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David Fuller and Eoin Treacy's Comment of the Day
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Fed Minutes Reveal Divisions Over Decision to Pause in June

This article from Bloomberg may be of interest to subscribers. Here is a section:  

Federal Reserve officials struck a tenuous agreement to pause interest-rate increases at their June meeting, all but committing to hike again later this month in a bid to keep fighting stubborn inflation.

The minutes from the Fed’s June 13-14 meeting show that while almost all officials deemed it “appropriate or acceptable” to keep rates unchanged in a 5% to 5.25% target range, some would have supported a quarter-point increase instead. 

“It was a little surprising given that the decision was sold as unanimous from Fed officials,” said Lindsey Piegza, chief economist at Stifel Nicolaus & Co. “It’s pretty clear that there was a divergence of opinions, with some officials pretty clearly giving some reluctance for a one-month pause.”



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Brookfield Trumps Buyout Titans With $50 Billion Deal Spree

This article from Bloomberg may be of interest. Here is a section: 

The investment firm also isn’t shying away from putting some of its assets on the block. It’s seeking more than £4 billion in a sale of UK holiday resort chain Center Parcs, according to people familiar with the matter. Brookfield is also exploring the sale of a stake in an iconic office tower in the heart of Dubai’s financial district, Bloomberg News reported this month. 

Brookfield has been hunting for bigger deals after bringing in around $100 billion of fresh money across its various businesses over the past 12 months. It’s been actively raising money for property, infrastructure, private equity and credit strategies in a bid to boost its fee-bearing assets under management to $1 trillion. 

Large investors are becoming more selective on which private equity funds they’ll back, and buyout firms can’t count just on cheap financing or revenue growth to deliver returns any more, according to Brookfield’s Ranjan. 

“You have to generate those returns and create growth through operational improvements,” he said. “As an industry as a whole, we’re back to ‘roll up your sleeves’ private equity.”



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Vietnam must take 'aggressive' action to meet growth goals, says finance minister

This article from the Financial Times may be of interest. Here is a section: 

Vietnam was one of Asia’s fastest-developing economies last year, expanding more than 8 per cent, its highest growth rate since 1997. But growth slowed in the first quarter of 2023 to 3.3 per cent, down from 5.9 per cent in the fourth quarter of last year, as a grim global economic picture and high inflation cut into demand for the country’s exports.

“We rely on the world’s demand for our products, which is facing a lot of difficulties,” Ho Duc Phoc told the Financial Times, adding that the war in Ukraine had raised petroleum and consumer prices, putting pressure on manufacturing input and trade costs and depressing buyers’ appetite. “Our orders from international partners have reduced drastically.”

He said the government was targeting full-year growth of 6 to 6.5 per cent, following anticipated first-half growth of about 4 per cent. “In the next six months, we will probably have [to take] aggressive steps to achieve that target,” he said, citing an extension of deadlines for tax payments, the reduction of value added tax and petrol levies amid proposals to help lower costs and boost demand.

Vietnam’s central bank this month cut interest rates by 50 basis points, its fourth reduction this year.



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Email of the day on money flows and the Nasdaq

The Nasdaq price action seems to indicate that the top reached on March 29th 2022 (+/- the high of February 2nd) is of significance since on the 16th of June the close was below despite the intraday spike and has been trading below for the past couple of days : is it a short or just a consolidation phase after some short term overbought condition before it roars again? Rates are pausing but QT resumed after the regional bank scare and its liquidity injection - which is equivalent to rate hiking - as well as M2 continuing to decline (I am not sure that the surge in velocity of money is offsetting it). Your thoughts are welcomed.



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World's Empty Office Buildings Become Debt Time Bomb

This article from Bloomberg may be of interest to subscribers. Here is a section: 

Major institutional owners including Blackstone, Brookfield and Pimco have already chosen to stop payments on some buildings because they have better uses for their cash and resources. “There’s significant stress,” says Harold Bordwin, a principal in New York at Keen-Summit Capital Partners LLC, which specializes in renegotiating distressed real estate. “People don’t give up assets so easily unless they just don’t see any hope and they recognize that they’re pretty well underwater.”

The number of transactions is plunging—and when deals do happen, the price declines are stark. In the US, where return-to-office rates have been lower than in Asia and Europe, values for institutional-quality offices are down 27% since March 2022, when interest rates started going up, according to data analytics company Green Street. Apartment building prices have declined 21%, and malls are off 18%. Office prices are expected to fall more than 25% in Europe and almost 13% in the Asia-Pacific region before hitting a trough, PGIM Real Estate, a unit of Prudential Financial Inc., forecasts.



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Key Takeaways From Fed Pause and Forecasts for Further Hikes

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Here are key takeaways from the Federal Reserve's interest-rate decision and statement on Wednesday:

Federal Open Market Committee unanimously holds benchmark rate in target range of 5%- 5.25%, as expected, in first pause since starting cycle of increases in early 2022, to “assess additional information and its implications for monetary policy”
New projections show policymakers favor a half-point of additional increases this year, which would push borrowing costs to about 5.6% -- higher than most economists and investors have been expecting
FOMC statement gives clear signal that policymakers will resume tightening by referring to the “extent of additional policy firming that may be appropriate”; prior statement, in May, gave more leeway on whether to hike
Forecasts for economic growth and core inflation rose for 2023, while unemployment projections fell
Fed says economy has expanded at modest pace with robust job gains and low unemployment; inflation remains “elevated”



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China Shifts to Stimulus Mode With Xi's Options Dwindling

This article from Bloomberg may be of interest to subscribers. Here is a section: 

The new stimulus package under consideration has been drafted by multiple government agencies and includes at least a dozen measures designed to support areas such as real estate and domestic demand, according to people familiar with the matter. 

A key component is support for the real estate market. Regulators are seeking to lower costs on outstanding residential mortgages and boosting relending through the nation’s policy banks to ensure homes are delivered, one of the people said.

The State Council may discuss the policies as soon as this Friday but it’s unclear when they will be announced or implemented, the people said.

“The aim of stimulus this time is to keep growth ticking over, consistent with the relatively conservative ‘about 5%’ gross domestic product growth goal, rather than to spur a round of robust growth,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics. “Policymakers are still wary of repeating the kind of debt hangover that the Global Financial Crisis stimulus produced and they spent the decade up to the pandemic trying to sort out.”

Property Woes
The weak property market remains a major drag on China’s economy, although policymakers appear reluctant to use its old playbook of driving up investment in real estate as a way to boost growth. Goldman analysts said in a recent report they don’t expect a repeat of the 2015-2018 shantytown renovation program that pumped central bank money into the property sector and sent home price surging.

Beijing is seeking to reduce the economic and fiscal reliance on the housing market, Goldman said, which suggests an L-shaped recovery in coming years.



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Jobless Claims Put FOMC Unemployment Forecast in Sight

This note from Bloomberg Economics may be of interest. 

OUR TAKE: The surge in jobless claims — to the highest level since October 2021 — is in line with our analysis of WARN notices, which suggested layoffs were set to spike. It’s increasingly feasible for the unemployment rate to reach the median FOMC participant’s 4.5% projection by year-end.

Initial jobless claims for the week ended June 3 increased 28k to 261k. The reading was above the consensus (235k) and Bloomberg Economics’ projection (240k).

The surge came from Ohio (6.3k), California (5.2k), Minnesota (2.7k) and Pennsylvania (2.0k).

Given recent fraudulent applications in Massachusetts, it’s possible that other states are experiencing similar issues. However, the four-week moving average also increased by 7.5k to 237k, well above the 218k pre-pandemic average from 2019. That suggests labor-market conditions are continuing to cool.

Continuing claims declined 37k to 1,757k for the week ended May 27, remaining above the pre-pandemic average of 1,699k. The insured unemployment rate — the number of people currently receiving unemployment insurance as a percentage of the labor force — remained at 1.2%.
We expect continuing claims to move higher given the surge in initial claims and tracking of WARN notices.



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Traders Are Leaning Toward Fed Hike by July as Bond Yields Climb

This article from Bloomberg may be of interest to subscribers. Here is a section: 

The Treasury market briefly restored the full pricing of Federal Reserve tightening by July, which would be the last interest-rate hike in 2023.

The latest shift in expectations for Fed policy was accompanied by a slide bonds, with the yields on five-year Treasuries up at least 11 basis points. Selling picked up after the Bank of Canada cited stubborn inflation pressures for delivering a quarter-point hike Wednesday. 

The rate on swap contracts linked to the July gathering climbed to a peak of 5.33% on Wednesday, or 25 basis points above the current effective fed funds rate of 5.08%, before easing back late in New York. The June swap showed eight basis points of tightening ahead of next week’s Fed meeting, suggesting that traders are leaning in favor of a tightening pause.



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Wells Fargo CEO Says 'There Will Be Losses' From US Office Loans

This article from Bloomberg may be of interest to subscribers. Here is a section: 

Wells Fargo & Co. Chief Executive Office Charlie Scharf said there are significant risks to segments of the US office sector and that his bank will see losses stemming from real estate loans.

“We look city by city, we look property by property to look at our exposures, and I would say there’s no question that there will be losses,” Scharf said Wednesday at a conference hosted by AllianceBernstein Holding LP. The San Francisco-based bank is proactively managing its loan portfolio and working with borrowers to restructure terms with the goal of helping clients and minimizing risk, he said. 

Many office owners are struggling amid the rise in remote work and the surge in borrowing costs, which has made financing more difficult. Landlords such as Columbia Property Trust, owned by funds managed by Pacific Investment Management Co., have defaulted on office debt, often in a bid to renegotiate terms with lenders. Brookfield Corp. recently handed over control of a building in downtown Los Angeles to a receiver after it stopped payments on the office tower.

“If you’re reserving conservatively, then you’ve derisked the financial impact to the company,” Scharf said, noting that Wells Fargo has a little less than 6% reserve coverage in its office portfolio. “In the context of the overall portfolio and the overall size of our loan portfolio in the company, we’re not overly concentrated in office.”



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