U.S. News

FOMC Interest Rate Decision

• Fed Reserve held interest rates steady at their current range of 5.25% to 5.5% and revised its outlook for rate cuts to just one in 2024
• Fed Chair Jerome Powell emphasized the cautious approach due to the volatility in inflation data and the resilient job market
• Recent indicators show solid economic activity, strong job gains, low unemployment, and easing but still elevated inflation

Consumer Price Index

• CPI for May remained unchanged, the first flat month in almost two years, with annual inflation falling to 3.3% from 3.4% in April
• Gasoline prices declined by 2.8% in May, contributing to the flat inflation reading
• The core inflation rate, which excludes food and energy, rose by 0.2%, the smallest increase in seven months, with the annual core rate slowing to 3.4% from 3.6%

Consumer Sentiment

• U.S. consumer sentiment fell to a seven-month low in June, dropping to 65.6 from 69.1 in May
• A gauge measuring consumer views on the current state of the economy dropped to 62.5, the lowest since the end of 2022
• Consumers expect inflation to average 3.3% over the next year, consistent with the current annual rate of inflation reported for May

Jobless Claims

• Initial jobless claims, a measure of how many workers were laid off across the U.S., increased to 242,000 in the week ended June 7, up 13,000 from the prior week
• The four-week moving average was 227,000, up 4750 from the prior week
• Continuing claims – those filed by workers unemployed for longer than a week – increased by 30,000 to 1.820 million in the week ended May 31. This figure is reported with a one-week lag



Fed’s Balance Sheet

• The Federal Reserve’s assets totaled $7.259 trillion in the week ended June 14, up $3.3 billion from the prior week
• Treasury holdings totaled $4.462 trillion, down $3.6 billion from the prior week
• Holdings of mortgage-backed securities (MBS) were $2.35 trillion in the week, down $9.7 billion from the prior week



Total Public Debt

• Total public debt outstanding was $34.68 trillion as of June 14, an increase of 8.3% from the previous year
• Debt held by the public was $25.18 trillion, and intragovernmental holdings were $7.06 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 $4,800.64 per 40ft container for
• Drewry’s composite World Container Index has increased by 201.5% 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

  • Hamas has hardened its stance on a cease-fire proposal, demanding a quicker Israeli withdrawal from Gaza and a permanent cease-fire before releasing additional hostages
  • The U.S. Secretary of State Antony Blinken is consulting with other proponents of the peace plan regarding Hamas’s new demands
  • Violence continues on Israel’s northern border with Lebanon, with Hezbollah launching significant attacks on Israel, further escalating tensions

• Russia

  • Russia suspended trading in U.S. dollars, euros, and Hong Kong dollars on its flagship stock exchange due to new U.S. sanctions
  • The U.S. Treasury sanctioned the Moscow exchange and Russia’s central securities depository to limit Russia’s access to foreign technology, equipment, software, and IT services
  • The Biden administration imposed sanctions on over 300 entities and individuals, including seven China-based entities, for aiding Russia’s war in Ukraine

• UK

  • The U.K. economy was flat in April, with no growth compared to the previous month, due to declines in industrial production and construction
  • The International Monetary Fund projects only 0.5% growth for the U.K. economy this year, highlighting ongoing issues like low productivity and high economic inactivity
  • U.K. businesses expect wage rises to slow to 4.5% over the next 12 months, down from 4.8% in April, according to a BOE survey, indicating easing inflation concerns for policymakers

• China

  • China is building a $3.5 billion megaport in Chancay, Peru, which will be the first on South America’s Pacific coast able to receive megaships due to its nearly 60 feet of depth
  • The port, majority-owned by China Ocean Shipping group (Cosco), aims to speed trade between Asia and South America, benefiting regions as far away as Brazil by reducing sailing times across the Pacific
  • The U.S. is concerned that China’s control over this port could strengthen Beijing’s influence over South America’s resources and potentially provide strategic military advantages

• France

  • Over a quarter of a million people protested across France against Marine Le Pen’s far-right National Rally, which is projected to win the most seats in upcoming parliamentary elections, with antiracism groups, unions, and a new left-wing coalition participating in the demonstrations

• South Africa

  • South African President Cyril Ramaphosa was re-elected after forming a coalition government with the pro-business Democratic Alliance and the Inkatha Freedom Party, following the ANC’s loss of its absolute majority in recent elections

• Japan

  • The Bank of Japan will reduce government bond purchases, signaling monetary tightening, but left its interest rate unchanged. Despite this, the yen weakened due to a lack of specifics on the bond reduction plan

• Taiwan

  • Taiwan’s central bank kept interest rates unchanged at 2.000%, citing cooling inflation and solid economic growth. The bank also raised the reserve requirement ratio by 25 basis points to address the heating property market

• South Korea

  • South Korea’s exports rose 11.7% in May, led by a 55% increase in semiconductor shipments, contributing to a trade surplus of $4.96 billion

• Iceland

  • Argentina’s Senate approved a slimmed-down version of President Javier Milei’s economic reform package, including labor reforms and limited privatizations, amid violent protests and concerns about his ability to enact further measures

• Mexico

  • Claudia Sheinbaum, Mexico City’s former mayor, is projected to become Mexico’s first female president, winning by a landslide against the opposition coalition’s candidate, Xóchitl Gálvez

• Canada

  • The Bank of Canada cut its main interest rate by 0.25%, becoming the first G-7 central bank to ease policy amid cooling inflation and slower economic growth

Commodities

• Oil Prices

  • WTI: $78.37 per barrel
    • 3.76% WoW; +9.38% YTD; +10.97% YoY
  • Brent: $82.55 per barrel
    • 3.68% WoW; +7.15% YTD; +9.09% YoY

• US Production

  • U.S. oil production amounted to 13.2 million bpd for the week ended June 7, up 0.1 million bpd
    from the prior week

• Rig Count

  • The total number of oil rigs amounted to 590, down 4 from last week

• Inventories

  • Crude Oil

    • Total U.S. crude oil inventories now amount to 459.7 million barrels, down (1.6%) YoY
    • Refiners operated at a capacity utilization rate of 95.0% for the week, down from 95.4% in the prior week
    • U.S. crude oil imports now amount to 7.058 million barrels per day, down 30.1% YoY

  • Gasoline

    • Retail average regular gasoline prices amounted to $3.46 per gallon in the week of June 14,
      down (3.4%) YoY
      • Gasoline prices on the East Coast amounted to $3.48, down (1.4%) YoY
      • Gasoline prices in the Midwest amounted to $3.34, down (6.8%) YoY
      • Gasoline prices on the Gulf Coast amounted to $3.05, down (5.7%) YoY
      • Gasoline prices in the Rocky Mountain region amounted to $3.38, down (11.6%) YoY
      • Gasoline prices on the West Coast amounted to $4.50, down (4.1%) YoY
    • Motor gasoline inventories were up by 2.6 million barrels from the prior week
    • Motor gasoline inventories amounted to 233.5 million barrels, up 5.7% YoY
    • Production of motor gasoline averaged 10.09 million bpd, down (0.8%) YoY
    • Demand for motor gasoline amounted to 9.040 million bpd, down (1.7%) YoY

  • Distillates

    • Distillate inventories decreased by 0.9 million in the week of June 14
    • Total distillate inventories amounted to 123.4 million barrels, up 8.4% YoY
    • Distillate production averaged 5.032 million bpd, up 0.9% YoY
    • Demand for distillates averaged 3.649 million bpd in the week, up 2.1% YoY

  • Natural Gas

    • Natural gas inventories increased by 74 billion cubic feet last week
    • Total natural gas inventories now amount to 2,974 billion cubic feet, up 12.9% YoY

    

Credit News

High yield bond yields decreased 4bps to 7.85% and spreads increased 19bps to 348bps. Leveraged loan yields decreased 16bps to 9.21% and spreads increased 8bps to 500bps. WTD Leveraged loan returns were negative 3bps. WTD high yield bond returns were positive 27bps. 10yr treasury yields decreased 4bps to 4.24%. Spreads widened as investors absorbed softer US CPI report, political turmoil in France, rise in jobless claims, and Fed DOTS which support a view of delayed but not necessarily shallower easing cycle.

High-yield:

Week ended 06/14/2024

• 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 06/14/2024

• 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: 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), New Insight Holdings ($1.2bn, 3/13/24), Robertshaw ($820mn, 2/29/24), Thrasio LLC ($724mn, 2/28/24), Hornblower ($838mn, 2/20/24), and Careismatic ($700mn, 1/22/24).

CLOs:

Week ended 06/14/2024

• 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

Freight Rates

Drewry World Container Index

China-Global & Shanghai Export Container Freight Index

Real Estate

Section 1:

• While most U.S. homeowners are sitting on a mountain of home equity after years of rising house prices, in some pockets of the country an increasing share of mortgage holders are underwater on their loans.
• Why it matters: That means these folks owe more on the mortgage than their home is worth, which puts them in a horrendous financial situation if they need to sell their house.
• State of play: The South and Midwest have the highest share of underwater mortgages, per Attom.
• That’s because in these areas home values have fallen from their peak during the pandemic housing boom.
• And people who bought at the top are seeing their home value dip below what they paid (or borrowed) for the house.
• Zoom in: Louisiana has highest share of underwater mortgages (11.3%), up about a percentage point from a year ago. Home values dropped 6% from their summer 2022 peak, per Redfin data.
• In Wyoming, No. 2 on the list, the share grew from 3.3% to 8.8%, and home values are down roughly 12% since June 2023.
• Reality check: These shares are still relatively small. After the housing crisis of 2008 1 in 4 homes with mortgages were underwater.
• Unemployment was high in that recession and many people who couldn’t pay back their loans by selling their house were forced into foreclosure or short sales.
• Right now unemployment in the U.S. is low — and the economy is strong.
• What they’re saying: Don’t panic. “It could be a temporary increase and not necessarily a major concern,” National Association of Realtors chief economist Lawrence Yun tells us.
• Yes, but: If the labor market or economy takes a turn, underwater homeowners are more at risk.
• With today’s high mortgage rates, the most financially secure people are buying in cash, Redfin chief economist Daryl Fairweather says.
• Recent buyers who took out a mortgage likely have less cash to fall back on.
• What’s next: “This year’s spring buying season will be of heightened importance in telling us if there is a new long-term market pattern developing,” according to Attom CEO Rob Barber.

Section 2:
30 Year Fixed Mortgage
6/13/24: 6.95

10-year US Treasury
6/13/24: 4.24