Ian Reynolds
Breaking
Ukraine Formally Asks NATO To Send Troops For First Time, Pentagon Mulling[Zerohedge]
EU countries adopt plan to use profits from frozen Russian assets for Ukraine defence [Reuters]
France flies nuclear-capable missile as Russia holds drills [The Guardian]
How Sunak shocked Westminster with a snap general election[FT]
In Focus
Commercial Real Estate
They said not to worry, it can be contained, they can take the losses. This was JP Morgan CEO Jamie Dimon a few months back. And he should know, was the feedback.
They'll be converted to residential housing of some sort. Turns out they'd need to be knocked down first.
Now we hear a giant fund is not allowing redemptions. This is just the tip of the iceberg. And when the fund says you can't have your money back because they don't want to have to sell distressed assets, you know the game is up.
And this is a global problem.
A $10 Billion Real-Estate Fund Is Bleeding Cash and Running Out of Options [WSJ]
Canary Wharf offices lose £900mn of value [FT]
Starwood Capital limits property fund redemptions to preserve liquidity [FT]
And here comes the kicker -->
Losses Pile Up in Top-Rated Bonds Backed by Commercial Real Estate Debt [Bloomberg]
For the first time since the financial crisis, investors in top-rated bonds backed by commercial real estate debt are getting hit with losses.
USD / YEN is moving back to 160
USD / YEN Daily
Yen weakening again towards the 160 intervention level brings a rise in JGB yields to 1%. That doesn't sound much but it's the highest for at least 10 years.
10 Year JGB Yield Daily
The world's 4th biggest economy is about to experience a dramatic event. The question is, what is it that could happen?
Here are the 2 options for the currency
- YEN is allowed to fall to a level of equilibrium.
- Sustained multi central bank intervention to the hold the USD / YEN below 160
Isn't this what free markets is meant to be about - allowing markets to find price discovery ?
There is no 3rd option of hiking rates to protect the currency. Despite BoJ rhetoric around removing the permanent debt monetisation, everyone knows they won't. Because they can't. 250% Debt to GDP.
Current Debt to GDP in the US is 120% and the cost of servicing the debt is now more than the US defence budget.
What'll happen to Japan at 250% if authorities allow rates to rise, hoping that investors will buy JGBs and force USD / YEN lower. They can't risk rocketing debt servicing costs. And they can't risk investors losing confidence and not buying the bonds.
And if the equilibrium theory means a much high USD / YEN, they can't let the currency risk going into freefall as markets will raise rates for them and hyperinflation could be the result.
The value of the YEN is the escape valve for 40 years of financial mismanagement and we're at the point where the markets are going to dictate the outcome.
Added to these woes, a well known Japanese bank is now under pressure
Japan’s Bank for Farmers and Fishermen Returns to Spotlight for Overseas Losses [Bloomberg]
FED Minutes Shocks Markets
SUMMARY OF FED MEETING MINUTES
- Various offices mention raising rates if inflation warrants it
- Fed officials note “disappointing” inflation data in Q1 2024
- Officials discussed holding rates higher for longer
- Some officials worry that financial conditions are not sufficiently restrictive
- Some officials think long run rates need to be higher
- Many officials commented on uncertainty about degree of policy restrictiveness
Higher for longer is here to stay.
A Fed Hike in 2025? Adam Posen Throws a New Risk Into Wall Street’s Mix [Bloomberg]
Balance sheet run-off will be tapered ie. not so much of it. This is liquidity positive for markets.
FED Total Assets Since 2008 (USD Trillion)
In reality the FED is in disarray and the minutes are now showing a fractured committee with Powell isolated as the only one thinking inflation is contained. He said this last week.
The article about r* is very important to understanding the monetary system-->
Some Thoughts on r*: Why Did It Fall and Will It Rise? [Federal Reserve]
Global Bankers Are Suddenly Worried About The Soaring US National Debt [Zerohedge]
In The Background
China Stimulating Further
- Beijing removes floor on mortgages rates, lowers downpayment
- PBOC readies $42 billion of funding to buy unsold homes
China Attempts to End Property Crisis With Broad Rescue Package [Bloomberg]
Crypto Mainstream & Now Political
U.S. House Approves Crypto FIT21 Bill With Wave of Democratic Support [Coindesk]
Europe
ECB's Lagarde 'really confident' inflation under control [Reuters]
Germany PPI April 2024
Australia
Despite the dovish presser by Bullock, the latest minutes reveal that the committee discussed hiking and holding, in that order.
Telstra wields job axe, 2800 roles dumped in restructure [AFR]
New Zealand
Traders wrong-footed after RBNZ shocks with rate rise talk [AFR]
What's Next
US Core PCE on Friday is the market focus this week although GDP and Jobless Claims Thursday are important too.
The jobs market is beginning to break so look for the focus to shift soon from the inflation / GDP thread to a jobs / hard landing focus as the FED keeps rates higher for longer and ends up driving the economy into recession (yet again)
Stock market volumes are light, and with holidays coming up, and VIX low so any knee-jerk reaction can cause a lot more damage than it normally would.
Be careful.
This Week's Important Economic Indicators [London time]
