“I’m not sure why they think they know that it’s transitory. How do they know that when there’s plenty of money printing that’s been going on and we’ve seen commodity prices going up really massively? There’s plenty of indicators that suggest that inflation is going to go higher, and not just on a transitory basis, for a couple of months. So we’ll see how the Fed is trying to paint the picture, but they’re guessing.“ Jeffrey Gundlach, DoubleLine Capital

“Guessing” is giving the Fed the benefit of the doubt. It’s more of a declaration: inflation is not and will not be an issue. And I doubt there’s anything that would shift their approach. Our central bank has its heels firmly dug in. Monetary policy will remain ultra-loose, while their communications strategy at this point is little more than rationalization and justification. I can only assume they are fearful of the consequences of puncturing Bubbles. It’s been only 13 months since a near financial meltdown.

The deflating stock market Bubble was surely troubling for the Fed; money market fund liquidity issues concerning. The run on corporate bond and equities ETFs must have been scary – illiquidity and dislocation in the Treasury market darn right horrifying. After all, an unwind of Treasury market (and fixed-income) leverage would surely bring this entire historic party to an unceremonious conclusion. Policy must kick that can down the road as far as possible.

We’ve witnessed a historic experiment in monetary management go completely off the rails. Future historians will surely be confounded. They will see recklessness and policy negligence. Where was the oversight? Were there no checks and balances? How could a small group of unelected officials just create Trillions out of thin air – Trillions of dollars that fueled history’s greatest speculative manias?

With the potential momentous impact of monetary policies, central banking by its nature must be a conservatively managed institution. No big experiments. No big mistakes. Err on the side of prudence and caution. Never take your eye off money and Credit.

There is no basis for believing that massive “money printing” is a reasonable solution to any problem. History, meanwhile, is replete with inflationary catastrophe. Inflationism has a long list of spectacular failures. Monetary stability is fundamental to stable prices, markets, economies, societies and governments. Bubbles are dangerous phenomena that must be contained early – before risks become so great as to make them untouchable.

It’s stunning what doesn’t matter these days – what is downplayed, disregarded and obfuscated. We’re left with this “dual mandate” BS that essentially disregards every critical issue relevant to monetary and price stability.

For posterity, excerpts from Chairman Powell’s Wednesday press conference:

Question from the Wall Street Journal’s Paul Kiernan: “Is it time to start talking about tapering yet? Have you and your colleagues had any conversations to this effect?”

Chairman Powell: “So, no, it is not time yet. We’ve said that we would let the public know when it is time to have that conversation. And we said we’d do that well in advance of any actual decision to taper our asset purchases, and we will do so. In the meantime, we’ll be monitoring progress toward our goals. We first articulated this substantial further progress test at our December meeting. Economic activity and hiring have just recently picked up after slowing over the winter. And it will take some time before we see substantial further progress.”

New York Times’ Jeanna Smialek: “You’ve obviously made it very clear that you want to see improvements in the real economy and the real data and not in just sort of expectations data before making that move, but I guess I wonder what happens if inflation expectations were to move up before you see some sort of return to full employment. It seems like a lot of the stability in inflation has been tied to the fact that those have been so low and stable, and I guess I wonder how your reaction would be—your reaction to that and how you’re thinking about that.”

Powell: “So it seems unlikely, frankly, that we would see inflation moving up in a persistent way that would actually move inflation expectations up while there was still significant slack in the labor market. I won’t say that it’s impossible, but it seems unlikely… So that’s not to say inflation won’t—might not move up, but for inflation to move up in a persistent way that really starts to move inflation expectations up, that would take some time and you would think it would be quite likely that we’d be in very strong labor markets for that to be happening.”

Noland Comment: CPI surpassed 4% in 2008 with the unemployment rate at 6%. Year-over-year CPI reached 3.9% in September 2011 while the unemployment rate languished at a post-crisis 11.0%. And CPI reached a secular peak 14.8% in March 1980, with an unemployment rate of 6.3% – above last month’s 6.0%. To state that inflation persistently above the Fed’s 2% target would require “very strong labor markets” defies history.

The Washington Post’s Rachel Siegel: “The housing market in many American cities has seen booming prices, bidding wars, and all-cash offers well above asking price. And this is happening at the same time that housing is becoming much more expensive for lower-income Americans and people who are still struggling from the pandemic. Do you have concerns that there are localized housing bubbles, or that there’s the potential for that? And what is the Fed doing to monitor or address this?”

Powell: “So, we do monitor the housing market very carefully, of course. And I would say that before the pandemic—it’s a very different housing market than it was before the global financial crisis. And one of the main differences was that households were in very good shape financially compared to where they were. In addition, most people who got mortgages were people with pretty high credit scores. There wasn’t the subprime—low doc/no doc lending practices were not there. So, we don’t have that kind of thing, where we have a housing bubble where people are over-levered and owning a lot of houses. There is no question, though, that housing prices are going up. And, so, we’re watching that carefully… it’s part of a strong economy with people having money to spend and wanting to invest in housing. So, in that sense, it’s good. It’s clearly the strongest housing market that we’ve seen since the global financial crisis.

So, it’s not an unalloyed good to have prices go up this much. And we’re watching it very carefully. I don’t see the kind of financial stability concerns, though, that really do reside around the housing sector. So many of the financial crackups in all countries—all Western countries—that have happened around the last 30 years have been around housing. We really don’t see that here. We don’t see bad loans, and unsustainable prices, and that kind of thing.”

AFP’s Heather Scott: “Can you tell us what is different this time versus previous periods, like in the ’60s, when inflation got out of control? Why are you confident, with the lags in monetary policy, that the Fed can get ahead of inflation and make sure it doesn’t go too far above the 2% target?”

Powell: “So let me start with just saying that we’re very strongly committed to achieving our objectives of maximum employment and price stability. Our price stability goal is 2% inflation over the longer run. And we believe that having inflation average 2% over time will help anchor long-term inflation expectations at 2%. With inflation having run persistently below 2% for some time, the committee seeks inflation moderately above 2% for some time…

During this time of reopening, we are likely to see some upward pressure on prices, and I’ll discuss why, but those pressures are likely to be temporary as they are associated with the reopening process. And an episode of one-time price increases as the economy reopens is not the same thing as, and is not likely to lead to, persistently higher year over year inflation into the future – inflation at levels that are not consistent with our goal of 2% inflation over time. Indeed, it is the Fed’s job to make sure that that does not happen. If, contrary to expectations, inflation were to move persistently and materially above 2% in a matter that threatened to move longer-term inflation expectations materially above 2%, we would use our tools to bring inflation expectations down to mandated, consistent levels…

We think of bottlenecks as things that, in their nature, will be resolved as workers and businesses adapt. And we think of them as not calling for a change in monetary policy, since they’re temporary and expected to resolve themselves. We know that the base effects will disappear in a few months. It’s much harder to predict with confidence the amount of time it will take to resolve the bottlenecks or, for that matter, the temporary effects that they will have on prices in the meantime… If we see inflation moving materially above 2% in a persistent way that risks inflation expectations drifting up, then we will use our tools to guide inflation and expectations back down to 2%. No one should doubt that we will do that. This is not what we expect, but no one should doubt that in the event we would be prepared to use our tools.”

Noland comment: We should absolutely doubt the Fed would use its “tools” to quell above-target inflation. The markets have become the Fed’s top priority. Any circumstance where the Fed is preparing to actually tighten policy will be a major problem for Bubble markets. And everyone knows the Fed would reverse a fledgling tightening course on the first indication of market disruption. I don’t believe the Fed today has credibility on the issue of containing an upward surge in inflationary pressures. Markets are instead confident the Fed will maintain loose financial conditions in almost every situation. And, importantly, this perception precludes markets from responding effectively to mounting inflationary pressures, while the absence of a functioning market adjustment mechanism only increases the likelihood that the current inflationary upcycle becomes more firmly entrenched.

Question: “Over the past decade, the Fed has invested significant resources in large-scale bank supervision, has completely overhauled that approach, and it’s even created a special committee that looks horizontally across the largest banks to find common risks. Did the Fed not see that multiple banks have large exposures to Archegos? If not, why not? And then what regulatory changes would you like to see implemented to change that going forward?”

Powell: “We supervise banks to make sure that they have risk management systems in place so that they can spot these things. We don’t manage their companies for them or try to manage individual risks. In the grand scheme of these large institutions, the Archegos risks were not systemically important or were not of the size that they would have really created trouble for any of those institutions. What was troubling, though, was that this could happen in a business for a number of firms that is thought to carry relatively well-understood risks. The prime brokerage business is a well-understood business, and so it was surprising that a number of them would have had this. And it was essentially, I believe, the fact that they had the same big risk position with a number of firms and they weren’t—some of the firms were not aware that there were other firms that had those things. I wouldn’t say it’s in any way an indictment of our supervision of these firms. In some cases it seems as though there were risk management breakdowns at some of the firms, not all of them, and that’s what we’re looking into.”

Noland comment: There have been innumerable derivative accidents going back to the role “portfolio insurance” played in the 1987 stock market crash. Derivatives have repeatedly proven themselves instruments that distort, exacerbate and redistribute risk. In the past, a multitude of derivative strategies have been used for highly levered speculation across the markets. And there is every reason to believe the Fed’s extreme monetary accommodation has further incentivized leveraged speculation. Archegos’ egregious leverage – financed by many of the leading global prime brokerages – is confirmation of this thesis. How can a central bank run such momentous monetary stimulus and not be completely on top of developments at the prime brokerages and derivatives markets?

Yahoo Finance’s Brian Cheung: “I wanted to ask about financial stability, which is a part of the Fed’s reaction function here. It seems like to people on the outside who might not follow finance daily they’re paying attention to things like GameStop, now Dogecoin, and it seems like there’s interesting reach for yield in this market, to some extent also Archegos. So, does the Fed see a relationship between low rates and easy policy to those things? And is there a financial stability concern from the Fed’s perspective at this time?”

Powell: “So we look at—financial stability for us is really—we have a broad framework, so we don’t just jump from one thing to another. I know many people just look at asset prices and they look at some of the things that are going on in the equity markets, which I think do reflect froth in the equity markets. But really, we try to stick to a framework for financial stability so we can talk about it the same way each time and so we can be held accountable for it.

So one of the areas is asset prices, and I would say some of the asset prices are high. You are seeing things in the capital markets that are a bit frothy. That’s a fact. I won’t say it has nothing to do with monetary policy. But it also has a tremendous amount to do with vaccination and reopening of the economy. That’s really what has been moving markets a lot in the last few months – is this turn away from what was a pretty dark winter to now a much faster vaccination process and a faster reopening. So that’s part of what’s going on. The other things, though, you know, leverage in the financial system is not a problem. That’s one of the four pillars. Asset prices were one. Leverage in the financial system is not an issue. We have very well-capitalized large banks. We have funding risks for our largest financial institutions are also very low. We do have some funding risk issues around money-market funds, but I would say they’re not systemic right now. And the household sector is actually in pretty good shape. It was in very good shape as a relative matter before the pandemic crisis hit…

So, the overall financial stability picture is mixed. But on balance it’s manageable, I would say. And, by the way, I think it’s appropriate and important for financial conditions to remain accommodative to support economic activity. Again, 8 ½ million people who had jobs in February don’t have them now, and there’s a long way to go till we reach our goal.”

Noland comment: Leverage in the system is very much an issue. The financial stability “picture” is not “mixed” – it’s calamitous. Ever since the Bernanke Fed coerced savers into the risk markets, the latent instability associated with the “Moneyness of Risk Assets” (the misperception of safety and liquidity) has festered. The Fed’s (and global central banks’) repeated market bailouts, and now perpetual massive monetary stimulus, have spurred unprecedented speculation and speculative leverage. Bank capital is not a pressing issue for this cycle; a traditional run on the banking system is not a prevailing risk. Yet there is monumental risk of a run on the risk markets – stocks, fixed-income, Treasuries. The Trillions that have flowed freely into the ETF industry, in particular, pose a clear and present danger to financial stability. Global leveraged speculation poses a clear and present danger to financial stability. Derivatives – a clear and present danger.

MNI’s Jean Yung: “We are seeing elevated market valuations and some economists are concerned that the economy might overheat, at least for a period of time. So, should the Fed and other regulators be thinking about tightening capital requirements or extending oversight to the nonbank sector so that financial stability risks stay as low as they have been?”

Powell: “Capital requirements for banks went up tremendously, really, over the course of the 10 years between the financial crisis and the arrival of the pandemic… But to your point, …so what kind of happened during the pandemic crisis that requires attention: number one is money-market funds and corporate bond funds where we saw run dynamics, again, and we need to—we’re looking at that. So, we’re looking at ways and people around the world are looking at ways to make those vehicles resilient so that they don’t have to be, you know, supported by the government whenever there’s severely stressed market conditions. It’s a private business. They need to have the wherewithal to stay in business and not just count on the Fed and others around the world to come in. So that was that.

The other one is Treasury market structure. Dealers are committing less capital to that activity now than they were 10 or 15 years ago, and the need for capital is higher because there is so much more supply of Treasurys. And, so, there are some questions about Treasury market structure and there’s a lot of careful work going on to understand whether there’s something we can do about this, because… the U.S. Treasury market is probably the most single important market in the economy in the world. It needs to be liquid. It needs to function well for the good of our economy and the good of our citizens… As you know, at the very beginning of this recent crisis, there was such a demand for selling Treasurys, including by foreign central banks, that really the dealers couldn’t handle the volume. And so what was happening was the market was really starting to lose function, and that was a really serious problem which we had to solve through really massive asset purchases. So, we’d like to see if there isn’t something we can do to—do we need to build against that kind of an extreme tail risk, and if so what would that look like.”

MarketWatch’s Greg Robb: “It’s just kind of confusing, the question and your answer, you know, the housing market is strong, prices are up. And yet, the Fed is buying $40 billion per month in mortgage-related assets. Why is that? And are those purchases playing a role at all in pushing up prices?”

Powell: “We started buying MBS because the mortgage-backed security market was really experiencing severe dysfunction. And we sort of articulated what our exit path is from that. It’s not meant to provide direct assistance to the housing market. That was never the intent. It was really just to keep that very close relation to the treasury market and a very important market on its own. And so that’s why we bought, as we did during the global financial market, we bought MBS too. Again, not an intention to send help to the housing market, which was really not a problem this time at all. So, it’s a situation where we will taper asset purchases when the time comes to do that. And those purchases will come to zero over time. And that time is not yet.”

Bloomberg’s Mike McKee: “Since I am last, let me go back to… the first question, and ask… whether you’re thinking about thinking of tapering, but why you’re not… The markets seem to be operating well. Are you afraid of a taper tantrum? Or is it, as one money manager put it, if you get out of the markets there aren’t enough buyers for the treasury debt and so rates would have to go way up? The bottom-line question is: What do we get for $120 billion a month that we couldn’t get for less?”

Powell: “So, it’s not more complicated than this: We articulated the substantial further progress test at our December meeting. And really for the next couple of months we made relatively little progress toward our goals… We got a nice job report for March. It doesn’t constitute substantial further progress. It’s not close to substantial further progress. We’re hopeful we will see along this path a way to that goal. And we believe we will, it just is a question of when. And so when the time comes for us to talk about talking about it, we’ll do that. But that time is not now. It’s—we’re just that far. We’ve had one great jobs report. It’s not enough. We’re going to act on actual data, not on our forecast. And we’re just going to see more data. It’s no more complicated than that.”

McKee: “If you leave rates where they are, doesn’t change anything. But does it change anything if you actually tapered a bit? If you spent less would you still get the same effect on the economy?”

Powell: “No, no. I think the effect is proportional to the amount we buy. It’s really part of overall accommodative financial conditions. We have tried to create accommodative financial conditions to support activity, and we did that. And we articulated the tests for withdrawing that accommodation… And the only thing that will guide us is, are the tests met? That’s what we focus on, is have the macroeconomic conditions that we’ve articulated, have they been realized? That will be the test for tapering asset purchases and for raising interest rates.”

Noland Comment: The Fed asymmetric policy approach has been a rather slippery slope going back to Alan Greenspan’s nascent venture into market manipulation (and, as such, financial conditions management) with terse comments and little “baby step” rate moves. At this point, the Powell Fed’s version of asymmetric policies makes Greenspan’s asymmetry appear as virtual mirror images.

It was only about two weeks from record stock prices to the Fed’s March 2020’s emergency meeting, with the Fed slashing rates and immediately beginning a program that would inject Trillions of liquidity directly into the securities markets. There is zero doubt when it comes to the Fed’s stimulus reaction function: market instability. This had already been made clear the previous September, when the Fed adopted “insurance” policy stimulus in response to repo market instability – this despite stocks near record highs and unemployment at multi-decade lows. When Bubble markets then began to falter in the face of pandemic risks, the Fed responded rapidly and with overwhelming force.

Despite Chair Powell’s repeated explanations, the Fed’s reaction function for reversing stimulus measures is nebulous and clearly asymmetric (when compared to employing stimulus). Strangely, market function – even so much as gross excess – plays no role. It might well be several years from the point of robust market recovery to even the first little “baby step” off zero rates. That the economy is in the process of rapid recovery has to this point played no role in the Fed even discussing the tapering of its historic QE program. Forecasts call for April job growth of just under a million, following March’s almost one million jobs created. It may not be many months before the unemployment rate is back below 5%.

The Fed focuses on financial conditions when initiating QE. Markets have become so integral to system Credit, liquidity, perceived wealth, spending, investment, and economic activity generally, that our central bank responds immediately – and now with overwhelming force – in the event of market disruption. Yet no matter how “frothy” the markets and how incredibly loose financial conditions have become – these are not considerations for removing stimulus.

Simplifying the Fed’s reaction function: Move with overwhelming force at the first sign of market trouble – then stick with unprecedented stimulus until data is on a trajectory to soon return to full employment. This policy framework is a godsend to speculative Bubbles.

It’s a huge mistake to disregard a year of extremely loose financial conditions when contemplating stimulus reduction. The unemployment rate is a lagging indicator. Is it coincidence that the Fed’s key metric for commencing stimulus tapering is the lagging jobs market? Global asset markets and inflationary pressures are clearly signaling that monetary policies are dangerously loose. And it’s becoming so obvious that some are breaking rank.

April 30 – Bloomberg (Catarina Saraiva): “Signs of excess risk taking in financial markets show it’s time for the U.S. central bank to start debating a reduction in its massive bond purchases, said the president of the Dallas Federal Reserve, breaking ranks with Chair Jerome Powell. ‘We’re now at a point where I’m observing excesses and imbalances in financial markets,’ said Robert Kaplan… ‘I’m very attentive to that, and that’s why I do think at the earliest opportunity I think will be appropriate for us to start talking about adjusting those purchases.’”

April 30 – Bloomberg (Alexander Weber): “European Central Bank policy maker Jens Weidmann said officials must be prepared to tighten monetary policy when needed to curb inflation, even if that increases the strain on heavily indebted governments. ‘We central bankers must clearly say that we will rein in monetary policy again when the price outlook demands it,’ the Bundesbank president said… ‘And irrespective of whether the financing costs for governments rise.’ Weidman said the institution risks becoming too entangled with fiscal policy through its massive bond purchases, which have been deployed repeatedly to calm markets and to boost inflation, and which were ramped up during the pandemic. ‘When the Eurosystem started its first purchase program 10 years ago, some were hoping that it would be temporary. This hasn’t become true,’ he said. ‘My worry at the time that fiscal policy would increasingly smother monetary policy is still on my mind.’”

For the Week:

The S&P500 was little changed (up 11.3% y-t-d), while the Dow slipped 0.5% (up 10.7%). The Utilities added 0.2% (up 6.1%). The Banks rallied 3.4% (30.0%), and the Broker/Dealers added 0.3% (up 22.0%). The Transports rose 1.4% (up 22.7%). The S&P 400 Midcaps declined 0.7% (up 18.1%), and the small cap Russell 2000 slipped 0.2% (up 15.0%). The Nasdaq100 declined 0.6% (up 7.5%). The Semiconductors dropped 2.8% (up 11.2%). The Biotechs slipped 0.3% (down 2.2%). With bullion down $8, the HUI gold index sank 5.3% (down 8.2%).

Three-month Treasury bill rates ended the week at 0.0025%. Two-year government yields were little changed at 0.16% (up 4bps y-t-d). Five-year T-note yields gained three bps to 0.85% (up 49bps). Ten-year Treasury yields jumped seven bps to 1.63% (up 71bps). Long bond yields rose six bps to 2.30% (up 65bps). Benchmark Fannie Mae MBS yields were unchanged at 1.84% (up 50bps).

Greek 10-year yields rose nine bps to 0.98% (up 36bps y-t-d). Ten-year Portuguese yields jumped eight bps to 0.48% (up 45bps). Italian 10-year yields surged 12 bps to 0.90% (up 36bps). Spain’s 10-year yields rose eight bps to 0.48% (up 43bps). German bund yields gained six bps to negative 0.20% (up 37bps). French yields rose eight bps to 0.16% (up 49bps). The French to German 10-year bond spread widened two to 36 bps. U.K. 10-year gilt yields surged 10 bps to 0.84% (up 65bps). U.K.’s FTSE equities index rallied 0.5% (up 7.9% y-t-d).

Japan’s Nikkei Equities Index declined 0.7% (up 5.0% y-t-d). Japanese 10-year “JGB” yields increased three bps to 0.10% (up 8bps y-t-d). France’s CAC40 added 0.2% (up 12.9%). The German DAX equities index fell 0.9% (up 10.3%). Spain’s IBEX 35 equities index jumped 2.3% (up 9.2%). Italy’s FTSE MIB index dropped 1.0% (up 8.6%). EM equities were mostly lower. Brazil’s Bovespa index fell 1.4% (down 0.1%), and Mexico’s Bolsa dropped 2.2% (up 8.9%). South Korea’s Kospi index lost 1.2% (up 9.5%). India’s Sensex equities index rallied 1.9% (up 2.2%). China’s Shanghai Exchange declined 0.8% (down 0.8%). Turkey’s Borsa Istanbul National 100 index recovered 3.9% (down 5.3%). Russia’s MICEX equities index slumped 1.5% (up 7.8%).

Investment-grade bond funds saw inflows of $5.190 billion, and junk bond funds posted positive flows of $272 million (from Lipper).

Federal Reserve Credit last week expanded $8.0bn to a record $7.770 TN. Over the past 85 weeks, Fed Credit expanded $4.043 TN, or 108%. Fed Credit inflated $4.959 Trillion, or 176%, over the past 442 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week dropped $13.2bn to $3.547 TN. “Custody holdings” were up $209bn, or 6.3%, y-o-y.

Total money market fund assets jumped $59.4bn to $4.530 TN. Total money funds dropped $204bn y-o-y, or 4.3%.

Total Commercial Paper declined $4.2bn to $1.215 TN. CP was up $122bn, or 11.2%, year-over-year.

Freddie Mac 30-year fixed mortgage rates increased a basis point to 2.98% (down 25bps y-o-y). Fifteen-year rates rose two bps to 2.31% (down 46bps). Five-year hybrid ARM rates dropped 19 bps to 2.64% (down 50bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up six bps to 3.13% (down 51bps).

Currency Watch:

April 27 – Bloomberg (Natasha Doff and Áine Quinn): “Vladimir Putin’s multi-year push to reduce Russia’s exposure to the dollar hit a major milestone as the share of exports sold in the U.S. currency fell below 50% for the first time. Most of the slump in dollar use came from Russia’s trade with China, more than three-quarters of which is now conducted in euros, according to central bank data… The common currency’s share in total exports jumped more than 10 percentage points to 36%…”

For the week, the U.S. dollar index rallied 0.5% to 91.28 (up 1.5% y-t-d). For the week on the upside, the Canadian dollar increased 1.5%, the Brazilian real 0.7%, the South Korean won 0.5%, and the Swiss franc 0.1%. On the downside, the Mexican peso declined 2.1%, the South African rand 1.5%, the Japanese yen 1.3%, the Swedish krona 0.9%, the euro 0.6%, the New Zealand dollar 0.5%, the British pound 0.4%, the Norwegian krone 0.3%, the Australian dollar 0.3%, and the Singapore dollar 0.3%. The Chinese renminbi increased 0.33% versus the dollar this week (up 0.81% y-t-d).

Commodities Watch:

April 27 – Bloomberg (Bre Bradham and Marcy Nicholson): “Lumber prices in Chicago rose to new record highs Tuesday… It’s peak home-building season in the U.S., and that’s clashing with a lumber supply chain that’s being dogged by everything from trucking delays to worker shortages. ‘Clearly lumber prices, which are at historical levels, have entered a frenzied stage,’ said Joshua Zaret, a senior analyst at Bloomberg Intelligence. ‘It’s all being driven by supply, and just the uncertainty of supply right now.’”

April 29 – Bloomberg (Annie Lee): “China’s steel futures hit fresh records as the government added to a sweep of measures aimed at reining in output and emissions in the world’s top producer. Iron ore was steady… In the latest hawkish move, the country’s environment minister ordered inspections to root out mills with illegal discharges or fraudulent emissions data. The renewed government attention saw futures for two key steel products — rebar and hot-rolled coil — close at record highs in Shanghai. Prices have soared with iron ore this year as a wave of demand in China and globally leaves mills struggling to match orders.”

The Bloomberg Commodities Index jumped 2.2% (up 15.8% y-t-d). Spot Gold slipped 0.5% to $1,769 (down 6.8%). Silver dipped 0.3% to $25.9169 (down 1.8%). WTI crude rallied $1.44 to $63.58 (up 31%). Gasoline surged 4.0% (up 47%), and Natural Gas jumped 7.4% (up 15%). Copper rose 2.9% (up 27%). Wheat jumped 3.2% (up 15%). Corn surged 6.4% (up 39%). Bitcoin rallied $7,453, or 14.7%, this week to $58,021 (up 100%).

Coronavirus Watch:

April 28 – Wall Street Journal (Luciana Magalhaes and Samantha Pearson): “An aggressive coronavirus variant from Brazil that has been detected in more than 30 nations is now raging across South America, prompting deaths and hospitalizations to soar even in countries that have widely administered vaccines… The surge here offers lessons for the rest of the world. The P.1 variant has spread to countries including Canada, where in the province of British Columbia, officials have recorded 2,062 cases of P.1 as of April 26, up from 974 as of April 9. Turkey and Hungary have struggled with large surges partly fueled by the more infectious U.K. variant.”

April 28 – Bloomberg (Angus Whitley): “The U.S. told its citizens to get out of India as soon as possible as the country’s Covid-19 crisis worsens at an astonishing pace. In a Level 4 travel advisory — the highest of its kind issued by the State Department — U.S. citizens were told ‘not to travel to India or to leave as soon as it is safe to do so.’ There are 14 direct daily flights between India and the U.S. and other services that connect through Europe, the department said.”

Market Mania Watch:

April 25 – Wall Street Journal (Akane Otani and Michael Wursthorn): “Markets for everything from home-building materials to bitcoin to stocks are soaring, stirring up fresh fears that global markets are in a bubble. Rarely have so many assets been up this much at once. The price of lumber has shot up to all-time highs. Residential home sales in the U.S. are at levels last seen in 2006, before the housing bubble collapsed. And stocks are on a tear. Benchmark indexes from the U.S. to France to Australia have all climbed to fresh highs this year… The frenzy has extended far beyond conventional markets tracked by Wall Street firms. Bitcoin hurtled above $60,000 for the first time last month before pulling back, while Dogecoin briefly jumped to a record, driven by fans posting hashtags like #DogeDay on Twitter. In the venture-capital world, investors are offering startups five times or more the amount of money they are requesting, and the average valuation for all startups has hit a new high.”

April 28 – Bloomberg (Claire Ballentine): “In less than four months, investors have already poured more cash into ETFs tracking U.S. stocks than they did in all of 2020. The inflows of $246 billion this year eclipse last year’s total of $231 billion… Equity exchange-traded funds have added more than $26 billion so far in April, after taking in over $80 billion in both February and March. With stocks trading near all-time highs, cash continues to flood into the $6.2 trillion ETF market, especially from new traders looking for a piece of the action…”

April 28 – Financial Times (Siddharth Venkataramakrishnan): “Listings on stock markets around the world are running at a record pace, with both deal numbers and values at their highest levels for the start of any year in at least two decades. This year, 875 initial public offerings each raising at least $1m have been clinched globally, according to… Dealogic… That figure far outstrips the previous record set in the final months of the dotcom boom in 2000, when 592 companies raised $1m or more in floats over the same time period. The deluge of listings has lifted IPO proceeds to a record-setting $230bn this year, well above the previous peak of $80bn set in 2000.”

April 27 – CNBC (Evelyn Cheng): “Chinese companies are rushing to go public in the red-hot IPO market in the U.S. — before it loses steam. The first three months of the year marked the busiest quarter for overall U.S. initial public offerings since 2000, according to… EY. Despite the coronavirus pandemic and tensions between the U.S. and China, half of 36 foreign public listings in the U.S. during that time came from companies based in Greater China, EY said. More are coming. About 60 Chinese companies plan to go public in the U.S. this year, Vera Yang, chief China representative for the New York Stock Exchange, said…”

April 25 – Financial Times (Hudson Lockett and Tabby Kinder): “Funds raised by Chinese groups on US equity markets surged 440% in the opening months of 2021, as the allure of sky-high Wall Street valuations outweighed the threat of forced delistings. Chinese companies have raised a record $11bn this year on the New York Stock Exchange and Nasdaq via initial public offerings, follow-on share sales and issuance of convertible bonds, according to data from Dealogic.”

April 25 – Wall Street Journal (Amrith Ramkumar): “Investors who bought into a special-purpose acquisition company that took a healthcare-services company public last year in an $11 billion deal have suffered steep losses. Promoters of the SPAC still stand to make millions. The paper gains for insiders, even as shares of MultiPlan Corp. fall, result from the unique incentives given to SPAC creators, also known as sponsors. They are allowed to buy 20% of the company at a deep discount, a stake that is then transferred into the firm the SPAC takes public. Those extremely cheap shares let the creators make, on average, several times their initial investment. They also let the SPAC backers make money even if the company they take public struggles and later investors lose money, a source of criticism for the process.”

April 26 – CNBC (Lora Kolodny): “Tesla reported first-quarter results…, including a record quarterly net profit of $438 million on a GAAP basis. As usual, those profits were buoyed by sales of environmental regulatory credits. But in a new wrinkle this quarter, the company’s sales of bitcoin during the quarter also contributed $101 million toward the bottom line.”

Market Instability Watch:

April 29 – Financial Times (Gillian Tett): “When the Archegos fund imploded last month, it demonstrated yet again the perils of taking on excessive margin debt. Although a then little known family office, Archegos amassed a reported $50bn of loans from banks such as Mizuho and Credit Suisse to purchase risky equities. When those bets turned sour, its losses surpassed $10bn… That is a startling amount. Even more startling, though, is that Archegos is far from being the only fund to rack up large margin debt… Data collected by the Financial Industry Regulatory Authority shows that total margin debt across Wall Street hit $822bn by the end of March — after Archegos had failed. That was almost double the $479bn level of this time last year and far more than the around $400bn peak that margin debt reached in 2007, just before the financial crisis.”

April 28 – Financial Times (Brooke Masters): “The last time Gary Gensler ran an American financial regulator, he was charged with cleaning up the mess left by the 2008 crash. Now the new chair of the US Securities and Exchange Commission faces a rather different task: policing volatile and frothy markets that may be hiding all kinds of misbehaviour. Frenzied dealmaking and trading, cheap financing and hybrid working have created a perfect storm of opportunities for fraudsters. The pressure is on Gensler and his enforcement chief Alex Oh to clamp down and deflate any bubbles before they burst. They take over an SEC that is struggling with homeworking, and overwhelmed with new filings for initial public offerings and special acquisition companies known as Spacs. It is also under fire from critics who say that the previous chair Jay Clayton’s focus on Main Street investors left Wall Street dangerously unfettered. Total enforcement cases dropped to a six-year low in the 2020 fiscal year…”

April 26 – Bloomberg (Mark Gilbert): “As the aftershocks from the $10 billion implosion of Archegos Capital Management continue to reverberate, risk managers will be scrutinizing their equity financing desks more closely than ever. But with hedge funds rediscovering their mojo in recent months, the prime brokerage units catering to their needs are far too lucrative for investment banks to curtail their activities. Unsurprisingly, the business of providing stock lending, leverage and other specialist prime services is dominated by U.S. investment banks. Goldman Sachs Group Inc., Morgan Stanley and JPMorgan… serve almost half of the market…”

April 27 – Bloomberg (Emily Barrett, Lilian Karunungan and Vivien Lou Chen): “The market’s reflationistas are getting a second wind, as a string of solid economic numbers and the prospect of more stimulus raise the chances of a revival in trades linked to rebounding growth and prices. A gauge of U.S. inflation expectations climbed to an eight-year high Tuesday, the Bloomberg Commodity Spot Index reached its highest since 2012 and Treasury yields saw gains across the curve. Reflation believers have warmed to reports showing soaring home prices and consumer confidence. They are also looking ahead to President Joe Biden’s pitch for a large social-spending… and a renewed commitment from the Federal Reserve to allow inflation to run hot.”

Inflation Watch:

April 26 – Yahoo Finance (Brian Sozzi): “C-suite executives are letting it be known that inflation is a real threat to profits this year… The number of mentions of ‘inflation’ during first quarter earnings calls this month have tripled year over year, the biggest jump dating back to 2004, according to new research from Bank of America strategist Savita Subramanian. Raw materials, transportation, and labor were cited as the main drivers of inflation. Subramanian’s research found that the number of inflation mentions has historically led the consumer price index by a quarter, with 52% correlation. In other words, Subramanian thinks investors could see a ‘robust’ rebound in inflation in coming months in the wake of the latest round of C-suite commentary. ‘Inflation is arguably the biggest topic during this earnings season, with a broad array of sectors (Consumer/Industrials/Materials, etc.) citing inflation pressures,’ Subramanian notes.”

April 27 – Bloomberg (Payne Lubbers): “U.S. companies face soaring bills for all kinds of materials that they need to do business — and surging demand is helping them pass on those higher costs to their customers. In early-season earnings calls, executives from burrito chain Chipotle Mexican Grill Inc. to appliance giant Whirlpool Corp. and diaper maker Procter & Gamble Co. have outlined price hikes, largely in response to rising materials costs. Their comments back up the data that show inflationary pressures building in the economy as the pandemic recovery gains speed… Shortages, bottlenecks and a year-long bull market in commodities have been pushing inflation rates higher across much of the world. In the U.S., which pumped more pandemic stimulus into its economy than most countries and has managed a faster vaccine rollout, those supply issues may be amplified by a boom in demand.”

April 23 – Bloomberg (James Attwood and Yvonne Yue Li): “Industrial metals from copper to aluminum to iron ore have rallied to the highest level in years. The reasons for their gains are plentiful: Copper — critical for everything from electrical wiring to motors and thus a bellwether for the global economy — broke out of its recent range to trade near the highest since the last supercycle as industrial operations ramp up worldwide. Iron ore, aluminum and steel are meanwhile gaining on speculation that production cuts will shrink supplies just as demand is taking off. And a weaker dollar is making commodities traded in the currency cheaper to buy.”

April 26 – Bloomberg (Kim Chipman and Megan Durisin): “A crop rally in the U.S. is making essential food commodities dramatically more expensive, and the costs could soon spill over onto grocery store shelves. Wheat, corn and soybeans, the backbone of much of the world’s diet, are all surging to highs not seen since 2013 after gains last week had some analysts warning that a speculative bubble was forming. Bad crop weather in key-producing countries is a major culprit. Dryness in the U.S., Canada and France is hurting wheat plants, as well as corn in Brazil. Rain in Argentina is derailing the soy harvest. Adding to that, there are fears of drought coming to the American Farm Belt… Meanwhile, China is gobbling up the world’s grain supplies and is set to import the most corn ever as it expands its massive hog herd. Rumors are swirling that the Asian nation is working on 1 million metric tons of new corn purchases…”

April 25 – Bloomberg (Megan Durisin and Deirdre Hipwell): “Corn, wheat, soybeans, vegetable oils: A small handful of commodities form the backbone of much of the world’s diet and they’re dramatically more expensive, flashing alarm signals for global shopping budgets. This week, the Bloomberg Agriculture Spot Index — which tracks key farm products — surged the most in almost nine years, driven by a rally in crop futures. With global food prices already at the highest since mid-2014, this latest jump is being closely watched because staple crops are a ubiquitous influence on grocery shelves — from bread and pizza dough to meat and even soda. Soaring raw material prices have broad repercussions for households and businesses, and threaten a world economy trying to recover from the damage of the coronavirus pandemic. They help fuel food inflation, bringing more pain for families that are already grappling with financial pressure from the loss of jobs or incomes.”

April 26 – Financial Times (Aziza Kasumov and Andrew Edgecliffe-Johnson): “Consumers have been put on notice to expect higher prices for goods ranging from toilet paper to washing machines to restaurant burritos, in a number of recent announcements that underline inflationary pressures across the global economy. Price rises have emerged as a dominant theme in the quarterly earnings season which kicked off in the US this month. Executives at Coca-Cola, Chipotle and appliance maker Whirlpool, as well as household brand behemoths Procter & Gamble and Kimberly-Clark, all told analysts in earnings calls last week that they were preparing to raise prices to offset rising input costs, particularly of commodities.”

April 27 – Bloomberg: “Steel prices are spiking from Asia to North America, and iron ore’s marching higher, as bets on a global economic recovery fuel frenzied demand. The world outside China is finally catching up with the Asian steel giant’s already strong markets as a global rebound drives a powerful wave of buying that can’t be matched by production. Sectors such manufacturing and construction are ramping up and governments have pledged to splurge on infrastructure as they map their post-pandemic path back to growth. Mills’ order books are filling up as buyers look to lock in steel after a year of output curbs and idling of plants.”

April 24 – Wall Street Journal (Will Parker): “Americans are paying more to rent homes again, ending a stretch during the pandemic when they enjoyed flat or falling rental prices and widespread landlord concessions. Federal government stimulus payments and expanding payrolls are boosting savings, enabling building managers to lift rent prices on apartments and houses nationwide. A record-low inventory of homes for sale also leaves more people renting. Median asking rent rose 1.1% on an annual basis in March to $1,463 a month across the country’s 50 largest markets, according to… Realtor.com.”

April 25 – Financial Times (Joshua Oliver): “Investors are taking further measures to protect against US inflation running hotter than expected in coming years, marking the latest sign that concerns over price growth persist even as a bond sell-off has eased. A measure calculated by the Minneapolis Federal Reserve based on options trades suggests a one-in-three chance that the US consumer inflation rate climbs above 3% over the next five years. The rise in the implied odds to the highest level in eight years shows how traders are seeking to protect themselves against a sustained uptick in inflation…”

April 25 – Wall Street Journal (Leslie Scism and Arian Campo-Flores): “Florida’s property-insurance market is in trouble, as mounting carrier losses and rising premiums threaten the state’s booming real-estate market, according to insurance executives and industry analysts. Longtime homeowners are getting socked with double-digit rate increases or notices that their policies won’t be renewed. Out-of-state home buyers who have flocked to Florida during the pandemic are experiencing sticker shock. Insurers that are swimming in red ink are cutting back coverage in certain geographic areas to shore up their finances. Various factors are at play, insurance executives and analysts say. Two hurricanes that slammed the state—Irma in 2017 and Michael in 2018—generated claims with an estimated cost of about $30 billion.”

April 27 – Bloomberg (Marcy Nicholson): “When Kris Taylor set out to build a lake house last October, he budgeted $40,000 for lumber. But a pandemic-fueled homebuilding frenzy that’s catapulted lumber prices into uncharted territory more than doubled his expected costs. Taylor ultimately moved forward, joining a chorus of homebuilders fanning the flames of lumber’s remarkable rally. Since June, lumber futures have more than tripled to a record $1,326 per 1,000 board feet.”

April 26 – Yahoo Finance (Brian Sozzi): “Summer pool season may be over for many before it even started, provided one wants to take a dip in sanitized self-contained body of water in their backyard. Goldman Sachs analyst Kate McShane warns… the chlorine shortage building steam across the country is hardly improving. The problem — in terms of chlorine availability and prices —stems from Hurricane Laura causing a fire last August at one of the country’s largest chlorine tablet makers BioLab… McShane notes that chlorine prices surged 37% year over year in March due to the supply shortage. Prices are seen spiking 58% year over year from June to August…”

Biden Administration Watch:

April 29 – Reuters (Trevor Hunnicutt and Susan Cornwell): “President Joe Biden proposed a sweeping new $1.8 trillion plan in a speech to a joint session of Congress…, pleading with Republican lawmakers to work with him on divisive issues and to meet the stiff competition posed by China. Pushing a vision of more government investment funded by the wealthy, the Democratic president urged Republicans who have so far resolutely opposed him to help pass a wide array of contentious legislation from taxes to police reform to gun control and immigration. Republicans largely sat silently during the speech while Democrats applauded as Biden spoke. Biden, who took office in January, also made an impassioned plea to raise taxes on corporations and rich Americans to help pay for his $1.8 trillion ‘American Families Plan’.”

April 29 – Wall Street Journal (Jacob M. Schlesinger): “Franklin D. Roosevelt created the modern government-funded social safety net in the 1930s to aid lower and middle-income families—paid for in part by jacking up taxes on the richest Americans. Dwight Eisenhower built the interstate highway system in the 1950s. John F. Kennedy defined federal industrial policy in the 1960s by pledging to put a man on the moon by decade’s end. In his first 100 days in office, Joe Biden has been attempting to emulate all three, seeking to combine and update for the 21st century his predecessors’ visions for a muscular Washington role in the economy. With his $1.8 trillion American Families Plan unveiled Wednesday—following his $2.3 trillion American Jobs Plan and his $1.9 trillion American Rescue Plan—President Biden has proposed $6 trillion in new federal spending for the next decade. That is far more than any recent president at a comparable point in their terms.”

April 25 – Reuters: “Democratic Senator Joe Manchin… said he opposes using a maneuver that would enable his party to pass U.S. President Joe Biden’s $2.3 trillion infrastructure proposal without Republican support, saying he favors a smaller and ‘more targeted’ bill. Manchin… rejected the idea of using a process called budget reconciliation to pass the Democratic president’s proposed $2.3 trillion infrastructure legislation. While most legislation needs 60 votes to advance in the 100-seat Senate, the reconciliation process allows for a simple majority. Democrats control the Senate because Vice President Kamala Harris can cast a tie-beaking vote.”

April 27 – CNBC (Kevin Breuninger): “Americans broadly back the big-ticket spending proposals that have defined President Joe Biden’s first 100 days in office, a variety of recent polls show. Surveys show many more Americans approve than disapprove of the $1.9 trillion coronavirus relief bill Biden signed into law in March… Despite Republicans’ efforts to brand the spending proposals as debt-ballooning boondoggles and harmful tax hikes, Biden’s bid so far appears to be paying off. The president’s overall approval rating is above water at 53%, buoyed by Americans’ support for his handling of Covid and the economy, according to NBC News’ latest poll.”

April 28 – Associated Press (Josh Boak): “President Joe Biden signed an executive order… to increase the minimum wage to $15 an hour for federal contractors, providing a pay bump to hundreds of thousands of workers. Biden administration officials said that the higher wages would lead to greater worker productivity, offsetting any additional costs to taxpayers.”

April 26 – Reuters (Svea Herbst-bayliss and Elizabeth Marshall): “Wealth advisers are counseling clients to max out their retirement accounts, park gains in tax-deferred opportunity zone funds and even sell some assets to avoid being clobbered by a potential U.S. capital gains tax hike. The White House will this week propose nearly doubling taxes on capital gains to 39.6% for people earning more than $1 million…, in what would be the highest tax rate on investment gains since the 1920s. Any changes will be hard-fought in Congress, where Democrats hold a slim majority, and the final tax rate will likely be lower than the White House’s opening salvo. But if a deal can be reached, the new tax rate could come into effect this year. Wealthy Americans have deluged their advisers and accountants with calls for advice on how to avoid being caught by the potential increase.”

Federal Reserve Watch:

April 28 – Bloomberg (Katherine Greifeld and Vildana Hajric): “Parts of the markets ‘are a bit frothy, and that’s a fact,’ says Jerome Powell. While he didn’t specify which, you don’t have to look too far for candidates. The Federal Reserve chairman answered “some of the asset prices are high” when asked if things like GameStop Corp.’s and dog-affiliated joke cryptocurrency Dogecoin’s supercharged rallies created threats to financial stability. Powell said asset prices were a factor in how the central bank assess stability, but not the only one. ‘I won’t say it has nothing to do with monetary policy, but also it has a tremendous amount to do with vaccination, and reopening of the economy, that’s really what has been moving markets a lot in the last few months,’ Powell said…”

April 28 – Reuters (Howard Schneider, Jonnelle Marte, Ann Saphir): “The Federal Reserve… took a rosier view of the U.S. economic recovery and the nation’s war against the coronavirus, but said it was too early to consider rolling back its emergency support with so many workers still left jobless by the pandemic. ‘It is not time yet’ to begin discussing any change in policy, Fed Chair Jerome Powell told reporters… ‘We are 8.5 million jobs below February 2020,’ Powell said. ‘We are a long way from our goals … It is going to take some time.’ Though inflation is due to rise, Powell said the coming price increases would almost surely be of a passing nature, and not present the sort of persistent problem that would force the Fed to begin raising interest rates sooner than expected.”

April 28 – Bloomberg (Craig Torres and Catarina Saraiva): “Federal Reserve Chair Jerome Powell and his colleagues upgraded their assessment of the U.S. economy but said they were not yet ready to consider scaling back pandemic support. ‘Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened,’ the Federal Open Market Committee said… after holding its key interest rate near zero and maintaining a $120 billion monthly pace of asset purchases. Marking a clear improvement since Covid-19 took hold more than a year ago, the Fed said that ‘risks to the economic outlook remain,’ softening previous language that referred to the virus posing ‘considerable risks.’”

April 28 – Financial Times (James Politi and Colby Smith): “Jay Powell signalled that the Federal Reserve was still far away from withdrawing support for the US economy, even after the central bank upgraded its view of the recovery. In a press conference… the Fed chair affirmed that the US central bank was not yet ready to discuss tapering its massive programme of asset purchases. ‘We’ve had one great jobs report, it’s not enough,’ Powell said… ‘We’re going to act on actual data, not our forecast.’ ‘We’re a long way from our goals,’ he added.”

April 28 – Yahoo Finance (Brian Cheung): “The retail-driven run-up in Gamestop and the memeification of cryptocurrency Dogecoin are not of concern to the nation’s central bank, its chief said… Federal Reserve Chairman Jerome Powell told reporters some asset valuations appear ‘frothy,’ but did not see any risks that may hurt the financial system. ‘The overall financial stability picture is mixed, but on balance it’s manageable,’ Powell said… Powell added that the broad run-up in market prices may be linked in part to the central bank’s easy money policies, but said optimism over getting to a post-pandemic world is the main driver.”

April 28 – Reuters (Karen Pierog): “The U.S. Federal Reserve is looking into risk management breakdowns at some of the banks that were involved in the meltdown of New York fund Archegos Capital, the chairman of the central bank said… Archegos, a family office run by ex-Tiger Asia manager Bill Hwang, along with major banks that financed the fund’s trades, lost billions of dollars last month as its leveraged bets on media stocks quickly soured. ‘It seems as though there were risk management breakdowns at some of the firms, not all of them, and that’s what we’re looking into,’ Fed Chair Jerome Powell said…”

April 27 – CNBC (Steve Liesman): “Federal Reserve Chairman Jerome Powell is a heavy favorite on Wall Street to be renominated for a second term by President Joe Biden even while there are substantial disagreements with the some aspects of Fed policy. The CNBC Fed Survey for April finds 76% of respondents believe President Joe Biden will choose Powell again. Nominated to be chair by President Donald Trump, Powell began his first four-year term in 2018. It ends in early 2022 and presidents have typically unveiled their choices in the summer or fall before the chair’s term expires.”

April 25 – Bloomberg (Mohamed A. El-Erian): “I suspect that Federal Reserve officials are not the only ones looking for an uneventful policy meeting this week. The majority of market participants are also expecting an undramatic event that will include an upgrade of the economic outlook, a reiteration of uncertainties and the signaling of nothing new on policies. Unfortunately, it’s an outcome that kicks the policy can further down the road when the central bank should be thinking now about scaling back its extraordinary measures.”

U.S. Bubble Watch:

April 28 – Reuters (Lucia Mutikani): “The U.S. trade deficit in goods jumped to a record high in March… but that was likely offset by robust domestic demand amid massive government aid… The goods trade deficit surged 4.0% to $90.6 billion last month, the highest in the history of the series. Exports of goods accelerated 8.7% to $142.0 billion…. The jump in exports was offset by a 6.8% advance in imports to $232.6 billion. Imports rose broadly. There were large gains in imports of motor vehicles, industrial supplies, consumer goods and food. Capital goods imports also rose solidly.”

April 27 – CNBC (Diana Olick): “Home price gains continue to outpace expectations, as tight supply and strong demand lead to bidding wars. Nationally, prices in February rose 12% year over year, up from 11.2% in January, according to the S&P CoreLogic Case-Shiller home price index. The 10-city composite rose 11.7% annually, up from 10.9% in January. The 20-city composite gained 11.9%, up from 11.1% in the previous month. All the gains were in the double digits, except Chicago and Las Vegas. ‘The National Composite’s 12% gain is the highest recorded since February 2006, exactly 15 years ago, and lies comfortably in the top decile of historical performance,’ said Craig Lazzara, managing director and global head of index investment strategy at S&P DJI.”

April 29 – Bloomberg (Reade Pickert): “U.S. economic growth accelerated in the first quarter as a rush of consumer spending helped bring total output to the cusp of its pre-pandemic level, foreshadowing further impressive gains in coming months. Gross domestic product expanded at a 6.4% annualized rate following a softer 4.3% pace in the fourth quarter… Personal consumption, the biggest part of the economy, surged an annualized 10.7%, the second-fastest since the 1960s.”

April 30 – Bloomberg (Olivia Rockeman): “U.S. personal incomes soared in March by the most in monthly records back to 1946, powered by a third round of pandemic-relief checks that also sparked a sharp gain in spending. The 21.1% surge in incomes followed a 7% decline in February… Purchases of goods and services, meanwhile, increased 4.2% last month, the most since June.”

April 29 – Bloomberg (Keith Naughton and Gabrielle Coppola): “Ford Motor Co. reduced its full-year forecast due to a debilitating computer-chip shortage that has crimped vehicle production, a crisis the automaker now sees extending into next year. A global shortfall of critically needed semiconductors has forced the entire automotive industry to cut output, leaving thin inventories on dealer lots just as consumers emerge from Covid-19 lockdowns. Ford expects a $2.5 billion hit to earnings due to scarce chip supplies, which it previously characterized as a worst case scenario.”

April 29 – Wall Street Journal (Josh Mitchell): “In 2018, Betsy DeVos, then U.S. education secretary, called JPMorgan… Chief Executive Jamie Dimon for help. Repayments on federal student loans had come in persistently below projections. Did Mr. Dimon know someone who could sort through the finances to determine just how much trouble borrowers were in? Months later, Jeff Courtney, a former JPMorgan executive, arrived in Washington. And that’s when the trouble started. According to a report he later produced, over three decades, Congress, various administrations and federal watchdogs had systematically made the student loan program look profitable when in fact defaults were becoming more likely. The result, he found, was a growing gap between what the books said and what the loans were actually worth, requiring cash infusions from the Treasury… The federal budget assumes the government will recover 96 cents of every dollar borrowers default on… In reality, the government is likely to recover just 51% to 63% of defaulted amounts… Mr. Courtney’s calculation was one of several supporting the disclosure in a Journal article last fall that taxpayers could ultimately be on the hook for roughly a third of the $1.6 trillion federal student loan portfolio.”

April 26 – Associated Press (Mike Schneider and Nicholas Riccardi): “U.S. population growth has slowed to the lowest rate since the Great Depression…, as Americans continued their march to the South and West and one-time engines of growth, New York and California, lost political influence. Altogether, the U.S. population rose to 331,449,281 last year…, a 7.4% increase over the previous decade that was the second-slowest ever. Experts say that paltry pace reflects the combination of an aging population, slowing immigration and the scars of the Great Recession more than a decade ago, which led many young adults to delay marriage and families.”

April 28 – Bloomberg (Jeffrey Bair): “California gasoline prices rose to $4 a gallon for the first time in a year and a half as more motorists hit the road amid easing pandemic restrictions in the most-populous U.S. state. The price in the most-expensive U.S. fuel market is up about 10 cents over the last month… Gasoline consumption across the country is on track for its third straight monthly increase, which which would be the longest streak since last summer, Energy Information Administration figures showed.”

April 24 – New York Times (David Gelles): “Boeing had a historically bad 2020. Its 737 Max was grounded for most of the year after two deadly crashes, the pandemic decimated its business, and the company announced plans to lay off 30,000 workers and reported a $12 billion loss. Nonetheless, its chief executive, David Calhoun, was rewarded with some $21.1 million in compensation. Norwegian Cruise Line barely survived the year. With the cruise industry at a standstill, the company lost $4 billion and furloughed 20% of its staff. That didn’t stop Norwegian from more than doubling the pay of Frank Del Rio, its chief executive, to $36.4 million. And at Hilton, where nearly a quarter of the corporate staff were laid off as hotels around the world sat empty and the company lost $720 million, it was a good year for the man in charge. …Chris Nassetta, its chief executive, received compensation worth $55.9 million in 2020.”

Fixed Income Watch:

April 28 – Bloomberg (Jack Pitcher and Laura Benitez): “Bond investors, emboldened by a recovering economy and a global vaccine rollout, are taking on more risk, sometimes a lot more risk. Insurers, pension systems and high-grade credit managers in the U.S. and Europe are buying bigger amounts of junk-rated debt to offset shrinking yields, forcing high-yield investors to jostle for allocations of BB rated bonds — the safest and largest part of their class with 60% of the market. Some fund managers… have seen their orders for new bonds cut in recent months, they said, declining to be identified because the information is private. One high-yield fund manager said his orders have been scaled back by as much as 15%. The soaring demand has reduced yields to record lows, pushing investors into the chancier subordinated parts of a company’s capital structure. It’s a bonanza for companies seeking to raise cash…”

China Watch:

April 29 – Bloomberg: “A gauge of China’s manufacturing industry slipped in April and the services sector also weakened, suggesting the economy is still recovering but at a slower pace. The official manufacturing purchasing managers’ index fell to 51.1 in April from 51.9 in the previous month…, lower than the median estimate of 51.8… The non-manufacturing gauge, which measures activity in the construction and services sectors, dropped to 54.9, compared to 56.1 projected by economists… The latest data adds more caution to China’s outlook after the economy showed more balanced growth in the first quarter…”

April 27 – Financial Times (Thomas Hale): “Huarong Asset Management, China’s biggest distressed debt investor, has suffered its first credit rating downgrade by an international agency weeks into a brutal sell-off in the under-pressure group’s bonds. The company, which is majority-owned by China’s finance ministry and owes about $22bn of dollar-denominated debt, has come under intense scrutiny as it has repeatedly delayed the publication of its 2020 financial results. Fitch… downgraded Huarong’s issuer rating from A to triple B, its lowest investment grade category. The agency said it ‘believes the government sponsor’s indication of support has not been as forthcoming’ a day after Huarong, which has assets of about Rmb1.7tn ($262bn), confirmed that it would miss a second reporting deadline at the end of April.”

April 28 – Bloomberg (Rebecca Choong Wilkins and Sofia Horta e Costa): “It’s been another dramatic week for China Huarong Asset Management Co., with a drip-feed of news offering investors a range of potential outcomes for the company’s future. Fitch Ratings cut its credit rating on China Huarong close to junk on Monday, a day after the company said it would miss a second deadline to report its annual results. The firm used a loan given by a state-owned bank to repay an offshore bond maturing Tuesday… While that suggests state support will be extended to China Huarong’s offshore debt, it raises questions over whether the company is short of cash. With $6.5 billion worth of bonds maturing over the rest of this year, there’s a lot at stake in a successful resolution to China Huarong’s challenges.”

April 25 – Bloomberg (Sofia Horta e Costa and Rebecca Choong Wilkins): “What investors in China Huarong Asset Management Co. want is transparency over its future. What they’re getting is a lesson in how opaque Chinese state-owned companies can be. On Sunday, the embattled firm announced it wouldn’t publish its 2020 earnings by the end of this month — the deadline required by Hong Kong’s stock exchange. Instead of providing clarity, the company released a thinly-worded statement in Chinese only, mostly reiterating information that investors already knew. There was no indication of when results would be published or if anything has changed since its April 1 filing to the city’s exchange, where China Huarong shares trade.”

April 27 – Bloomberg: “China Huarong Asset Management Co. repaid an offshore bond maturing Tuesday with funds provided by the nation’s largest state-owned bank, people familiar with the matter said… Industrial & Commercial Bank of China Ltd.’s Singapore branch gave Huarong a loan to help the company repay its S$600 million ($452 million) bond due April 27, the people said… The support comes after China’s financial regulator asked banks to extend loans to Huarong by at least six months to help the company refinance debt, the people said.”

April 29 – Wall Street Journal (Stephanie Yang): “Chinese financial regulators… ordered some of the nation’s largest technology companies to change financial business practices seen as risky and violating antitrust rules, the latest sign of heightened scrutiny of the sector. China’s central bank, together with the country’s banking, insurance, securities and foreign-exchange regulators, summoned 13 technology firms and ordered them to delink their payment systems from some financial products. They also demanded the companies bring their online lending and deposit-taking businesses in line with regulatory requirements.”

April 29 – Bloomberg: “Chinese regulators imposed wide-ranging restrictions on the fast-growing financial divisions of 13 companies including Tencent Holdings Ltd. and ByteDance Ltd., leveling many of the same curbs employed against Jack Ma’s Ant Group Co. in a crackdown on the tech sector. Units of JD.com Inc., Meituan and Didi Chuxing were also among firms summoned to a meeting with several watchdogs including the central bank, which spelled out a raft of requirements including stricter compliance when listing abroad and curbs on information monopolies and the gathering of personal data. Companies must restructure their financial wings into holding companies as part of a broad effort to subject themselves to more rigorous supervision…”

April 29 – Wall Street Journal (Mike Bird): “‘Housing is for living, not for speculation,’ has been a Chinese government mantra for almost half a decade. This year, it appears that slogan finally has teeth. But new restrictions on bank lending leave developers tapping a unique source of funding, which could have damaging consequences of its own. Late last year, Chinese regulators announced that property lending should make up no more than 40% of banks’ total lending, effectively putting an end to years of steadily increasing exposure to real estate. Looking across major Chinese banks’ results for 2020, they are very much at that limit in aggregate. At the big four… real-estate lending ran to between 37.5% and 42.2% of total loans, according to Capital IQ.”

April 26 – Bloomberg (Coco Liu): “China’s government has expanded its antitrust crackdown beyond Jack Ma’s technology empire, launching an investigation into suspected monopolistic practices by food-delivery behemoth Meituan. The State Administration for Market Regulation is looking into alleged abuses including forced exclusivity arrangements known as ‘pick one of two,’ employing the same language in a probe into Ma’s Alibaba…”

April 30 – Bloomberg: “China’s top leaders pledged to deepen supply side reform and drive a rebound in domestic demand, staying the course for now to bolster the economy’s recovery. The state will continue to keep macro policies consistent to boost a recovery in manufacturing and private investment, the state-run Xinhua News Agency reported… ‘The current economic recovery is unbalanced and unstable,’ according to the report of the meeting, which said the government will strive to achieve a more balanced economic growth. ‘It is necessary to make use of the current window of opportunity, when pressure on stable growth is relatively small, to promote economic stability and improvement.’”

April 26 – Bloomberg: “China’s local authorities have slowed the pace of debt sales to finance infrastructure projects this year, evidence of a gradual tightening of fiscal policy as the government shifts its focus toward risk control. Local governments have sold or plan to sell 222.7 billion yuan ($34.3bn) of so-called special bonds in January to April to fund shanty town renovations, highways and other infrastructure investment… That’s a sharp decline from 729.6 billion yuan of debt sold in the same period in 2019 and 1.15 trillion yuan in 2020.”

April 29 – Bloomberg (Moxy Ying and Abhishek Vishnoi): “China Development Bank, Agricultural Development Bank of China and the Export-Import Bank of China, the nation’s three policy banks, delayed the release of their 2020 earnings results, they said in regulatory filings. The delay, which also occurred last year, is because the review process hasn’t completed… The three unlisted policy banks finance state projects and economic and trade development. Their yuan-denominated bonds are popular among foreign investors, who primarily stick to debt sold by the lenders as well as those issued by the central government. The three banks, all wholly owned by the central government agencies, had about 28 trillion yuan ($4.3 trillion) of combined assets and more than 140 billion yuan of total profits in 2019.”

Global Bubble Watch:

April 29 – Reuters (Leigh Thomas): “Governments worldwide are desperate to raise extra revenue to rebuild their pandemic-ravaged economies and corporate taxation is becoming an obvious target after decades of decline. To finance a multitrillion-dollar infrastructure investment plan, Biden wants to lift the U.S. corporate tax rate from 21% to 28% and scale back loopholes that companies can use to cut their tax bills. Though there is no assurance that Congress will approve a rate that high, 28% would be well above the current average of 21% for member countries of the Paris-based OECD group of industrialised nations. However, it would be well below the 46% U.S. companies faced in the 1980s before the free-market Reagan and Thatcher revolutions fired up competition between governments worldwide to cut their corporate tax rates lower.”

April 29 – Bloomberg (Peter Vercoe): “The global chip shortage is going from bad to worse with automakers on three continents joining tech giants Apple Inc. and Samsung Electronics Co. in flagging production cuts and lost revenue from the crisis. In a dizzying 12-hour stretch, Honda Motor Co. said it will halt production at three plants in Japan; BMW AG cut shifts at factories in Germany and England; and Ford Motor Co. reduced its full-year earnings forecast due to the scarcity of chips it sees extending into next year. Caterpillar Inc. later flagged it may be unable to meet demand for machinery used by the construction and mining industries. Now, the very companies that benefited from surging demand for phones, laptops and electronics during the pandemic that caused the chip shortage, are feeling the pinch.”

April 25 – Wall Street Journal (Song Jung-a and Eleanor Olcott): “The deepening global chip crunch is spreading to makers of smartphones, televisions and home appliances, according to suppliers in Asia, as companies boost stockpiles of in-demand semiconductors. Chip supplies have tightened due to booming demand for electronics during the Covid-19 pandemic and outages at large production facilities. But the shortage has been worsened by hoarding by sanctions-hit Chinese groups, which has made it harder for some companies to secure components for everyday electronics such as washing machines and toasters.”

April 28 – Financial Times (Anne-Sylvaine Chassany): “Canada’s finance minister has called the US proposal for a global minimum corporate levy a ‘breakthrough moment’ in deadlocked international tax talks, in the latest sign of the growing momentum behind a deal on taxation of large tech groups… Chrystia Freeland said her government remained committed to implementing its own digital service tax in January, barring an accord among the world’s wealthiest countries. But she added she was now ‘very hopeful’ a deal would be reached at a G20 meeting this summer. Canada was ‘very engaged’ in the work led by the OECD on the so-called two pillars — a proposal to tax a proportion of multinationals’ global profits in the countries in which their customers are located, and a minimum corporate tax rate.”

April 29 – Financial Times (Song Jung-a): “Samsung Electronics said manufacturing of smartphones, televisions and home appliances has been disrupted by the deepening global chip crunch, and that it was ‘rebalancing’ production in hopes of minimising the impact. The disclosure by the South Korean technology group came as the chip shortage spread across industries from washing machines to toasters, for which demand has been turbocharged by the Covid-19 pandemic and outages at large production facilities.”

April 27 – Bloomberg (Fabiana Batista and Jonathan Gilbert): “The South American drought that’s helping push corn and soybean prices to multiyear highs isn’t just threatening crops, but also the ability to haul them on waterways that are drying up. On the increasingly shallow rivers that flow through top producers Brazil, Argentina and Paraguay, barges are carrying less than their usual load. The situation is so desperate in Paraguay that the country is asking neighboring Brazil to release water from the giant Itaipu hydroelectric dam, after vessels have run aground and logjams are forming…”

Central Banker Watch:

April 28 – Reuters: “The Bank of Canada set the taper ball rolling last week, becoming the first major central bank to cut back on pandemic-era money-printing stimulus programmes. So who’s next? The big guns of central banking – the U.S. Federal Reserve, European Central Bank and the Bank of Japan – won’t officially pare stimulus for a while, a message the BOJ reinforced on Tuesday… Yet the Bank of Canada’s C$1 billion ($806 million) cut to its weekly bond-buying programme may remind investors that the next phase in 2021 will be the taper phase… With economic data confirming a brighter outlook, Bank of America estimates central bank asset purchases in the United States, Japan, the euro zone and Britain will slide to about $3.4 trillion this year from almost $9 trillion in 2020.”

April 27 – Reuters (Leika Kihara, Daniel Leussink, and Tetsushi Kajimoto): “The Bank of Japan projected… inflation will fail to reach its 2% target during its governor’s term through early 2023… While the central bank kept policy steady, Governor Haruhiko Kuroda signalled his readiness to extend a pandemic-relief programme beyond the current September deadline, as slow vaccine rollouts and a spike in new virus strains hit retailers. ‘If some service sectors remain under strong funding stress, we will of course consider extending the programme,’ he told a news briefing…”

Europe Watch:

April 26 – Financial Times (Miles Johnson): “Italy’s prime minister Mario Draghi has warned the ‘destiny of the country’ depends on the success of a €248bn package of investments and reforms to relaunch its pandemic-ravaged economy. …Draghi, who was appointed to lead a national unity government in February, outlined the high stakes involved in a plan to tackle some of the most entrenched structural problems of the eurozone’s third-largest economy. ‘In the set of programmes that I am presenting to you today there is also and above all the destiny of the country,’ Draghi said. ‘The measure of what its role in the international community will be — its credibility and reputation as a founder of the European Union and a leading player in the Western world.’”

April 29 – Bloomberg (William Horobin and Alessandra Migliaccio): “The euro-area economy slid into a double-dip recession at the start of the year as strict coronavirus lockdowns across the region kept many businesses shuttered and consumers wary to spend… Output in the 19-nation euro area was down 0.6% in the first quarter and declined at nearly three times that pace in Germany.”

April 29 – Reuters: “Germany’s annual consumer price inflation accelerated in April, advancing further above the European Central Bank’s target of close to but below 2%… Consumer prices, harmonised to make them comparable with inflation data from other European Union countries, rose by 2.1% in April, up from 2.0% in March.”

April 29 – Bloomberg (Ania Nussbaum): “French President Emmanuel Macron’s allies have been talking up the supposed incompetence of far-right leader Marine Le Pen for months, but they’re starting to get worried. With France’s traditional parties in disarray, Macron’s government has framed Le Pen as his main rival, including for next year’s presidential election… By tacking to the right to peel off more moderate votes, the calculation was that Macron would beat her easily… But Le Pen has studied the lessons of her defeat in the last presidential election, when Macron exposed her ignorance of policy detail and ideas of leaving the euro that were out of step with most voters… A recent poll, conducted after the murder last week of a police officer, showed Le Pen’s popularity jumping 8 points to 34%, with the president’s hovering around 35%.”

EM Watch:

April 27 – Bloomberg (Anirban Nag): “The world’s worst Covid-19 outbreak in India risks fanning price pressures, threatening to limit options for the inflation-focused central bank to support the economy. Provincial curbs to stem the virus are disrupting domestic supply chains, risking higher prices for everything from essential drugs to cars. A recent weakening in the rupee is worsening the situation, boosting the local cost of imported oil and other raw materials for manufacturing… Consumer price inflation is on course to test the upper limit of the its 2%-6% target, while recent gains in wholesale prices signal more pressure to come.”

April 26 – Bloomberg (Fabiola Zerpa and Maria Elena Vizcaino): “Peru’s currency took another battering Monday after leftist presidential candidate Pedro Castillo extended his poll lead ahead of June’s runoff election to a crushing 20 percentage points. The sol dropped 1.2% to a record low for the second consecutive trading session, underperforming all other emerging-market currencies despite intervention from the central bank. The benchmark stock index touched a five-month low.”

April 26 – CNBC (Ryan Browne): “A second cryptocurrency exchange has collapsed in Turkey amid a crackdown on the industry. The platform, Vebitcoin, said… it has ceased all activities after facing financial strain and that it would update clients on the situation as soon as possible. Days earlier, Thodex, went offline with its CEO reportedly leaving the country. Local media reports say Thodex founder Faruk Fatih Ozer flew to Albania, taking $2 billion of investors’ funds with him.”

Japan Watch:

April 26 – Bloomberg (Isabel Reynolds): “Losses in three special elections for parliamentary seats in a single day have left Japanese Prime Minister Yoshihide Suga in search of a way to quickly boost support or risk joining a long list of short-serving premiers. Support for Suga, who succeeded his long-time boss, Shinzo Abe, last year, has been dragged down by corruption scandals and a sluggish Covid response. The triple loss in the weekend elections came on the same day a new virus emergency was imposed on about a quarter of the population, adding to Suga’s woes with the clock ticking for a general election that must be held within about six months.”

Leveraged Speculation Watch:

April 27 – Financial Times (Leo Lewis and Owen Walker): “Bank losses from the implosion of Archegos Capital have surpassed $10bn, after Nomura reported a $2.9bn hit and suspended its head of prime brokerage, and UBS revealed a $861m loss from the debacle. The collapse last month of the family office run by former hedge fund manager Bill Hwang is one of the most spectacular on Wall Street and has already resulted in losses of $5.4bn for Credit Suisse and $911m for Morgan Stanley. Japanese megabanks MUFG and Mizuho are expected to report up to $390m of losses, while Goldman Sachs and Wells Fargo — two other banks that counted Archegos as a client of their prime brokerage divisions that service hedge funds — escaped from the fallout relatively unscathed.”

April 24 – Wall Street Journal (Simon Clark): “Credit Suisse Group AG’s $5.5 billion loss from Archegos Capital Management puts it into the big league of banking mishaps with the likes of Nick Leeson, Jérôme Kerviel and the ‘London whale.’ Archegos, the U.S. family investment firm of former Tiger Asia manager Bill Hwang, took huge bets on a few stocks with money borrowed from Credit Suisse and other banks. When some large positions reversed and Archegos couldn’t meet margin calls, it triggered one of the biggest sudden losses in Wall Street history. In addition to Credit Suisse, Nomura Holdings Inc. warned investors of a $2 billion loss from Archegos. Morgan Stanley wrote down $911 million related to the firm and Japanese bank Mitsubishi UFJ Financial Group warned of a $300 million loss.”

April 28 – Wall Street Journal (Miriam Gottfried and Juliet Chung): “Some private-equity firms and hedge funds are pushing back against a proposal from President Biden to end the carried-interest tax advantage these types of firms enjoy. Mr. Biden is unveiling a $1.8 trillion proposal that includes new spending on child care, education and paid leave, as well as extensions of some tax breaks. To pay for it, he would largely raise taxes on the wealthiest Americans, including many on Wall Street. Hedge funds and private-equity firms are among those that would be affected by Mr. Biden’s proposal, given his plan would get rid of lower rates on long-term capital gains for high-income households and end what the administration calls the ‘carried-interest loophole.’ The moves would mean investment managers would no longer be allowed to pay a lower rate on a substantial portion of their compensation.”

Social, Political, Environmental, Cybersecurity Instability Watch:

April 29 – CNBC (Evelyn Cheng): “China has ambitious goals for cutting its carbon emissions, but it won’t be abandoning coal power anytime soon as it keeps its eye firmly on economic targets. President Xi Jinping said… the country’s carbon emissions would begin to decline by 2030, and he said the country will reach carbon neutrality by 2060… ‘China’s energy structure is dominated by coal power. This is an objective reality,’ said Su Wei, deputy secretary-general of the National Development and Reform Commission… ‘Because renewable energy (sources such as) wind and solar power are intermittent and unstable, we must rely on a stable power source,’ Su said. ‘We have no other choice. For a period of time, we may need to use coal power as a point of flexible adjustment.’”

April 29 – The Guardian (Jonathan Watts and Niko Kommenda): “The melting of the world’s glaciers has nearly doubled in speed over the past 20 years and contributes more to sea-level rise than either the Greenland or Antarctic ice sheets, according to the most comprehensive global study of ice rivers ever undertaken. Scientists say human-driven global heating is behind the accelerating loss of high-altitude and high-latitude glaciers, which will affect coastal regions across the planet and create boom-and-bust flows of meltwater for the hundreds of millions of people who live downstream of these ‘natural water towers’.”

April 25 – Wall Street Journal (Juan Forero, Matthew Dalton and Sha Hua): “Countries aiming to sharply reduce their emissions to meet climate goals must be prepared for staggering costs and looming political battles as they seek to overhaul swaths of their economies, climate analysts and economists say. The International Renewable Energy Agency… said in March that the world would need to invest $115 trillion through 2050 in clean technologies, such as solar power and electric vehicles, to limit global warming to 1.5 degrees Celsius, or 2.7 degrees Fahrenheit. Such climate goals, made at the 2015 Paris accords, were revived in the Earth Day Climate Summit hosted last week by President Biden.”

Geopolitical Watch:

April 30 – Financial Times (Demetri Sevastopulo): “From his first call with President Xi Jinping to an extraordinary spat between US and Chinese diplomats in Alaska, Joe Biden’s hawkish stance on China has been much closer to that of his predecessor Donald Trump than experts had predicted. In his first 100 days in office, Biden castigated China for cracking down on Hong Kong’s pro-democracy movement, persecuting Uyghurs in Xinjiang, and military activity near Taiwan that has raised the spectre of war. In Alaska last month, his secretary of state and national security adviser raised these issues in public opening remarks, triggering a 16-minute diatribe from the Chinese that underscored how Sino-US relations were in for a rocky ride. ‘What the Biden team has been trying to do is set a new normal in the relationship where leaders in Beijing understand there’s going to be friction and that Chinese pressure on the US or its allies and partners is not going to make the US back away,’ said Zack Cooper, an Asia expert at the American Enterprise Institute think-tank.”

April 28 – Reuters (Renju Jose and Colin Packham): “Australia will spend A$747 million ($580 million) to upgrade four northern military bases and expand war games with the United States, Prime Minister Scott Morrison said… In an announcement that comes amid an increasingly bitter diplomatic and trade spat with China, Morrison said Australia must expand its military assets in the Northern Territory to be able respond to unspecified tensions in the Asia-Pacific region. ‘Our objective is a free and open Indo-Pacific, to ensure a peaceful region, one that, at the same time, Australia is in a position to always protect its interests,’ Morrison told reporters…”

April 29 – Bloomberg (Jason Scott): “China’s top diplomat in Canberra blamed Australia for deteriorating ties between the nations, accusing it of economic coercion and ‘provocations’ in a wide-ranging speech that painted Beijing as a victim. Citing Australia’s decision last week to cancel agreements between Beijing’s flagship Belt and Road Initiative and Victoria state among a litany of ‘negative moves,’ Ambassador Cheng Jingye said the country’s perception of China as a ‘threat and challenge’ had hurt relations. He called claims of Chinese economic coercion ‘ridiculous and irrelevant.’ ‘If there is any coercion, it must have be done by the Australian side,’ Cheng told business leaders… ‘What China has done is only aimed to uphold its legitimate rights and interests, prevent bilateral ties from further plunging and move them back onto the right track.”