U.S. Growth Shows Signs of Slipping Recession fears creep in as key sectors such as housing and consumer spending succumb to high inflation and rising interest rates

Recent reports show sharp declines in key sectors, raising the prospects of a stalled economic recovery and possibly a recession. Home construction across the U.S. fell sharply in May, the Commerce Department said Thursday. Factories in the mid-Atlantic region reduced activity for the first time in two years this month, the Federal Reserve Bank of Philadelphia said. And Americans broadly cut spending at retailers for the first time this year in May, the Commerce Department said earlier this week. (…)

“There really is no road map here,” said Joshua Shapiro, chief U.S. economist at the New York consulting firm Maria Fiorini Ramirez, Inc. “Nobody knows. Anybody that pretends they know is just telling you a story.” (…)

Here’s what we do know:

• inflation is too high, “unhealthy” per Jay Powell who has made it his priority to bring it down quickly;
• the Fed can’t act directly on food and energy prices but it sure can reduce overall demand;
• wages are accelerating thanks to a very unbalanced labor market: too much demand, too little supply;
• only a recession can effectively reduce consumer demand, corporate need for labor and incentivise people to work, all at once;
• Mr. Powell is focused on the task and has warned us that “there will be pain”.

Here’s what we don’t know:

• when the recession, how long and how severe? It may already have started and the sooner the better;
• where will inflation settle, given the numerous supply issues?

More than 60% of executives see a recessionary period in next 12 to 18 months, according to the Conference Board survey

There is a caveat, courtesy of Nordea:

We suspect that the real economy will be less sensitive to a rise in interest rates this time, which means that the Fed could have to move rates more-than-expected before policy gets restrictive. The strongest argument is that the household balance sheets are in a much better shape to sustain their level of spending as the massive injections of money and credit through both monetary and fiscal stimulus have changed household balance sheets dramatically.

Households in the US have accumulated more than USD 2.5 trillion in excess savings during the pandemic. While a lot of the savings are concentrated among the rich, lower income groups have also saved up a lot. This could mean households that are much more resilient to inflation and higher interest rates, since consumers can continue to spend by dipping into these savings. This also means that nominal spending will continue to be too strong.

Large savings buffer against economic headwinds

In addition to that, both financial and nonfinancial assets have soared increasing household assets, at a time when households have paid down their debt level. This has resulted in personal disposable income closing a gap of .35 percentage-point (back in 2008) to household liabilities. In sum, these balance sheet changes have contributed to a strong bounce in wealth accumulated by the low- and middle-income cohort (bottom 60% by income), a group which has been squeezed throughout the last decade.

Decade high net worth

Not good news, actually. Like delaying going to the dentist…

Nobody knows how high rates will need to move to cool the economy. We suspect that it will take quite a lot, and that the monetary tightening will continue to be quite a challenge for policy makers and financial markets. Central banks are forced to choose between two undesirable outcomes: Tighten to control inflation at the cost of tipping the economy into a recession, or do not tighten and allow inflation to erode real growth.

The June meeting showed us that the FOMC is clearly in the former camp. There is a distinct possibility that we will see policy rates well north of 4% during next year. While the market will try to time the peak in the fed funds rate and look for the next downturn, the Fed’s balance sheet reduction will move the supply/demand balance in the Treasury market towards a steeper curve. Higher policy rates will also make it less attractive for foreign investors to buy USD bonds. We therefore do not believe the rate curve will invert too much, and certainly not to the extent projected by current market pricing.

On the other hand, about those savings, Bespoke asks a good question:

Would you call the largest destruction of wealth in modern market history a “soft landing”?

@bespokeinvest

U.S. Housing Starts Fall Sharply in May

New residential building activity is feeling the pressure from rising interest rates. Housing starts declined 14.4% during May (-3.5% y/y) to 1.549 million units (SAAR) from 1.810 units in April, revised from 1.724 million. The Action Economics Forecast Survey expected 1.71 million starts.

Single-family starts declined 9.2% (-5.3% y/y) last month to 1.051 million units from 1.157 million in April, revised from 1.100 million. Starts of multi-family units weakened 23.7% (+0.6% y/y) to 498,000 from 653,000.

By region, housing starts were mixed last month. Starts in the South declined 20.7% (-0.7% y/y) to 803,000. In the West, housing starts fell 17.8% (-10.1% y/y) to 356,000. Elsewhere, starts firmed. In the Northeast, starts surged 14.6% (26.3% y/y) to 173,000. Starts in the Midwest rose 1.9% (-17.5% y/y) to 217,000.

Building permits declined 7.0% (+0.2% y/y) to 1.695 million from 1.823 million in April. Permits to build single-family homes declined 5.5% (-7.9% y/y) in May to 1.048 million units. Permits to build multi-family weakened 9.4% (+17.0% y/y) to 647,000.

• Mortgage Rates Hit 5.78%, Highest Level Since 2008 U.S. mortgage rates reached their highest levels in more than 13 years, the latest sign of market tumult tied to the Federal Reserve’s campaign to cool inflation.

Sharply reduced affordability is curbing demand.

Housing units under construction have peaked and will likely decline given lower permits. Housing supply will grow in the second half but construction employment should wane.

Tesla Raises Prices Amid Surging Costs Prices on some of the company’s electric cars are going up by as much as $6,000. The latest price increase applies to certain cars across Tesla’s entire lineup.

(…) The company last raised prices in March, soon after Mr. Musk warned in a tweet that Tesla and his Space Exploration Technologies Corp., or SpaceX, “are seeing significant recent inflation pressure in raw materials & logistics.” (…)

Between 10% and 15% of Tesla’s cost structure is exposed to swings in raw-materials prices, finance chief Zachary Kirkhorn said in April. The rate of cost increases accelerated in the first quarter and the first few weeks of the second quarter, he said, adding that it will take time to impact Tesla’s bottom line because of fixed contracts with suppliers. (…)

U.S. Philadelphia Fed Index Turns Negative in June

The Federal Reserve Bank of Philadelphia’s Manufacturing Business Conditions Index declined to -3.3 during June from +2.6 in May. It was the first negative reading since May 2020. The Action Economics Forecast Survey expected an improvement to 6.0. The percentage of firms reporting improved conditions fell to 16.3% from 22.2% in May. The share reporting weaker conditions was fairly steady at 19.6%. Responses to this month’s survey were collected from June 6 through June 16.

Haver Analytics calculates an ISM-Adjusted General Business Conditions Index from five key components using the same methodology as the national ISM index. The index fell to 53.3 this month from 59.9 in May.

Performance of the sub-indexes remained mixed. The new orders index declined to -12.4 this month from +22.1 in May. The unfilled orders index declined to -7.0 from +17.9 last month. The inventories series weakened to -2.2 from +3.2 in May. (…)

The average workweek measure fell to 11.8 this month from 16.1 in May.

Moving higher was the employment measure to 28.1, which came after May’s drop to 25.5 from the record 41.4 in April. An improved 31.3% of respondents raised employment versus 26.7% in May, while 3.2% reduced payroll sizes after 1.2% did so in May.

Inflation pressures eased. The prices paid reading declined to 64.5 after falling to 78.9 in May. A lessened 70.1% of respondents reported paying higher prices while 5.6% reported paying lower prices. The prices received index declined to 49.2 in June, the lowest level since January.

The Philadelphia Fed also surveys expectations for business activity in the coming six months. The expectations index for future activity collapsed to -6.8 in June. It reached a high of 69.2 twelve months ago. All of the sub-indexes declined m/m. New & unfilled orders, along with delivery times and inventories were greatly negative. Expected prices paid eased slightly from after a sharp decline in May.

  

• Empire State Manufacturing Index Rebounds Modestly in June

The Empire State Manufacturing Index of General Business Conditions rebounded modestly in June after a sharp decline in May. The index increased 10.4 points to -1.2 in June from -11.6 in May. The June reading indicates that general business conditions were essentially unchanged in the month. The Action Economics Forecast Survey had anticipated an increase to 3.4. The index has posted a negative reading in three of the past four months. The percentage of respondents reporting an increase in business conditions increase to 27.6% from 19.9% in May while the percentage reporting a decrease eased to 28.8% from 31.5% in May. The latest survey was conducted between June 2 and June 9. (…)

Both the new orders index and the shipments index rebounded to above zero in June. New orders rose to 5.3 from -8.8 in May and shipments increased to 4.0 from -15.4 in May. The percentage reporting an increase in new orders rose to 34.6% from 24.9% while the percentage reporting an increase in shipments increased to 30.7% from 22.0%. Percentages reporting declines fell for both new orders and shipments. (…)

The number of employees index increased to 19.0 in June from 14.0 in May. The percentage of respondents increasing employment rose to 24.5% from 20.9% while the percentage reducing employment fell to 5.5% from 6.8%. By contrast, the average workweek index fell to 6.4 in June from 11.9 in May.

Inflation indicators remained elevated. The prices paid index rose to 78.6 in June from 73.7 in May after having reached a record 86.4 in April. The prices received index fell for the third consecutive month—to 43.6 in June from 45.6 in May and 49.1 in April. These are still some of the highest readings for these two variables in their history which dates back to 2001.

Looking ahead to the next six months, respondents’ optimism waned, declining to 14.0, the lowest reading since April 2020, from 18.0 in May with declines rather broadly spread across components.

  

Coincidentally, the NY Fed published its Business Leaders Survey, covering service firms in New York, northern New Jersey, and southwestern Connecticut. The survey was done between June 2 and June 9.

Growth stalled in the region’s service sector, according to firms responding to the Federal Reserve Bank of New York’s June 2022 Business Leaders Survey. The survey’s headline business activity index fell nine points to 2.2. The business climate index also fell, moving down nine points to -36.2, indicating that firms generally viewed the business climate as worse than normal for this time of year. Employment levels continued to grow at a solid clip, and wage increases remained widespread. The prices paid index reached a new record high, and the prices received index remained near its recent peak.

Looking ahead, optimism continued to wane, with firms turning pessimistic about the expected future business climate.

Russian gas flows to France via Germany halted, says pipeline operator

ECB: The hawks are in control

(…) Against an increasingly hawkish central bank amidst mounting signs of price pressures becoming more broad-based, we [Nordea] think that the ECB will hike by 50bp both in September and October. Euro-area inflation should peak during the autumn, allowing the central bank to go back to 25bp steps in December. We expect the ECB deposit rate to rise to 1.75% during the first half of next year, roughly in line with our estimates of the neutral interest rate. Given the headwinds facing the economy, including high energy prices, higher interest rates and likely some further Covid-waves next winter, and falling inflation at that time, we think that the ECB will stop its hikes at around the neutral rate.

While we see risks both ways, risks are tilted towards the central bank stopping its hikes already earlier, if the geopolitical risks materialise, the economy slows down more clearly and inflation recedes quickly. (…)

SENTIMENT WATCH

The worst bout of selling in S&P history

In the past seven sessions, more than 90% of stocks in the index have declined on five days. Since 1928, that has never happened before. This is the most overwhelming display of selling in history.

There have been a handful of times when there was a majority of days with more than 90% declining stocks, clustered in the 1930s and post-financial crisis eras. Forward returns were very volatile after these signals, but all preceded a higher price in the S&P 500 6 or 12 months later.

Over the past five days, fewer than 1.6% of stocks in the index have held above their 10-day moving averages. That has been matched only twice before in recent decades. Both endured extremely volatile and choppy conditions for months before experiencing excellent long-term gains.

The push lower on Wednesday made investors in many stocks finally capitulate, so more than 43% of stocks in the S&P fell to 52-week lows on the same day. In recent decades, that has been exceeded only by October/November 2008, December 2018, and March 2020.

What the research tells us…

Well, pretty much the same as it has been all week. We are in a bear market, everything is horrible, and there is no sustained interest among buyers. Every bullish setup gets met immediately with a slap upside the head. About the only potential silver lining is just how bad things have become. The level of selling pressure we’ve seen this week has been rarely – if ever – matched in many decades. One-sided behavior like this has a strong history of being contrarian…but that was also the case in May, and here we are at lower lows. So for new buyers, it seems like patience is a better virtue, and for existing holders, it seems as though it’s too late to sell.

And this from Goldman Sachs:

Retail investors have turned into sellers in recent months — with one exception. “There’s been a very dramatic reversal in the buying of retail turning into the selling of retail in the last five months,” Marshall tells host Allison Nathan. “The one area that I would say is an exception here, and something we’re watching very closely, is in the ETF market. ETF inflows have continued at a very consistent rate all through 2020, 2021, and even into 2022. So investors, the buy-and-hold investors, as separate from retail day traders… are continuing to allocate to equities through buying of ETFs.”

Retail investors’ participation in markets is stabilizing. “I think we’re finding our steady state in terms of retail participation in the U.S. equity markets,” Jeria says. “I think it’s going to look like 15% for the near future. It’s higher than the baseline that we had pre-COVID. And we can explain that, again, because of zero commissions, because of the gamification aspect that’s here to stay.”

It seems retail is off the stock picking game but seeks to stay in the big game. But that game has also been unraveling lately with the big names taking it on the chin. Full capitulation needed.

OTHER THAN THAT

• McDonald’s will pay $1.3 billion to settle probes in France where it was accused of dodging taxes by unfairly shifting revenue to Luxembourg and Switzerland. Top financial prosecutor Jean-Francois Bohnert said the total amount to be paid by McDonald’s is two-and-a-half times larger than the taxes it skipped — nearly 470 million euros.
• Lego will invest $1 billion in its first US factory because of rising demand in the Americas.

In One Chinese City, Protesters Find Themselves Thwarted by a Red Health Code Plans to protest in Zhengzhou against banks for freezing deposits were thwarted when would-be protesters’ health codes turned red—prompting accusations authorities were using the Covid tool for social control.

(…) Mr. Ye said that as soon as he arrived in Zhengzhou and scanned the code on his smartphone to exit from the train station, his green code switched color, prompting local officials to confine him in a hotel. Two days later, when he left the region without having been able to carry out his protest plan, the code flipped back to green, he said. (…)

In between the change of colors, Mr. Ye and others say dozens of bank customers who had come to Zhengzhou to protest and whose health codes had also turned red were grounded inside a remote hotel. For Mr. Ye, the setting was familiar. In May, he said, he spent some time confined at the same hotel by local authorities after he and hundreds of bank customers held signs outside the local headquarters of the bank regulator, demanding the return of their savings.

Authorities in Zhengzhou and Henan haven’t provided an official explanation of why the codes of Mr. Ye and others were switched and then switched back. (…)

Pretty bad for confidence in the system; also pretty bad for confidence in banks and access to own funds…

China’s Newest Aircraft Carrier Shows Xi Jinping Catching Up With US

Fed Raises Rates by 0.75 Percentage Point, Largest Increase Since 1994 Officials signal a much more aggressive path of rate rises to fight inflation that is running at a 40-year high

Officials agreed to a 0.75-percentage-point rate rise at their two-day policy meeting that concluded Wednesday, which will increase the Fed’s benchmark federal-funds rate to a range between 1.5% and 1.75%.

New projections showed all 18 officials who participated in the meeting expect the Fed to raise rates to at least 3% this year, with at least half of all officials indicating the fed-funds rate might need to rise to around 3.375% this year. (…)

“It is not going to be easy,” Mr. Powell said. “There’s a much bigger chance now that it’ll depend on factors that we don’t control. Fluctuations and spikes in commodity prices could wind up taking that option [soft landing] out of our hands.” (…)

“Clearly, today’s 75-basis-point increase is an unusually large one, and I do not expect moves of this size to be common,” Mr. Powell said. “From the perspective of today, either a 50-basis-point or a 75-basis-point increase seems most likely at our next meeting” on July 26-27. (…)

“We think that policy is going to need to be restrictive, and we don’t know how restrictive,” he said. (…)

The Fed’s monetary-policy statement removed a line that, in May, had indicated officials expected inflation to return to 2% and for the labor market to remain strong as it raised rates. Mr. Powell said the removal of that sentence reflected the sense that the Fed couldn’t reduce inflation to 2% by itself while maintaining a strong labor market.

“The worst mistake we could make would be to fail” to bring down inflation, Mr. Powell said. “It’s not an option. We have to restore price stability.” (…)

The median projection [dot plot] showed the unemployment rate, which stood at 3.6% in May, ending at 3.7% this year before rising to 4.1% in 2024.

“You’re seeing continuing shifts in consumption…but overall spending is very strong,” he said. (…)

“Overall spending is very strong,” Mr. Powell told reporters, adding the central bank isn’t seeing a broad slowdown. “We see the economy slowing a bit but still at healthy growth levels,” he said.

U.S. Retail Sales Declined in May as Inflation Stings Consumers Consumers pulled back on car purchases, online shopping, and spent more at gasoline stations

Retail sales—a measure of spending at stores, online and in restaurants—fell a seasonally adjusted 0.3% in May from the previous month, the Commerce Department said Wednesday. That was the first decline in month-over-month retail spending this year. (…)

A sharp drop in vehicle sales—due to high prices, low inventory and rising interest rates on car loans—played an outsize role in the decline in month-over-month retail spending. Consumers also pulled back their spending on goods such as furniture, electronics and online purchases. (…)

JPMorgan Chase & Co. analysts lowered their forecast for U.S. gross domestic product growth to an annual rate of 2.5% in the second quarter from 3.25% previously. Data firm IHS Markit cut its growth estimate to 0.9%.

Excluding autos and gasoline, retail sales rose just 0.1% in May, well behind the pace at which prices increased last month. Unlike other reports compiled by the government, retail sales aren’t adjusted for inflation. Soaring gasoline and grocery prices meant households shelled out more on them in May—Americans are spending over 43% more on gasoline than a year ago and nearly 9% more on groceries.

Retail sales were up 8.1% last month from a year earlier, a robust gain but below the blistering pace of inflation, which was up to 8.6% in May from a year earlier, according to the Labor Department’s consumer-price index. (…)

The retail sales report mostly covers spending on goods rather than services, but it said that receipts at bars and restaurants were up 0.7% in May, a sign that Americans are continuing to dine out. (…)

High and rising inflation is hiding some of the real trends.

• Real retail and food services sales per the St-Louis Fed declined 1.2% MoM in May and -4.0% annualized in the last 3 months.
• Control sales which feed directly into GDP were flat in May but down 0.7% MoM after accounting for the 0.7% rise in core goods prices.
• Excluding restaurants and bars, real control sales slowed from +1.0% MoM in March to +0.3% in April and -0.8% in May. The bite from food and gas prices is large and deepening.
• While restaurants and bars sales rose 0.7% in May, they were flat in real terms after +1.7% in March and +1.3% in April.

The Chase card spending tracker suggests very poor overall demand in June. Its control retail sales tracker is down 4.0% through June 10 while its restaurants and airlines spending trackers also weakened so far in June.

So, when Powell says that “overall spending is very strong”, that “the central bank isn’t seeing a broad slowdown” and sees the economy “still at healthy growth levels”, he may be just as wrong as he has been on inflation. The price of gas is up 13% so far in June.

Mr. Powell admitted that the consumer is key and assured us that “we are watching that very very carefully”. We hope.

The FOMC dot plot shows the unemployment rate rising from its current 3.6% to 3.7% in December and 4.1% in 2024. A 0.5% increase spread over 31 months. That’s not a soft landing, rather a beautiful dream in slow motion. Didn’t he say in the presser that “we want to be transparent”?

It so happened that May retail sales came out yesterday morning. The Atlanta Fed posted its revised GDPNow data shortly before the FOMC meeting: it is now at 0.0% for Q2. Real GDP was down 0.4% QoQ in Q1…

• US fears surge in crude prices from ban on insuring Russian oil tankers

U.S. Home Builder Index Declines Further in June

In yet another indication of weakness in the housing market, the Composite Housing Market Index from the National Association of Home Builders-Wells Fargo fell 2.9% (-17.3% y/y) in June to 67 from 69 May. It was the lowest level since June 2020.

The index measuring traffic of prospective buyers fell 9.4% (-32.4% y/y) to 48 from 53 in May. The index stood at the lowest level since June 2020. The current sales reading fell in June by 1.3% (-11.5% y/y) to 77 from 78 in May and stood at its lowest level also since June 2020. The index of expected sales in the next six months weakened 3.2% (-22.8% y/y) to 61 from 63 in May. The index peaked at 89 in November 2020.

Regional activity weakened in most sections of the country this month. The reading for the Northeast plunged 18.4% (-16.2% y/y) to 62. The index for the West declined 12.2% (-24.4% y/y) to 65. In the South, the index declined 1.3% (11.8% y/y) to 75. Moving higher by 5.9% (-22.9% y/y) was the index for the Midwest to 54.

  

Home Prices in Canada Fall Again as Mortgage Pain Intensifies

Canada’s benchmark home price fell 0.8% to C$822,900 (about $635,000) in May from the month before, according to data released Wednesday by the Canadian Real Estate Association. Cities in Ontario showed the biggest declines.

Sales also dropped sharply, falling 8.6% from the previous month, the association said.

The drop comes after Canadian home prices shot up more than 50% over a two-year period as ultra-low interest rates and demand for larger living spaces led to bidding wars for properties.

(…) the cooling in the national market has only brought activity back to levels that are more in line with historical norms. The number of sales in May was slightly above the 10-year average for the month, for example.

The ratio of sales to new listings, a measure of market tightness, fell to 57.5% — a three-year low that is close to its longer-term average, data from the real estate association showed.

Even with the market shifting and the number of listings rising, though, Canada still had just 2.7 months of housing inventory available on the market at the end of May, about half the longer-term average, the data show.

A separate report released Wednesday by the Canada Mortgage & Housing Corp. showed supply ramping up. Housing starts rose 8% in May to an annualized pace of 287,300 units, exceeding economists’ expectations.

The ECB: what else can we expect? Ms. Lagarde had assured the market that the ECB has the tools to avoid fragmentation.

This is from John Authers:

Italian bond yields matter far beyond Italy. The country has one of the world’s most liquid bond markets, and also an amount of debt outstanding that far exceeds GDP. A decade ago, the country suffered through the euro zone’s sovereign debt crisis, as markets attacked the debt of peripheral countries. The belief was that the structure of the euro zone wouldn’t hold, and that Italy and others would be forced to accept larger deficits than the area permitted.

That crisis subsided because the European Central Bank convinced all-comers that it was prepared to step in to avert defaults and sustain the euro. But that was with inflation painfully low.

Now with inflation much higher, it is harder for the ECB to make such promises. Following last Thursday’s hawkish press conference by the ECB’s president, Christine Lagarde, at which she failed to offer any mechanisms to stop debt spreads from ballooning, there was a big selloff of Italian bonds. As a result, 10-year BTP yields are above 4%, while their spread over German bunds is approaching 2.5%.

The growing risk of fragmentation more than counteracted the ECB’s move toward tighter monetary policy on the foreign exchange market, and pulled the euro downward. All of this was enough to prompt an emergency meeting of the European Central Bank, which took place Wednesday morning.

The fact of the meeting was enough to spur a recovery for the euro, but that was all canceled out once the result was known. This was the deathless prose that disappointed the FX market:

the Governing Council decided to mandate the relevant Eurosystem Committees together with the ECB services to accelerate the completion of the design of a new anti-fragmentation instrument for consideration by the Governing Council.

In translation, the governors now want the technocrats below them to hurry up and hatch some kind of plan that will stop the yields of different euro zone countries drifting further apart. Once they’ve come up with an idea (at an unspecified date) then they will offer it to the governors for “consideration.”

It doesn’t sound like they have much clue what this plan will be yet, and it also sounds as though it could take a while to get through the European sausage-making machine.

In short, inflation has exposed the ongoing flaws in the euro zone once more, the ECB is worried enough to convene a meeting (in person!) to try to deal with it; and the sum total of all their activity in the last week has been to convince the markets that they need to worry about this. (…)

• European Gas Surges 24% as Russian Cuts Escalate Energy Crisis

Benchmark futures increased as much as 24%, adding to a 46% rise already this week. The cuts are rippling through Europe with companies including Eni SpA, Engie SA andUniper SE saying they’re getting less supply. Germany has called the reductions through the Nord Stream pipeline “politically motivated” and aimed at unsettling markets, challenging Gazprom PJSC’s statement that the halt was due to technical issues. (…)

The latest crisis could hit key industries from chemical to steelmakers, a body blow for the region that’s already struggling with surging inflation and meager growth. Gas rationing is becoming a real prospect. (…)

Utility Uniper said Wednesday it had received 25% less than contracted from Russia, while Austria’s OMV AG and France’s Engie also got lower volumes. Italy’s Eni said Gazprom was providing only 65% of the requested amount on Thursday. (…)

Delays in filling inventories could lead to a tough winter, especially if Russian supply at the time continues to be curbed. “Gas prices will continue in the winter to be very high,” Marco Alvera, former chief executive officer of Italian network operator Snam SpA said at a conference on Thursday. “Winter gas prices will be high, winter power prices will be high.” (…)

Russia’s pipeline gas cuts are stoking prices in Asia too. Asian spot LNG on Thursday were seen rising above $30 per million British thermal units for the first time since April, according to traders. That’s the highest level for this time of year, and a roughly 50% jump in the last month.

Further disruptions to gas or LNG flows could amplify price moves. “If we get another outage like what happened at the Freeport LNG in the US prices could easily jump another 50%,” said Ron Smith, senior oil and gas analyst at BCS Global Markets.

Bank of England raises interest rates by 0.25 percentage points Policymakers warn inflation is likely to rise above 11% by October

Swiss National Bank raises rates in shock move, ready for more It was the first increase by the SNB since September 2007

Prices for New Homes in China Slide Further Government support measures for the industry have yet to take hold after a yearlong regulatory campaign aimed at reining in developers’ debt levels.

Data released on Thursday by China’s National Bureau of Statistics showed that average new-home prices in 70 major Chinese cities declined 0.79% in May from a year earlier. That was worse than a 0.11% year-over-year pullback in April, which was the first month in which home prices had fallen by this measure in more than six years.

Just 23 of the 70 Chinese cities tracked by the government reported yearly growth in average new-home prices, down from 30 cities in April.

Compared with the previous month, average new-home prices fell 0.17% in May, marking a ninth consecutive monthly decline, according to Wall Street Journal calculations based on statistics bureau data.

A day earlier, official data showed home sales by volume, a key indicator of buyer demand, falling 34.5% in the first five months of 2022 when compared with the same period a year earlier. (…)

In May, sales at the 100 largest property developers dropped 59.4% from a year earlier, according to data compiled by property consulting firm China Real Estate Information Corp. It was the 11th consecutive month of falling sales volumes, the firm’s data showed.

Country Garden Holdings Co., one of China’s largest developers, reported a 50% drop in contracted sales last month from a year earlier, while another big developer, Sunac China, experienced an 82% year-over-year slump in May sales after defaulting on a dollar bond recently. These and other developers have also reported much bigger declines in selling prices than China’s official new-home price data shows. (…)

In recent months, more than a hundred Chinese cities have taken easing steps, including lowering down-payment requirements, lifting curbs on home purchases and offering subsidies to boost home-buying demand. (…)

Despite the efforts at reversing some of the damage, Goldman Sachs economists told clients in a note Thursday that they expect the property sector slowdown to wipe 1.4 percentage points from this year’s growth in the headline gross domestic product figure. (…)

Sheng Guoqing, an analyst at the statistics bureau, noted that while monthly home prices have been sliding for nine straight months, the pace eased somewhat in May. More of the 70 cities tracked by the statistics bureau also reported average home-price increases on a monthly basis—25 cities compared with April’s 18 cities.

Home prices in first-tier cities, which include economic dynamos Beijing, Shanghai, Shenzhen and Guangzhou, rose 0.4% in May from the previous month, accelerating from a 0.2% month-over-month increase in April, Mr. Sheng said. Prices in second-tier and third-tier cities either stayed flat or declined more slowly on a monthly basis, he added.

Jim Chanos On Why Some of the Worst-Hit Stocks Still Have a Long Way Down And it’s not just the tech and meme stuff that’s vulnerable here.

He argues that investors have yet to grasp what the potential end of low interest rates means for the market cap of a wide variety of companies. (…)

Sectors including consumer packaged goods companies, real estate and even utilities will also be vulnerable to sustained higher rates as an era of cheap and plentiful capital comes to a close. (…)

“That’s the one thing that people are not prepared for still, is interest rates resetting meaningfully higher because it hasn’t happened in most investors’ lifetimes,” Chanos said. “The idea that actually interest rates are not going to be 2% or 3% for the foreseeable future is going to be hard for a lot of investors to deal with.” (…)

While higher rates are kryptonite for the frothiest assets in the market, they’re also a problem for other sectors too — including some which have been considered to be more defensive — such as real estate, consumer goods and utilities.
“Just take almost the whole cross section of Reits,” Chanos said. “It just seems absurd to us that you’re gonna be buying, you know, apartment buildings at a 3% cap rate that’s before capital spending. That’s pre-tax.”

“Even things like electric utilities and consumer package good companies,” he added. “I mean, these things are all still trading at 25, 30 times earnings. And I think that they’ve seen been seen as defensive because they’re not technology, but at this point they may have as much risk as the tech stocks.” (…)

Chanos notes that historically money-losing financials — including many European banks — have traded for less than one times their tangible book value, which implies that names like Coinbase and Robinhood still have further to fall. (…)

China’s Xi Reaffirms Support for Moscow

(…) The Chinese readout of the Wednesday call was emblematic of Beijing’s position in neither criticizing nor endorsing Russia’s invasion of Ukraine, while the Russian description of the call contained language suggesting Moscow has Beijing’s backing for the war.

“China is willing to continue mutual support with Russia on issues related to core interests and major concerns such as sovereignty and security,” Mr. Xi said during the call, according to China’s Foreign Ministry.

The statement from the Kremlin said the Chinese leader “noted the legitimacy of the actions taken by Russia to protect the fundamental national interests in the face of challenges to its security created by external forces.” (…)

In internal meetings over the past year, according to Chinese officials and foreign-policy advisers, Mr. Xi has emphasized the U.S. as the biggest threat to China’s interests, shifting Beijing’s foreign-policy focus toward aligning with Moscow and away from building ties with Washington. These days, a prevailing view in Beijing’s corridors of power is that the U.S. will shift its attention to further contain China as Russia gets increasingly weakened by Western sanctions. (…)

Mr. Xi also told Mr. Putin that all parties should push for an “appropriate settlement” of the crisis, and that China would continue to do its part in that process.

Mr. Putin in turn offered his support for China on issues including Xinjiang, Taiwan and Hong Kong, saying Russia opposes any interference in China’s affairs, according to the Chinese readout. (…)

The Kremlin readout of Wednesday’s call, however, noted that “the issues of further development of military and military-technical ties were also touched upon.” It didn’t elaborate. (…)

“There has been a broad-based decline in China’s exports to Russia, especially when it comes to electronics and vehicles,” Mr. Chorzempa said. “We’re not seeing China filling the gap created by Western sanctions on Russia.”