For the Week:

The S&P500 slipped 0.2% (up 14.6% y-t-d), while the Dow was little changed (up 5.8%). The Utilities declined 0.9% (down 2.9%). The Banks jumped 3.1% (down 15.0%), and the Broker/Dealers gained 1.9% (up 29.8%). The Transports dipped 0.3% (up 14.9%). The S&P 400 Midcaps rose 1.2% (up 12.2%), and the small cap Russell 2000 jumped another 1.7% (up 20.1%). The Nasdaq100 slipped 0.2% (up 45.6%). The Semiconductors declined 0.5% (up 48.7%). The Biotechs added 0.3% (up 17.1%). Though bullion added $2, the HUI gold index declined 0.8% (up 24.4%).

Three-month Treasury bill rates ended the week at 0.08%. Two-year government yields were unchanged at 0.12% (down 145bps y-t-d). Five-year T-note yields declined two bps to 0.36% (down 133bps). Ten-year Treasury yields slipped two bps to 0.93% (down 99bps). Long bond yields fell three bps to 1.66% (down 73bps). Benchmark Fannie Mae MBS yields declined a basis point to 1.39% (down 132bps).

Greek 10-year yields were unchanged at 0.64% (down 79bps y-t-d). Ten-year Portuguese yields gained three bps to 0.06% (down 38bps). Italian 10-year yields added two bps to 0.59% (down 83bps). Spain’s 10-year yields rose three bps to 0.07% (down 40bps). German bund yields increased two bps to negative 0.55% (down 36bps). French yields increased two bps to negative 0.31% (down 43bps). The French to German 10-year bond spread was unchanged at 24 bps. U.K. 10-year gilt yields added one basis point to 0.26% (down 57bps). U.K.’s FTSE equities index declined 0.4% (down 13.8%).

Japan’s Nikkei Equities Index fell 0.4% (up 12.7% y-t-d). Japanese 10-year “JGB” yields were unchanged at 0.01% (up 3bps y-t-d). France’s CAC40 was little changed (down 7.6%). The German DAX equities index slipped 0.3% (up 2.6%). Spain’s IBEX 35 equities index gained 0.9% (down 15.1%). Italy’s FTSE MIB index rose 0.7% (down 5.9%). EM equities were mixed. Brazil’s Bovespa index dipped 0.2% (up 1.9%), and Mexico’s Bolsa fell 1.1% (down 0.4%). South Korea’s Kospi index jumped 1.3% (up 27.7%). India’s Sensex equities index was unchanged (up 13.9%). China’s Shanghai Exchange fell 0.9% (up 10.3%). Turkey’s Borsa Istanbul National 100 index gained 1.3% (up 24.6%). Russia’s MICEX equities index fell 1.1% (up 6.3%).

Investment-grade bond funds saw inflows of $2.529 billion, while junk bond funds posted outflows of $896 million (from Lipper).

Federal Reserve Credit last week surged $93.5bn to a record $7.346 TN. Over the past year, Fed Credit expanded $3.226 TN, or 78.3%. Fed Credit inflated $4.535 Trillion, or 161%, over the past 424 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week declined $2.5bn to $3.499 TN. “Custody holdings” were up $90bn, or 2.6%, y-o-y.

M2 (narrow) “money” supply jumped $72.5bn last week to a record $19.299 TN, with an unprecedented 42-week gain of $3.791 TN. “Narrow money” surged $3.879 TN, or 25.2%, over the past year. For the week, Currency increased $1.5bn. Total Checkable Deposits surged $156bn, while Savings Deposits dropped $73.8bn. Small Time deposits slipped $2.5bn. Retail Money Funds fell $8.8bn.

Total money market fund assets jumped $31.4bn to $4.320 TN. Total money funds surged $716bn y-o-y, or 19.9%.

Total Commercial Paper rose $32.3bn to $1.030 TN. CP was down $102bn, or 9.0% year-over-year.

Freddie Mac 30-year fixed mortgage rates declined a basis point to a record low 2.66% (down 108bps y-o-y). Fifteen-year rates fell two bps to an all-time low 2.19% (down 100bps). Five-year hybrid ARM rates were unchanged at 2.79% (down 66bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up four bps to 2.93% (down 107bps).

Currency Watch:

For the week, the U.S. dollar index increased 0.2% to 90.223 (down 6.5% y-t-d). For the week on the upside, the Mexican peso increased 0.4% and the British pound 0.3%. For the week on the downside, the Brazilian real declined 1.7%, the Swiss franc 0.7%, the Canadian dollar 0.6%, the euro 0.5%, the Norwegian krone 0.5%, the South African rand 0.5%, the Swedish krona 0.4%, the South Korean won 0.3%, the New Zealand dollar 0.3%, the Australian dollar 0.2%, the Singapore dollar 0.2%, and the Japanese yen 0.1%. The Chinese renminbi declined 0.03% versus the dollar this week (up 6.44% y-t-d).

Commodities Watch:

The Bloomberg Commodities Index declined 0.4% (down 4.8% y-t-d). Spot Gold was little changed at $1,883 (up 24.1%). Silver declined 0.5% to $25.908 (up 44.6%). WTI crude fell 87 cents to $48.23 (down 21%). Gasoline lost 1.2% (down 18%), and Natural Gas sank 6.7% (up 15%). Copper dropped 1.8% (up 27%). Wheat jumped 3.1% (up 12%). Corn surged 3.1% (up 16%).

Coronavirus Watch:

December 23 – Wall Street Journal (Joe Barrett and Ben Kesling): “States and major cities across the country have imposed the most extensive restrictions on business and social gatherings since widespread lockdowns during the spring, in hopes of preventing a further surge in Covid-19 cases over the winter holidays… Nearly 85 million Americans are expected to travel from Dec. 23 through Jan. 3, off at least 29% from last year, according to an estimate by AAA.”

December 23 – CNBC (Susan Heavey and Gabriella Borter): “Americans were warned again… not to travel for Christmas as the latest COVID-19 surge left hospitals struggling to find beds for the sick and political leaders imposed restrictions to try to curb new infections, making for a grim holiday season… In California, an epicenter of the latest surge, intensive care unit (ICU) beds were scarce and hospitals said they lacked enough doctors and nurses to care for patients. ‘The whole California ICU capacity has been going down. We are all struggling,’ said Dr. Imran Mohammed of Sutter Roseville Medical Center… ‘We really don’t want to see more than this. We will be challenged to see further ICU patients and we will have no place eventually.’”

December 19 – CNBC (Greg Iacurci): “It has been nine months since the coronavirus pandemic began its assault on American livelihoods. Since then, financial desperation has steadily grown for jobless Americans across the country. Almost 8 million people have fallen into poverty since the summer. Savings for many, especially the lowest earners, are either dwindling or gone. Millions of households owe thousands in back rent and utilities — and face a renewed threat of eviction in the new year. A growing share of unemployed individuals say their households don’t have enough to eat.”

December 21 – Associated Press (Christopher Weber): “California’s overwhelmed hospitals are setting up makeshift extra beds for coronavirus patients, and a handful of facilities in hard-hit Los Angeles County are drawing up emergency plans in case they have to limit how many people receive life-saving care. The number of people hospitalized across California with confirmed COVID-19 infections is more than double the state’s previous peak, reached in July, and a state model forecasts the total could hit 75,000 patients by mid-January.”

December 20 – Bloomberg: “U.K. Health Secretary Matt Hancock warned that the new strain of the coronavirus is ‘out of control’ and suggested parts of England will be stuck in the new, highest tier of restrictions until a vaccine is rolled out. More than 16 million Britons are now required to stay at home after a lockdown came into force Sunday in London and southeast England and the government scrapped plans to relax rules on socializing at Christmas.”

December 21 – Wall Street Journal (Alistair MacDonald and Jared Malsin): “A line of trucks stretched for miles back from the entrance to the Channel tunnel here Monday, as the U.K. braced for potential food shortages and manufacturers worried over more disruptions if France continued a ban on freight and passenger traffic from Britain to stop the spread of a new strain of the coronavirus. The move to bar entry from the U.K., announced by Paris late Sunday, cuts off Britain’s main freight link to Europe, shutting down trade between ports like Dover and Calais that handle up to 10,000 trucks a day. Eurotunnel… also halted all freight and passenger services.”

December 20 – Financial Times (Clive Cookson and Donato Paolo Mancini): “Scientists said the UK government’s drastic action to impose harsh restrictions over Christmas was fully justified by the extraordinary increase in infectiousness displayed by the new variant coronavirus — making it 70% more transmissible than other strains in circulation. The variant’s most remarkable feature is the number of mutations that have shaped it. Sir Patrick Vallance, the government’s chief scientific adviser, said 23 letters of the viral genetic code have changed, many of which are associated with the spike protein that the virus uses to get into human cells. Coronaviruses do not usually mutate so quickly, typically accumulating about two genetic changes per month.”

December 22 – Financial Times (Clive Cookson, Anna Gross and John Burn-Murdoch): “Scientists are scrambling to understand the new coronavirus variant that has devastated the Christmas plans of millions of people in Britain and left the UK largely isolated from the rest of the world… Labelled B.1.1.7… It was first detected in mid-October when the Covid-19 Genomics UK Consortium (Cog-UK)… But scientists did not become alarmed about B.1.1.7 until mid-December when they associated it with rapidly rising case numbers in south-east England. B.1.1.7 has far more mutations than in any previous variant of the Sars-Cov-2 virus analysed since the pandemic started. Twenty-three letters of the viral genetic code have changed, of which 17 could alter the behaviour of the virus. They include several mutations on the key ‘spike protein’ that it uses to enter human cells.”

December 23 – CNBC: “The U.S. began vaccinating the population against the coronavirus last week, but mass adoption is not a guarantee. Nearly 4 in 10 Americans say they would ‘definitely’ or ‘probably’ not get a vaccine, according to a Pew Research Center survey of 12,648 U.S. adults from Nov. 18 to 29.”

December 21 – Bloomberg (John Tozzi): “The National Institutes of Health plans to begin a clinical trial that aims to help doctors ‘predict and manage’ allergic reactions related to Pfizer Inc.’s Covid-19 vaccine. Moncef Slaoui, chief scientific adviser to Operation Warp Speed, said… the aim of the trial, which will also study the Moderna Inc. shot just authorized for emergency use, will be to pinpoint why the incidents, known as anaphylaxis, are occurring.”

Market Instability Watch:

December 19 – Bloomberg: “Animal spirits are famously running wild across Wall Street, but crunch the numbers and this bull market is even crazier than it seems. Global stocks are now worth around $100 trillion. American companies have raised a record $175 billion in public listings. Some $3 trillion of corporate bonds are trading with negative yields. All the while the virus spreads, the economic cycle stays on life-support and businesses get thrashed by fresh lockdowns. Spurred by endless monetary stimulus and bets on a post-pandemic world, day traders and institutional pros alike are enjoying the easiest financial conditions in history. ‘Sentiment indicators are moving to euphoria,’ said Cedric Ozazman, chief investment officer at Reyl & Cie… ‘People are now jumping to invest amid fears they will miss the Santa Claus rally.’”

December 22 – Bloomberg (Liz Capo McCormick): “The era of swelling Treasury auctions may be over for now, but investors are still about to absorb a historical deluge of long-term debt next year, with potentially painful implications for returns. The math is simple: The Treasury is skewing its issuance more toward longer maturities, easing back on the bill sales… At the same time, the Federal Reserve is likely to buy significantly less of the government’s debt on the secondary market in 2021… For JPMorgan…, the bottom line is that investors are going to have to soak up a lot more coupon-bearing Treasuries in 2021, to the tune of a net $1.84 trillion after taking into account the Fed’s buying. That’s an unprecedented annual amount, and it’s a staggering turnaround from this year, when a net $441 billion was sucked out of the market by JPMorgan’s calculation.”

December 23 – Bloomberg: “At 1:25 p.m. in New York on Monday, something unusual happened to the world’s largest exchange-traded fund. After opening at $364.97 per share and straying less than 0.9% in either direction for almost four hours of trading, the price suddenly rocketed. The SPDR S&P 500 ETF Trust (SPY) shot to $378.46, the highest level it has ever reached. More than 150,000 trades were executed at $370 or above, totaling almost $58 million. Then, just as suddenly, the price dropped back to about $367.50. The whole thing took less than one second. For any investor checking their portfolio at the end of the day or week, or even a trader out at lunch, it may as well never have happened. But for Wall Street worrywarts it’s a reminder of one of the lurking dangers in these ultra-fast modern markets. The trades behind SPY’s spike were what is known as intermarket sweep orders, or ISOs. In very simple terms, they are automated trades that ‘sweep’ the market picking up as many shares as possible at the best price available.”

December 21 – Financial Times (David Carnevali): “Investors continue to bet that US stocks have room to rise, according to a key measure of positions in the derivatives market… Purchases of call options… have surged since November’s US election and Covid-19 vaccine breakthroughs, according to exchange operator Cboe. The daily trading volumes of call contracts, which are effectively a bet on rising prices, have far outpaced put options, which give the buyer a right to sell shares at a set level. The put/call ratio is just the latest indication of enthusiasm for stocks, despite the continuing rise in coronavirus cases and major cities turning again to lockdowns, investors and analysts have said.”

December 22 – Bloomberg (Katherine Greifeld): “Over the past three years, stocks have been rocked by deteriorating trade relationships, economic turbulence and a pandemic that’s ravaged the globe. Throughout it all, investors have refused to pull cash from one of Vanguard Group’s largest exchange-traded funds. The $37 billion Vanguard Total International Stock Index Fund ETF… hasn’t posted an outflow since July 25, 2017… The fund — which invests in global equities excluding U.S. shares — has seen net withdrawals only on four days since it started trading in 2011…”

Global Bubble Watch:

December 20 – Financial Times (Jonathan Wheatley): “Global institutions, creditors and lobby groups are scrambling to come up with ways of tackling what many fear will be a wave of sovereign debt crises in emerging economies in the coming year. The economic and financial consequences of the pandemic threaten to tip dozens of nations into a fiscal crisis and to leave many others weighed down with debt and struggling to grow. These countries need trillions of dollars of additional public spending to help them recover from the crisis, according to the IMF, which has warned that their national resources will fall far short.”

December 24 – Bloomberg (Myriam Balezou, Crystal Tse and Kiel Porter): “Global merger and acquisition activity clawed its way back from near-decade lows in 2020, facing down the Covid-19 pandemic with a string of large transactions in the second half of the year that dealmakers hope will continue. Deal volumes are now down about 6% for the year to $3.5 trillion… Still, the fact that about two-thirds of those were inked since the start of July has advisers talking about a dramatic comeback, after the first half of 2020 froze M&A and sent North American deal activity down more than 50%.”

December 23 – Reuters (Lisa Baertlein and Jonathan Saul): “Amazon seller Bernie Thompson shifted half of his production out of China to reduce his business risks and still found himself in the crosshairs of logistical chaos besetting the movement of goods around the globe. A surge in demand for furniture, exercise equipment and other goods for shoppers sheltering at home in a worsening COVID-19 pandemic has upended normal trade flows. That has stranded empty cargo containers in the wrong places, spawning bottlenecks that now stretch from factories to seaports. Container ship operators ferry the majority of consumer goods, and transportation and trade sources warn that prolonged industry disruption could cause shortages and complicate the global economic recovery.”

December 22 – Bloomberg (Andrew Atkinson): “U.K. government borrowing climbed to a record 240.9 billion pounds ($323bn) in the first eight months of the fiscal year, reflecting the damage inflicted on an economy now at risk of falling back into recession. In November alone, spending exceeded tax revenue by 31.6 billion pounds amid the escalating cost of supporting firms and households through the pandemic…”

Trump Administration Watch:

December 23 – Politico (Anita Kumar, Melanie Zanona and Marianne Levine): “President Donald Trump has once again thrown Washington into chaos, making uneven demands that have left lawmakers baffled and Americans coping with a global pandemic uncertain when they’ll be getting long-promised financial help. On Tuesday night, Trump blindsided all of Washington — including his own staff — with a series of eleventh-hour demands to amend coronavirus relief and government funding legislation that his own administration had helped carefully craft and supported. Overnight and into Wednesday, senior Republicans, Hill aides and even White House officials scrambled to figure out what Trump actually wanted, just as lawmakers — and Trump — prepare to leave town for the holidays.”

December 22 – CNBC (Mike Calia): “President Donald Trump, in a stunning nighttime tweet, called the $900 billion Covid relief bill passed by Congress an unsuitable ‘disgrace’ and urged lawmakers to make changes to the measure, including bigger direct payments to individuals and families. Trump also suggested that his administration might be the ‘next administration,’ despite his loss to President-elect Joe Biden… The president’s Tuesday night tweet, which included a video of him discussing what he considers the bill’s many flaws, including funding headed overseas, came less than 24 hours after the Senate passed the measure. The foreign aid provisions are part of a $1.4 trillion measure to keep the government funded, which was paired with the Covid relief bill.”

December 23 – Reuters (Andy Sullivan and Steve Holland): “Americans… faced the prospect of a government shutdown during a pandemic as outgoing President Donald Trump, angry at his fellow Republicans in Congress, threatened not to sign a $2.3 trillion government funding and coronavirus aid package. The package, including $892 billion for relief from the coronavirus crisis, ended months of negotiations between congressional Republicans and Democrats. It also pays for government operations through September 2021, so if Trump blocks it then large parts of the U.S. government will start to shut down next week for lack of funds. Trump, in a video posted to social media…, surprised some of his closest officials by demanding the bill be revised to include $2,000 payments to each American… A source familiar with the situation said aides thought they had talked Trump out of the $2,000 demand last week, only to learn he had not given up when he posted the video. That surprised even his Treasury secretary, Steven Mnuchin, who took part in the talks and backed the $600 figure.”

December 24 – CNBC (Jacob Pramuk and Tucker Higgins): “House Republicans on Thursday blocked a Democratic attempt to pass $2,000 direct payments to Americans, as the fate of the massive coronavirus relief package passed by Congress earlier in the week hangs in the balance. The Democrats moved to increase the size of the checks after President Donald Trump threatened to oppose the $2 trillion pandemic aid and federal funding bill because it included only $600 in direct payments rather than $2,000… The House tried to pass the $2,000 payments during a pro forma session on Christmas Eve day, a brief meeting of the chamber where typically only a few members attend. Democrats aimed to approve the measure by unanimous consent, which means any one lawmaker can block it.”

December 24 – Bloomberg (Laura Davison and Billy House): “Congressional Republicans, led by Senate Majority Leader Mitch McConnell, face high-stakes decisions in coming days over two giant pieces of bipartisan legislation that President Donald Trump savaged this week. Trump on Wednesday vetoed a $740.5 billion annual defense spending bill, which passed both chambers of Congress with greater than two-thirds majorities earlier this month. House Speaker Nancy Pelosi plans a vote to override that veto next week, with McConnell’s office pledging guidance on his intentions after the House acts. Also in play is a mammoth $2.3 trillion Covid-19 relief and government funding bill, which Trump attacked Tuesday for including ‘wasteful’ spending and for having insufficient stimulus checks.”

December 21 – Bloomberg (Erik Wasson, Laura Litvan and Billy House): “The Senate… passed a giant year-end spending bill combining $900 billion in Covid-19 relief aid with $1.4 trillion in regular government funding and a bevy of tax breaks for businesses. The vote was 92-6 after the House passed the combined bill in two votes of 327-85 and 359-53. The legislation now will go to President Donald Trump, whose aides said would sign it when it arrives at the White House this week. The House and Senate also cleared a seven-day stopgap funding bill to avert a partial government shutdown while the broader legislation is prepared for the president. The 5,593-page bill, which totals more than $2.3 trillion, contains the second-largest economic relief measure in U.S. history — after the $1.8 trillion Cares Act passed in March…”

December 19 – Associated Press (Jill Colvin and Matthew Lee): “Contradicting his secretary of state and other top officials, President Donald Trump… suggested without evidence that China — not Russia — may be behind the cyber espionage operation against the United States and tried to minimize its impact. In his first comments on the breach, Trump scoffed at the focus on the Kremlin and downplayed the intrusions, which the nation’s cybersecurity agency has warned posed a ‘grave’ risk to government and private networks. ‘The Cyber Hack is far greater in the Fake News Media than in actuality. I have been fully briefed and everything is well under control,’ Trump tweeted. He also claimed the media are ‘petrified’ of ‘discussing the possibility that it may be China (it may!).’”

Biden Administration Watch:

December 20 – Reuters (Raphael Satter): “The incoming White House chief of staff said… President-elect Joe Biden’s response to the massive hacking campaign uncovered last week would go beyond sanctions. Ron Klain said Biden was mapping out ways to push back against the suspected Russian hackers who have penetrated half a dozen U.S. government agencies and left thousands of American companies exposed. ‘It’s not just sanctions. It’s steps and things we could do to degrade the capacity of foreign actors to engage in this sort of attack,’ Klain said…”

December 21 – Bloomberg (Saleha Mohsin and Liz Capo McCormick): “Janet Yellen once touted the benefits of a weaker greenback for exports, but as the incoming Treasury secretary, she faces pressure to return the U.S. to a ‘strong-dollar’ policy — and may cause trembles on Wall Street if she doesn’t. The greenback’s tumble this year — it’s heading for the second-biggest drop in the past decade — has already stoked foreign policy makers’ concerns, thanks to the competitive advantage it gives the U.S. Even a tacit endorsement of a weakening dollar could spur tensions with trading partners.”

Federal Reserve Watch:

December 21 – CNBC (Kevin Stankiewicz): “Sen. Patrick Toomey, R-Pa., defended… his opposition to extending emergency Federal Reserve lending programs, which had emerged as a last-minute sticking point in coronavirus stimulus negotiations. A deal over the weekend was eventually reached around the Fed’s lending powers, paving the way for an agreement on the larger, $900 billion relief package… On CNBC, Toomey said: ‘My concern was there would be tremendous political pressure to misuse these, to morph these liquidity facilities that had successfully restored market liquidity and turn them into an instrument of fiscal policy, which is a terrible idea.’”

December 18 – Reuters (Pete Schroeder and David Henry): “The largest U.S. banks have enough capital to withstand over $600 billion in losses from a short, sharp economic slump, as well as a moderate longer-lasting downturn, and will be permitted to pay out dividends and buy back stock on a limited basis, the U.S. Federal Reserve said… The relaxed restrictions were met quickly with announcements from some large firms, including JPMorgan… and Goldman Sachs, that they planned to buy back stock beginning in the new year.”

December 22 – Financial Times (Colby Smith): “A group of powerful financial regulators have called for sweeping reforms to US money market funds after the $4.9tn industry showed signs of severe strain during the market turmoil in March. A coalition that includes the heads of the Treasury department, Federal Reserve, Securities and Exchange Commission and the Commodity Futures Trading Commission issued a joint report… outlining a set of policy options to improve not only the resilience of money market funds, but also short-term funding markets more broadly. In March, massive outflows in prime money market funds — which invest in corporate paper and other kinds of short-term debt and account for about 20% of money market fund assets — rippled through financial markets.”

U.S. Bubble Watch:

December 23 – Wall Street Journal (Josh Mitchell): “Household spending dropped for the first time in seven months and layoffs remained elevated as a surge in virus cases weighed on economic recovery. After going on a shopping spree this summer, consumers closed their wallets last month, cutting spending by 0.4%… They cut spending on services such as restaurant meals, as well as purchases of goods, including big-ticket items… Household incomes also took a hit as the effects of federal aid programs put in place earlier this year fade. Household income—measuring what Americans received in wages, investment returns and government aid—fell 1.1%, the third drop in four months.”

December 23 – CNBC (Diana Olick): “Mortgage demand ended the year significantly higher than 2019, but appears to be cooling off a bit for the holidays… Mortgage applications to purchase a home fell 5% for the week but were 26% higher than a year ago… The average loan balance for purchase applications last week set another record high at $376,800. That’s because the bulk of the sales activity is on the higher end of the market, where supply is more plentiful.”

December 23 – Reuters (Lucia Mutikani): “Sales of new U.S. single-family homes fell more than expected in November, but the housing market remains underpinned by historically low mortgage rates. New home sales tumbled 11.0% to a seasonally adjusted annual rate of 841,000 units last month… October’s sales pace was revised down to 945,000 units from the previously reported 999,000 units… New home sales jumped 20.8% on a year-on-year basis.”

December 23 – Reuters (Thomas Franck): “Jobless claims rose less than expected last week as employers weighed a wintertime spike in Covid-19 cases against expected relief from a pending $900 billion stimulus package… The number of first-time unemployment-benefits filers decelerated to 803,000… Economists… expected initial claims to rise to 888,000… Continuing jobless claims, a proxy for the number of people receiving benefits via regular state programs, fell to a seasonally adjusted 5.3 million in the week ended Dec. 12 from 5.5 million a week earlier…”

December 21 – Bloomberg (Drew Singer): “In a year that saw a pandemic upend financial markets and economies around the globe, U.S. companies and their largest shareholders raised a record $435 billion with stock sales. That’s far above the previous high of $279 billion set in 2014… About a quarter of this year’s bonanza came from traditional initial public offerings, which have raised a record $100 billion — the most ever… In a departure from past years, the largest IPOs delivered some of the best returns in 2020. Freshly minted stocks such as Snowflake Inc., Airbnb Inc. and Unity Software Inc. have soared… Companies that have raised more than $1 billion are trading 81% above their average offering price…”

December 23 – Financial Times (Kaye Wiggins): “The value of private equity deals this year soared to its highest level since 2007, roaring back from a spring slowdown… Buyout groups struck deals worth $559bn worldwide in 2020, rising almost a fifth from the previous year’s total, according to… Refinitiv covering January 1 to December 22. More than 8,000 deals were announced this year, the most since records began in 1980. ‘Given the shock to the system we saw . . . the way M&A has snapped back more broadly, and for [private equity], has definitely exceeded our expectation,’ said David Kamo, Americas head of financial sponsor M&A at Goldman Sachs. After the 2008 crisis ‘it took about two years to come back,’ he said.”

December 23 – Bloomberg (Crystal Tse): “There’s no stopping the SPAC, which emerged from obscurity to seemingly take over finance in 2020. Special purpose acquisition companies, or SPACs, went from a back-of-the-shelf financial vehicle to one of the biggest segments of initial public offerings, with a record $78 billion raised in the U.S. this year… That exceeded the combined total of SPACs in all previous years and made up about 45% of this year’s record $177 billion IPO volume… Blank-check companies, as SPACs are also known, will continue to shake up not only equity markets but also mergers and acquisitions in 2021, dealmakers predict. Still, the flood of SPACs searching for acquisition targets — plus the new ones being raised every day trying to woo investors — could create a challenging dynamic.”

December 22 – Bloomberg (Josh Saul and Katherine Doherty): “This month has seen 16 large companies file for bankruptcy protection in the U.S., the most of any December since 2011… The 44 bankruptcies by companies with over $50 million since Oct. 1 make the fourth quarter of 2020 the worst for that period since 2009… Experts have said the pain will continue next year. Real estate could be a specific area that comes under pressure, said Cynthia Romano, global director of CohnReznick LLP’s restructuring and dispute resolution practice. ‘Real estate companies are not going to be able to stomach rent abatement for another 12 months,’ she said… ‘Real estate will be the next domino to fall unless there’s some kind of relief.’”

December 22 – Bloomberg (Noah Buhayar, John Gittelsohn and Jackie Gu): “The coronavirus pandemic shuttered thousands of U.S. restaurants, gyms and stores, kept office workers at home and left hotel rooms sitting empty. Yet, so far, the commercial real estate market hasn’t really had a reckoning. That’s set to change. Lenders have granted struggling building owners months of forbearance, avoiding fire sales. But even as vaccines herald the slow return to normal life, it’s increasingly clear the fundamentals of real estate have been altered. Next year, many property owners who’ve fallen behind on debt are going to have to put more money into their buildings, sell at distressed prices or hand the keys back to the bank. Roughly $430 billion in commercial and multifamily real estate debt matures in 2021…”

December 20 – Wall Street Journal (Peter Rudegeair): “Small businesses that cleared the hurdle of the coronavirus shutdowns are now encountering an all-too-familiar obstacle: Banks don’t want to lend to them. The Paycheck Protection Program funneled $525 billion in forgivable loans to millions of small businesses in the pandemic’s early days. Yet that massive infusion masked a yearslong contraction in small-business lending that happened alongside a big-business borrowing boom. In 2007, banks held $721 billion in small loans to businesses and small commercial mortgages of $1 million or less, according to an analysis of bank regulatory filings by Florida Atlantic University professor Rebel A. Cole. By 2019, such loan balances had fallen around 6% to $680 billion. Bigger business loans and commercial mortgages, meanwhile, more than doubled to $2.82 trillion.”

December 22 – Bloomberg (Martin Z. Braun): “New York City’s fiscal 2022 budget faces risks of $2.2 billion due to optimistic assumptions for education aid and labor savings that haven’t materialized, state Comptroller Thomas DiNapoli said. The largest U.S. city… is facing a $3.8 billion deficit for the budget year beginning July 1. The gap may grow to $6 billion because the city is assuming state funding for schools will increase by more than $1 billion even as it’s facing $8.7 billion deficit and because officials haven’t reached a collective bargaining agreement with unions to find $1 billion in savings, DiNapoli said…”

December 23 – Wall Street Journal (Drew FitzGerald): “The Federal Communications Commission’s ongoing sale of wireless licenses has fetched more than $69.8 billion after three weeks of bidding, a record sum that could alter cellphone carriers’ prospects for the next decade. The auction proceeds have already topped the $44.9 billion raised in 2015 by an earlier sale of midrange cellular licenses, which U.S. cellphone carriers used at the time to enhance their 4G service.”

December 22 – Bloomberg (David R. Baker): “Southern California utilities could cut power to more than 200,000 homes and businesses on Christmas Eve as a possible wind storm raises wildfire risks from the Central Valley to the Mexican border. The blackouts, which have nearly doubled in scope since Monday, could affect more than 600,000 people based on the size of the average household.”

Fixed Income Watch:

December 22 – Financial Times (Joe Rennison): “Investors and analysts surveying the damage wrought by the pandemic have warned that it has exacerbated some of the most worrying trends in corporate debt markets and left balance sheets in a far riskier state. US companies have borrowed a record $2.5tn in the bond market in 2020. The borrowing binge has driven leverage… to an all-time peak for higher-rated, investment grade companies, having already surpassed historic records at the end of 2019… At the same time, companies’ ability to pay for the increase in debt has declined, with the number of so-called zombie companies — whose interest payments have been higher than profits for three years running — rising close to the historic peak…”

December 23 – Wall Street Journal (Paul J. Davies): “The riskiest corners of corporate-debt markets have escaped widespread damage from the Covid-19 economic crunch. Some fund managers think a reckoning may still be in store in the rapidly growing universe of private lending to smaller companies. Private debt has grown to become a major part of the financial infrastructure in the U.S. and Europe since the 2008 financial crisis, as banks reduced lending to smaller companies. It is different from other forms of lending because it is done directly from a specialist fund manager to all sorts of companies—dentists, restaurants, insurance brokers and software makers, among others—without going through either a bank or bond markets. Many companies have faced hard times during lockdowns, but the unprecedented support from governments and central banks across economies in the U.S. and Europe has limited the damage… Assets under management at private-debt funds have rocketed from less than $200 billion globally in 2007 to $850 billion by the end of March this year…”

December 23 – Financial Times (Joshua Chaffin): “Companies are dumping record volumes of office space on to the sublease market, flashing a potential warning sign over the long-term health of the office properties that comprise the biggest chunk of US real estate. The amount of sublease inventory in many US markets is at or exceeding levels reached in the aftermath of both the dotcom bust and the 2008 financial crisis, according to brokers, with expectations that it will expand further. That development… is leading some analysts to conclude that the damage to the office market wrought by the coronavirus pandemic will not be fully repaired even when the economy heals.”

December 22 – Wall Street Journal (Paul J. Davies): “In a world of ultralow interest rates, bond investors go down less traveled paths. One example: the central Asian republic of Uzbekistan sold bonds to international investors in its own currency, the som, for the first time. The junk-rated country sold 2 trillion Uzbek som worth of three-year bonds, just less than $200 million, at a yield of 14.5% at the start of December. It sold them alongside $555 million of 10-year bonds in dollars at a yield of 3.7%. That highlights the difference in reward investors demand for the risk of owning an obscure currency.”

December 22 – Bloomberg (Lisa Lee): “Banks are extending more credit to firms putting together collateralized loan obligations, signaling that sales of the securities backed by leveraged loans could reach record levels next month after lagging for much of 2020. Lenders have set up roughly 40 new credit lines for U.S. CLOs in recent months, bringing the total number of so-called warehouses to more than 80… That’s a sharp reversal from May, when banks stopped extending financing because many collateral managers were struggling to sell their securities…”

December 21 – Bloomberg (Cecile Gutscher and Sam Potter): “Tesla Inc.’s entry to the S&P 500 may be stoking relentless controversy, but in a specialized market for risk assets the electric-car maker is eliciting cheers all round. Fueled by the Tesla effect, convertible bonds — which start life as low-interest debt but can turn into shares if stock prices get high enough — are poised for one of their best-ever years. A Bloomberg index of the securities is at an all-time high while U.S. exchange-traded funds that track the assets hold a record $8.2 billion.”

China Watch:

December 20 – Bloomberg: “China’s top planning body vowed to maintain economic stability and prevent risks in 2021, while enhancing internal demand to create a robust domestic market. The National Development and Reform Commission will take precautions against financial risks and work to resolve them, the planning body said… It pledged to use market-oriented and legal measures to manage corporate debt defaults…”

December 20 – Reuters (Gabriel Crossley and Stella Qiu): “China’s manufacturing recovery, fuelled in part by demand from COVID-constrained consumers abroad, has soared past expectations this year, so much so that factories are now struggling to fill a shortage of blue-collar workers… The country’s output of industrial robots, computer equipment, and integrated circuits has roared back from its coronavirus paralysis – production for the year to November is up 22.2%, 10.1% and 15.9%… Much of the manufacturing boom has come from foreign demand, with export growth topping expectations for eight of the last nine months.”

December 24 – Bloomberg (Lulu Yilun Chen and Coco Liu): “China kicked off an investigation into alleged monopolistic practices at Alibaba Group Holding Ltd. and summoned affiliate Ant Group Co. to a high-level meeting over financial regulations, escalating scrutiny over the twin pillars of billionaire Jack Ma’s internet empire. The probe… marks the formal start of the Communist Party’s crackdown on the crown jewel of Ma’s sprawling dominion, spanning everything from e-commerce to logistics and social media. The pressure on Ma is central to a broader effort to rein in an increasingly influential internet sphere: Draft anti-monopoly rules released November gave the government wide latitude to restrain entrepreneurs who until recently enjoyed unusual freedom to expand their realms.”

EM Watch:

December 21 – Bloomberg (Marton Eder and Farah Elbahrawy): “The drop in the amount of distressed debt across emerging markets has been a barely anticipated bonus for many countries this year. But it’s scant comfort for those nations still struggling with mounting obligations. The number of emerging- and frontier-market nations with debt trading at distressed levels — yields more than 10 percentage points above those on U.S. Treasuries — has tumbled from as many as 19 at the height of the coronavirus selloff in March to about a half-dozen now. A Group-of-20 initiative to suspend official loan payments for the 73 poorest nations has helped many low-income countries avoid default… While a seemingly inevitable wave of defaults was avoided thanks to the unprecedented debt program and a tide of global stimulus, for some, finding a way to replenish fiscal buffers will remain a challenge.”

December 20 – Bloomberg (Lilian Karunungan): “It says a lot about the state of global financial markets when countries such as Ghana, Senegal and even Belarus are being touted as the best places for investors to pick up returns in 2021. But, with the latest signal from the Federal Reserve that U.S. rates will stay lower for longer, the highest-yielding — and riskiest — corners of the world’s bond markets are being tipped as a top investment choice for the coming year… The willingness of bond-buyers to move up the risk ladder would underscore how rising U.S. Treasury rates will do little to dim the appeal of developing-nation debt as long as an $18 trillion pile of negative-yielding debt hangs over markets and central banks remain accommodative. Even among developing economies, spreads on bonds from lower-risk borrowers have narrowed so much that investors are being forced to go further into junk territory for better returns.”

Europe Watch:

December 24 – Financial Times (George Parker and Jim Brunsden): “Britain and the EU have sealed a Christmas trade deal, securing a new economic and security partnership that both sides hope will finally end years of Brexit acrimony. UK prime minister Boris Johnson and Ursula von der Leyen, European Commission president, agreed the deal after nine months of negotiations, culminating in Christmas Eve haggling over fishing rights. ‘The deal is done,’ Mr Johnson wrote…, as Downing Street said in a statement that the agreement meant the country had ‘taken back control of our money, borders, laws, trade and our fishing waters’.”

Japan Watch:

December 20 – Reuters (Tetsushi Kajimoto): “Japan’s cabinet approved… a record $1.03 trillion budget draft for the next fiscal year starting in April 2021…, as the coronavirus and stimulus spending puts pressure on already dire public finances. The 106.6 trillion yen ($1.03 trillion) annual budget also got a boost from record military and welfare outlays. It marked a 4% rise from this year’s initial level, rising for nine years in a row, with new debt making up more than a third of revenue. From Europe to America, policymakers globally have unleashed a torrent of monetary and fiscal stimulus to prevent a deep and prolonged recession as the pandemic shut international borders and sent many out of work.”

Leveraged Speculation Watch:

December 24 – Financial Times (Laurence Fletcher): “The Covid-19 crisis has created the widest gulf in performance between top and bottom hedge funds in more than a decade… Ructions that rippled through global markets in early 2020, followed by the enormous rebound rally opened opportunities not seen since the 2008-09 financial crisis. But that same wave of volatility also wrongfooted a clutch of the sector’s biggest names. The top 10% of hedge funds recorded average returns of 49% over the 12 months to the end of November, the best performance since 2009… At the same time, however, the gap between the top and bottom deciles widened to 68.9 percentage points, marking the biggest difference in 11 years.”

Geopolitical Watch:

December 23 – Bloomberg (William Turton): “As researchers from Silicon Valley to Washington race to understand the full impact of the massive cyber-attack that breached computer networks in the government and private sector, one of their thorniest unanswered questions centers on motive. Already, investigators and government officials have pointed to an elite group of hackers tied to the Russian government and suggested a fairly obvious rationale: that it was an espionage operation aimed at nabbing classified intelligence and other inside information. But some lawmakers and people involved in the investigations have said that the magnitude and breadth of the hack point to other objectives, including undermining Americans’ faith in the systems themselves. U.S. cybersecurity officials have warned that the attackers pose a ‘grave risk’ to federal, state and local government agencies, in addition to the private sector and critical infrastructure, which could include anything from the electrical grid to transportation networks.”

December 21 – Wall Street Journal (Kevin Poulsen, Robert McMillan and Dustin Volz): “The suspected Russian hackers behind breaches at U.S. government agencies also gained access to major U.S. technology and accounting companies, at least one hospital and a university… The Journal identified infected computers at two dozen organizations that installed tainted network monitoring software called SolarWinds Orion that allowed the hackers in via a covertly inserted backdoor. It gave them potential access to much sensitive corporate and personal data. Among them: technology giant Cisco…, Intel Corp. and Nvidia Corp. , accounting firm Deloitte LLP, cloud-computing software maker VMware Inc. and Belkin International Inc., which sells home and office Wi-Fi routers and networking gear…”

December 20 – Reuters (Ben Blanchard): “Taiwan’s navy and air force were deployed on Sunday as a Chinese aircraft carrier group led by the country’s newest carrier, the Shandong, sailed through the sensitive Taiwan Strait, the day after a U.S. warship transited the same waterway. While it is not the first time China’s carriers have passed close to Taiwan, it comes at a time of heightened tension between Taipei and Beijing, which claims the democratically-ruled island as its territory.”