U.S. News

Producer Price Index

• Producer prices rose by 0.1% in July, below the forecast of 0.2%, further signaling that inflation is slowing in the U.S.
• The PPI increased 2.2% year-over-year, the smallest YoY increase since March
• Excluding food and energy, the core reading was unchanged in July, undershooting expectations for a 0.2% rise

Consumer Price Index

• The consumer price index increased by 0.2% in July, meeting forecasts
• The data reflects a 2.9% year over year increase in inflation, the lowest pace since March 2021
• The news makes it more likely that the Federal Reserve will cut rates during their September meeting

U.S. Retail Sales

• U.S. retailers last month reported a 1% increase in sales in July, above the forecasted figure of 0.3%. The June report was revised downward to show a 0.2% decline, rather than a flat result
• The figures represent the largest increase in retail sales in a year and a half
• Most of the increase was tied to autos, as sales rebounded after dealers recovered from a nationwide cybersecurity attack. Excluding autos, retail sales rose 0.4% in July, seasonally adjusted

Jobless Claims

• Initial jobless claims, a measure of how many workers were laid off across the U.S., decreased to 227,000 in the week ended August 9, down 7,000 from the prior week
• The four-week moving average was 236,500, down 4500 from the prior week
• Continuing claims – those filed by workers unemployed for longer than a week – decreased by 7,000 to 1.864 million in the week ended August 2. This figure is reported with a one-week lag



Fed’s Balance Sheet

• The Federal Reserve’s assets totaled $7.178 trillion in the week ended August 16, up $2.4 billion from the prior week
• Treasury holdings totaled $4.414 trillion, up $0.0 billion from the prior week
• Holdings of mortgage-backed securities (MBS) were $2.32 trillion in the week, down $0.0 billion from the prior week



Total Public Debt

• Total public debt outstanding was $35.17 trillion as of August 16, an increase of 7.5% from the previous year
• Debt held by the public was $25.85 trillion, and intragovernmental holdings were $7.17 trillion



Inflation Factors

CPI:

• The consumer-price index rose 2.9% in June year over year
• On a monthly basis, the CPI increased 0.2% in July on a seasonally adjusted basis, after decreasing -0.1% in June
• The index for all items less food and energy (core CPI) rose 0.2% in July, after rising 0.1% in June
• Core CPI increased 3.2% for the 12 months ending July

Food and Beverages:

• The food at home index increased 1.1% in July from the same month a year earlier, and increased 0.1% in July month over month
• The food away from home index increased 4.1% in July from the same month a year earlier, and increased 0.2% in July month over month

Commodities:

• The energy commodities index increased 0.1% in July after decreasing (3.7%) in June
• The energy commodities index fell (2.1%) over the last 12 months
• The energy services index (0.0%) in July after increasing 2.1% in June
• The energy services index rose 4.2% over the last 12 months
• The gasoline index rose (2.2%) over the last 12 months
• The fuel oil index fell (0.3%) over the last 12 months
• The index for electricity rose 4.9% over the last 12 months
• The index for natural gas fell 1.5% over the last 12 months

Supply Chain:

• Drewry’s composite World Container Index decreased to $5,428.02 per 40ft container for
• Drewry’s composite World Container Index has increased by 196.2% over the last 12 months

Housing Market:

• The shelter index increased 0.4% in July after increasing 0.2% in June
• The rent index increased 0.3% in May after increasing 0.2% in June
• The index for lodging away from home decreased (0.5%) in June after decreasing (0.6%) in June

Federal Funds Rate

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

World News

• Israel/Gaza

  • Israel’s military has been put on high alert after Iran and Hezbollah made preparations to carry out attacks. The timing of a potential attack has not been determined
  • The United States has strengthened its military presence in the Middle East, ordering the USS Abraham Lincoln Carrier Strike Group and the submarine USS Georgia to the region
  • Despite the increased tension, a two-day Gaza cease-fire summit concluded in Doha on Friday. While the Biden administration and mediators claimed that progress has been made, there are significant roadblocks to a deal
  • Israeli President Benjamin Netanyahu and Hamas leader Yahya Sinwar especially disagree on whether a ceasefire would be temporary or permanent, how to secure the border between Gaza and Egypt, Israel’s ability to screen Palestinians returning to northern Gaza, and the Palestinian prisoners approved for release

• Russia

  • Russia is withdrawing some forces from Ukraine to address the Ukrainian offensive into their territory. This is in response to Ukrainian forces advancing at least 20 miles since the attack began last week
  • This is the first indication that Moscow must rejigger its invasion of Ukraine in the face of this incursion, despite earlier assertions that the Russian military had inflicted heavy casualties on the invading Ukrainian force
  • Meanwhile, Ukraine has sent tanks and armored vehicles to reinforce troops in Russian territory, a sign that Kyiv will double down on their strategy amid initial success
  • On Wednesday, Ukraine executed a drone strike on four Russian air bases deep inside Russia. Ukrainian officials are still assessing the impact of the strike

• Canada

  • Canadian National started a phased shutdown of the rail network, starting with the halt of hazardous cargo, amid failed negotiations with the Teamsters
  • The halt will impact materials like chlorine in household cleaners, water purification chemicals, and ammonia used in fertilizer
  • Canadian Pacific said it will lock out employes on August 22 if an agreement is not made with Teamsters leadership
  • The Canadian government declined to intervene in the dispute between the railroads and unionized workers. The request from Canadian National Railway would have sent contract negotiations to a binding arbitration

• China

  • Loan issuances by Chinese banks dropped in July to 260 billion yuan, lower than the forecasted 400 billion yuan and the 2.13 trillion yuan recorded in June
  • The sharper-than-expected drop reflects cautious attitudes among Chinese households and companies, who face uncertainty as the economic outlook and property sector both weigh the economy down
  • China renewed a multibillion portion of a currency swap with Argentina, deepening financial ties between the two countries and providing relief to beleaguered Argentine reserves
  • The news comes as a surprise, given Argentine President Javier Milei’s hard stance against communism and China during his presidential campaign. He vowed to steer the country away from Chinese investment and trade, though little action has been taken in that direction since taking office

• Thailand

  • Paetongtarn Shinawatra was named Prime Minister on Friday. She is the daughter of former Prime Minister Thaksin Shina

• Japan

  • Prime Minister Fumio Kishida announced on Wednesday that he will not seek re-election, amid lowering popularity caused by a political-funds scandal and high inflation

• Greece

  • Parts of Athens have been evacuated as first responders struggle to address wildfires approaching the capital

• Africa

  • The World Health Organization stated that the rapid spread of Mpox in Africa constitutes an international health emergency. The virus has moved from eastern Congo to the Central African Republic, Burundi, Uganda, Rwanda, and others. There have been more than 17,000 suspected Mpox infections this year, with about 95% of cases reported in Congo

• Germany

  • Germany’s trade surplus narrowed to €20.4 billion in June as exports fell by 3.4%, a greater decline than expected, largely due to weak demand from the Chinese market and increased trade tensions between Europe and China

• Brazil

  • A Voepass twin-engine passenger plane crashed in Vinhedo, Brazil, killing all 62 people on board. Investigators are examining the possibility of ice buildup on the wings, which could have reduced the aircraft’s lift and contributed to the crash.

• Uganda

  • A landslide at the Kiteezi landfill in Kampala, Uganda, has killed at least 12 people, with rescuers continuing to search for survivors following weeks of heavy rain. The incident has displaced approximately 1,000 people as the city seeks a new landfill site

• Mali

  • Dozens of Russian / Wagner Group mercenaries, hired by the Malian government to fight insurgents, were killed in an attack conducted by Tuareg rebels on Sunday. The attack dealt a blow to the image of Wagner Group and the Russian presence in the region

Commodities

• Oil Prices

  • WTI: $76.65 per barrel
    • (0.25%) WoW; +6.98% YTD; (4.65%) YoY
  • Brent: $79.68 per barrel
    • +0.03% WoW; +3.43% YTD; (5.28%) YoY

• US Production

  • U.S. oil production amounted to 13.3 million bpd for the week ended August 9, down 0.0 million bpd
    from the prior week

• Rig Count

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

• Inventories

  • Crude Oil

    • Total U.S. crude oil inventories now amount to 430.7 million barrels, down (2.0%) YoY
    • Refiners operated at a capacity utilization rate of 91.5% for the week, up from 90.5% in the prior week
    • U.S. crude oil imports now amount to 6.224 million barrels per day, down (12.2%) YoY

  • Gasoline

    • Retail average regular gasoline prices amounted to $3.42 per gallon in the week of August 16,
      down (11.7%) YoY
      • Gasoline prices on the East Coast amounted to $3.44, down (9.9%) YoY
      • Gasoline prices in the Midwest amounted to $3.48, down (9.6%) YoY
      • Gasoline prices on the Gulf Coast amounted to $3.09, down (11.6%) YoY
      • Gasoline prices in the Rocky Mountain region amounted to $3.53, down (13.2%) YoY
      • Gasoline prices on the West Coast amounted to $4.20, down (13.8%) YoY
    • Motor gasoline inventories were up by 2.9 million barrels from the prior week
    • Motor gasoline inventories amounted to 222.2 million barrels, up 2.8% YoY
    • Production of motor gasoline averaged 9.72 million bpd, up 1.4% YoY
    • Demand for motor gasoline amounted to 9.045 million bpd, up 2.2% YoY

  • Distillates

    • Distillate inventories decreased by -1.7 million in the week of August 16
    • Total distillate inventories amounted to 126.1 million barrels, up 9.0% YoY
    • Distillate production averaged 4.769 million bpd, up 0.8% YoY
    • Demand for distillates averaged 3.549 million bpd in the week, down (2.7%) YoY

  • Natural Gas

    • Natural gas inventories decreased by 6 billion cubic feet last week
    • Total natural gas inventories now amount to 3,264 billion cubic feet, up 6.5% YoY

    

Credit News

High yield bond yields decreased 15bps to 7.47% and spreads decreased 15bps to 357bps. Leveraged loan yields decreased 4bps to 8.65% and spreads decreased 4bps to 503bps. WTD Leveraged loan returns were positive 28bps. WTD high yield bond returns were positive 64bps. 10yr treasury yields decreased 7bps to 3.93%. Yields and spreads declined amid a Goldilocks narrative of growth without inflation. US GDP growth improved following the weak payroll report and the inflation data moderated enough to warrant a Fed rate cut in September.

High-yield:

Week ended 08/16/2024

• 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 08/16/2024

• 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: 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), 99 Cents Only Stores ($350mn, 4/7/24), and ConvergeOne ($1.3bn, 4/4/24).

CLOs:

Week ended 08/16/2024

• 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

• Volatility and Cyclicality: All three graphs show significant volatility in housing starts over the years, with clear cycles of boom and bust. These cycles are closely tied to broader economic conditions, including interest rates, economic growth, and financial crises
• Post-2008 Recovery: Following the sharp decline during the 2008 financial crisis, there has been a steady recovery in both single-family and multifamily housing starts. This recovery gained momentum in the 2010s and peaked around 2021-2022
• Recent Slowdown: After peaking in 2021-2022, all segments—single-family, multifamily, and total housing starts—are now showing signs of a slowdown. This recent decline is influenced by rising interest rates, economic uncertainty, and potential oversupply concerns, particularly in the multifamily segment
• Long-Term Stabilization: Despite short-term fluctuations, there’s a general trend towards stabilization at levels higher than the post-crisis lows but below the pre-2008 peaks. The market seems to be adjusting to new economic realities, with a gradual cooling off after the frenetic pace of the last few years

Overall: The common trend is a market that has rebounded strongly from the 2008 crisis but is now experiencing a cooling period as it adjusts to high interest rates and shifting economic conditions. This cooling is reflected in the declining numbers across all housing starts, indicating a potential tightening of supply moving forward

Freight Rates

Drewry World Container Index

China-Global & Shanghai Export Container Freight Index