $25 million (83% loss)
Aozora Bank Ltd, Japan, share Price Daily
Japan’s Aozora Loses 33% of Value in Two-Day Stock Meltdown [Bloomberg]
US regional banks tumble for second straight day on NYCB woes [Reuters]
Back in the US, Community Bank NY, who bought insolvent Signature Bank a mere 10 months ago share price is collapsing too.
New York Community Bank Share Price Daily
The FED's recent announcement of the closing of the Bank Term Funding Program (BTFP) and the re-opening of our old friend the Discount Window, means that insolvent banks problems will be made public, or at least easier to find.
Apparently the stigma of being so illiquid that you have to tap the Discount Window, will be disguised by forcing every bank to tap the Discount Window every so often ! Total madness !
The BTFP was brought in with the bank collapses in March 2023. The rapid increase in interest rates found some banks unhedged and with a big haircut on US Treasury Bonds. Through this program the FED has very kindly bought the bonds off the banks at par.
However, turns out that government bonds were just one problem for regional US banks. They're heavily invested in US CRE loans, as too are US pension funds - see here for Calstrs and others using leverage to fund their cashflow requirements because they don't want to take the loss on unprofitable CRE investments.
Remember what happened to Liz Truss.
FED Presser 31 January 2024
Comrade Powell pushed back yet again on interest rate cuts after the FOMC meeting Tuesday and Wednesday, and the NFP release above, that he knew anyway, supports higher for long but the terminal rate is in.
Market participants were surprised that the QT program continues.
So overall no rate cuts immediately, let's wait for inflation to get to 2% and meanwhile we're reducing our balance sheet.
After a small recalculation the markets decided that yet again they were correct and central banks wrong.
Higher for longer means bigger, quicker rate cuts as the FED - pied piper, followed by the children ECB BoE etc, drives the economy off the cliff. That's what the stock markets are telling us but once the cuts happen it's too late.
Quarterly Refunding Announcement Results
Treasury Cuts Quarterly Borrowing Estimate to $760 Billion [Bloomberg]
Reduction in issuance required sparked a rally in bonds but
- A 3-year note in the amount of $54 billion, maturing February 15, 2027;
- A 10-year note in the amount of $42 billion, maturing February 15, 2034; and
- A 30-year bond in the amount of $25 billion, maturing February 15, 2054.
See here for more details [US Treasury]
Jamie Dimon says Washington faces a global market ‘rebellion’ over record U.S. debt [Fortune]
34 US$ Trillion in debt and possibly a US$ 3T budget deficit. Let's see how the auctions on Tuesday, Wednesday and Thursday go.
In The Background
BRICS: Russia Says Ditching US Dollar is a Top Priority in 2024 [Watcher.Guru]
Euro bonds Euro area governments smash bond sale records in hefty funding year [Reuters]
Turkey central bank chief quits, citing need to protect her family [Reuters]
In Case You Missed It
China trying to stop a stock market rout after massive capital outflows and a disintegrated real estate sector.
China Tightens Securities Lending Rule to Support Stock Market
Yet the IMF is uber bullish
Global economy is heading toward ‘soft landing’, IMF says [AFR]
The Bank of England keeps rates steady but flags hikes still possible
Europe still struggling
EU GDP QoQ Q4 2023
Germany GDP QoQ Q4 2023
Australia
Australia Retail Sales December 2023
That drop in December is the worst seasonally adjusted monthly result in the four-decade history of the retail sales data outside of two months in 2020 (COVID) and July 2000 (the introduction of the GST, when many prices went up 10% literally overnight).
Australia CPI QoQ Q4 2023 still on the right course but still some way to go.
RBA meeting is on Tuesday this week and we're not expecting any policy changes.
This Week's Important Economic Indicators [London time]
