Baltic Dry Index. 994 -50 Brent Crude 76.59
Spot Gold 1918 US 2 Year Yield 4.94 unch.
Interest rates are to asset prices what gravity is to the apple. When there are low interest rates, there is a very low gravitational pull on asset prices.
Warren Buffett.
In the stock casinos, panic that the Fed minutes suggest more interest rate hikes to come.
If that actually happens in the USA over the next few months, recession, a commercial mortgage backed securities bust and more bank failures look all too likely to come in H2 23.
Over priced bubble stocks “take the escalator up, but the elevator down,” goes the old saying on Wall Street.
Hong Kong is already thinking about basements.
Hong Kong stocks tumble 3%, Asia markets dip
after Fed minutes point to more rate hikes
UPDATED THU, JUL 6 2023 12:12 AM EDT
Asia-Pacific markets saw sharp losses after
minutes from the U.S. Federal Reserve revealed that the central bank was split
on its decision to pause its rate hikes in June and sees
more hikes ahead at a slower pace.
Officials said that a brief pause
in the Fed’s tightening cycle would give the committee time to assess the
impacts of the hikes, the most aggressive moves since the early 1980s.
Hong Kong’s Hang Seng index led
losses in the region and tumbled almost 3%. In mainland China, the Shanghai Composite was
down 0.5% and the Shenzhen
Component lost 0.4%.
U.S. Treasury Secretary Janet
Yellen kicks off her visit
to Beijing this week, where she is expected to meet with senior
officials in China. This comes after China on Wednesday unexpectedly
canceled EU High Representative for Foreign Affairs Josep Borrell’s visit to
China.
In Japan, the Nikkei 225 fell
1.8% and the Topix shed 1.4%. In South Korea, the Kospi dropped 0.9% while the
Kosdaq fell nearly 2%.
In Australia, the S&P/ASX 200 slid
1.4%.
In Southeast Asia, Malaysia’s
central bank is expected to hold its overnight policy rate steady at 3%,
according to a Reuters poll.
Overnight in the U.S., markets ended lower after the Fed minutes, with the Dow Jones Industrial Average slipping 0.38% and the S&P 500 dropping 0.2%. Both indexes snapped
three-day winning streaks, and the Nasdaq Composite slipped 0.18% to round off the losses in the
three indexes.
Hong Kong stocks
tumble 3%, Asia markets dip after Fed minutes point to more rate hikes (cnbc.com)
Your
Evening Briefing: Fed Minutes Show More Hikes Likely on the Way
July
5, 2023
It seems that US Federal Reserve officials struck
a weak agreement to pause interest-rate increases in June, and in doing so
all but committed to hike them again later this month to keep fighting stubborn inflation.
The minutes from the Fed’s June 13-14
meeting show that while almost all officials deemed it “appropriate or
acceptable” to keep rates unchanged last month, some would have supported a
quarter-point increase instead. “It was a little surprising given that the
decision was sold as unanimous from Fed officials,” said Lindsey Piegza, chief
economist at Stifel Nicolaus & Co. “There was a divergence of opinions,
with some officials pretty clearly giving some reluctance for a one-month
pause.” Officials supporting a hike in June cited tight labor markets and
relatively few signs that inflation was slowing toward their 2% goal, according
to the minutes.
Some policymakers have expressed concern that
core inflation, in particular, hasn’t budged much in the last six months.
Whatever the disagreement among Fed officials, it’s fair to say the key
takeaway is that more hikes coming. Here’s your markets wrap.
Bloomberg Evening Briefing: Fed Minutes Show More Hikes Likely on the Way - Bloomberg
In “better” economic news, is commodity
inflation finally over? With a new
Pacific El Nino weather pattern just getting underway, which usually disrupts
many crop production areas, I have my doubts about food price inflation being
over, but with global recession looming, metals and energy inflation might be
over. Still that’s not good for Bubble
priced stocks.
A
global commodities rout is fueling fears of a bleak economic future
Prices of commodities like crude oil and iron ore
have been sliding this year, underlining a continuing economic rout across the
globe and possible recession risks, market watchers told CNBC.
Global commodities have seen a more
than 25% slump over the last 12 months as reflected by the S&P GSCI Commodities index — a
benchmark measuring the wider performance of various commodity markets.
Out of the different baskets of
commodities, industrial metals have slid 3.79% during that period (up to June
30), while energy commodities like oil and gas have slipped 23%. Conversely,
agricultural commodities such as grain, wheat, and sugar have gained roughly
11%.
But the overall slide for the index
is likely pointing to a global economic slowdown and a recession, analysts say,
as China’s Covid-19 rebound loses momentum.
“Iron ore and copper are good
barometers of the very cyclical portions of the global economy, including
construction and manufacturing, of which are in recession in many places,”
Kpler’s Senior Commodity Analyst Reid I’Anson said via e-mail.
“It is my belief that this will
flow through to a broader decline in economic activity, especially in the
West,” I’Anson added.
He foresees that the U.S. will
likely see a GDP contraction in the fourth quarter of this year or 2024′s first
quarter, and that Europe will follow suit in three to six months.
“The failure of the Chinese economy to live up to
the expectations of the market is the biggest reason commodity markets are
struggling to find a footing,” I’Anson continued.
China has been posting a slew of
economic data that has been weaker than market expectations, pointing to a
faltering Covid reopening after years of strict lockdowns. Bank of America
analysts confirm that China’s rebound has been weaker than expected.
“Especially for property,
investment dropped 7% year-on-year,” said the bank’s Head of Asia-Pacific Basic
Materials and Oil & Gas Research, Matty Zhao. A property market decline is
often associated with a drop in demand for construction materials like steel,
aluminum, copper and nickel.
China’s real estate sector slump is
predicted to last for years, according
to Wall Street banks. And the Chinese government doesn’t look like
it’s going to pursue an aggressive fiscal stimulus package, said I’Anson. Even
if it does, “it would need to be sizable to impress markets at this point.”
Biggest losers, and
what it means
While prices
of soft commodities are rising as El
Niño hammers crop output prospects, energy and industrial metals are
trading a lot lower.
Among the biggest
losers of the commodities slide are iron ore and oil, the analysts concur.
Kpler has cited the downbeat prospects of copper as well, which acts as a proxy
economic pulse check due to its various uses such as electrical equipment and
industrial machinery.
Oil prices have
declined significantly, with the global benchmark Brent plunging
34.76% year-on-year, even as OPEC’s output cuts come into play.
More
A global commodities rout is fueling fears of a bleak economic future (cnbc.com)
In our new critical commodities trade war
news, that was just for openers, suggests one China trade expert.
China adviser warns chipmaking export curbs are 'just a
start', as Yellen visit looms
July 5, 20236:35 AM GMT+1
BEIJING/SHANGHAI,
July 5 (Reuters) - China's export controls on metals used in making
semiconductors are "just a start", an influential trade policy
adviser said on Wednesday, as it ramps up a tech fight with the U.S. days
before U.S. treasury secretary Janet Yellen visits Beijing.
Shares in some
Chinese metals companies rallied for a second session, with investors betting
that higher prices on gallium and germanium, which Beijing's export
restrictions target, could boost revenues.
Germanium is used
in high-speed computer chips, plastics, and in military applications such as
night-vision devices as well as satellite imagery sensors. Gallium is used in
building radars and radio communication devices, satellites and LEDs.
China's abrupt announcement of
controls from Aug. 1 on exports of some gallium and germanium products, also
used in electric vehicles (EVs) and fibre optic cables, has sent companies
scrambling to secure supplies and bumped up prices.
Announced on the
eve of U.S. Independence Day and just before Yellen's planned visit to Beijing
from Thursday, analysts said it was clearly timed to send a message to the
Biden administration, which has been targeting China's chip sector and pushing
allies such as Japan and Netherlands to follow suit.
China's move has
also raised concerns on whether restrictions on rare earth exports could
follow, they said, pointing to how it curbed shipments 12 years ago in a
dispute with Japan. China is the world's biggest producer of rare earths, a
group of metals used in EVs and military equipment.
Analysts have
described Monday's move as China's second, and so far the biggest,
countermeasure in the long-running US-China tech fight, coming after it banned some
key domestic industries from purchasing from U.S. memory chipmaker Micron (MU.O) in
May.
On Wednesday,
former Vice Commerce Minister Wei Jianguo told the China Daily newspaper that
countries should brace for more should they continue to pressure China,
describing the controls as a "well-thought-out heavy punch" and
"just a start".
"If
restrictions targeting China's high-technology sector continue then
countermeasures will escalate," added Wei, who served as vice commerce
minister in 2003-2008 and is now the vice chairman of state-backed think tank
China Center for International Economic Exchanges.
The Global Times
state media tabloid, in a separate editorial published late on Tuesday, said
that it was a "practical way"
of telling the U.S. and its allies that their efforts to curb China from
procuring more advanced technology was a "miscalculation".
More
China adviser warns chipmaking export curbs are 'just
a start', as Yellen visit looms | Reuters
Global Inflation/Stagflation/Recession Watch.
Given
our Magic Money Tree central banksters and our spendthrift politicians,
inflation now needs an entire section of its own.
Why a $1.5 trillion
source of corporate financing is choking on higher rates
July 5, 20236:29 AM GMT+1
LONDON, July 5 (Reuters) - A financial
stream that helped fund the world's riskiest companies and grew into a market
estimated at $1.5 trillion in the low interest rate years is drying up, as
aggressive rate hikes bring tougher borrowing conditions and uncertainty.
The pace of issuance of so-called
collateralised loan obligations (CLOs), which bundle loans of the weakest
corporates and repackage them as bonds, has stalled.
Specialist asset managers minted CLOs
worth more than half a trillion dollars in 2021, a year of heavy post-pandemic
monetary stimulus. Almost $69 billion worth were launched or refinanced during
the first half of this year, down 41% on the same period in 2022, JP Morgan
data shows.
These vehicles, popular with hedge
funds, insurers and asset managers when borrowing costs are low and investors
hunt for yield, account for up to 60% of demand for the junk loans rated single
B or below, according to S&P Global Ratings.
But the market has sputtered just as
companies whose debt is considered a speculative investment face a mountain of
refinancing needs in coming years.
The sharpest
rise in global interest rates in decades, an anticipated global
recession and fewer new CLOs to support junk rated borrowers potentially create
a toxic cocktail of corporate distress.
"There
haven't been large credit losses yet, but the expectation is that bankruptcy
rates [for corporate loans] will go up," said Rob Shrekgast, a director at
KopenTech, an electronic trading and analytics platform for CLOs.
STORM CLOUDS
CLOs have grown into a market worth
about $1.5 trillion, KopenTech said.
Looking ahead, demand for the bonds
issued by these vehicles will "decline meaningfully," Bank of America
(BofA) credit strategist Neha Khoda noted, with potential for higher default
rates.
While low now, debt defaults are
rising. A restructuring at French retailer Casino (CASP.PA) and
the bankruptcy of
U.S. retailer Bed Bath & Beyond expose cracks in business models that were
previously insulated by abundant money supply and low rates, analysts said.
S&P Global estimates that more than
one in 25 U.S. businesses and almost one in 25 European companies will default
by March 2024.
More
Why a $1.5 trillion source of corporate financing is choking on higher rates | Reuters
Covid-19 Corner
This
section will continue until it becomes unneeded.
No covid-19 update today. Today, why
drinking wine in the UK can seriously damage your health and wealth. Why a £1.40
bottle of wine costs £6.50 in the UK.
Buy now for Christmas and 2024.
Wine sector reeling
as price of a bottle set to be taxed 20 per cent more
July 5, 2023.
Wine lovers will be taxed 20
per cent more on their favourite bottle of red or white in a month’s time, as
the government steams ahead with its alcohol duty tax hikes, spelling further
pain for customers and businesses.
Chancellor Jeremy Hunt
announced the measures as part of the Spring Budget back in March, which saw an end to the blanket
alcohol duty freeze which was put in place via the Autumn Budget 2020 during
the pandemic and extended in December.
It will now come to an end on
1 August, and alcohol will be taxed by strength (ABV). The duty hikes will
bring price rises for 90 per cent of wines sold in the UK, according to wine
and spirit trade association WSTA.
The duty paid on alcohol is
revalued each year in line with inflation – however it has been either cut or
frozen in every budget over the past decade.
A graph by vineyard Chateau
Bauduc shows
that under the new tax rises if punters spend £8.00 on a bottle of wine, they
are getting 90p’s worth of wine and paying £5.90 in tax.
“Amongst all this pressure
the government has chosen to impose more inflationary misery on consumers on 1
August, with the biggest single alcohol duty increase in almost 50 years,”
Miles Beale, chief executive of the WSTA, said.
WSTA said
the decision will not help wine and spirit businesses who are “looking to find
ways to keep their products affordable”.
“There
is no quick fix, and there are too many tax and costs increases and too few
options – especially for wine and full strength premium spirits where reducing
ABV simply isn’t realistic.”
“The
looming increase in alcohol duty will be damaging not just for the wine sector,
but for the wider UK economy,” a Majestic Wine spokesperson told City
A.M.
“The
UK’s largest specialist wine retailer said that the move result in higher
prices for our retail customers and the thousands of pubs, bars and restaurants
we supply in the on-trade, dealing another hammer blow to a fragile hospitality
sector that is still recovering from the Covid-19 pandemic.”
They
added: “This will have a huge impact on inflation, at a time when the
chancellor is supposedly trying to bring rising prices under control. As a
policy, it sends an incredibly confusing message to British consumers at a time
when they desperately need security and stability from the government.”
Wine sector reeling as price of a bottle set to be
taxed 20 per cent more (msn.com)
Technology
Update.
With events happening fast in the development
of solar power and graphene, among other things, I’ve added this section.
Updates as they get reported.
Bulb co-founder raises £100m for battery storage company Field
Energy
July 4, 2023
A battery storage company set up by one of the co-founders of
Bulb Energy has clinched £100m of new funding as he seeks to expand it across
Europe.
Sky News has
learnt that Field Energy, which was set up by Amit Gudka after his departure
from Bulb, has secured the capital from DIF Capital Partners, a Dutch
infrastructure investor.
Industry
sources said the fundraising was expected to be announced by Field in the
coming weeks.
The money will
be used to accelerate the company's rollout of renewable energy infrastructure,
with a string of battery storage sites already operational across the UK.
It is Field's
first funding round since the middle of last year, when the company raised £30m
of equity from investors led by Plural, a venture capital fund.
Field also
secured a £47m debt facility from Triple Point Energy Efficiency Infrastructure
Company.
Battery
storage companies such as Field are expected to play an increasingly important
role in decarbonising the global economy and helping to reach net zero targets.
Field declined
to comment on its latest capital-raising, although Mr Gudka has previously
signalled his interest in expanding the business into European markets such as
Germany.
He co-founded
Bulb with Hayden Wood, leaving before its collapse into a government-funded
special administration.
The estimated
cost of the insolvency to taxpayers has plummeted in recent months amid falls
in wholesale gas prices, and is now a fraction of the £4bn which at one point
was widely expected.
Nomura
Greentech is understood to have advised Field Energy on the deal, while
PricewaterhouseCoopers is said to have acted as adviser to DIF.
Bulb co-founder raises £100m for battery storage
company Field Energy (msn.com)
Central
banks have gotten out of the central banking business and into the central
planning business, meaning that they are devoted to raising up-if they
can-economic growth and employment through the dubious means of suppressing
interest rates and printing money. The nice thing about gold is that you can't
print it.
James Grant.
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