Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
Oh Atlanta! Fed, that is.
The Atlanta Fed GDPNow Q1 real-time GDP index fell to 0.631%. And the Atlanta Fed REAL wage tracker fell to -2.38 growth.
Volatility reigns supreme on the energy front (look at NYM Dubai crude AVAT!) And coal is up 18.68% this morning.
Here is a map of gas and oil pipelines in Europe.
The U.S. merchandise-trade deficit unexpectedly widened in January to an all-time high, reflecting a record value of imports and a drop in shipments overseas.
The shortfall grew to $107.6 billion last month from $100.5 billion in December, according to Commerce Department data released Monday.
Meanwhile, the US Treasury 10Y yield fell to 1.884%.
The cost for shipping from the US to China has surged.
Meanwhile, the Russian Ruble is getting clobbered.
At least Putin hasn’t put himself on Russian currency … yet. Or nyet.
We now know that Russia has invaded Ukraine and President Biden really threw the booklet at Putin in a speech today. Rather than removing Russia from the SWIFT banking system which would have really hurt Russia’s trade with Europe, he gave a surprisingly cogent speech about the US and NATO agreeing to do … not much. He did warn us that energy prices would rise (which he helped do when he took office) and told energy companies not to gauge consumers.
The reaction in Russia? Their stock market tanked over 30% (not because of Biden’s speech, but because of negative costs of war).
Russia’s 10-year sovereign yield rose to 15.23%.
The Russian Ruble crashed and burned.
UK natural gas prices rose 51% today.
And while 17 Euro nations have negative 2 year sovereign yields, Russia has 2-year sovereign yield of 28.65% which is nothing compared to Ukraine’s 75% 2-year yield (in US Dollars).
The SWIFT system, or Society for Worldwide Interbank Financial Telecommunication, facilitates financial transactions and money transfers for banks located around the world. The system is overseen by the National Bank of Belgium and enables transactions between more than 11,000 financial institutions in more than 200 countries around the world. Removing Russia from the SWIFT system would really hurt Russian trade with Europe. I assume that Europe is scared of soaring energy costs, so probably doesn’t want Russia removed from SWIFT.
Queue Creedence Clearwater singing “Lookin’ Out My … Limo Window.”
As The Federal Reserve threatens to tighten monetary policy, 30-year mortgage rates have risen to 4.25% leading two major mortgage companies, Rocket Mortgage and United Wholesale Mortgage, to decline to all-time lows.
But wait, Federal Reserve officials signaled they remain on track to raise interest rates next month despite uncertainty posed to the global economy by Russia’s invasion of Ukraine.
While acknowledging the risks created by the conflict, which has triggered one of the worst security crises in Europe since World War II and caused oil prices to surge, U.S. central bankers stressed the need to confront the hottest U.S. inflation in 40 years.
So, The Fed plans to raise rates to fight inflation, even if it tanks the housing and mortgage markets? Fed Funds Futures are still signaling 6 rate hikes over the next year.
At least US Treasury 10Y yields are down just 7.6 bps. Look at 10Y Russian and Ukraine sovereign yields. Now THAT is a yield surge!
I admit, I follow market data to get a signal of what is happening to mortgage rates and I got one. With Putin and Russia invading Ukraine, markets are in turmoil
WTI Crude is up 8.14% this morning, Brent Crude is up 8.45% and NBP (UK) Natural gas is up 40%.
Europe is having a bad day equity market-wise. Eurostoxx 50 was down 4.92%. The US Dow is braced for a 2.5% opening.
Now to bonds. The 10-year Treasury yield is down 13.3 bps this morning. Sweden and UK are down 10 bps as well.
How about the new Russian front? Ukraine’s 10y yield rose 691.0 bps while Russia’s 10Y yield rose 435 bps.
Russian 5Y Credit Default Swaps (CDS) leaped to a Greek-like 917.
Well, it looks like the sanctions imposed by Winken (US VP Harris), Blinken (US Secretary of State) and Nod (US President Biden because he always looks half-asleep) apparently didn’t work as intended.
Putin finally made up his mind.
As US/Russian tensions grow over Ukraine, The Federal Reserve may be forced to postpone or reduce planned rate increases and balance sheet trimming.
But in addition, we see US GDP slowing to near zero (1.285%) as the US Treasury 10Y-2Y yield curve has flattened to 41.684 BPS. The good news? Bankrate’s 30Y mortgage rate increases have slowed to 4.19%.
On a different note, I noticed the Chicago Bulls logo when turned upside-down looks like a space alien violating a crab.
Call this a double whammy! Red-hot rents combined with a slowing economy.
According to CoreLogic, single-family annual rent growth finished 2021 at a new record: 11.7% YoY for high tier rental properties and 10.4% YoY for low tier rental properties.
Of course, southern and southwest rental properties are seeing the fastest rent growth. Particularly Miami at 36% YoY. Phoenix is no slouch at 19% growth in rents.
Inflation is really ripping the insides out of America’s working class. Especially with real-time GDP slowing to 0.7%.
Double whammy, indeed!
Biden and The Fed have a seemingly never ending problem for Americans: Inflation.
Today, the Final Demand Producer Price Index (PPI) printed at 9.7% YoY.
Biden claimed inflation was caused by COVID. How about 1) Biden’s anti-fossil fuel policies combined with 2) excessive fiscal (Biden and Congress) and excessive monetary stimulus (Fed)?
The Fed held its behind-closed-doors meeting on Monday, but nothing has been released about what they discussed. Suffice it to say, they have left the staggering monetary stimulus in play.
I wonder if The Fed is concerned about a soft landing with proposed rate increases.
Well, it has been a cringe-worthy year+ under President Biden. West Texas Intermediate Crude futures price is up 91% and the Commodity Research Bureau Foodstuffs index is up 47%. Talk about Biden’s energy folicies being passed through to American households in the form of higher food costs and energy prices!
And then we have mortgage rates. Bankrate’s 30Y mortgage rate is up to almost 4%, up 39% since the beginning of 2021.
Other central banks are raising rates like banshees on the moor, while The Federal Reserve continues to send conflicting signals about possible March rate hikes.
Goldman Sachs sees 7 rate hikes in 2022, culminating in an eventual 2% rate in December.
Fed Funds Futures are signalling 7 rates increases by the February 1, 2023 meeting.
6 or 7 rate hikes, what’s it going to be?
It’s just like Biden to blame COVID for reckless Federal monetary and fiscal policies that overloaded the system.
US 30-year mortgage rates are up 100 basis points and climbing since January 4, 2021. Most of the increase has occurred since the turn of the year into 2022. According to the Bankrate 30-year mortgage rate index, the 30-year rate is up 57 basis points just since December 31, 2021 as the benchmark 10-year Treasury yield rises.
Bear in mind that the REAL 30-year mortgage rate is now -3.2%. Get it while you can!!
Given today’s surprise jobs report, The Fed now has a green light to raise rates.
To quote Van Morrison and Them, “Here Comes The Night” for the housing and mortgage market.
Confounded Interest - Anthony B. Sanders 
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