For the Week:

The S&P500 slipped 0.4% (up 10.6% y-t-d), and the Dow declined 0.5% (up 11.8%). The Utilities added 0.4% (up 4.7%). The Banks fell 1.0% (up 35.1%), and the Broker/Dealers declined 1.2% (up 22.6%). The Transports sank 2.8% (up 23.7%). The S&P 400 Midcaps dropped 1.2% (up 16.6%), and the small cap Russell 2000 dipped 0.4% (up 12.2%). The Nasdaq100 was little changed (up 4.1%). The Semiconductors rallied 2.4% (up 9.2%). The Biotechs gained 0.5% (down 2.5%). With bullion surging $38, the HUI gold index jumped 4.4% (up 6.9%).

Three-month Treasury bill rates ended the week at negative 0.0025%. Two-year government yields added a basis point to 0.15% (up 3bps y-t-d). Five-year T-note yields increased one basis point to 0.82% (up 46bps). Ten-year Treasury yields declined a basis point to 1.62% (up 71bps). Long bond yields declined two bps to 2.32% (up 67bps). Benchmark Fannie Mae MBS yields were unchanged at 1.86% (up 52bps).

Greek 10-year yields sank nine bps to 0.97% (up 35bps y-t-d). Ten-year Portuguese yields declined four bps to 0.56% (up 53bps). Italian 10-year yields fell four bps to 1.03% (up 49bps). Spain’s 10-year yields declined three bps to 0.555% (up 51bps). German bund yields were unchanged at negative 0.13% (up 44bps). French yields dipped two bps to 0.25% (up 58bps). The French to German 10-year bond spread narrowed about two to 38 bps. U.K. 10-year gilt yields fell three bps to 0.83% (up 63bps). U.K.’s FTSE equities index declined 0.4% (up 8.6% y-t-d).

Japan’s Nikkei Equities Index rallied 0.8% (up 3.2% y-t-d). Japanese 10-year “JGB” yields dipped a basis point to 0.08% (up 6bps y-t-d). France’s CAC40 was unchanged (up 15.0%). The German DAX equities index was little changed (up 12.5%). Spain’s IBEX 35 equities index gained 0.6% (up 14.0%). Italy’s FTSE MIB index rose 0.8% (up 12.3%). EM equities were mostly higher. Brazil’s Bovespa index added 0.6% (up 3.0%), and Mexico’s Bolsa advanced 1.1% (up 13.0%). South Korea’s Kospi index was little changed (up 9.8%). India’s Sensex equities index surged 3.7% (up 5.8%). China’s Shanghai Exchange was about unchanged (up 0.4%). Turkey’s Borsa Istanbul National 100 index gained 0.7% (down 1.7%). Russia’s MICEX equities index increased 0.6% (up 11.3%).

Investment-grade bond funds saw inflows of $1.682 billion, while junk bond funds posted outflows of $1.705 billion (from Lipper).

Federal Reserve Credit last week surged $91.3bn to a record $7.875 TN. Over the past 88 weeks, Fed Credit expanded $4.148 TN, or 111%. Fed Credit inflated $5.064 Trillion, or 180%, over the past 445 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week dropped $9.8bn to $3.531 TN. “Custody holdings” were up $143bn, or 4.2%, y-o-y.

Total money market fund assets jumped $25.3bn to $4.541 TN. Total money funds dropped $248bn y-o-y, or 5.2%.

Total Commercial Paper increased $5.2bn to $1.199 TN. CP was up $141bn, or 13.3%, year-over-year.

Freddie Mac 30-year fixed mortgage rates rose six bps to 3.0% (down 24bps y-o-y). Fifteen-year rates gained three bps to 2.29% (down 41bps). Five-year hybrid ARM rates were unchanged at 2.59% (down 58bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up four bps to 3.11% (down 53bps).

Currency Watch:

For the week, the U.S. Dollar Index declined 0.3% to 90.02 (up 0.1% y-t-d). For the week on the upside, the South African rand increased 1.2%, the Swiss franc 0.4%, the British pound 0.4%, the Japanese yen 0.4%, the euro 0.3%, the Canadian dollar 0.3%, the South Korean won 0.2%, and the Swedish krona 0.1%. On the downside, the Norwegian krone declined 1.9%, the Brazilian real 1.7%, the New Zealand dollar 1.1%, the Australian dollar 0.5%, and the Mexican peso 0.5%. The Chinese renminbi increased 0.05% versus the dollar this week (up 1.45% y-t-d).

Commodities Watch:

May 20 – Bloomberg: “China’s cabinet increased its rhetoric around surging commodity prices, announcing more specific steps to curb markets in order to keep inflation pressures at bay. At a meeting chaired by Premier Li Keqiang…, the State Council said more effort needs to be taken to prevent rising commodity prices from being passed through to consumers, according to reports carried in state media. The comments were stronger than those last week, with the cabinet… pledging more domestic supply to ease prices, tougher oversight on spot and futures markets, and vowing to crack down on speculation and hoarding.”

The Bloomberg Commodities Index declined 1.2% (up 16.5% y-t-d). Spot Gold jumped 2.1% to $1,881 (down 0.9%). Silver gained 0.5% to $27.56 (up 4.4%). WTI crude dropped $1.79 to $63.58 (up 31%). Gasoline fell 2.7% (up 47%), and Natural Gas declined 1.9% (up 15%). Copper sank 3.7% (up 27%). Wheat dropped 4.7% (up 5%). Corn gained 2.4% (up 33%). Bitcoin collapsed $12,707, or 25.4%, this week to $37.313 (up 28%).

Coronavirus Watch:

May 21 – CNBC (Nate Rattner): “The U.S. is reporting an average of fewer than 30,000 new Covid cases per day for the first time in nearly a year. The seven-day average of new infections is about 29,100 as of Thursday, according to… Johns Hopkins University. This marks the first time the average has dipped below 30,000 since June 22, 2020. Federal data shows the country is reporting 1.8 million daily vaccinations on average over the past week, with 48% of the population having received one shot or more.”

Market Mania Watch:

May 19 – CNBC (Ryan Browne and Arjun Kharpal): “Bitcoin plunged 30% to near $30,000 at one point on Wednesday, continuing a major sell-off in the cryptocurrency markets that began a week ago. The digital currency hit as low as $30,001.51 as the selling intensified Wednesday before paring some of those losses. The cryptocurrency hasn’t traded at those levels since late January. Bitcoin rebounded as the day went on, was down 12% to about $38,205.49 shortly after 3 p.m. ET. At its intraday low, the cryptocurrency’s loss for the past week was more than 40%.”

May 19 – Bloomberg (Claire Ballentine and Vildana Hajric): “With Bitcoin in freefall, many of the newcomers who helped power the cryptocurrency to stratospheric levels this year are also some of the loudest about getting burned. Across Twitter, the hashtag #cryptocrash was trending as retail investors bemoaned their sudden losses and others cried out to ‘hodl,’ an industry term meaning ‘hold on for dear life’ that supporters use to refer to buying and holding. Coinbase Global Inc., the biggest U.S. crypto exchange, crashed at one point as users flooded the site, while Asia-centered rival Binance temporarily disabled Ether withdrawals due to network congestion.”

May 18 – Bloomberg (Joe Weisenthal): “In case there were any doubt about how hot Bitcoin or ‘crypto’ is these days, look no further than the latest Bank of America fund manager survey. The poll, which captures 194 fund managers with $592 billion worth of AUM overall, says that ‘Long Bitcoin’ is the most crowded trade in the world right now. As the notes in the survey suggest, being identified as crowded has historically been associated with tops: ‘Long Bitcoin’ is now the most crowded trade at 27%. Prior ‘peaks’ in crowded trades (tech Sep’20 & Sep’18, US Treasuries Mar’20, US dollar Jan’17 & Feb’15) were associated with relative tops.’”

May 17 – Bloomberg (Noah Buhayar): “The pandemic is burnishing California’s reputation for costly housing. In the latest sign, home prices in the state shot past $800,000 for the first time in April, according to… the California Association of Realtors. The new median value of $813,980 is up 7.2% from March and 34% from a year earlier… The surge is, in many ways, a snapshot of what’s happening across the U.S., where tight inventory and low mortgage rates are fueling a rally in home prices. Last week, the National Association of Realtors reported that the median sale price for a single-family home rose to a record $319,200.”

May 14 – Wall Street Journal (Corrie Driebusch): “The U.S. IPO market, unstoppable for nearly a year, has hit a speed bump. Shares of rapidly growing companies have fallen increasingly out of favor with investors. Many newly listed firms, whose stocks rose after their initial public offerings, have dropped below their IPO prices. At least three companies, leery of jumping into a volatile stock market, postponed their IPOs… The IPO market, which raised a record $168 billion in 2020, has already raised a staggering $158 billion in 2021, according to Dealogic…”

May 20 – Reuters (Akanksha Rana): “Special purpose acquisition companies (SPACS) have raked in a record $100 billion through initial public offerings so far in 2021, data from Refinitiv showed, in what has been Wall Street’s biggest gold rush in recent years. About 341 global SPAC IPOs have been brought to the market since the start of this year, with U.S.-listed SPACs dominating the marketplace…”

May 19 – Wall Street Journal (Amrith Ramkumar): “Shares of special-purpose acquisition companies and firms they have taken public are tumbling, punishing individual investors who piled into the once-hot sector. The Defiance Next Gen SPAC Derived Exchange-Traded Fund, which tracks companies that have gone public through SPACs along with SPACs that have yet to do any deals, has fallen about 30% in the past three months… Popular firms tied to the sector such as electric-car-battery company QuantumScape Corp. and space-tourism firm Virgin Galactic Holdings Inc. are down 50% or more during that span… The reversal highlights the risks that come with popular speculative trades.”

May 19 – Bloomberg (Claire Ballentine): “Cathie Wood is keeping the faith, even in the face of Bitcoin’s massive plunge that had wiped $500 billion from the coin’s peak market value at one point. The head of Ark Investment Management said… she still expects the cryptocurrency to reach a price of $500,000…. ‘We go through soul searching times like this and scrape the models, and yes our conviction is just as high,’ she said. Although Elon Musk has soured on Bitcoin due to its environmental impact, Wood said once renewables are incorporated into the Bitcoin mining technology, like she expects, ‘Elon will come back and be part of that ecosystem.’”

May 20 – Financial Times (Katie Martin and Billy Nauman): “On the shores of Seneca Lake in upstate New York, a private equity company has bought a decommissioned coal power plant and converted it to burn natural gas. It then switched it back on to become what it describes as a ‘power plant-cryptocurrency mining hybrid’. Greenidge Generation Holdings, the company behind the plant, plans to go public later this year, saying it expects to become ‘the only US publicly listed bitcoin mining operation with its own power source’… It says its direct line in to the Empire Pipeline system for gas allows it to produce coins for just $3,000 a pop — a hefty margin considering that even after a heavy recent drop on a possible crackdown from Chinese regulators, they sell for about $40,000.”

Market Instability Watch:

May 19 – Bloomberg (Ye Xie): “Bonds aren’t working as a safe haven like they used to. On a day when risk aversion swept across everything from stocks and commodities to crypto currencies, Treasuries barely budged. In fact, the S&P 500 and 10-year Treasury futures haven’t been so positively correlated since 1999… ‘Long bonds as your hedge worked in a Goldilocks era’ of stable growth and inflation, said Charlie McElligott, a cross-asset strategist at Nomura Securities. ‘But now, due to the pandemic response, that old dynamic simply no longer applies. Inflation is a volatility catalyst.’”

May 19 – Reuters: “Chinese regulators have tightened restrictions that ban financial institutions and payment companies from providing services related to cryptocurrencies, marking a fresh crackdown on digital money. Compared with a previous ban issued in 2017, the new rules greatly expanded the scope of prohibited services, and judged that ‘virtual currencies are not supported by any real value’. Three financial industry associations… directed their members, which include banks and online payment firms, not to offer any crypto-related services, such as account openings, registration, trading, clearing, settlement and insurance, reiterating the 2017 ban.”

May 20 – Financial Times (Eva Szalay and Philip Stafford): “The bitcoin flash crash has exposed how ‘systemic issues’ under the surface of the cryptocurrency market, combined with leverage offered by many leading exchanges, exacerbate episodes of volatility. Bitcoin prices plunged $10,000 in less than an hour on Wednesday from $40,000 in one of the most severe drops since the world’s most actively traded digital coin began its meteoric ascent to record peaks last autumn… The scale of the losses and recovery in such a short time, coupled with the frenetic nature of the trading, illustrate how even as the digital asset industry has grown rapidly, many systems underlying the market remain fragile and stutter during unusually busy periods.”

May 19 – Bloomberg (Michael P. Regan): “Wednesday had the look of a tipsy market trying to sober up. From a crash of as much as 31% in Bitcoin and even worse declines in other cryptocurrencies, to deep losses in so-called meme stocks like AMC Entertainment Holdings Inc. and GameStop Corp., the fervor for risk-taking that has defined 2021 took a major stumble. Some of these assets were able to bounce back up, and keep on carrying on. Bitcoin cut its plunge to less than 10% by the end of the day…”

May 19 – Bloomberg (Pierre Paulden): “Binance, the world’s biggest cyptocurrency exchange, temporarily disabled Ethereum withdrawals citing network congestion, while Coinbase said it’s investigating ‘intermittent downtime’ on its platform.”

May 21 – Financial Times (Joshua Oliver): “Two Canadian bitcoin ETFs issued ‘market disruption’ warnings during this week’s crypto turmoil, highlighting the risks faced by the vehicles that are increasingly popular with retail traders. Bitcoin tumbled by almost a third at one point on Wednesday, a lurch lower that triggered curbs meant to ease panicky trading in the market for futures tracking the cryptocurrency. The brief trading halt on the Chicago Mercantile Exchange posed a potential problem for two funds run by Horizons ETFs Canada that track bitcoin futures.”

Inflation Watch:

May 16 – Bloomberg (Brendan Murray, Enda Curran, and Kim Chipman): “A year ago, as the pandemic ravaged country after country and economies shuddered, consumers were the ones panic-buying. Today, on the rebound, it’s companies furiously trying to stock up. Mattress producers to car manufacturers to aluminum foil makers are buying more material than they need to survive the breakneck speed at which demand for goods is recovering and assuage that primal fear of running out. The frenzy is pushing supply chains to the brink of seizing up. Shortages, transportation bottlenecks and price spikes are nearing the highest levels in recent memory, raising concern that a supercharged global economy will stoke inflation. Copper, iron ore and steel. Corn, coffee, wheat and soybeans. Lumber, semiconductors, plastic and cardboard for packaging. The world is seemingly low on all of it. ‘You name it, and we have a shortage on it,’ Tom Linebarger, chairman and chief executive of… Cummins Inc., said… Clients are ‘trying to get everything they can because they see high demand,’ Jennifer Rumsey, the… company’s president, said. ‘They think it’s going to extend into next year.’”

May 16 – Wall Street Journal (Jon Hilsenrath): “Federal Reserve and Biden administration officials say economic inequality is bad and they aim their policies in part at helping to reduce it. In the short run, at least, those policies might be widening inequality, not shrinking it. In recent months, inflationary pressures have caused the cost of living to rise faster than paychecks, meaning a paycheck hasn’t been going as far as it did before. Consumer price inflation in April rose 4.2% from a year earlier, while hourly pay for production workers rose 1.2%… The department also said that, after adjusting for inflation, wages of production workers and nonmanagers fell 3.3% in April from a year earlier, the largest such decline since an inflation shock and recession in 1980.”

May 17 – Yahoo Finance (Aarthi Swaminathan): “Large and popular companies including Chipotle, McDonald’s and Amazon are raising their starting salaries, and experts believe that the trend will likely put more pressure on businesses of all sizes to offer higher wages to stay competitive. ‘Recent wage growth has been strongest in the low-wage service industries where labor markets are most unusually tight,’ Goldman Sachs analysts wrote… ‘This pattern is consistent with widespread anecdotes of service-sector employers raising wages in response to labor shortages — for example, Amazon and Walmart raised wages for almost 1 [million] employees in recent months, while McDonald’s and Chipotle announced pay increases this week — and is especially notable given that unwinding composition effects remain a drag on measured wage growth.’”

May 18 – Bloomberg (Lananh Nguyen): “Bank of America Corp. will boost its minimum hourly wage to $25 an hour by 2025 from a current $20…The move follows four years of pay increases that brought the company’s minimum wage to an hourly $20 in 2020 from $15. The… lender will also require its U.S. vendors to pay employees dedicated to the bank $15 per hour or more… Of more than 2,000 vendors with 43,000 employees, over 99% meet that threshold…”

May 17 – Bloomberg (Fabiana Batista): “Brazil, the world’s biggest exporter of coffee, sugar and orange juice, just had a rainy season that brought hardly any rain. Soils are parched and river levels are low in the nation’s Center-South region, a powerhouse of agricultural output. The drought is so severe that farmers are worried they’ll run out of the water reserves that help keep crops alive over the next several months, the country’s dry season… The prospect of withering orange trees and coffee plants is coming at a time when agricultural crops are rallying to multiyear highs, which has fanned fears of food inflation. Higher food costs may exacerbate hunger, a problem around the globe that the Covid-19 pandemic has made more acute.”

May 19 – Financial Times (Richard Waters): “The supply chain squeeze being felt across many parts of the manufacturing sector is set to hit profit margins at Cisco Systems in the current quarter, the US networking equipment maker said… A shortage of semiconductors has led to a scramble among manufacturers to secure enough of the key components, driving prices higher and pushing up costs throughout the supply chain.”

May 16 – Bloomberg (Annie Lee): “Iron ore futures climbed back above $200 a ton as soaring steel production in China showed there’s no sign of the industry cooling despite government attempts to rein in output from last year’s record of over 1 billion tons.”

May 18 – Bloomberg (Daniela Sirtori-Cortina): “The cost of raw materials is so high right now that the third-largest chicken producer in the U.S. is considering shelving plans to build a new processing plant — even as the company struggles to keep up with demand. Sanderson Farms Inc. is one of the first companies to signal it could pause plans for expansion as the price of everything from lumber to steel skyrockets, driving up construction costs. ‘I need a plant to open up next week, but it is not a good time to be building,’ said Chief Executive Joe Sanderson.”

May 17 – Bloomberg (Silvia Martinez and Jorgelina Do Rosario): “Argentina is limiting shipments of beef, a staple in the world’s fifth-biggest exporter, the latest unorthodox move by the government to try to contain runaway inflation that’s approaching 50% annually.”

Biden Administration Watch:

May 20 – CNBC (Jeff Cox): “Corporations around the world should pay at least a 15% tax on their earnings, the Treasury Department said… as part of its push for a global minimum for businesses. The final rate could go even higher than that, according to a Treasury release that said the 15% minimum is a ‘floor and that discussions should continue to be ambitious and push that rate higher.’”

May 15 – Bloomberg (Nancy Cook, Saleha Mohsin and Jennifer Jacobs): “President Joe Biden’s top advisers detect a growing political challenge from the spike in inflation, even as they see little immediate peril to the economy from price increases that officials expect will last through the rest of the year. Senior administration aides contend the current jump in prices is being caused by a surge in demand for specific items — like used cars, air travel and hotels — that reflects the American economy’s revival from the Covid-19 crisis… That’s different from a sustained pick-up in inflation, they argue. Treasury Secretary Janet Yellen, who pored over price trends when she ran the U.S. Federal Reserve, isn’t worried about runaway inflation, though is closely monitoring the situation…”

May 19 – Bloomberg (Rich Miller): “A newly-elected president promising to tackle racial injustice and build a better and fairer economy and society. A Federal Reserve chairman who’d voiced satisfaction with the course of monetary policy the previous year. A sharply accelerating economy with an inflation rate that’s been below 2% for years. 2021? No, 1965, a year that marked the start of a years-long climb in inflation to double-digit levels the following decade. That’s an upward trend that some experts fear could be about to begin today, as a super-charged federal budget combines with a lax monetary posture to once again overheat the economy. ‘If we do not have a recession that exerts disinflation, the odds are better-than-even that inflation will exceed 3% over the next five years,’ former Treasury Secretary… Lawrence Summers said. ‘They’re one in four that we will have at least a year of inflation above 5%.’”

May 18 – CNBC (Jeff Cox): “Treasury Secretary Janet Yellen called… for business leaders to pay higher taxes to support government stimulus spending, and backed stronger labor unions and lowering barriers to foreign competition… Yellen reiterated the White House’s intent to raise taxes on corporations and the highest earners as part of an ambitious infrastructure spending plan. The administration also is seeking a global corporate minimum tax in an effort to stop companies from relocating their bases to avoid higher levies at home. ‘With corporate taxes at a historical low of one percent of GDP, we believe the corporate sector can contribute to this effort by bearing its fair share: we propose simply to return the corporate tax toward historical norms,’ Yellen said…”

May 19 – Reuters (David Shepardson): “Republicans on the U.S. House of Representatives Transportation and Infrastructure Committee… proposed $400 billion to fund highway, transit and other and surface transportation programs over five years, less than President Joe Biden’s proposal. Biden… is seeking $2.3 trillion in infrastructure and jobs funding. Congress faces a Sept. 30 deadline to reauthorize surface transportation funding. The House Republican plan would boost spending by 32% over a 2015 law and is up over the $330 billion they proposed last year. House Democrats last year proposed $494 billion over the same period, and there are significant differences over funding priorities.”

Federal Reserve Watch:

May 16 – Wall Street Journal (James Mackintosh): “Just how much inflation would it take for the Federal Reserve to abandon its commitment to super-easy money and begin to talk about tightening? Markets think the answer is that the Fed will accept far more than consumers would like, and the market is probably right: Inflation could easily be at 5% early next year without prompting any change of strategy. So long as the Fed expects inflation to come back down and investors and workers have faith, it is under no pressure to move. The danger is that high inflation shakes that faith. Investors were shocked by the jump in inflation reported last week. The core inflation that economists tend to focus on, which strips out volatile food and energy prices, rose 0.9% month-on-month in April, an annualized rate above 11%.”

May 19 – Bloomberg (Mohamed A. El-Erian): “A once-unthinkable notion is becoming possible: The European Central Bank may start talking about ratcheting back easy-money policies before the Federal Reserve does. Even more curious is that this would not be the result of the usual policy drivers relating to inflation, growth, financial stability and fiscal policy. Rather, it would reflect a Fed-specific duality happening now: Not only does the U.S. central bank appear to be to lagging behind developments on the ground and the emerging consensus among some other central banks, but it’s also being held hostage to a monetary framework that, while designed to capture structural change, risks being ill-suited for the Covid-disrupted world.”

May 18 – Financial Times (James Politi): “Lawrence Summers, the former US Treasury secretary, has sharply rebuked the Federal Reserve for its loose monetary policies, accusing the central bank of creating a ‘dangerous complacency’ in financial markets and misreading the economy. The comments from Summers at a conference hosted by the Federal Reserve Bank of Atlanta marked a significant escalation of his attacks on the US central bank. The Harvard University economist… had already criticised Joe Biden’s fiscal stimulus as overly excessive earlier this year. Summers said monetary and fiscal policymakers had ‘underestimated the risks, very substantially, both to financial stability as well as to conventional inflation of protracted extremely low interest rates’.”

May 19 – Wall Street Journal (Paul Kiernan and Michael S. Derby): “The Federal Reserve has begun to telegraph an eventual shift away from the easy-money policies implemented during the pandemic as evidence builds of a robust economic recovery and mounting inflation. Several Fed officials said this week that the central bank is closely watching economic developments and will be ready to adjust policy when necessary. Minutes from the central bank’s policy meeting in late April…, reported that some Fed officials want to begin discussing a plan for reducing the Fed’s massive bond-buying program at a future meeting. ‘If we got to the point where we were comfortable on the public health side that the pandemic was largely behind us, and was not going to resurge in some way that was surprising, then I think we could talk about adjusting monetary policy,’ St. Louis Fed President James Bullard told reporters… ‘I don’t think we’re quite to that point yet, but it does seem like we’re getting close.’”

May 19 – Reuters (Howard Schneider and Ann Saphir): “A ‘number’ of Fed officials appeared ready to consider changes to monetary policy based on a continued strong economic recovery, according to minutes of the U.S. central bank’s April meeting, but data since then may have already changed the landscape. ‘A number of participants suggested that if the economy continued to make rapid progress toward the (policy-setting) Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases,’ the minutes said in the most overt reference yet to a possible taper… But that view may have suffered a blow this month with the release of data showing job growth was anemic in April.”

May 17 – Bloomberg (Steve Matthews): “Federal Reserve Vice Chair Richard Clarida said the weaker-than-expected U.S. jobs report showed the economy had not yet reached the threshold to warrant scaling back the central bank’s massive bond purchases. ‘Through that April employment report, we have not made substantial further progress,’ Clarida said…, referring to the central bank’s guidance on when it will start to taper bond buying. Answering questions… he said ‘as we go through the year’ policy makers will weigh the data and ‘we will certainly give advance warning before we anticipate scaling back the pace of those purchases.’”

May 20 – Bloomberg (Steve Matthews): “Federal Reserve Bank of Dallas President Robert Kaplan repeats that he favors the U.S. central bank beginning a discussion about scaling back its massive monthly bond purchases, citing the risk of imbalances in financial markets and uncertainty over how long elevated inflation will last. ‘That’s why I’ve encouraged sooner rather than later’ a discussion on adjusting the Fed’s bond buying, he says ‘I’d like to take my foot gently off the accelerator’ to avoid having to hit the brakes harder down the road. ‘I do that with a risk-management point of view in mind.’”

May 19 – Reuters (Ann Saphir): “Federal Reserve Bank of Atlanta President Raphael Bostic said he is looking closely at what he expects to be volatile economic data in coming months for signs the economy has made substantial progress toward the Fed’s goals of full employment and low inflation… ‘If we see that substantial, significant progress towards our goals, I’m going to be advocating for us moving policy – now, we are not there right now,’ Bostic said… He added that ‘no one’ should think he would advocate a change ‘tomorrow,’ noting the economy is still 8 million jobs short of where it was before the coronavirus pandemic and that inflation has not been above 2% for a sustained period.”

U.S. Bubble Watch:

May 20 – Reuters (Lucia Mutikani): “The number of Americans filing new claims for unemployment benefits dropped further below 500,000 last week, but jobless rolls swelled in early May, which could temper expectations for an acceleration in employment growth this month… Initial claims for state unemployment benefits totaled a seasonally adjusted 444,000 for the week ended May 15, compared to 478,000 in the prior week…That was the lowest since mid-March 2020…”

May 20 – Financial Times (Andrew Edgecliffe-Johnson, Colby Smith and James Politi): “The speed of the US rebound from the Covid-19 crisis has left executives, investors and economists scrambling to interpret whether labour shortages and rising prices point to a short-term economic summer heatwave or a longer period of dangerous inflation. Some of the country’s largest companies have hailed the strength of the recovery in recent earnings announcements while declining to predict whether the swift vaccination rollout and massive fiscal stimulus will cause problems for corporate America. ‘The second half will likely have more uncertainty than a normal year,’ Doug McMillon, chief executive of Walmart, cautioned this week…”

May 20 – Wall Street Journal (Alison Prang): “Ben Johnson is looking for a data analyst and a data scientist to come work for his Philadelphia-area consulting firm. The search has now stretched to Chicago. U.S. companies of all sizes are struggling to fill jobs as surging demand and a reluctant labor force have resulted in a shortage of available workers. Some of the smallest firms said they are feeling acute pain because they have fewer people to pick up the slack and can’t easily match the pay increases, benefits and other perks that larger companies are offering to fill openings. The situation is only expected to become more difficult for business owners such as Mr. Johnson, who said his 20-person company needs to double in size over the next six months to a year.”

May 21 – CNBC (Diana Olick): “Sales of existing homes dropped 2.7% in April from March to a seasonally adjusted annualized rate of 5.85 million units, according to the National Association of Realtors. It was the third straight month of declines, the group said… ‘I would say it is hot, that is the one word description even with the sales decline,’ said Lawrence Yun, chief economist for the Realtors. For every listing there are 5.1 offers. Half of the homes are being sold above list price.’ The supply of homes for sale at the end of April was down 20%. There were 1.16 million homes for sale, representing a 2.4-month supply… High demand and rock-bottom supply continued to push prices higher. The median price of an existing home sold in April was $341,600, an increase of 19.1% from April 2020. That is both the highest median price on record and the largest annual increase on record.”

May 18 – Reuters (Lucia Mutikani): “U.S. homebuilding fell more than expected in April, likely pulled down by soaring prices for lumber and other materials, but construction remains supported by an acute shortage of previously owned homes on the market… The number of houses authorized for construction but not yet started increased to the highest level since 1999, suggesting hesitancy on the part of builders. ‘Builders are delaying starting new construction because of the marked increase in costs for lumber and other inputs,’ said Mike Fratantoni, chief economist at the Mortgage Bankers Association… ‘These supply-chain constraints are holding back a housing market that should otherwise be picking up speed, given the strong demand for buying fueled by an improving job market and low mortgage rates.’ Housing starts tumbled 9.5% to a seasonally adjusted annual rate of 1.569 million units last month.”

May 20 – Bloomberg (Prashant Gopal and Jordan Yadoo): “Across the U.S., house prices are skyrocketing, bidding wars are the norm and supply is scarcer than ever. Now the market is too hot even for homebuilders. Demand is so fevered — and construction costs are climbing so quickly — that overwhelmed builders are suppressing orders and shifting away from fixed prices. Companies including D.R. Horton Inc. and Lennar Corp. are experimenting with blind auctions in areas such as Texas, Florida and southern California. Some smaller firms have stopped signing contracts altogether. ‘We’ve shut off sales until homes are nearly completed,’ said Greg Yakim, a partner at CastleRock Communities… ‘We have huge waiting lists.’ In a global economy roiled by supply shortages, the U.S. housing market is struggling with a collision of pandemic-related forces that’s holding back new inventory just when it’s needed most.”

May 19 – Bloomberg (Joe Weisenthal): “We know that demand for housing is red hot, and yet yesterday’s housing starts number came in surprisingly weak. For the month of April we saw a decline of 9.5% from the previous month versus expectations of just a 2% decline. Of course there are lots of bottlenecks and other supply-side factors that everybody knows about. The lumber shortage is a big one. Lack of labor is another. But the sheer lack of land is an important and overlooked issue… Of course, there’s empty land out there that can eventually turn into vacant lots available for development. But this takes time: Buying the land, getting it approved and so forth. And so once again we have this situation where there’s a boom right now that nobody was anticipating a year ago, and so therefore the pipeline of new vacant lots just wasn’t in place. That can be addressed, but it will take awhile.”

May 20 – Reuters: “About two-thirds of U.S. banks are either already taking measures to limit the growth in their balance sheets or would take steps to cap them if they continue growing, a Federal Reserve survey of bank finance officers showed… The concerns about the size of their balance sheets reflected in the Senior Financial Officer Survey came as 40% of respondent banks reported faster-than-expected growth in end-of-day reserve balances. The largest factor driving that growth was deposits, which broadly are growing faster than bank officials had estimated. Should banks broadly begin limiting their balance sheets, it could have implications for the availability of bank credit as the U.S. economy pulls out of the recession triggered by the COVID-19 pandemic.”

May 21 – Wall Street Journal (Jennifer Smith and Paul Page): “Americans are returning to restaurants, bars and other dining places as Covid-19 restrictions come down, adding new strains in food supply chains. Suppliers and logistics providers say distributors are facing shortages of everyday products like chicken parts, as well as difficulty in finding workers and surging transportation costs as companies effectively try to reverse the big changes in food services that came as coronavirus lockdowns spread across the U.S. last year. ‘Over the last six weeks, we have seen the market come roaring back faster than anybody would have anticipated,’ said Mark Allen, chief executive of the International Foodservice Distributors Association. ‘The start up has been, in many ways, as difficult as the shutdown…Everybody is trying to turn it on immediately and the capacity might not be there.’”

May 18 – Wall Street Journal (Konrad Putzier): “More than a year into the pandemic, high-rise office buildings are largely empty. About one of every two hotel rooms is unoccupied. Malls are struggling to attract shoppers. And yet by most measures, the U.S. commercial real-estate market is in remarkably solid shape. Prices fell far less than after the 2008 financial crisis and are already rising again. The number of foreclosures barely increased. Pension funds and private-equity firms are once again spending record sums on buildings. The market’s resilience shows how the federal government’s aggressive efforts to support the economy kept landlords from suffering steep losses.”

Fixed Income Watch:

May 20 – Bloomberg (Liz Capo McCormick and Rich Miller): “Treasury investors fretting about when the Federal Reserve will scale back its bond purchases may be missing the bigger picture: Its more than $5 trillion stockpile will make it a major force for years to come. The prospect of a pullback in buying edged a little nearer… when minutes of the Federal Open Market Committee’s April meeting showed that a number of officials were willing to discuss it if the economy keeps improving… But bond bulls say the Fed’s virtually inextricable presence in the world’s largest bond market means it will provide crucial support long after any price blips come and go when it brings the buying spree to a close.”

May 17 – Bloomberg (Michael Gambale): “Premiums on BBB rated corporate bonds have fallen to a level last seen before the financial crisis… The average spread to Treasuries for the asset class fell to +107 basis points as of Friday’s close. That’s the lowest level since early 2007…”

May 18 – Bloomberg (Jack Pitcher): “A growing chorus of analysts is warning that high-quality company debt may have nowhere to go but down as investment-grade spreads approach levels last seen in the lead-up to the dot-com bubble. ‘The best days are behind’ for corporate credit, Morgan Stanley strategists led by Srikanth Sankaran wrote… ‘The combination of extended valuations, less favorable technicals and a slower pace of balance sheet repair suggests that credit markets have progressed to a mid-cycle environment.’ Spreads on BBB rated bonds, which account for more than half of the high-grade universe, narrowed to an average of 106 bps over Treasuries on Monday… Should spreads breach 100 bps, it would be the first time since the dot-com era of the late 1990s.”

May 18 – Financial Times (Joe Rennison): “Lenders recouped far less from US companies that went bust during the pandemic than in previous economic downturns, a new report has revealed, reflecting loose underwriting standards and shifts in corporate debt structures. The average recovery rate for the holders of bonds and loans was 45 cents on the dollar…, Moody’s found, down from 59 cents in the 2008-09 financial crisis and below the historical average of more than 50 cents.”

China Watch:

May 19 – Reuters: “China will strengthen its management of commodity supply and demand to curb ‘unreasonable’ increases in prices and prevent them being passed on to consumers, the country’s cabinet said…, as it urged coal producers to boost output. Prices for commodities such as coal, steel, iron ore and copper – of which China is the world’s biggest user – have surged this year, fuelled by post-lockdown recoveries in demand and easing liquidity globally… China will step up adjustments on the trade and stockpiling of commodities and reinforce inspections on both the spot and futures markets, state broadcaster CCTV reported the cabinet meeting chaired by Premier Li Keqiang as deciding. It will crack down on malicious trading and investigate behaviour that bids up prices, according to the report.”

May 17 – Wall Street Journal (Jonathan Cheng): “China’s economic activity grew at a slower pace in April as retail sales missed expectations, complicating the picture of a steady and balanced recovery in the world’s second-largest economy. Official data… showed industrial output and fixed-asset investment beating market expectations and continuing to lead the recovery, but domestic consumer spending, which has lagged behind for months, remaining soft. China’s industrial production in April was up 9.8% from a year earlier, slower than March’s 14.1% pace… Fixed-asset investment decelerated as well, to 19.9% in the January-April period from 25.6% in the first quarter.”

May 17 – Bloomberg: “China’s home prices grew at the fastest pace in eight months in April after curbs failed to stem buyer enthusiasm. New home prices in 70 cities…, rose 0.48% last month from March, when they gained 0.41%… Values in the secondary market… climbed 0.4%, the same pace as a month earlier. Buyer euphoria is persisting, with investors using real estate as a hedge against global inflation. That’s prompted authorities to issue a drumbeat of statements designed to cool down price expectations. Year-to-date residential sales have more than doubled from the same period in 2019 in cities including Shenzhen, Shanghai, Hangzhou and Nanjing… Xi in late April repeated his mantra that houses are ‘for living in, not for speculation’… ‘The home market has remained sort of out of control, the wider the curbs, the more resilient the market becomes,’ Yang Kewei, a research director at China Real Estate Information, Said…”

May 18 – Bloomberg (Sofia Horta e Costa): “China is planning an overhaul of China Huarong Asset Management Co. that would inflict ‘significant losses’ on both domestic and foreign bondholders, according to a New York Times report. Beijing is still in the early stages of the plan, the New York Times said on Tuesday, citing two people familiar with the matter. A timetable for a full overhaul has not yet been set, the report said, and the government is likely to inject some money into a reorganized company.”

May 19 – Bloomberg: “Another week of silence from Beijing on the fate of China Huarong Asset Management Co. is stoking renewed volatility in the company’s bonds, as traders juggle competing narratives about the prospect of a debt restructuring. Price swings have intensified in recent days amid a slew of media reports on whether China’s government will allow Huarong to default, a move that would shatter the decades-long assumption that Beijing always stands behind the debt of companies owned by the central government. Questions have been swirling about the distressed debt manager’s financial health since early April, when it missed a deadline to report 2020 results. The latest bout of volatility began on May 12, after Caixin Media’s WeNews reported that authorities had urged Huarong to solve its issues on its own.”

May 18 – New York Times (Alexandra Stevenson, Keith Bradsher and Cao Li): “BlackRock gave it money. So did Goldman Sachs. Foreign investors had good reason to trust Huarong, the sprawling Chinese financial conglomerate. Even as its executives showed a perilous appetite for risky borrowing and lending, the investors believed they could depend on Beijing to bail out the state-owned company if things ever got too dicey. That’s what China had always done. Now some of those same foreign investors may need to think twice. Huarong is more than $40 billion in debt to foreign and domestic investors and shows signs of stumbling. The Chinese government, which has stayed quiet about a rescue, is in the early stages of planning a reorganization that will require foreign and Chinese bondholders alike to accept significant losses on their investments, according to two people familiar with the government’s plans.”

May 20 – Bloomberg: “Concern over China Huarong Asset Management Co.’s financial health is deepening among domestic investors, threatening to worsen a selloff offshore. The firm’s thinly traded 19 billion yuan note due 2022 fell 12% to 70.2 yuan on Thursday…, while its 3.54% domestic bond maturing in November dropped 24% to 75.3 yuan, both on pace for record lows. The company’s dollar bonds also declined, with a 3.75% bond due 2022 falling 5.5 cents on the dollar to 73.6 cents, its weakest level in more than a month. Huarong’s domestic bonds had held up better than its dollar notes since the start of April as speculation grew over a possible debt restructuring at the company. The risk now is that a loss of confidence among mainland investors may reinforce nervousness offshore, creating a downward spiral.”

May 16 – Bloomberg: “China Huarong Asset Management Co. has reached funding agreements with state-owned banks to ensure it can repay debt through at least the end of August, by which time the company aims to have completed its 2020 financial statements, people familiar… said. The liquidity support, arranged under the guidance of China’s financial regulator, means Huarong can obtain financing from lenders such as Industrial & Commercial Bank of China Ltd. if needed…”

May 19 – Financial Times (Brooke Masters): “Irreverent overseas analysts have dubbed it ‘Hua-wrong’. But the problems besetting China Huarong Asset Management, the country’s largest distressed debt investor, are deadly serious. Its former chair Lai Xiaomin was executed for corruption in January, it has been unable to file its financial statements since March, its Hong Kong-listed shares are suspended and some of its perpetual bonds are trading below 65 cents on the dollar… Lai’s 2018 arrest called into question the underlying worth of Huarong’s assets, and no one knows whether the central government is still willing to stand behind it. After all, Beijing has spent five years trying to damp down corporate leverage and allowed a string of state-owned enterprises to default on their debt. But few are as large or as systemic as Huarong, with assets worth Rmb 1.7tn ($260bn). ‘It is the test case par excellence about Beijing’s willingness to impose market discipline on the financial sector,’ says Curtis Milhaupt, a Stanford Law School professor who studies Chinese corporate governance. ‘I don’t think they can let Huarong go down . . . but maybe they will impose haircuts on the bondholders and the equity.’”

May 21 – Bloomberg: “A tightening of Chinese developers’ use of secretive funding is threatening to curb growth in the world’s second-largest economy. For years, China’s property developers have drawn on shadowy pools of capital to fund their projects. Now, government scrutiny is reining in that system, after already curbing traditional avenues of funding. Debt-laden developers including China Evergrande Group will likely need to scale back growth and resort to other means such as equity financing and spinning off more assets for financing to avoid defaults. ‘Polarization among Chinese developers will deepen this year, and more developers are likely to suffer from debt failures,’ said John Sun, co-managing partner at Aplus Partners Management Co… Weaker developers ‘will need to sell assets to fight for survival, while some will likely default on their debt.’”

May 16 – Financial Times (Edward White): “Domestic rating downgrades of corporate bonds in China have more than tripled this year, underlining Beijing’s efforts to reduce risk in the country’s $17tn credit market in the wake of several high-profile defaults. International rating agencies and fund managers have long criticised China’s artificially high corporate credit ratings and low default rates, pointing to a lack of transparency and the assumption the government will bail out struggling companies. But 366 bonds were downgraded in the first four months of 2021, compared with 109 in the same period a year ago…”

May 19 – Wall Street Journal (Chong Koh Ping): “China’s $3 trillion mutual-fund industry drew throngs of individual investors in thrall to market-beating star managers. But the Chinese market has slumped, dragging the funds down with it, and the stars who were once heroes are now targets of online ire. Li Qiushi, an English teacher in Beijing, began buying funds in September because friends and relatives were constantly discussing the topic. She sold most of her holdings in March at a loss. ‘Everyone is just a bunch of leeks,’ Ms. Li said, using Chinese internet slang in which people who have been duped are said to have been harvested like leeks. ‘I take it that I’ve spent money to buy some experience,’ the 32-year-old said. ‘Perhaps it’s better to know more about investing before dabbling in mutual funds.’”

Global Bubble Watch:

May 20 – Reuters (Ritvik Carvalho and Tommy Wilkes): “After a year of record-breaking cash injections, the world’s big central banks are starting to ease off the stimulus pedal, forcing economies and financial markets to practise walking on their own again… Since March 2020, central banks and governments have flooded markets with some $27 trillion – a third of global gross domestic product, consultancy CrossBorder Capital estimates.”

May 19 – Bloomberg (Ian King and Debby Wu): “Shortages in the semiconductor industry, which have already slammed automakers and consumer electronics companies, are getting even worse, complicating the global economy’s recovery from the coronavirus pandemic. Chip lead times, the gap between ordering a chip and taking delivery, increased to 17 weeks in April, indicating users are getting more desperate to secure supply, according to… Susquehanna Financial Group. That is the longest wait since the firm began tracking the data in 2017, in what it describes as the ‘danger zone.’ ‘All major product categories up considerably,’ Susquehanna analyst Chris Rolland wrote…, citing power management and analog chip lead times among others. ‘These were some of the largest increases since we started tracking the data.’ Chip shortages are rippling through industry after industry, preventing companies from shipping products from cars to game consoles and refrigerators.”

Central Banker Watch:

May 17 – Financial Times (Tommy Stubbington): “Central bankers who manage foreign currency reserves have been turning to new — and riskier — investments to compensate for the global collapse in bond yields ushered in by the pandemic… The annual poll of 78 reserve managers with a combined $6.4tn of assets found that the reduction in yields has presented the greatest challenge to these investors over the past year. For many, it has driven a shift into new asset classes including corporate bonds, emerging market bonds and equities. Reserve managers are typically among the world’s most risk-averse investors, but they enjoy huge clout thanks to the more than $12tn they manage… Just over half of respondents to the survey said they were considering investing in new asset classes, while 44% said they might add new currencies to their holdings. According to the IMF, 59 per cent of the world’s $12.7tn of foreign exchange reserves is held in US dollars, with most of the rest in euros, yen or sterling.”

May 19 – Reuters: “The European Central Bank says risks to the stability of companies, banks and financial markets remain ‘elevated’ due to the uneven impact of the pandemic on the economy, warning that the eventual removal of relief measures could lead to a surge in bankruptcies. The ECB warned of ‘a clustering of risks in some sectors and countries,’ with companies in the services sector hardest hit by the pandemic having taken on more debt, leaving them vulnerable to prolonged economic weakness. ‘An increase in corporate insolvencies may impact households via employment prospects, so far prevented by policy support measures,’ the central bank said in its twice-yearly financial stability review…”

May 15 – Wall Street Journal (Simon Clark): “Central banks, the most powerful financial institutions in the world, want to become the guardians of the environment as well. The central banks say climate change is a financial and economic risk. They believe rising sea levels, more wildfires and bigger storms could cause shortages that spur inflation, the regulators’ traditional nemesis. The banks that are deepest into the issue are trying to limit climate change by steering their financial systems away from fossil fuels… The Bank of England’s remit now explicitly includes environmental sustainability as well as maintaining price stability. The Federal Reserve is proceeding cautiously, worried about financial risks but wary of expanding its mandate, which would put it in the middle of the partisan debate over climate change.”

Europe Watch:

May 20 – Reuters: “German producer prices rose by 5.2% year-on-year in April, the biggest increase in nearly a decade…, in a further sign that supply bottlenecks are leading to increased inflation pressure in Europe’s largest economy. The rise in producer prices followed a 3.7% year-on-year increase in March and compared with a Reuters poll forecast of 5.1%. Compared to the previous month, producer prices were up 0.8% in April…”

May 20 – Bloomberg (Laura Benitez and Irene García Pérez): “It’s the latest sign of leveraged mania hitting bondholders: Companies across Europe are piling on debt at the fastest pace in at least four years to enrich their private-equity owners. The controversial practice known as dividend recaps is growing as investors gorge on every credit risk, handing a windfall to buyout pros at Lion Capital LLP, BC Partners LLP and Hellman & Friedman LLC, to name a few. Private equity firms have always borrowed to buy companies. But they’re layering on extra debt to write themselves dividend checks at a time when central banks have driven borrowing costs to all-time lows…”

EM Watch:

May 17 – Bloomberg (Eduardo Thomson, Valentina Fuentes and Matthew Malinowski): “Chilean assets plunged after the ruling coalition suffered a surprise drubbing in the election for a constituent assembly, placing the writing of a new charter firmly in the hands of the left-wing. The benchmark stock exchange closed down 9.3%…, while the peso fell 2.3%. Yields on Chile peso bonds due in 2030 jumped 22 bps to 3.82%. Candidates from the ruling coalition obtained just 37 of 155 seats on the assembly designed to write the new constitution… Contenders unaffiliated with any political parties secured 65 seats. The result means the ruling coalition falls short of the one-third threshold they needed to block market-unfriendly clauses in the new charter.”

May 15 – Bloomberg (Veronika Gulyas and Piotr Skolimowski): “Bond markets are famous for pushing their agenda, and in east Europe right now, they’re pushing for rate increases, never mind what central banks have to say on the matter. Yields on bonds of Hungary and Poland are rising faster than anywhere else in Europe. Hungary’s jumped 32 bps last week, signaling traders are primed for rate liftoff as inflation roars back to life ahead of widespread economic re-openings this summer.”

May 19 – Reuters: “Taiwan will tighten curbs on the use of water from June 1 in the major chip making hubs of Hsinchu and Taichung as it battles an islandwide drought, if there is no significant rainfall by then, the government said… Describing the drought as the worst in the island’s history, the economy ministry said in the absence of rain it would raise the drought alert level to its highest, requiring companies in the two science parks to cut water consumption by 17%.”

May 16 – Bloomberg (Shikhar Balwani): “Taiwan stocks slumped, extending their biggest rout in more than a year, as the government tightened restrictions on people and businesses to control its worst outbreak of the coronavirus. The Taiwan Stock Exchange Weighted Index closed the Monday session 3% lower… The benchmark gauge sank 8.4% last week on concern about the impact on growth, the most since March 2020, turning Taiwan stocks into the world’s worst performers so far this month.”

May 19 – Bloomberg (Patrick Gillespie and Jonathan Gilbert): “Argentina’s new ban on exports of its famed beef won’t quell runaway inflation if previous interventions are any guide. With red meat prices up about 65% annually, easily outpacing 46% inflation, the government of President Alberto Fernandez is suspending beef shipments by the world’s fifth-largest exporter for 30 days. While the measure may reap quick political benefits, the long-term repercussions for the beef industry are well-known in Argentina, which implemented similar restrictions for a decade through 2015: Ranchers quit, production falls and the pressure on prices resumes.”

Leveraged Speculation Watch:

May 19 – Bloomberg (Silla Brush): “The Bank of England is considering closer scrutiny of the work banks carry out for hedge funds after the meltdown of Archegos Capital Management exposed gaps in oversight. Banks’ prime brokerage desks, which trade on behalf of large clients such as hedge funds, need to be able to cover losses in good times and bad and should be a ‘low-risk business,’ said Jon Hall, external member of the BOE’s Financial Policy Committee. Hall also said… there may need to be higher margin requirements on derivatives to make sure that leveraged investors don’t destabilize markets. ‘Hedge funds should manage their leverage and liquidity with the expectation that central banks will not come to their aid,’ said Hall, who is a member of the committee charged with monitoring and limiting risks to the British financial system.”

May 17 – Wall Street Journal (Cara Lombardo): “Credit Suisse Group AG is facing an exodus of senior investment bankers in the wake of a $5.5 billion loss tied to the meltdown of Archegos Capital Management. At least 10 managing directors in the Swiss firm’s U.S. investment-banking division have internally disclosed plans to leave, most for rival firms… Other bankers are considering their options, and more are expected to depart in the coming weeks.”

Social, Political, Environmental, Cybersecurity Instability Watch:

May 21 – Financial Times (Myles McCormick and Hannah Murphy): “Motorists on the US east coast have learnt to bear up when problems hit their most important fuel artery, the Colonial pipeline. A hurricane shut it down in 2017. An explosion halted volumes the year before… The attack exposed how a push to digitise critical infrastructure has created new opportunities for cyber criminals, putting at risk essential goods and services such as energy, water and healthcare. ‘I think what happened last week is the most likely model for what is ahead of us,’ said Chris Williams, cyber solution architect at Capgemini North America.”

May 19 – Bloomberg (Laura Millan Lombrana): “An iceberg the size of the Spanish island of Majorca has broken off the coast of Antarctica, with measurements taken from satellites and planes confirming it’s now the world’s largest. Iceberg A-76 calved from the western side of the Ronne Ice Shelf in Antarctica and is now floating on the Weddell Sea… It measures around 170 kilometers (105 miles) long and 25 kilometers (15 miles) wide. That’s larger than New York’s Long Island and half the size of Puerto Rico. The Antarctica ice sheet is warming faster than the rest of the planet, causing melting of snow and ice covers as well as the retreat of glaciers, especially around the Weddell Sea.”

May 15 – Wall Street Journal (Ben Chapman): “Police departments in New York City and other large metro areas across the U.S. are bulking up patrols and implementing new tactics to prepare for what they say could be a violent summer. States lifting Covid-19 restrictions and more people out in public spaces in warmer weather increase the likelihood of more shootings, as well as less-serious crimes, officials say… Shootings and homicides in big U.S. cities are up this year again after rising last year. In the last three months of 2020, homicides rose 32.2% in cities with a population of at least one million, according to the Federal Bureau of Investigation’s Quarterly Uniform Crime Report.”

Geopolitical Watch:

May 19 – Reuters (Nidal Al-mughrabi, Stephen Farrell and Jeffrey Heller): “Israel bombarded Gaza with air strikes and Palestinian militants resumed cross-border rocket fire on Tuesday after a brief overnight lull during which the U.N. sent a small fuel convoy into the enclave, where it says 52,000 people are now displaced. Israeli leaders said they were pressing on with an offensive to destroy the capabilities of the armed factions Hamas and Islamic Jihad, amid calls by the United States and other world powers for an end to the conflict.”

May 20 – Reuters: “China said… an American warship had illegally entered its territorial waters in the South China Sea and was expelled, which the United States denied in the latest salvoes over Beijing’s claims in the busy waterway… The Chinese military’s Southern Theatre Command said the USS Curtis Wilbur entered the waters near the Paracel islands without permission, adding that its ships and planes followed the U.S. vessel out. It said the U.S. action violated China’s sovereignty and undermined regional peace and stability.”

May 20 – Associated Press (Vladimir Isachenkov): “Russian President Vladimir Putin alleged… some of the country’s foreign foes dream about biting off pieces of the country’s vast territory, warning that Moscow would ‘knock their teeth out’ if they ever try. In strong remarks during a conference call with officials, the Russian president noted that foreign efforts to contain Russia date from centuries ago. ‘In all times, the same thing happened: once Russia grew stronger, they found pretexts to hamper its development,’ Putin said… ‘Everyone wants to bite us or bite something off us, but those who would like to do so should know that we would knock their teeth out so that they couldn’t bite,’ the Russian leader said. ‘The development of our military is the guarantee of that.’”

May 19 – Financial Times (Tony Barber): “At the start of this year, India published a draft national strategy for the Arctic. Even for a country that is closer to the equator than to the North Pole, the Arctic matters. However, in an icy region that once served as a model for post-cold war co-operation, the rivalry heating up among China, Russia and the US is cause for concern… Apart from India, new or updated strategies for the region have appeared in the past three years from Canada, China, the EU, France, Germany, Norway, Poland, Russia, Sweden and the UK. In Washington, the US Air Force, Army, Coast Guard, Department of Defense, Department for Homeland Security, Marine Corps and Navy have added to the pile of strategy documents. The striking feature of these publications is that almost all make reference to national security dimensions of Arctic policy… So the intensifying rivalry reflects more than climate change and the disturbing implications for the planet’s future from rising Arctic temperatures. Ultimately, the US, Russia and China are eyeing each other with suspicion in the region…”