U.S. News

Retail Sales

• Retail sales remained flat in June, beating expectations by 0.4%
• Spending in May was revised to a 0.3% increase, up from the 0.1% previously reported
• Excluding autos, retail sales increased 0.4% in June; economists only expected a 0.1% increase. Sales at motor vehicle and parts dealers dropped by 2%, partly due to a cyberattack that impacted car dealers

Import/Export Price Indexes

• U.S. import prices were unchanged in June after a decrease of 0.2% the previous month
• Prices for U.S. exports fell 0.5% in June, following a 0.7% decrease in May
• Over the past year, import prices increased 1.6%, and export prices increased 0.7%

Housing Starts

• Construction of new homes increased 3% in June to a 1.35 million annual pace. Single-family starts fell by 2.2% in June, but apartment starts rose by 22% over the same period. The reported figures beat WSJ forecasts of a 1.3 million pace
• The West posted a 6.1% drop in housing starts in June, while the Northeast recorded a 34.4% increase in June
• New home construction is down 4.4% from one year ago, largely due to elevated financing costs and 7% mortgage rates that have dropped home-buying activity

Jobless Claims

• Initial jobless claims, a measure of how many workers were laid off across the U.S., increased to 243,000 in the week ended July 12, up 20,000 from the prior week
• The four-week moving average was 234,750, up 1000 from the prior week
• Continuing claims – those filed by workers unemployed for longer than a week – increased by 20,000 to 1.867 million in the week ended July 5. This figure is reported with a one-week lag



Fed’s Balance Sheet

• The Federal Reserve’s assets totaled $7.208 trillion in the week ended July 19, down $15.8 billion from the prior week
• Treasury holdings totaled $4.432 trillion, down $6.1 billion from the prior week
• Holdings of mortgage-backed securities (MBS) were $2.34 trillion in the week, down $0.0 billion from the prior week



Total Public Debt

• Total public debt outstanding was $34.95 trillion as of July 19, an increase of 7.2% from the previous year
• Debt held by the public was $25.70 trillion, and intragovernmental holdings were $7.22 trillion



Inflation Factors

CPI:

• The consumer-price index rose 3.3% in May year over year
• On a monthly basis, the CPI increased 0.0% in May on a seasonally adjusted basis, after increasing 0.3% in April
• The index for all items less food and energy (core CPI) rose 0.2% in May, after rising 0.3% in April
• Core CPI increased 3.4% for the 12 months ending May

Food and Beverages:

• The food at home index increased 1.0% in May from the same month a year earlier, and decreased 0.0% in May month over month
• The food away from home index increased 4.0% in May from the same month a year earlier, and increased 0.4% in May month over month

Commodities:

• The energy commodities index decreased (3.5%) in May after increasing 2.7% in
• The energy commodities index fell 2.1% over the last 12 months
• The energy services index 0.3% in May after decreasing (1.3%) in April
• The energy services index rose 4.7% over the last 12 months
• The gasoline index rose 2.2% over the last 12 months
• The fuel oil index fell 3.6% over the last 12 months
• The index for electricity rose 5.9% over the last 12 months
• The index for natural gas fell 0.2% over the last 12 months

Supply Chain:

• Drewry’s composite World Container Index increased to $5,937.37 per 40ft container for
• Drewry’s composite World Container Index has increased by 286.3% over the last 12 months

Housing Market:

• The shelter index increased 0.4% in May after increasing 0.4% in April
• The rent index increased 0.4% in May after increasing 0.4% in April
• The index for lodging away from home increased 1.4% in May after increasing 0.9% in April

Federal Funds Rate

• The effective Federal Funds Rate is at 5.33%, flat 0.00% year to date

World News

• Israel/Gaza

  • The Houthis conducted a drone attack in Tel Aviv that killed one person on Friday. This marks the first time that the Houthis successfully hit Tel Aviv after hundreds of attacks against Israel since October. The Houthis also claimed responsibility for a ballistic missile strike that was intercepted by Israel’s Arrow 3 aerial defense system on Sunday
  • In response to the drone attack, the Israeli military staged its first airstrike against the Houthis on Saturday. The attack targeted the port city of Hodeidah, which Israel claims is the main supply route for importing weapons from Iran. Hodeidah is also a launching point for missile and drone attacks on commercial shipping in the Red Sea
  • Israel is moving healthcare centers underground in the border regions between Israel and Hezbollah in Lebanon, in preparation for an escalation between the two sides. Should that occur, military authorities expect 4,000 missiles and rockets to saturate air defenses per day, potentially inflicting thousands of daily casualties
  • The International Court of Justice released an opinion stating that Israel is violating international law in its occupation of Palestinian territories through settlement construction in the West Bank, the demolition of Palestinian homes, land appropriation, and discriminatory policies against the Palestinians

• Russia

  • The Ukrainian army pulled out from Urozhaine, an eastern village in the Donetsk region, on Thursday. The retreat marks the surrender of another front-line position to Russia during its summer offensive
  • The top U.S. Middle East commander advised that Russia might arm the Houthis with antiship missiles to retaliate against the U.S.’s support for Ukrainian strikes inside Russia
  • WSJ reporter Evan Gershkovich was convicted of espionage and sentenced to 16 years in prison on Friday. According to U.S. officials, this move is part of an ongoing Russian effort to amass American prisoners to exchange for Russians held in Western countries
  • Iryna Farion, a Ukrainian former lawmaker, succumbed to her wounds after being shot in the street on Friday. Ukrainian authorities state they are investigating the event as an assassination and have a lead that links the attack to Russia

• France

  • France’s National Assembly re-elected its speaker, Yaël Braun-Pivet, who is part of President Emmanuel Macron’s Renaissance party on Thursday
  • Yaël Braun-Pivet received 220 votes out of the 577-seat assembly, after Les Républicains rallied behind her to block the election of a left-wing candidate
  • French President Emmanuel Macron accepted the resignation of the Prime Minister, Gabriel Attalon, and his cabinet on Tuesday
  • The cabinet members who resigned are expected to head their respective ministries as part of a caretaker government, which will oversee administrative affairs without the ability to propose new legislation

• China

  • Xi Jinping and Communist Party officials released a communiqué, detailing how the government plans to address the recent decline in economic growth
  • The document points to risks in the property sector, local-government debt, lackluster demand, and small and midsized financial institutions
  • Officials committed to the 5% 2024 growth target and vow to nurture tech-led industries
  • The outline signals a continued commitment to state-led development, despite growing concerns from both inside and outside China over the CCP’s handing of the economy

• EU

  • The EU proposed duties between 12.8% and 36.4% on Chinese biofuels, claiming that it found Chinese companies dumping biofuels into European markets at unfair prices

• Rwanda

  • Rwandan President Kagame won his election on Thursday with more than 99% of the vote, securing Kagame five more years in power. The results come after what international rights groups claim are the erosion of political liberties in Rwanda

• Canada

  • Potential railroad worker strikes at Canadian National Railway and Canadian Pacific Kansas City threaten to disrupt the country’s logistics network. Business groups have warned that simultaneous strikes from the two railroads would cause major disruptions in the supply chain
  • Wildfires reemerge in Western Canada during a heat wave in Alberta. Last year, wildfires burned more than 45 million acres and costed the Canadian economy about $10 billion

• Japan

  • Japan’s Government Pension Investment Fund, which holds $1.53 trillion in assets, is preparing its first portfolio overhaul in five years, potentially shifting investments from foreign assets back to yen assets due to the yen’s weakness

• Mexico

  • The Biden administration is imposing tariffs on Mexican imports that contain steel or aluminum from China, with a 25% tariff on steel products and a 10% duty on aluminum products, to prevent Chinese metals from entering the U.S. duty-free

• Germany

  • German industrial production fell by 2.5% in May, significantly weaker than the 0.1% increase in April, as car manufacturing declined, indicating a slower-than-expected recovery for Europe’s largest economy

• India

  • During his visit to Moscow, Indian Prime Minister Narendra Modi balanced reinforcing ties with Russia and publicly condemning a Russian missile attack on a children’s hospital in Kyiv, exemplifying India’s delicate diplomatic strategy amidst global tensions

• Iran

  • Iranians elected their first reformist president in two decades in a runoff election. Masoud Pezeshkian, who won more than 53% of the vote, campaigned on re-engaging in nuclear talks with the West and loosening moral codes for women

Commodities

• Oil Prices

  • WTI: $80.13 per barrel
    • (2.53%) WoW; +11.84% YTD; +5.95% YoY
  • Brent: $82.63 per barrel
    • (2.82%) WoW; +7.26% YTD; +3.75% YoY

• US Production

  • U.S. oil production amounted to 13.3 million bpd for the week ended June 12, down 0.1 million bpd
    from the prior week

• Rig Count

  • The total number of oil rigs amounted to 586, up 2 from last week

• Inventories

  • Crude Oil

    • Total U.S. crude oil inventories now amount to 440.2 million barrels, down (3.8%) YoY
    • Refiners operated at a capacity utilization rate of 93.7% for the week, down from 95.4% in the prior week
    • U.S. crude oil imports now amount to 6.760 million barrels per day, down (1.9%) YoY

  • Gasoline

    • Retail average regular gasoline prices amounted to $3.50 per gallon in the week of July 19,
      down (2.3%) YoY
      • Gasoline prices on the East Coast amounted to $3.57, up 1.4% YoY
      • Gasoline prices in the Midwest amounted to $3.45, down 1.1% YoY
      • Gasoline prices on the Gulf Coast amounted to $3.20, down (0.6%) YoY
      • Gasoline prices in the Rocky Mountain region amounted to $3.50, down (9.9%) YoY
      • Gasoline prices on the West Coast amounted to $4.33, down (7.2%) YoY
    • Motor gasoline inventories were up by 3.3 million barrels from the prior week
    • Motor gasoline inventories amounted to 233.0 million barrels, up 6.7% YoY
    • Production of motor gasoline averaged 9.55 million bpd, up 0.3% YoY
    • Demand for motor gasoline amounted to 8.783 million bpd, down (0.8%) YoY

  • Distillates

    • Distillate inventories decreased by 3.5 million in the week of July 19
    • Total distillate inventories amounted to 128.1 million barrels, up 8.4% YoY
    • Distillate production averaged 5.229 million bpd, up 3.9% YoY
    • Demand for distillates averaged 3.585 million bpd in the week, down (2.3%) YoY

  • Natural Gas

    • Natural gas inventories increased by 10 billion cubic feet last week
    • Total natural gas inventories now amount to 3,209 billion cubic feet, up 8.0% YoY

    

Credit News

High yield bond yields decreased 11bps to 7.55% and spreads decreased 9bps to 332bps. Leveraged loan yields decreased 7bps to 8.95% and spreads decreased 1bps to 498bps. WTD Leveraged loan returns were positive 20bps. WTD high yield bond returns positive 50bps. 10yr treasury yields increased 4bps to 4.23%. Yields and spreads declined amid solid earnings, better-than-expected retail sales, and expectations for the Fed to begin its cutting cycle in September.

High-yield:

Week ended 07/19/2024

• Yields & Spreads¹
  
• Pricing & Returns¹
  
• Fund Flows²
  
• New Issue²
  
• Distressed Level (trading in excess of 1,000 bps)²
  
• Total HY Defaults
  

¹ Source: Credit Suisse High Yield and Leveraged Loan Index
² Source: JP Morgan

Leveraged loans:

Week ended 07/19/2024

• Yields & Spreads¹
  
• Leveraged Loan Index¹
  
• Fund Flows²
  
• New Issue²
  
• Distressed Level (loan price below $80)¹
  
• Total Loan Defaults
  

Default activity:

• Most recent defaults include: Vyaire Medical ($339mn, 6/9/24), 99 Cents Only Stores ($350mn, 4/7/24), ConvergeOne ($1.3bn, 4/4/24), Xplornet Communications ($1.2bn, 3/31/24), JoAnn Stores ($658mn, 3/18/24), and New Insight Holdings ($1.2bn, 3/13/24).

CLOs:

Week ended 07/19/2024

• New U.S. CLO Issuance²
  
• New U.S. CLO Issuance²
  

Note:High-yield and leveraged loan yields and spreads are swap-adjusted

¹ Source: Credit Suisse High Yield and Leveraged Loan Index
² Source: JP Morgan

Ratings activity:

• S&P and Moody’s High Yield Ratings
  

Appendix:

Diagram A: Leveraged Loan Trading Levels

Source: Credit Suisse Leveraged Loan Index

Diagram B: High Yield and Leveraged Loan LTM Price

Diagram C: Leveraged Loan and High Yield Returns

Diagram J: Leveraged Loan Defaults by Sector – Full Year

Diagram L: CLO Economics

Diagram N: Developed Country GovBond Yields (%)

Diagram O: S&P 500 Historical Multiples

Diagram P: U.S. Middle-Market M&A Valuations (EV/EBITDA)

Diagram Q: U.S. Large Cap M&A Valuations (EV/EBITDA

Diagram R: Dry Powder for All Private Equity Buyouts

Diagram S: Structured Credit Spreads

Diagram T: Structured Credit Yield

Diagram U: SOFR CURVE

Diagram V: CMBS Spreads

Real Estate News

Office CMBS. Delinquency rates of office mortgages backing CMBS spiked to 7.6% in June, according to data by Trepp, which tracks and analyzes CMBS. This was the highest rate since the worst moments of the oil bust that had devastated the Houston office market in 2016. Mortgages are considered delinquent after the 30-day grace period has expired without interest payment.

About $1.87 billion in office loans became newly delinquent in June, but $900 million in formerly delinquent mortgages were no longer delinquent – producing a net increase in delinquent loans of about $1 billion:

Source: Trepp, Wolf Street

The primary causes are threefold: a significant drop in office market demand, floating-rate mortgages, and loan maturities during a period of higher interest rates. A previous Trepp report indicated that the delinquency rate for floating-rate office loans was 20%, compared to 4.7% for fixed-rate loans.

Loans are removed from the delinquency list if the interest is paid, resolved through a foreclosure sale with substantial losses for CMBS holders, or if an agreement is reached between the landlord and the special servicer representing the CMBS holders, such as restructuring or modifying and extending the mortgage.

This “extend-and-pretend” strategy is now popular because CMBS holders want to avoid taking possession of nearly empty, aging office buildings, which gives landlords leverage over lenders. Many landlords have already defaulted on loans and properties over the past two years, forfeiting their equity and leaving lenders to bear the remaining losses. Even large landlords like Blackstone have abandoned major office towers in Manhattan, resulting in losses for CMBS holders, particularly for lower-rated tranches. This mutual threat dynamic between landlords and lenders has led to more frequent deals to restructure or modify loans, making them more economically feasible.

Despite these efforts, the office property market faces a severe structural problem with a vast surplus of vacant office space and property values plummeting by 50% to 70% in many markets. This issue, combined with rising interest rates, cannot be resolved merely through adjustments by the Federal Reserve.

Freight Rates

Drewry World Container Index

China-Global & Shanghai Export Container Freight Index