The Banking Mayhem Continues
With Credit Suisse rescued, attentions switched to Deutsche Bank whose shares fell last week. Its CDS spiked to over 2.20% amid stability worries.
China is tightening up on financing restrictions to Local Government Financing Vehicles (LGFVs) to reduce risks from hidden debt. The risk of defaults has raised jitters in markets. Outstanding local government debt stood at Yuan 25.7trn ($3.97trn) while LGVFs have built up huge hidden debt (estimated at Yuan 45trn). China has also clamped down on the US-listed education sector as private education becomes one of the fastest growing sectors. The government is concerned by the commercial influence on the education system claiming it has been severely hijacked by capital. The government is implementing a set of new regulations requiring them to go non-profit.
Covid delta-variant worries are taking their toll on markets. Both emerging market equities and bonds witnessed falls last week while across the global bond market there were inflows across most categories. Government bond yields dropped as real yields on 10-year US and German bonds are into negative territory. There were inflows into all equity sectors except gold & precious metals. IT, healthcare and consumer staples were the biggest gainers. Outside of all of these, money markets saw the biggest inflows.
The FT reported the government is considering relaxing restrictions for travellers from the EU and the U.S. while the Telegraph reported 77 countries are being reviewed for quarantine-free foreign travel. Based on data compiled by Google, employment places in the City of London were the busiest they’ve been for 16 months last week after the government dropped coronavirus restrictions – though still to top 50% of pre-pandemic levels. Just under half of workers were back in the office last Thursday.
* Source 1
Consumer spending gained 2$ in the week to 22nd July; aggregate spending on debit and credit cards reached 94% of its pre-pandemic peak; June’s mortgage lending jumped £17.9BN powered by the tax incentive (first £500K of purchase was exempt from stamp duty)which expired end of June; Unsecured lending rose £300MN suggesting caution might creep in.
MBA data showed mortgage applications rose 5.7% for w/e 23rd July (a 9.3% rise in applications to refinance existing loans while purchase applications fell 1.6%). The average rate, for a 30y mortgage fell to 3.01% (from 3.11% week before) – the lowest since February.
* Source 2
July’s harmonised CPI inflation rose 3.1% m/m (June: 2.1% m/m), the highest since August 2008. ING economist said “Don’t rule out that headline inflation north of 4% at the end of the year will affect wage negotiations in 2022”; A reversal in the temporary VAT cut had an effect here. Goods inflation rose 2.3% m/m to 5.4% y/y while Services inflation rose back to 2.2% y/y