U.S. News

US Unemployment Rate

• U.S. nonfarm payrolls increased by 254,000 jobs in September, marking the highest gain in six months and significantly surpassing economists’ forecast of 140,000
• The unemployment rate fell to 4.1% from 4.2%, driven by an increase of 430,000 jobs in household employment, absorbing 150,000 new entrants into the labor force
• Average hourly earnings rose 0.4% month-on-month, resulting in a 4.0% increase year-on-year, reflecting continued wage growth despite the slight drop in the average workweek to 34.2 hours

Factory Orders

• Factory orders decreased by 0.2% in August, marking the third decline in the past four months, following a strong gain in the previous month
• Durable-goods orders were revised to a flat reading in August, after a significant 9.8% rise in July
• Excluding defense goods, total orders dropped 0.4% in August, while nondefense capital goods orders (excluding aircraft) rose 0.3%

Construction Spending

• Construction spending fell 0.1% in August to $2.13 trillion, marking the second consecutive monthly decline
• Private residential construction spending decreased 0.3%, with a 1.5% drop in single-family construction and a 0.4% decrease in multifamily construction
• Public residential construction spending rose 1.6% in August and increased 4.6% year-over-year

Jobless Claims

• Initial jobless claims, a measure of how many workers were laid off across the U.S., increased to 225,000 in the week ended September 27, up 6,000 from the prior week
• The four-week moving average was 224,250, down 750 from the prior week
• Continuing claims – those filed by workers unemployed for longer than a week – decreased by 1,000 to 1.826 million in the week ended September 20. This figure is reported with a one-week lag



Fed’s Balance Sheet

• The Federal Reserve’s assets totaled $7.047 trillion in the week ended October 4, down $33.1 billion from the prior week
• Treasury holdings totaled $4.376 trillion, down $8.4 billion from the prior week
• Holdings of mortgage-backed securities (MBS) were $2.28 trillion in the week, down $17.7 billion from the prior week



Total Public Debt

• Total public debt outstanding was $35.68 trillion as of October 4, an increase of 6.5% from the previous year
• Debt held by the public was $26.40 trillion, and intragovernmental holdings were $7.09 trillion



Inflation Factors

CPI:

• The consumer-price index rose 2.5% in August year over year
• On a monthly basis, the CPI increased 0.2% in August on a seasonally adjusted basis, after increasing 0.2% in July
• The index for all items less food and energy (core CPI) rose 0.3% in August, after rising 0.2% in July
• Core CPI increased 3.2% for the 12 months ending August

Food and Beverages:

• The food at home index increased 0.9% in August from the same month a year earlier, and increased 0.0% in August month over month
• The food away from home index increased 4.0% in August from the same month a year earlier, and increased 0.3% in August month over month

Commodities:

• The energy commodities index decreased (0.6%) in August after increasing 0.1% in July
• The energy commodities index fell (10.2%) over the last 12 months
• The energy services index (0.8%) in August after decreasing (0.0%) in June
• The energy services index rose 3.1% over the last 12 months
• The gasoline index rose (10.3%) over the last 12 months
• The fuel oil index fell (12.1%) over the last 12 months
• The index for electricity rose 3.9% over the last 12 months
• The index for natural gas fell (0.1%) over the last 12 months

Supply Chain:

• Drewry’s composite World Container Index decreased to $3,489.33 per 40ft container for
• Drewry’s composite World Container Index has increased by 151.1% over the last 12 months

Housing Market:

• The shelter index increased 0.5% in August after increasing 0.4% in July
• The rent index increased 0.5% in August after increasing 0.3% in July
• The index for lodging away from home decreased (0.7%) in August after decreasing (0.5%) in June

Federal Funds Rate

• The effective Federal Funds Rate is at 4.83%, down (0.50%) year to date

World News

• Middle East

  • Israel conducted heavy airstrikes on Beirut’s southern suburbs targeting Hashim Safieddine, the likely successor to slain Hezbollah leader Hassan Nasrallah, in an attempt to dismantle Hezbollah’s leadership
  • Over 1,000 people have been killed since the conflict escalated in September, with intense Israeli attacks striking more than 3,000 Hezbollah targets across Lebanon
  • Iran launched around 180 ballistic missiles at Israel, overwhelming its air defenses in some locations and landing 32 missiles within the Nevatim air base, home to Israel’s F-35 fighter jets
  • The strike indicates Iran’s capability to cause significant damage if targeting Israel’s civilian infrastructure, raising concerns about future escalations between the two countries

• Russia

  • The Svalbard archipelago, formally part of Norway, has become a strategic front line as Russia and China aim to dominate Arctic trade routes, expand their military presence, and secure access to the region’s resources
  • Russia is working with China to establish a research center in the abandoned mining settlement of Pyramiden, raising concerns among Norwegian officials about espionage and military implications
  • The proposed Rio Tinto lithium mine in Serbia has faced strong opposition, with the U.S. and Germany suspecting Russia is using disinformation to stoke local protests and prevent Serbia from fostering closer ties with the West
  • The mine, which could supply enough lithium for over a million electric vehicle batteries annually, is seen as strategically important for Europe, but also a potential turning point for Serbia’s alignment between Russia and the EU

• China

  • China’s stock markets soared following a series of aggressive stimulus measures, with the benchmark CSI 300 index rising 25% and trading volumes hitting record highs
  • Despite the surge in stock markets, there are concerns that the economic recovery might be temporary without substantial long-term support for the property sector and broader economy
  • With private venture capital drying up due to economic and geopolitical concerns, Beijing has stepped in, providing funding through state-sponsored vehicles and pushing banks to support tech startups, but concerns remain about the efficiency and strategic direction of state-led investments
  • A rise in anti-foreign sentiments in China, fueled by state-driven nationalist education, has led to three stabbing attacks targeting Japanese and Americans in the last four months

• UK

  • The UK has agreed to transfer the Chagos Islands to Mauritius after decades of legal disputes, but will retain the use of Diego Garcia, a key military base leased to the US, for 99 years, ensuring strategic presence in the Indo-Pacific

• Japan

  • Japan’s new Prime Minister, Shigeru Ishiba, vowed to end deflation and urged the Bank of Japan to maintain its easy monetary policy, while announcing a new economic package to help low-income households cope with rising prices

• Canada

  • Grain terminal workers on Canada’s West Coast returned to work after a four day strike halted crop exports during the harvest season. The work stoppage was estimated to halt nearly 100,000 metric tons of grain each day, resulting in a daily loss of $26 million

• Germany

  • A suspected Chinese spy arrested in Germany was allegedly collecting information on U.S. arms shipments to Israel and Germany’s weapons industry, highlighting Beijing’s interest in Western military logistics in Europe

• Haiti

  • The Gran Grif gang killed at least 70 people, including women and infants, in a brutal attack on the rural Haitian town of Pont Sondé, burning homes and escalating gang violence beyond Port-au-Prince. The massacre highlights the growing influence of gangs now controlling nearly 85% of the capital, worsening Haiti’s security and humanitarian crisis

• Africa

  • Countries in southern Africa, such as Namibia and Zimbabwe, are culling elephants and other wild animals to alleviate food shortages caused by the worst drought in over a century, impacting around 68 million people in the region

• India

  • India’s inflation rose slightly to 3.65% in August 2024, up from 3.6% in July, slightly above expectations. The Reserve Bank of India remains cautious about rising food prices affecting other sectors, with rural inflation at 4.2% and urban inflation at 3.1%

• Venezuela

  • Venezuela’s government has detained three Americans, including a U.S. Navy serviceman, on allegations of coup plotting, despite previous commitments to halt such detentions, highlighting renewed tensions between Caracas and Washington

• Taiwan

  • Taiwan faces delays in U.S. weapons shipments due to strains on the American defense industry, heightened by the wars in Gaza and Ukraine, raising concerns about Taiwan’s ability to stockpile arms in the event of a conflict with China

• North Korea

  • For the first time, North Korea published photos of an uranium-enrichment facility. The move comes after an agreement between North Korea and Russia to defend each other if attacked

Commodities

• Oil Prices

  • WTI: $74.38 per barrel
    • 9.09% WoW; 3.81% YTD; (9.63%) YoY
  • Brent: $78.05 per barrel
    • 8.43% WoW; 1.31% YTD; (7.16%) YoY

• US Production

  • U.S. oil production amounted to 13.3 million bpd for the week ended September 27, up 0.1 million bpd
    from the prior week

• Rig Count

  • The total number of oil rigs amounted to 585, down 2 from last week

• Inventories

  • Crude Oil

    • Total U.S. crude oil inventories now amount to 416.9 million barrels, up 0.7% YoY
    • Refiners operated at a capacity utilization rate of 87.6% for the week, down from 90.9% in the prior week
    • U.S. crude oil imports now amount to 6.456 million barrels per day, down 6.6% YoY

  • Gasoline

    • Retail average regular gasoline prices amounted to $3.18 per gallon in the week of October 4,
      down (15.2%) YoY
      • Gasoline prices on the East Coast amounted to $3.17, down (13.0%) YoY
      • Gasoline prices in the Midwest amounted to $3.19, down (11.8%) YoY
      • Gasoline prices on the Gulf Coast amounted to $2.79, down (18.1%) YoY
      • Gasoline prices in the Rocky Mountain region amounted to $3.54, down (12.3%) YoY
      • Gasoline prices on the West Coast amounted to $4.18, down (24.3%) YoY
    • Motor gasoline inventories were up by 1.1 million barrels from the prior week
    • Motor gasoline inventories amounted to 221.2 million barrels, down (2.5%) YoY
    • Production of motor gasoline averaged 9.60 million bpd, up 8.8% YoY
    • Demand for motor gasoline amounted to 8.521 million bpd, up 6.3% YoY

  • Distillates

    • Distillate inventories decreased by -1.3 million in the week of October 4
    • Total distillate inventories amounted to 121.6 million barrels, up 2.4% YoY
    • Distillate production averaged 4.794 million bpd, up 2.2% YoY
    • Demand for distillates averaged 3.638 million bpd in the week, down (4.6%) YoY

  • Natural Gas

    • Natural gas inventories increased by 55 billion cubic feet last week
    • Total natural gas inventories now amount to 3,547 billion cubic feet, up 3.0% YoY

    

Credit News

High yield bond yields increased 7bps to 7.03% and spreads decreased 1bps to 337bps. Leveraged loan yields decreased 5bps to 8.18% and spreads decreased 12bps to 486bps. WTD Leveraged loan returns were positive 21bps. WTD high yield bond returns were positive 4bps. 10yr treasury yields increased 6bps to 3.85%. HY prices consolidated for a second consecutive week as investors continued to weigh tight valuations against the benefits of a Fed easing cycle and resilient economic growth.

High-yield:

Week ended 10/04/2024

• 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 10/04/2024

• 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: Mavenir Systems ($712mn, 9/27/24), Digital Media Solutions ($208mn, 9/12/24), SunPower ($143mn, 8/5/2024), 2U ($374mn, 7/25/24), Rodan & Fields ($763mn, 7/11/24), Wheel Pros ($2.8bn, 7/11/24), Quorum Health Group ($688mn, 7/10/24), Vyaire Medical ($339mn, 6/9/24), and 99 Cents Only Stores ($350mn, 4/7/24).

CLOs:

Week ended 10/04/2024

• 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

ZCGC RE Research: Housing Market Update

Turning Point for Demand

• Pending home sales are flat from a year ago, marking the first time since January they haven’t declined; on a local level, sales are increasing in most major metros.
• Other demand indicators, like home tours and mortgage-rate locks, are also improving as mortgage rates drop to their lowest level in two years.

Freight Rates

Drewry World Container Index

China-Global & Shanghai Export Container Freight Index