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Nvidia (NVDA) sank 12.6% this week. The Semiconductor Index (SOX) slumped 12.2%, with the Nasdaq100 (NDX) down 5.9%. The S&P500 (SPX) dropped 4.2%. The KBW Bank Index (KBWB) fell 5.5%. The VIX (equities volatility) Index jumped 7.38 to 22.38, the highest close since August 8th (as the index retreated from its August 5th spike). “Stocks Hit by Jobs in Worse Week Since March 2023.”

“Risk off” was global. Japan’s Nikkei 225 Index lost 5.8% this week, South Korea KOSPI 4.9%, Taiwan’s TWSE 3.7%, and China’s CSI 300 2.7%. Major equities indices were down 3.7% in France, 3.2% in Germany, and 3.1% in Italy.

“Stocks Trashed as Job Gains Fall Short of Forecasts.” The SOX sank 4.5% in Friday trading, with the Nasdaq100 down 2.7%. The afternoon chatter on Bloomberg Television questioned what in the jobs report might have justified the equities rout.

It’s a fluid, complex and extraordinary environment, just as we should expect at such a critical juncture for history’s greatest bubble(s). With the backdrop so confounding, it would be surprising if market pundits, Wall Street strategists and the economic community weren’t befuddled.

Let’s see if the “financial sphere” and “economy sphere” analytical framework can lift the fog a little. Credit and speculative Bubbles have distinct impacts on the two individual but interconnected spheres. And when we contemplate the current backdrop, it is imperative to remind ourselves of the unprecedented Bubble excess experienced over the past five years. There was the $5 TN of QE commenced in pre-Covid September 2019. There were U.S. short-term rates reduced to zero in March 2020 and held below 1% until May 2022, while the Bank of Japan imposed negative rates for eight years - and were close to zero for 24. Government finance Bubble excess included $9 TN of Treasury issuance over five years.

Analysis that disregards the impact of unprecedented debt growth, monetization, market manipulation, and deeply ingrained speculative dynamics will fail to recognize key cycle inflection points. How was virtually everyone blindsided by developments in September 1929?

The market closed the week pricing a 4.18% policy rate after the Fed’s December 18th meeting – down 15 bps this week, and implying 115 bps of rate reduction over the next three months (or so).

Do aggressive rate cuts appear justified from a “economy sphere” perspective? While cooling, the economy still added 142,000 jobs during August. The Unemployment Rate dipped to a historically low 4.2% (2000 to 2020 monthly avg. 5.9%), while the 0.4% monthly increase in Average Hourly Earnings pushed y-o-y gains to a historically elevated 3.8% (‘00 -‘20 avg. 2.5%). And while job openings (JOLTS) have dropped from the March ‘22 peak of 12.182 million to last month’s 7.673 million – vacancies remain elevated compared to the 2000 to 2020 average of 4.489 million.

The U.S. “Bubble economy” is today more imbalanced than weak. August Services PMI was reported at a stronger-than-expected 55.7 (above 50 expanding), with the ISM Services Index near expectations at 51.5. The ISM Services New Orders component added almost a point to 53, with Prices Paid at an elevated 57.3. At 50.2, Employment was still indicating growth. The Atlanta Fed GDPNow forecast remains above 2%. The economy today demonstrates notable dispersion in sector performance – from impressive strength to concerning weakness.

Overheated labor markets generally have cooled, while many companies and industries still struggle to fill openings. But all the talk of impending recession disregards ongoing strength in services industries (that dominate the U.S. economy). From an “economy sphere” perspective, the U.S. economy has become inherently vulnerable to tighter financial conditions and faltering asset Bubbles. As of this week, finance flows freely.

The talk on August 5th of the need for an emergency Fed meeting and an aggressive inter-meeting rate cut seems silly a month later. Or does it? From the “financial sphere” perspective, there is rationale for the Fed to be prepared to administer aggressive rate cuts. Intraday on August 5th, the market at one point priced in 148 bps of rate reduction by year-end. That was not a reflection of “economy sphere” performance, so much as it was of acute “financial sphere” fragility.

It is not hyperbole to suggest that the “financial sphere” today is a real quagmire. Bubble distortions have compounded over many years to the point of deep systemic maladjustment. In short, Bubble effects are prevalent throughout, with speculative Bubble dynamics commanding market behavior. Speculative Bubbles, especially post-melt-up, don’t function well in reverse.

To simplify, I would highlight three momentous Bubbles: the global “yen carry trade;” the “AI/tech” global arms race Bubble; and the U.S. domestic “basis” and “carry” trades Bubble.

The dollar/yen closed the week at 142.30, with the yen stronger than the August 5th close of 144.18. Friday’s intraday dollar/yen low of 141.78 compares to the August 5th intraday low of 141.70. I’ll add that the (“king of carry”) Mexican peso/Japanese yen currency cross traded Friday just below the August 5th intraday low. The Japanese yen jumped 2.7% this week versus the dollar. Against EM “carry trade” currencies, the yen surged 6.1% versus the Chilean peso, 3.9% against the Peruvian sol, 3.9% versus the Mexican peso, 3.2% against the Argentine peso, and 2.8% against the South African rand.

The yen has rallied 13.63% against the dollar since July 10th. Over this period, EM currency declines versus the yen include the Mexican peso 21.4%, the Colombian peso 16.3%, Argentine peso 15.4%, Chilean peso 15.0%, Turkish lira 14.9%, and Brazilian real 14.9%. I believe the yen “carry trade” Bubble is deflating, a process of deleveraging that could unfold over weeks and months.

From July 10th peak mania highs, the SOX Index has deflated 23.3%, while the NDX has dropped 10.9%. Nvidia has deflated 23.8% from July 10th highs, with Micron down 36.7%, Lam Research 34.9%, ASML 31.5%, Applied Materials 31.5%, Advanced Micro Devices 27%, and Qualcomm 24.2%.

Nvidia closed the week at 102.83, off the Friday intraday low of 100.95. This compares to the August 5th closing price of 100.45 (intraday low $90.69). The SOX Index’s 4,528 weekly close was slightly above the August 5th close of 4,519 (intraday low 4,290). The NDX ended Friday at 18,421, less than 3% above the August 5th close of 17,895 (intraday low 17,435). Technology stocks desperately need to regain composure next week or risk a problematic Bubble deflation acceleration.

An egregiously inflated and speculative “financial sphere” now confronts de-risking/deleveraging from two major Bubbles (yen carry and AI/tech). Thus far, what would have typically been destabilizing liquidity impacts have been ameliorated by rapid inflation of the third major Bubble - the U.S. “basis/carry trade.”

Money Market Fund Assets (MMFA) jumped another $37 billion last week. MMFA has inflated $166 billion in five weeks and $268 billion in four months. I view MMFA growth as a decent proxy for “repo” market expansion – the funding source fueling the historic “basis trade.” Faltering “yen carry” and “AI/tech” Bubbles significantly boost the likelihood of aggressive Fed rate cuts, with prospects for Fed easing fueling a significant bond market rally.

At 3.71%, 10-year Treasury yields have collapsed 100 bps from April highs. Two-year Treasury yields have dropped from 5% to Friday’s 3.65% (down 27bps this week). MBS yields sank 22 bps this week to 4.92% - the low back to April 6, 2023. MBS yields ended April at 6.23%.

September 4 – Bloomberg (Olivia Raimonde and Finbarr Flynn): “Investors from New York to London to Tokyo are clamoring to buy investment-grade bonds, spurring heavy sales of the securities. At least 81 high-grade bond sales have launched or been completed worldwide this week, including 19 that teed up for the US on Wednesday after a record 29 a day earlier.”

September 4 – Bloomberg (Josyana Joshua): “Investors have welcomed an abundance of issuance in the blue-chip primary debt market this week, with many of the deals that debuted on a record-setting Tuesday already trading tighter the next day. Over $43 billion of new high-grade bonds sold on Tuesday, the third-busiest day on record. Spreads on most of those bonds tightened in the secondary market on Wednesday… One of them, the biggest chunk of Mastercard Inc.’s $3 billion deal, traded 11 bps tighter. A further $29 billion of investment-grade notes priced Wednesday.”

September 4 – Bloomberg (Amanda Albright): “It’s already a record-setting year for muni-bond sales, and the relentless pace of mega-deals — those over $1 billion — is displaying little signs of slowing. State and local governments rushing to raise cash ahead of the presidential election in November have driven sales to $325 billion so far this year, an all-time high for the period, according to data compiled by Bloomberg going back to 2013. Some $65 billion of those offerings are mega-deals, the most in at least a decade. And more jumbo debt sales are planned for September. The pipeline of scheduled deals rose to about $20 billion as of Wednesday, the highest in more than two years…”

Faltering “yen carry” and “AI/tech” Bubbles have triggered a major decline in yields and significant loosening of financial conditions. There’s a decent argument that this is coinciding with peak “basis/carry trade” speculative Bubble. Moreover, I will posit that this is a precarious situation.


Equipoise: “A state of equilibrium.”

From New York Fed President John Williams’ Friday speech, “‘E’ Is for Equipoise.”

“The significant progress we have seen toward our objectives of price stability and maximum employment means that the risks to the two sides of our dual mandate have moved into equipoise.”

“With the economy now in equipoise and inflation on a path to 2%, it is now appropriate to dial down the degree of restrictiveness in the stance of policy by reducing the target range for the federal funds rate.”

Reminiscent of “transitory.” And I wouldn’t do it, but I guess one could today try to get away with “equipoise” in describing the current “economy sphere.” But when it comes to the “financial sphere,” it’s “‘D' for Dis-equipoise.” Two faltering and one vulnerable Bubble create a state of acute disequilibrium. The week’s market dynamics offered a microcosm.

“Record Bond Issuance Well-Absorbed as Most Trend Tighter.” The week saw record two-day issuance, with the week’s $81 billion (59 issuers) “the fifth highest ever.” Tuesday’s 29 borrowers “was the most crowded single session on record…” With market yields sinking, financial conditions seemingly couldn’t be looser. And it is difficult to contemplate an economy sinking into recession with federal, corporate, and municipal debt markets running so hot. Is this a backdrop for aggressive rate cuts?

Meanwhile, financial conditions indicators suggested trouble brewing, especially late in the week. High yield CDS prices surged 10 Friday and 27 for the week to 349 bps, second only to the 38 bps jump during the week of August 9th - for the period back to September 2023. High yield spreads (to Treasuries) widened 17 to 322 bps. The five-year breakeven rate (expected inflation) sank 15 bps (27 bps six-week decline) to 1.89%, the low back to December 2020. And the market ended the week pricing a 2.80% policy rate for the December 2025 Fed meeting, down a notable 28 bps for the week and 46 bps over three weeks.

The Bloomberg Commodities Index fell 2.5% this week to a three-year low. Crude sank $5.88, or 8%, to the lowest level since June 2023. Copper dropped 3.3%, Nickel 4.4%, Tin 4.1%, Zinc 6.2%, and Iron Ore 7.3%. Flashing safe haven store of value, Gold bullion slipped only 0.2%.

Sovereign 10-year yields were down 20 bps in the U.S., 20 bps in Canada, 13 bps in Australia, 14 bps in New Zealand, 13 bps in Germany, 13 bps in the UK, 17 bps in the Netherlands, 14 bps in Sweden, 14 bps in Spain, and 16 bps in South Korea.

It appears global markets are sniffing out a “financial sphere” accident. The rapidly inflating “basis trade” has been crucial in sustaining marketplace liquidity in the face of nascent yen “carry trade” and AI/tech de-risking/deleveraging. But with both deflating Bubbles at the cusp of destabilizing acceleration phases, “basis” and “carry” trades are at heightened vulnerability to a more systemic de-risking/deleveraging dynamic and attendant liquidity issues. Disorderly August 5th trading dynamics were a harbinger of fears of de-risking/deleveraging engulfing the “core” U.S. Credit market.

Much is riding on the “basis” and “carry” trade Bubble. While the AI/tech speculative Bubble has begun to deflate, it remains acutely vulnerable to tightened financial conditions. The amount of investment to build the necessary technology and energy infrastructure is massive. This mania has attracted scores of negative cash-flow enterprises, while profits for most participants are at best some years away. The eruption of de-risking/deleveraging in corporate and leveraged finance would be a devastating blow for an already deflating Bubble. A critical juncture is unfolding for the “financial sphere,” and the leveraged speculating community in particular.

September 3 – Bloomberg (Paula Seligson and Katherine Doherty): “Citadel Securities and Jane Street Group LLC, two of the largest market-making firms in the US, are on track for record annual revenue hauls as they further encroach on the big banks’ trading territory. First-half net trading revenue rose 81% to $4.9 billion from the same period a year earlier at Citadel Securities, and gained 78% to $8.4 billion at Jane Street…, both well ahead of the pace needed for an all-time high annual total… Ken Griffin’s Citadel Securities generated $2.7 billion of adjusted earnings in the first half, up from $1.1 billion a year earlier... The second quarter contributed $2.6 billion of net trading revenue and $1.4 billion of adjusted earnings... First-half adjusted earnings at Jane Street were around $6.1 billion, nearly double the $3.1 billion of a year earlier. About $2.9 billion of this year’s total came in the second quarter, when the firm had $4 billion of net trading revenue.
 

For the Week:

The S&P500 dropped 4.2% (up 13.4% y-t-d), and the Dow fell 2.9% (up 7.0%). The Utilities slipped 0.2% (up 20.6%). The Banks slumped 5.5% (up 14.1%), and the Broker/Dealers lost 3.4% (up 17.8%). The Transports dropped 3.8% (down 3.0%). The S&P 400 Midcaps slumped 4.9% (up 5.7%), and the small cap Russell 2000 fell 5.7% (up 3.2%). The Nasdaq100 dropped 5.9% (up 9.5%). The Semiconductors sank 12.2% (up 8.4%). The Biotechs lost 3.6% (up 4.5%). While bullion slipped only $6, the HUI gold index dropped 6.3% (up 20.6%).

Three-month Treasury bill rates ended the week at 4.92%. Two-year government yields sank 27 bps to 3.65% (down 60bps y-t-d). Five-year T-note yields slumped 22 bps to 3.49% (down 36bps). Ten-year Treasury yields fell 20 bps to 3.71% (down 17bps). Long bond yields declined 18 bps to 4.02% (down 1bp). Benchmark Fannie Mae MBS yields sank 24 bps to 4.92% (down 35bps).

Italian yields declined eight bps to 3.62% (down 8bps y-t-d). Greek 10-year yields dropped 14 bps to 3.21% (up 16bps). Spain's 10-year yields declined 14 bps to 3.00% (unchanged). German bund yields fell 13 bps to 2.17% (up 15bps). French yields slumped 14 bps to 2.88% (up 32bps). The French to German 10-year bond spread narrowed about one to 71 bps. U.K. 10-year gilt yields fell 13 bps to 3.89% (up 35bps). U.K.'s FTSE equities index fell 2.3% (up 5.8% y-t-d).

Japan's Nikkei Equities Index sank 5.8% (up 8.7% y-t-d). Japanese 10-year "JGB" yields declined four bps to 0.85% (up 24bps y-t-d). France's CAC40 dropped 3.7% (down 2.5%). The German DAX equities index slumped 3.2% (up 9.3%). Spain's IBEX 35 equities index fell 2.0% (up 10.6%). Italy's FTSE MIB index lost 3.1% (up 9.7%). EM equities were under pressure. Brazil's Bovespa index declined 1.1% (up 0.3%), and Mexico's Bolsa index fell 1.7% (down 11%). South Korea's Kospi index was slammed 4.9% (down 4.2%). India's Sensex equities index declined 1.4% (up 12.4%). China's Shanghai Exchange Index dropped 2.7% (down 7.0%). Turkey's Borsa Istanbul National 100 index slipped 0.6% (up 30.8%).

Federal Reserve Credit declined $12.5 billion last week to $7.079 TN. Fed Credit was down $1.811 TN from the June 22, 2022, peak. Over the past 260 weeks, Fed Credit expanded $3.352 TN, or 90%. Fed Credit inflated $4.268 TN, or 152%, over the past 617 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt increased $7.9 billion last week to $3.308 TN. "Custody holdings" were down $122 billion y-o-y, or 3.6%.

Total money market fund assets jumped $37.3 billion to a record $6.300 TN. Money funds were up $414 billion y-t-d, or 10.2% annualized, and $717 billion, or 12.8%, y-o-y.

Total Commercial Paper gained $10.7 billion to $1.247 TN. CP was up $86.8 billion, or 7.5%, over the past year.

Freddie Mac 30-year fixed mortgage rates were unchanged at a 15-month low 6.35% (down 79bps y-o-y). Fifteen-year rates declined four bps to 5.47% (down 119bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down two bps to 6.83% (down 84bps).


Currency Watch:

September 5 – Bloomberg: “China’s embrace of a stealthy strategy to manage its currency is exposing the nation’s banks to billions of dollars of potential losses — and handing easy profits to investors on the other side of the trade. At the center of it all are transactions known as foreign-exchange swaps. These have quietly become a key tool for state-run Chinese banks seeking to prop up the yuan during periods of outsized selling pressure, according to people familiar… By some estimates, Chinese banks have used swaps to build short positions in the dollar exceeding $100 billion since last year. That has pushed one measure of the swap market to extreme levels, creating virtually risk-free returns of about 6% as recently as July for traders who took the other side.”

For the week, the U.S. Dollar Index declined 0.5% to 101.177 (down 0.2% y-t-d). For the week on the upside, the Japanese yen increased 2.7%, the Swiss franc 0.8%, the euro 0.3%, the Singapore dollar 0.3%, the South Korean won 0.2%, and the Brazilian real 0.1%. On the downside, the Australian dollar declined 1.4%, the Mexican peso 1.3%, the New Zealand dollar 1.2%, the Norwegian krone 0.9%, the Canadian dollar 0.6%, the Swedish krona 0.3%, and the South African rand 0.2%. The Chinese (onshore) renminbi declined 0.09% versus the dollar (up 0.03% y-t-d).


Commodities Watch:

September 5 – Bloomberg (Salma El Wardany, Grant Smith and Fiona MacDonald): “OPEC+ postponed its oil supply hike by two months, but the move wasn’t enough to roll back steep losses in crude prices amid fears about fragile demand. Key coalition members won’t now increase production by 180,000 barrels a day in October and November… Yet their longer-term plan to revive 2.2 million barrels a day of idle supplies gradually over the course of a year remained in place, with the completion date pushed back two months to December 2025.”

The Bloomberg Commodities Index fell 2.5% (down 5.0% y-t-d). Spot Gold slipped 0.2% to $2,497 (up 21.1%). Silver declined 3.2% to $27.935 (up 17.4%). WTI crude sank $5.88, or 8%, to $67.67 (down 6%). Gasoline dropped 9.4% (down 10%), while Natural Gas rallied 7.0% to $2.275 (down 10%). Copper fell 3.3% (up 5%). Wheat jumped 3.8% (down 12%), and Corn gained 1.5% (down 19%). Bitcoin sank $5,200, or 8.8%, to $54,000 (up 27%).


Middle East War Watch:

September 4 – Reuters (Josyana Joshua): “Hamas said… there was no need for new ceasefire proposals for Gaza and pressure should be put on Israel to agree to a U.S. plan that the Islamist group had already accepted. The United States was expected to present a new truce proposal aimed at breaking an impasse between Hamas and Israel… Hamas said that Israeli Prime Minister Benjamin Netanyahu sought to thwart an agreement by insisting that Israel will not withdraw from the Philadelphi corridor in southern Gaza.”

September 2 – Reuters (Jonathan Saul and Kanishka Singh): “Yemen’s Iran-backed Houthi rebels attacked two crude oil tankers - the Saudi-flagged Amjad and the Panama-flagged Blue Lagoon I - in the Red Sea on Monday, the U.S. military said, calling the assaults ‘reckless acts of terrorism’… The U.S. Central Command said the Houthis attacked the two tankers with two ballistic missiles and a one-way attack uncrewed aerial system, hitting both vessels.”

September 5 – Financial Times (Felicia Schwartz): “The US military is preparing for the possible collapse of ceasefire talks between Israel and Hamas amid fears that their breakdown could spark a broader regional conflict. General CQ Brown, chairman of the US joint chiefs of staff…, told the Financial Times: ‘[I] think about… [if] the talks stall or completely stop, how that impacts the tension in the region and the things we need to do to be prepared should that change.’ …Brown said he was weighing how regional actors would respond to the failure of the talks, ‘and whether they increase any type of their activity, which potentially goes down a path of miscalculation and causes . . . the conflict to broaden’. ‘I’m focused on how do we not broaden the conflict, but also how do we protect our forces,’ he said.”


Ukraine War Watch:

September 3 – Reuters (Olena Harmash): “At least 50 people were killed and 271 wounded when Russia hit a military institute in Ukraine's central town of Poltava with two ballistic missiles on Tuesday, the war's deadliest single attack this year. Photographs posted on social media showed several bodies of young men on the ground covered in dust and debris, with the badly damaged side of a large building behind them.”

September 2 – Reuters (Pavel Polityuk and Vladyslav Smilianets): “Loud explosions rocked Ukraine's capital Kyiv early on Monday as Russia launched a barrage of missiles, sparking fires and damaging homes and infrastructure, officials said. Residents across the city were awoken by a quick succession of bangs and the sound of air defence missiles blasting off skyward to intercept targets. The air force said it had destroyed 22 out of 35 missiles and 20 of 23 attack drones. It listed several types of cruise and ballistic missiles used by Russia.”

September 4 – Reuters (Andriy Perun and Anastasiia Malenko): “A Russian drone and missile attack early on Wednesday killed seven people, including four members of the same family, in the western Ukrainian city of Lviv... The mayor of Lviv, which is close to the border with NATO member Poland, said one man… lost his wife and three young daughters when their home was struck. ‘In the centre of Europe, Russia is eliminating Ukrainians by (killing off) entire families. The Russians are killing our children, our future,’ mayor Andriy Sadovyi said via social media.”


Taiwan Watch:

September 5 – Bloomberg: “China handed a nine-year prison term to a Taiwanese political activist convicted of ‘separatism,’ a rare sentence that prompted Taiwan to warn its people about the dangers of traveling across the strait.”


Election Watch:

September 4 – Bloomberg (Akayla Gardner and Jennifer Epstein): “Vice President Kamala Harris called for a 28% capital gains tax rate on people earning $1 million or more, touting it as a measure that would ensure the wealthy paid their fair share as she sought to detail her economic agenda and draw a contrast with Republican rival Donald Trump. ‘While we ensure that the wealthy and big corporations pay their fair share, we will tax capital gains at a rate that rewards investment in America’s innovators, founders and small businesses,’ Harris said…”


Market Instability Watch:

September 5 – Bloomberg (Alexandra Harris): “Investors poured cash into US money-market funds for a fifth-straight week, offering the latest indication that demand is strong in the face of the Federal Reserve interest-rate cuts. Some $37 billion was added to the funds in the week ending Sept. 4, bringing the recent streak of inflows to about $165 billion, according to the latest Investment Company Institute data. That put total assets at a record $6.3 trillion, up from a previous peak of $6.26 trillion.”

September 6 – Reuters (Angelo Amante): “Italy's president said there was an ‘inescapable need’ to bring down the country's mammoth public debt, but warned on Friday that markets' perception was a ‘questionable’ indicator of the financial reliability of a nation… President Sergio Mattarella said that the cost of servicing Rome's debt was far higher than neighbours due to interest rates. ‘And yet Italy is an honourable debtor, with a 30-year history of annual primary government surpluses, with a public debt that has grown to a large extent, since 1992, mainly due to interest,’ Mattarella said. Italy's public debt, the second largest in the euro zone as a proportion of output, is under close scrutiny by rating agencies and currently seen by the Treasury rising to nearly 140% of GDP through 2026.”


Global Credit Bubble Watch:

September 5 – Bloomberg (Caleb Mutua and Jeannine Amodeo): “The surge of borrowing in the US corporate debt market, on the surface, looks odd. Despite all the excitement about the Federal Reserve’s long-awaited pivot toward easing monetary policy, it hasn’t done so yet. In fact, its benchmark interest rate is still pinned at a more than two-decade high. But up and down corporate America…, executives are turning to Wall Street to borrow cash at a blistering pace… In the week after the Labor Day holiday, Wall Street typically snaps back from its summertime lull. This time, it has been particularly strong. On Tuesday and Wednesday alone, nearly 50 companies sold some $72 billion of new bonds, marking the busiest two days on record. By Thursday, the tally had reached $80 billion. On top of that, at least 27 others launched some $28 billion of deals in the leveraged loan market… That corner of Wall Street hadn’t seen so much activity during the first week of September since 2021…”

September 5 – Bloomberg (Erin Hudson and Sri Taylor): “States and local governments are poised to sell debt at the fastest clip in four years as borrowers aim to get ahead potential volatility from the US presidential election in November. Municipal bond issuers like cities and school districts have already teed up $21 billion of debt sales over the next 30 days, the highest visible supply since October 2020… That index represents a fraction of what actually comes to market, given that deals are often announced with less than one-month’s notice… Munis sales broadly have surged to $327 billion so far this year, a 38% increase from the same period last year… In August, governments brought roughly $50 billion to market, the biggest month of issuance since October 2020…”

September 6 – Bloomberg (Tasos Vossos): “Banks are having their busiest week of issuance of Additional Tier 1 bonds since this risky type of bank debt was introduced in the wake of the global financial crisis. European lenders, which account for the bulk of the AT1 market globally, raised the equivalent of $7.9 billion of capital this week, surpassing every other weekly tally on record…”

September 5 – Bloomberg (Giovanna Bellotti Azevedo and Leda Alvim): “In just a little over a decade, Nu Holdings Ltd. has gone from an obscure fintech startup in Sao Paulo to the most valuable bank in all of Latin America. It’s been a dizzying ascent, powered by a business model that Brazil’s uber-conservative banking titans never had much of a stomach for: lending to low-income families. Growth keeps coming at a breakneck pace — some 60% of all Brazilian adults now have Nubank’s app on their phone — and investors keep frantically bidding the stock higher. It’s up 36% over the past month, 109% over the past year and 214% in the past two years.”


AI Bubble Watch:

September 4 – Bloomberg (Jeran Wittenstein and Ryan Vlastelica): “The sharp selloff that wiped a record $279 billion off Nvidia Corp.’s market value on Tuesday has traders scouring charts for clues as to where the pain might end. For Jay Woods, chief global strategist at Freedom Capital Markets, $100 per share is a key level to watch — around the price of last month’s lowest close… ‘I don’t want to see the stock make a new closing low by taking out the August low. That would really suggest that things have changed, at least in terms of the technicals,’ Woods said.”

August 31 – Financial Times (George Hammond): “Top artificial intelligence companies are facing a wave of copyright litigation and accusations that they are aggressively scraping data from the web, a problem exacerbated as start-ups hit a ‘data frontier’ hindering new advances in the technology. This month, a trio of authors sued Anthropic for ‘stealing hundreds of thousands of copyrighted books’, claiming the San Francisco AI start-up ‘never sought — let alone paid for — a licence to copy and exploit the protected expression contained in the copyrighted works fed into its models’. The class-action lawsuit adds to a long list of ongoing copyright cases, the most prominent of which was brought by the New York Times against OpenAI and Microsoft late last year.”

September 4 – Bloomberg (Charlotte Yang): “Foreign investors pulled out of Taiwan’s technology-heavy stock market in record numbers after renewed concerns about overheating in the artificial intelligence sector fueled a global rout. Overseas investors sold NT$100.8 billion ($3.1 billion) of Taiwanese shares on a net basis on Wednesday, a record daily outflow… The hasty retreat came after AI bellweather Nvidia Corp. suffered the biggest market cap slide in history, which led to a wave of selling in Asian tech stocks.”


Bubble and Mania Watch:

September 2 – Wall Street Journal (Gunjan Banerji): “Americans have rarely been this giddy about the stock market. They are piling into stocks as major indexes reach new highs and placing bets that the rally that has driven the S&P 500 up 18% this year has more room to run. The surging stock market has minted millionaires and helped send many Americans’ net worth sharply higher. As of the second quarter, the number of 401(k) retirement accounts at Fidelity Investments worth at least $1 million reached around 497,000... That is up 31% from a year ago and a record high. U.S. households’ stock allocations have steadily inched up this year, according to JPMorgan estimates, and recently accounted for around 42% of their total financial assets. That is the most on record in data going back to 1952.”

September 3 – Bloomberg (Vildana Hajric): “Half your coworkers might have just spent August in Europe, but there were no holiday doldrums in the booming world of ETFs. Fueled by big cross-asset gyrations on Wall Street, investors added $75 billion to US exchange-traded funds last month, five times more than the same period in 2023. It may well prove the tipping point that keeps inflows roaring toward another historic annual cash haul, after July saw $122 billion — the second-biggest monthly intake ever.”

September 6 – Reuters (Gaurav Dogra and Patturaja Murugaboopathy): “U.S. equity funds experienced their largest weekly outflow in 12 weeks… According to LSEG data, investors disposed of a net $11.73 billion worth of U.S. equity funds during the week, registering a fourth weekly outflow in five weeks… By segment, U.S. large cap funds observed a weekly net sale of $4.28 billion… Small-cap, mid-cap and multi-cap funds also posted outflows, valued at $1.77 billion, $1.34 billion and $667 million, respectively. The technology sector faced about $879 million worth of net sales, the biggest weekly outflow in six weeks.”

September 2 – Financial Times (Steve Johnson): “Actively managed exchange traded funds are poised to hit $1tn in assets… The vehicles, which offer a cheaper rival to mutual funds that try to outperform indices, reached $974bn in assets as of the end of July, data from consultancy ETFGI showed. The gains mark a sharp increase in recent years for active ETFs, which have been around since at least 2006 but took until 2018 to reach $100bn in assets... After US regulatory changes in 2019 sped up launch times, active ETF assets have mushroomed at a compound annual growth rate of 48%. Globally, the number of active ETFs has more than quadrupled to 2,761 over the same period.”

August 30 – Financial Times (William Cohan): “The financial train wreck laying waste to parts of the market for big office buildings in some of America’s largest cities is showing no signs of abating… The detritus is strewn everywhere. Take a look at some of the Los Angeles properties that have been in the portfolios of asset management behemoth Brookfield… One 52-floor office tower on South Figueroa Street is reported to be being sold for just $120mn, or $170mn less than the debt that Brookfield owed on the building to a syndicate of banks... And the county of Los Angeles recently agreed to buy Gas Company Tower, a building that had been owned by a Brookfield affiliate before it walked away from the property, for $215mn, well down on its appraised value of $632mn in 2020. Another building owned by a Brookfield portfolio, the 41-floor EY Plaza with $300mn of debt linked to it, had been placed in receivership last year.”

September 2 – Politico (Katy O’Donnell): “Four and a half years after the pandemic sent workers home, the office property bill is finally coming due. The market for office buildings — already reeling from higher vacancy rates amid the rise in remote-work policies — has been crushed by high borrowing costs, and while the Federal Reserve is at last preparing to cut interest rates, it may be too little, too late. Investors, banks and property owners are now beginning to accept that some commercial buildings will never recover their pre-pandemic value, and that’s leading to a steady drumbeat of distressed sales. The market’s troubles have caught the attention of Congress — with one New York lawmaker calling it a ‘ticking time bomb’ for banks as nearly $1 trillion in commercial real estate loans are coming due this year.”

September 2 – Wall Street Journal (Will Parker): “For more than a year, apartment renters in many cities have been getting some relief from price increases because of the enormous amount of new supply being delivered by developers. Now, big investors are betting that downward pressure on rents from new supply is coming to an end and the market is shifting back in landlords’ favor. At the heart of their reasoning: the critical metric of new construction starts, which began slowing last year and now are falling even further. Apartment developers are stepping on the brakes, especially compared with the building frenzy in the early years of the pandemic. Across the country some rental-construction projects are getting stalled, as developers struggle to obtain the financing needed to complete them. Other investors are pivoting to more lucrative alternatives.”


U.S./Russia/China/Europe Watch:

September 4 – Reuters (Dmitry Antonov and Mark Trevelyan): “Russian Foreign Minister Sergei Lavrov, responding to a question about the potential delivery of long-range U.S. missiles to Ukraine, warned the United States… not to joke about Russia’s ‘red lines’. Lavrov said the U.S. was losing sight of the sense of mutual deterrence that had underpinned the balance of security between Moscow and Washington since the Cold War, and that this was dangerous. He was commenting on a Reuters report that the U.S. is close to an agreement to supply Ukraine with long-range JASSM cruise missiles that could reach deep inside Russia… ‘I won’t be surprised by anything - the Americans have already crossed the threshold they set for themselves. They are being egged on, and Zelenskiy of course sees this and takes advantage of it,’ Lavrov told a Russian TV interviewer.”

September 1 – Reuters (Mark Trevelyan): “Russia will make changes to its doctrine on the use of nuclear weapons in response to what it regards as Western escalation in the war in Ukraine, state media quoted Deputy Foreign Minister Sergei Ryabkov as saying… The existing nuclear doctrine, set out in a decree by President Vladimir Putin in 2020, says Russia may use nuclear weapons in the event of a nuclear attack by an enemy or a conventional attack that threatens the existence of the state. Some hawks among Russia's military analysts have urged Putin to lower the threshold for nuclear use in order to ‘sober up’ Russia's enemies in the West.”

September 6 – Wall Street Journal (Clarence Leong): “Chinese authorities have detained at least two outspoken dissidents in recent weeks, drawing criticism from U.S. lawmakers and human-rights groups, and adding to friction between Beijing and Washington. On Wednesday, Amnesty International said that Zhang Zhan, a citizen journalist and former lawyer who gained attention for publishing video reports from Wuhan during the earliest days of the Covid-19 pandemic, had been detained again after serving a four-year prison sentence. Days earlier, authorities had arrested Gao Zhen, an artist who made a series of sculptures lampooning revered state founder Mao Zedong in the mid-2000s before moving into self-imposed exile in the U.S. His wife and 6-year-old son, a U.S. citizen, have been barred from leaving China…”

September 5 – Reuters: “Russia said… it would take retaliatory measures against U.S. media in response to U.S. charges against Russian media executives and state broadcaster RT, which Washington has accused of trying to influence the 2024 presidential election. The United States… filed money-laundering charges against two employees of RT for what officials said was a scheme to hire an American company to produce online content to influence the 2024 election.”


De-globalization and Iron Curtain Watch:

September 3 – Bloomberg (Hallie Gu, Megan Durisin and Michael Hirtzer): “China will start an anti-dumping probe into rapeseed imports from Canada, with trade tensions escalating after Justin Trudeau’s government imposed tariffs on Chinese-made electric vehicles, steel and aluminum. The Asian nation is initiating measures following relevant restrictive actions taken by Canada, according to… the Ministry of Commerce. China will take all necessary actions to safeguard the legitimate rights and interests of Chinese companies, the agency added. Canada last month announced a 100% levy on electric cars and 25% on steel and aluminum, joining western allies to protect domestic manufacturers. Rapeseed is used to crush into oil for cooking and fuel and meal for feeding animals, and China is the world’s second-biggest importer of the commodity.”

September 2 – Bloomberg (Jenny Leonard): “China has threatened severe economic retaliation against Japan if Tokyo further restricts sales and servicing of chipmaking equipment to Chinese firms, complicating US-led efforts to cut the world’s second-largest economy off from advanced technology. Senior Chinese officials have repeatedly outlined that position in recent meetings with their Japanese counterparts… One specific fear in Japan, Toyota Motor Corp. privately told officials in Tokyo, is that Beijing could react to new semiconductor controls by cutting Japan’s access to critical minerals that are essential for automotive production…”

September 5 – Reuters (Alexandra Alper and David Shepardson): “The Biden administration told Nippon Steel in a letter on Saturday its $14.9 billion acquisition of U.S. Steel would pose a national security risk by harming the American steel industry, three people said, adding to evidence the U.S. is poised to block it. The deal faces opposition from numerous Democrats and Republicans, with Vice President and Democratic presidential candidate Kamala Harris saying on Monday she wants U.S. Steel to remain ‘American owned and operated.’ Her Republican rival Donald Trump has pledged to block the deal if elected.”


Inflation Watch:

September 4 – Reuters (Abhinav Parmar and Lisa Baertlein): “The International Longshoremen's Association union, representing 45,000 workers at major container ports from Texas to Maine, began two days of meetings… to review wage demands and prepare for a potential strike on Oct. 1. Formal talks have reached an impasse as the union and the United States Maritime Alliance (USMX) employer group wrangle over pay, terminal automation, healthcare coverage and retirement benefits. A source familiar… said the ILA has asked for a 77% pay bump over the life of the new contract. Three experts told Reuters the final increase would likely improve on the 32% rise the West Coast longshore union negotiated last year.”

September 2 – Financial Times (Valentina Romei and Sam Fleming): “Dissatisfaction with housing costs has hit a record high across rich countries, soaring above other worries such as healthcare and education. Half of respondents in OECD nations are dissatisfied with the availability of affordable housing, according to Gallup Analytics figures… Researchers partly blame a lack of construction of new homes for the affordability crisis. ‘Basically we haven’t built enough,’ said Willem Adema, a senior economist in the social policy division of the OECD, adding that developers were often targeting wealthier households, exacerbating the strain on those on lower incomes.”

September 2 – Reuters (Doyinsola Oladipo and Mrinmay Dey): “Some 10,000 U.S. hotel workers began a multi-day strike in several cities on Sunday after contract talks with hotel operators Marriott International, Hilton Worldwide, and Hyatt Hotels stalled, the Unite Here union said. Unite Here, which represents workers in hotels, casinos, and airports across the United States and Canada, said thousands of workers at 24 hotels are on strike in some major travel destinations including San Francisco and San Diego in California, Hawaii's capital city Honolulu, Boston, Seattle, and Greenwich, Connecticut, with workers from additional cities ready to join the walkout…”

September 3 – Financial Times (Ian Smith): “The global insurance sector should expect $151bn in annual losses from natural catastrophes and a lot more in bad years… The industry is struggling to cope with a surge in property claims from natural disasters that has pushed up the cost of cover and made insurers pull back from some at-risk areas. Verisk, one of the big risk modelling firms whose models are used across the insurance and reinsurance sector, said… its average expected loss for the sector was at a new high. Rob Newbold, a president at Verisk, said that the past four difficult years for the industry ‘should not be seen as outliers’. ‘Our models show the insurance industry should be prepared to experience total annual insured losses from natural catastrophes of $151bn on average, and well more than that in large loss years,’ he added.”


Federal Reserve Watch:

September 6 – Bloomberg (Amara Omeokwe and Katherine Doherty): “Federal Reserve Bank of New York President John Williams said it is now appropriate for the central bank to reduce interest rates, given progress on lowering inflation and a cooling in the labor market. Williams said there had been ‘significant progress’ toward the Fed’s dual goals of maintaining stable prices and maximum employment and that the risks to achieving both have moved into ‘equipoise,’ or a state of equilibrium. ‘With the economy now in equipoise and inflation on a path to 2%, it is now appropriate to dial down the degree of restrictiveness in the stance of policy by reducing the target range for the federal funds rate,’ Williams said Friday…”


U.S. Economic Bubble Watch:

September 6 – CNBC (Jeff Cox): “The U.S. economy created slightly fewer jobs than expected in August, reflecting a slowing labor market while also clearing the way for the Federal Reserve to lower interest rates later this month. Nonfarm payrolls expanded by 142,000 during the month, up from 89,000 in July and below the 161,000 consensus forecast… At the same time, the unemployment rate ticked down to 4.2%, as expected… On wages, average hourly earnings increased by 0.4% on the month and 3.8% from a year ago, both higher than the respective estimates for 0.3% and 3.7%. Hours worked nudged higher to 34.3.”

September 5 – Wall Street Journal (Brian K. Sullivan and Tarso Veloso): “Believe it or not, the U.S. labor shortage may be getting worse. Job growth is ‘anemic on Main Street’ but it’s not because owners of small firms aren’t still trying to hire. That’s according to the latest monthly employer survey from the National Federation of Independent Business… In NFIB’s August survey, 40% (seasonally adjusted) of all owners reported job openings they could not fill in the current period, up 2 points from July. Thirty-six percent have openings for skilled workers (up 4 points) and 15% have openings for unskilled labor (down 1 point)… Overall, the percent of firms with one or more job openings they can’t fill remains at exceptionally high levels. This indicates continued upward pressure on compensation and, ultimately, on inflation.”

September 5 - Associated Press (Matt Ott): “The number of Americans filing for unemployment benefits fell last week as layoffs remain relatively low despite other signs of labor market cooling. Jobless claims fell by 5,000 to 227,000 for the week of Aug. 31… That’s less than the 230,000 new filings analysts were expecting. The four-week average of claims, which evens out some of the week-to-week volatility, fell by 1,750 to 230,000. Weekly filings for unemployment benefits, which are considered a proxy for layoffs, remain low by historic standards. The total number of Americans collecting jobless benefits declined by 22,000 to 1.84 million for the week of Aug. 24.”

September 4 – Bloomberg (Jarrell Dillard): “US job openings fell in July to the lowest since the start of 2021 and layoffs rose… Available positions decreased to 7.67 million from a downwardly revised 7.91 million reading in the prior month, the Bureau of Labor Statistics Job Openings and Labor Turnover Survey, known as JOLTS, showed… The number of vacancies per unemployed worker, a ratio the Fed watches closely, declined to 1.1, still the lowest in three years. At its peak in 2022, the ratio was 2 to 1. The so-called quits rate, which measures people who voluntarily leave their job, edged up to 2.1%, still near the lowest since 2020.”

September 5 – Reuters (Lucia Mutikani): “U.S. private employers hired the fewest number of workers in 3-1/2-years in August and data for the prior month was revised lower… Private payrolls increased by 99,000 jobs last month, the smallest gain since January 2021, after rising by a downwardly revised 111,000 in July, the ADP National Employment Report showed… Economists… had forecast private employment would advance by 145,000 positions after a previously reported gain of 122,000.”

September 5 – CNBC (Jeff Cox): “Layoffs soared in August, hitting their highest total for the month in 15 years, while year-to-date hiring reached a historic low, outplacement firm Challenger, Gray & Christmas reported… Announced job cuts totaled 75,891 for the month, lurching 193% higher than July. Though the total was just 1% higher than the same month in 2023, it was the highest number for August going back to 2009… On the hiring front, companies said they were adding just 6,101 new workers, up by nearly 2,500 since July, but down more than 21% from August 2023. The year-to-date hiring announcements of nearly 80,000 is the lowest total in history going back to 2005.”

September 5 – Bloomberg (Vince Golle): “The US services sector expanded at a modest pace for a second month in August as a measure of employment effectively stagnated and order backlogs slumped. The Institute for Supply Management’s index of services was little changed at 51.5… The employment index slipped to 50.2 during the month… A gauge of prices paid by service providers edged up to 57.3 in August, a three-month high and in line with the average over the past year.”

September 3 – Reuters (David Lawder): “U.S. small business startup applications are surging this year with sentiment improving in the sector after a rocky post-pandemic period as inflation eases, a U.S. Treasury report showed… The Treasury analysis… showed that the U.S. is averaging 430,000 new business applications per month so far in 2024. That is 50% more than the average in 2019… Applications for businesses most likely to hire employees have risen to 140,000 per month, 30% more than 2019, the report shows. It added that small businesses since 2019 are now providing 70% of net new American jobs, up from 64% in the previous business cycle.”

September 4 – Bloomberg (Amara Omeokwe): “Economic activity was flat or declining across most regions in the US in recent weeks, the Federal Reserve said in its Beige Book survey of regional contacts. Employment levels were generally flat to up slightly… While reports of layoffs were rare, some firms noted cutting shifts and hours, leaving advertised positions unfilled or reducing headcount through attrition. ‘Employers were more selective with their hires and less likely to expand their workforces, citing concerns about demand and an uncertain economic outlook,’ the report said. Prices and wages increased modestly during the period, according to the Fed.”

September 3 – Bloomberg (Vince Golle): “US manufacturing activity shrank in August for a fifth month, reflecting faster rates of declines in orders and production. The Institute for Supply Management’s manufacturing gauge edged up 0.4 point to 47.2… The group’s measure of production slid for a fifth month… to the lowest level since May 2020. The gauge of new orders, which showed bookings are shrinking, dropped to a 15-month low. Export orders also shrank at the fastest rate since the start of the year… Costs also remain a headache. The ISM index of prices paid for materials rose to a three-month high of 54 in August from 52.9. After declining for most of 2023, the gauge of input costs has shown rising prices every month this year.”

September 4 – CNBC (Diana Olick): “Mortgage demand is now heavily skewed toward refinancing, as interest rates declined for the fifth straight week… Applications to refinance a home loan fell 0.3% for the week but were 94% higher than a year ago. That might seem like a massive increase, but it is coming off a very low number… Applications for a mortgage to purchase a home rose 3% for the week but are still 4% lower than the same week a year ago.”

September 1 – Axios (Erica Pandey): “The share of Americans moving has reached its lowest in history — and it doesn’t look like it’s climbing back up anytime soon. Why it matters: Moving — across town, across the state and across the country — for new jobs and better lives was once a common part of American life. Now, staying put longer is the norm. By the numbers: In the 1960s, around 1 in 5 Americans moved each year, according to the Brookings Institution. As of 2022, that’s fallen to 8.7%... Breaking it down: A collision of key demographic, social and economic trends is driving the decline, William Frey, senior demographer at Brookings, tells Axios.”

September 4 – Financial Times (Stephen Gandel): “US homebuilders are facing their biggest credit crunch in more than a decade, with banks cutting lending for residential construction by more than 10 per cent. US banks had $92bn of loans outstanding to fund the construction of dwellings for one to four families in the quarter to the end of June, down from $102bn a year ago. This is the largest year-on-year drop in more than a decade, according to an analysis by BankRegData… It was also the fifth consecutive quarter in which lending for home construction fell.”


China Watch:

September 5 – Bloomberg: “Former People’s Bank of China Governor Yi Gang said his nation should focus on ending deflation, in a rare admission by a prominent figure in China that falling prices are threatening the country’s growth outlook. ‘I think right now they should focus on fighting deflationary pressure,’ Yi said… China’s immediate focus should be to turn its gross domestic product deflator positive in the coming quarters, the former PBOC chief said.”

September 5 – Bloomberg: “Expectations that China will cut interest rates on outstanding home loans is rising after the balance of mortgages at the country’s top lenders shrank in the first half of 2024… China’s six largest state-run banks reported a 325.5 billion yuan ($45.8bn) drop in their total outstanding mortgages in the first six months this year, the report says… Overall outstanding home loans in the country dropped about 400 billion yuan ($56.2bn) in the second quarter…”

September 6 – Bloomberg: “China Vanke Co.’s sales slump worsened in August amid concerns about the developer’s ability to repay debt. Contracted sales declined 24% from a year earlier to 17.24 billion yuan ($2.4bn), widening from a 13% slide in July… Transactions shrank 10% on month. Vanke’s liquidity levels have faced renewed scrutiny after the developer posted its first loss in two decades. It had a short-term refinancing gap of about 12 billion yuan at the end of June due to a spike in long-term debt due within a year… That’s the first time Vanke’s cash balance has failed to cover interest-bearing debt maturing in less than a year since at least 2014. A sales slump ‘could endanger Vanke’s solvency in 2025 and 2026,’ Bloomberg Intelligence analysts Kristy Hung and Monica Si wrote…”

September 1 – Wall Street Journal: “China’s property crisis has hit local governments hard, drying up a key source of income as land sales crumble. Fiscal reform plans have sparked hope relief is on the way, but economists see little progress. Cash-strapped and indebted, regional governments are seeking alternative revenue streams to compensate for falling land and tax income. That is a worrying sign that fiscal conditions are deteriorating, analysts say, and bodes ill for China’s sputtering economy. For the first seven months of 2024, China’s tax revenue fell 5.4% on the year, reflecting continued economic malaise and tax cuts. Local government proceeds from land sales slid over 20%...”

August 31 – Bloomberg: “China’s residential slump deepened in August, as expectations of a further drop in new-home prices hampered the country’s efforts to cushion the downturn. The value of new-home sales from the 100 biggest real estate companies fell about 26.8% from a year earlier to 251 billion yuan ($35.4bn), faster than the 19.7% decline in July… The accelerating slide shows the waning impact of the latest rescue package unveiled in May. At least 10 city governments have loosened or scrapped new-home price guidances to let market demand play a bigger role, a move that is expected to drive more real estate companies to cut prices… The country had 382 million square meters of unsold new homes as of July, equivalent to about the size of Detroit…”

September 4 – Bloomberg: “China’s services activity expanded less than expected, a private survey showed, adding to worries over the economy’s health. The Caixin China services purchasing managers’ index fell to 51.6 in August, versus 52.1 the previous month... The median forecast of economists surveyed by Bloomberg was 51.8.”

September 2 – CNBC (Anniek Bao): “China’s factory activity grew modestly among smaller manufacturers last month as export orders offset weakening domestic consumption, according to a private survey. The Caixin/S&P Global manufacturing PMI came in at 50.4 in August… The private gauge, which focuses on smaller and export-oriented companies, came in contrast with the broader official PMI data…, which showed the country’s manufacturing activity extended declines to a six-month low at 49.1.”

August 31 – Bloomberg: “China’s factory activity contracted for a fourth straight month in August, the latest sign the world’s No. 2 economy may struggle to meet this year’s economic growth target. The official manufacturing purchasing managers’ index declined to 49.1 from 49.4 in July… The reading has been below the 50-mark separating growth from contraction for all but three months since April 2023.”

September 5 – Bloomberg: “Spreads for Chinese corporate notes have widened to the most in a year as investors piled into the nation’s sovereign debt market. The yield premium of three-year AAA-rated corporate yuan bonds over comparable central government debt grew to 55 bps on Tuesday, a level not seen since last September… Spreads were little changed on Wednesday, tightening by about one basis point.”

September 5 – Bloomberg: “China is combining two of its largest state-backed brokerages to create a new behemoth as it seeks to consolidate the $1.7 trillion sector and build stronger investment banks to compete with overseas financial firms. Guotai Junan Securities Co. will merge with smaller rival Haitong Securities Co. through a share swap… The combination of the firms, both partly owned by Shanghai’s state assets administrator, will create a new entity with assets of 1.6 trillion yuan ($230bn), topping Citic Securities Co. as the largest brokerage.”

September 3 – Bloomberg (Li Liu): “China’s regulators promise to strengthen monitoring of risks from illegal financial activities via a targeted crackdown, according to… the National Financial Regulatory Administration. The campaign is targeted at ensuring economic and financial security, as well as social stability…”

September 3 – Bloomberg (Upmanyu Trivedi): “A couple accused in China of leading a fraud worth 262.5 billion yuan ($37.7bn) are facing a British investigation into how they built up a multi-million pound property portfolio in the UK… The UK’s National Crime Agency is scrutinizing whether the collection of student rental properties acquired by Wenjun Tian and his wife were bought using money from criminal activities... They’re suspected in China of bagging some £1.2 billion ($1.6bn) stemming from a 14 year fraud that used a string of shell companies to apply for fraudulent loans as well as stock market manipulation.”

September 4 – Reuters (Julie Zhu and Selena Li): “A top 10 Chinese fund manager has asked senior executives to return pay received over the past five years that exceeds a new cap, to tally with a government initiative promoting economic equality, said two people with direct knowledge... China Merchants Fund Management (China Merchants FM) wants the executives to repay income beyond a 3 million yuan ($421,330) limit imposed this year for each year from 2019 to 2023…”

September 3 – Financial Times (Thomas Hale and Joe Leahy): “Investment banks are cutting their growth forecasts for China, believing Beijing risks undershooting its official target of about 5% as confidence wanes in the world’s second-largest economy. Bank of America… lowered its forecast from 5% to 4.8% and Canadian investment bank TD Securities cut from 5.1% to 4.7%. The moves followed a UBS cut last week and a series of similar reductions over the summer. Economists at Citi this week warned that Beijing’s official growth target… ‘could be at risk’, adding to mounting concerns over the trajectory of China’s economy as policymakers grapple with a prolonged property sector slowdown and weak consumer and investor confidence.”


Central Banking Watch:

September 4 – Bloomberg (Erik Hertzberg): “The Bank of Canada cut interest rates by a quarter percentage point for a third consecutive meeting, and reiterated that it’s ‘reasonable’ to expect more easing to come if inflation keeps decelerating. Policymakers… lowered the benchmark overnight rate to 4.25%..., as widely expected… Officials’ communications were little changed since their July meeting… They now see ‘little evidence’ of broad-based price pressures.”

September 3 – Bloomberg (Erica Yokoyama): “Bank of Japan Governor Kazuo Ueda reiterated that the central bank will continue to raise interest rates if the economy and prices perform as expected by the BOJ, a comment that supported further gains in the yen. Ueda made the remark in a document submitted to a government panel chaired by outgoing Prime Minister Fumio Kishida in which he explained the BOJ’s July policy decision.”

September 6 – Bloomberg: “Former Bank of Japan Governor Haruhiko Kuroda signaled that the central bank has a lot of room to raise borrowing costs in its policy normalization process by offering a rough idea of the nation’s neutral interest rate. ‘A nominal neutral rate, which the Bank of Japan is trying to gradually approach, could be less than 2%,’ Kuroda said… ‘A short-term nominal rate may be less than 2%, maybe around 1.5% or maybe less than that.”

September 6 – Bloomberg (Toru Fujioka and Takashi Umekawa): “The Bank of Japan may hike interest rates faster than many currently anticipate and it should strive to better telegraph those moves to ensure markets don’t panic, according to a former official. ‘Rate hikes could be faster than everyone expects,’ said Tsutomu Watanabe, the former official and an economics professor at the University of Tokyo. ‘Two more moves this year are possible,’ he said.”


Global Bubble Watch:

September 2 – Wall Street Journal (Fabiana Negrin Ochoa): “Asia’s latest factory activity data showed some loss of momentum midway through the third quarter, but a broad continuation of growth in output and orders. Views among manufacturers on the sector’s outlook were mixed amid uneven price and demand developments through the region, though many were cautiously upbeat. S&P Global’s manufacturing purchasing managers index readings for Japan and South Korea signaled improvement in August, while those for India, Thailand, Taiwan and Malaysia indicated expansions in manufacturing, though at a slower pace.”


Europe Watch:

September 5 – Financial Times (Sarah White): “President Emmanuel Macron has named the EU’s former Brexit negotiator Michel Barnier as France’s next prime minister in a bid to break a post-election political stalemate. The Élysée Palace said… Barnier had been ‘tasked with forming a unifying government to serve the country and the French’. Barnier, 73, is a veteran of France’s conservative Les Républicains (LR), a party Macron has wooed to find a candidate who can command majority support in the National Assembly and who will not seek to undo the president’s past pro-business reforms. Although Barnier comes from a rival centre-right party, Macron has chosen a premier with significant standing on the European stage, having served as France’s EU commissioner in the high-profile financial services portfolio for four years, then later as Brussels’ negotiator with London on Brexit.”

September 2 – Financial Times (Editorial Board): “Voters across much of Europe are flocking to populist and nationalist parties seeking an alternative to mainstream politics. But the victory of the far-right Alternative for Germany (AfD) in Sunday’s regional elections in Thuringia is particularly disturbing. It marks the party’s first victory in a state parliament ballot, and the AfD came a close second to the centre-right in neighbouring Saxony… The AfD’s rise is also more troubling than those of equivalents in France or Italy, say, because of its radicalism. Some members openly espouse ethno-nationalist and xenophobic views, and sections of it are deemed extremist by Germany’s security services.”

September 3 – Reuters (Elizabeth Pineau and Leigh Thomas): “France could see its budget deficit spiral unexpectedly higher this year and next if extra savings are not found, the finance ministry warned in a letter to lawmakers, as the euro zone's second-biggest economy lurches deeper into political crisis. The deteriorating finances, which have also put Paris into EU disciplinary proceedings, add to pressure on President Emmanuel Macron… The document sent to lawmakers on Monday by the finance ministry indicated that the public sector budget deficit risks reaching 5.6% of economic output this year…”

August 31 – Financial Times (Paola Tamma and Henry Foy): “Brussels is set to push EU member states towards a radical overhaul of its €1.2tn common budget, tying payments to economic reforms instead of automatically compensating poorer countries. Talks on the next long-term budget round will start in the autumn, kicking off one of the EU’s most complex and fraught policy negotiations. One of the most contentious changes sought by the European Commission will be to revamp rules governing so-called cohesion funds, which distribute tens of billions of euros a year to close the economic gap between richer and poorer parts of the union… One EU official briefed on initial work for the 2028-34 budget said so-called net recipient countries — member states that receive more from the budget than they put into it — ‘need to understand that the world where they get an envelope of cohesion funding with no conditions… is gone’.”

September 4 – Reuters (Jonathan Cable): “Euro zone business activity received a boost from France hosting the Olympic Games last month but the malaise in the bloc is likely to return once the Paralympics wraps up as demand remains weak... HCOB's composite Purchasing Managers' Index for countries in the currency union, compiled by S&P Global and seen as a good gauge of overall economic health, jumped to 51.0 in August from July's 50.2.”


Japan Watch:

September 4 – Bloomberg (Toru Fujioka): “Bank of Japan Board Member Hajime Takata highlighted the need for higher interest rates if inflation continues to develop in line with the bank’s outlook, although he indicated there’s no need to rush any move. ‘It will be necessary to adjust the degree of monetary easing by shifting up another gear’ if inflationary trends align with projections, Takata said… ‘We need to proceed with making a world with positive interest rates.’ Takata later told reporters… that he’s seeing progress toward achieving a virtuous cycle in which rising wages spur spending, supporting demand-led inflation, but any policy moves will be conditional on data.”

September 3 – Reuters (Kantaro Komiya): “Japan's service-sector activity extended gains in August, a private sector survey showed…, thanks to an uptick in overseas sales despite a darkening global outlook. The final au Jibun Bank Service purchasing managers' index (PMI) was unchanged at 53.7 last month, staying above the 50.0 line that separates expansion from contraction for a second consecutive month.”

September 1 – Reuters (Makiko Yamazaki): “Japanese corporate spending on plant and equipment rose at a faster pace in the second quarter, keeping alive expectations of a domestic-led recovery in economic growth and supporting the case for more interest rate increases over coming months. The solid expenditure data… comes on top of a factory survey showing a milder contraction in manufacturing activity last month. Capital spending accelerated by 7.4% year-on-year in the April-June quarter from the previous quarter's rise of 6.8%...”

September 4 – Bloomberg (Erica Yokoyama): “Japan’s ministries have set a new record with their budget requests for the year starting April 2025, as the nation wrestles with the need to ramp up social security and defense spending while keeping its mountain of debt under control. The ministries requested a total of ¥117.6 trillion ($811bn) for the next fiscal year, representing a 2.8% increase from the initial demand of ¥114 trillion for the current year…”


Emerging Markets Watch:

September 2 – Reuters (Marcela Ayres): “Brazil's Finance Ministry will submit proposals to Congress this year to tax big tech companies and implement a global minimum tax of 15% on multinational corporations to secure the 2025 fiscal goal if there is a revenue shortfall… The ministry's executive secretary, Dario Durigan, said the plan aligns with discussions on global tax cooperation that Brazil has been addressing as chair of the G20 forum of the world's largest economies.”

September 3 – Bloomberg (Andrew Rosati): “Brazil’s economic growth picked up much more than expected in the second quarter, powered by strong consumer spending, raising the prospect of interest rate hikes in the near future… Gross domestic product expanded a whopping 1.4% in the April-June period compared to the first quarter. The number surpassed all forecasts…”

September 3 – Bloomberg (Ignacio Olivera Doll): “There are few places in all of Argentina as poor as La Rioja, a sleepy, desolate province carved out of the red-clay highlands that form the country’s northwestern border with Chile. And it is here, in La Rioja, that the financial toll of President Javier Milei’s shock economic therapy — a high-stakes bid to tame chronic inflation — can best be observed. When Milei slashed the monthly cash transfers from the federal government to the provinces, La Rioja went broke. In February, it fell into default. And soon the local economy had sunk into a deep recession. So the governor, an outspoken critic of Milei by the name of Ricardo Quintela, dialed up a radical plan of his own. He created the province’s own currency, the chacho, had sheets of it printed up and started doling it out in wads of 50,000 to all government employees.”


Leveraged Speculation Watch:

September 5 – Bloomberg (Annie Massa): “The wealth of ultra-rich families will likely swell to $9.5 trillion by 2030, according to estimates from consultancy Deloitte, as family offices grow and morph to rival hedge funds. The figure would mark a 73% jump from the current $5.5 trillion controlled by people represented by family offices… The number of investment firms for the wealthy is expected to grow by one-third over the same time period, to 10,720. As wealth inequality concentrates more money in the hands of the very rich, and as it becomes easier to open a family office, the industry is catching up with hedge funds in size and — in some cases — hiring from a similar pool of professional investors.”

September 3 – Bloomberg (Sam Potter and Justina Lee): “Cliff Asness says he sounds like an ‘old man whinging,’ but that’s not stopping him from writing 23 pages on his latest thesis: Financial markets these days aren’t what they were… ‘I believe markets have gotten less efficient over the 34 years since the data in my dissertation ended,’ writes Asness, 57. ‘I think the ups and downs will be bigger and last longer, making more money for those who can stick with it long term, but making it harder to do so.’ In one sense, it’s a big call coming from the hedge-fund executive. His PhD adviser at the University of Chicago was Eugene Fama, the godfather of what’s known as the efficient markets hypothesis… In terms of what has caused the change, Asness says that index investing, ultra-low interest rates and social media are all potential suspects. He ultimately lands on the latter and a subsequent ‘gamification’ of trading as likely having the biggest effect, as it has ushered many irrational actors into the investment world.”


Social, Political, Environmental, Cybersecurity Instability Watch:

September 4 – Associated Press (Seth Borenstein): “The world creates 57 million tons of plastic pollution every year and spreads it from the deepest oceans to the highest mountaintop to the inside of people’s bodies, according to a new study that also said more than two-thirds of it comes from the Global South. It’s enough pollution each year — about 52 million metric tons — to fill New York City’s Central Park with plastic waste as high as the Empire State Building, according to researchers at the University of Leeds... The study examined plastic that goes into the open environment, not plastic that goes into landfills or is properly burned.”

September 5 – Bloomberg (Brian K. Sullivan and Tarso Veloso): “Drought across the central US is shrinking the Mississippi River, sending barge rates soaring and threatening to roil shipments of everything from corn to gasoline. Dry conditions across the Ohio River basin, which feeds the Mississippi, have worsened already low water levels at the larger river, said David Welch, a hydrologist with the Lower Mississippi River Forecast Center. The Mississippi, a critical conduit shuttling food, energy and steel supplies to global markets, usually sees lower levels at this time of year.”

August 31 – Reuters (Tom Polansek): “Cows at three dairy farms in California, the top U.S. milk-producing state, tested positive for bird flu… The infections expand a U.S. outbreak of the H5N1 virus in dairy cattle to a 14th state. More than 190 herds have been infected nationally since March, along with 13 dairy and poultry farm workers, according to federal data.”

August 31 – Wall Street Journal (Jim Carlton): “Here in the far reaches of Los Angeles County, where the land is as dry as a bone beneath brittle yellow grass and brush, homes are in short supply for residents like Cristina Schmidt. ‘It’s hard to find a rental here,’ said Schmidt, 55, a housekeeper at a local hotel. ‘We need more housing.’ That is why she wholeheartedly supports Centennial at Tejon Ranch, a planned community of 19,333 homes, a fifth of them affordable, approved by Los Angeles County in 2019. But five years later, the project languishes as California’s acute housing crisis collides with an equally powerful adversary: wildfires. For the past decade, these dueling catastrophes have intensified, pitting the force of nature against the pressing need for shelter.”

September 5 – Wall Street Journal (Jean Eaglesham): “Faun James was at work in a Pennsylvania hospital last month when a storm flooded her town. Unable to drive in the surging water, she watched the devastation unfold from her home’s security cameras. Her possessions—and others’—were floating down her driveway… The torrential rains from tropical storm Debby poured into her basement, ruining wedding and family photos. Like nearly all her neighbors in Westfield, a town of 1,200, James has no flood insurance. Growing swaths of the U.S. that have never before been flooded are now in danger of being swamped as climate change fuels more intense rainfalls. Yet the government’s official flood maps haven’t been updated to reflect that rainfall risk, lulling some homeowners into a false sense of security.”


Geopolitical Watch:

September 2 – Financial Times (Kathrin Hille): “On July 24, China Coast Guard 5202 sailed loops around Thitu, an island in the Spratlys held by the Philippines, while at least four other vessels loitered around reefs close to the Philippine coast. Meanwhile, 700km to the south, a Chinese coastguard ship was conducting a weeks-long patrol at Luconia Shoals off the Malaysian coast, and 1,500km to the north, yet another sailed around the Senkaku Islands, capping a record 215-day presence in Japan’s territorial sea. The breadth of operations — which also included patrols deep inside Vietnam’s exclusive economic zone and off the shore of the Taiwan-controlled islet of Kinmen a few days earlier — illustrates how the force has become central to China’s enforcement of its vast maritime claims while intimidating its neighbours. ‘They are everywhere,’ said Captain Kentaro Furuya, a professor at the Japan Coast Guard Academy and a former coastguard officer. ‘They are trying to occupy the ocean as if it were part of their own land territory.’”

September 3 – Bloomberg (Cliff Venzo): “The Philippines said it has monitored the highest number of Chinese ships in the South China Sea this year, as Beijing projects its naval power amid renewed tensions with Manila. Some 203 Chinese vessels were spotted near nine Philippine outposts and other key areas in the contested waterway in the past seven days, higher than the 163 ships tracked the week prior... The surge can be attributed to the recent attention on Sabina Shoal…”

September 2 – Axios (Rebecca Falconer): “U.S. authorities seized Venezuelan leader Nicolás Maduro’s plane, which they say violated American sanctions, and brought it to Florida… The plane was seized in the Dominican Republic because the DOJ alleges that it was ‘illegally purchased for $13 million through a shell company and smuggled out of the United States for use by Nicolás Maduro and his cronies,’ Attorney General Merrick Garland said... Maduro was not on the plane at the time. His government… said the seizure was ‘piracy’ and an act of U.S. ‘aggression’ over the country’s disputed presidential election that the Venezuelan leader claimed he won in July…”

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