U.S. News

Home Builder Confidence Index

• The NAHB monthly confidence index rose 2 points in October to 43, marking its highest level since June 2024
• Nearly one-third of builders reduced home prices in October, with an average reduction of 6%, up from 5% the previous month
• To attract buyers, around 62% of builders used sales incentives in October, such as mortgage rate buydowns

Retail Sales

• U.S. retail sales rose 0.4% in September, beating the 0.3% forecast and August’s 0.1% gain. Growth was led by a 4% increase at miscellaneous retailers, 1.5% at clothing stores, and 1.1% at health and personal care stores
• Core retail sales, excluding categories like food services, auto dealers, building materials, and gasoline stations, increased by 0.7%, the highest in three months
• Electronics and appliance store sales fell 3.3%, gasoline sales dropped 1.6%, while auto sales were flat

Business Inventories

• U.S. business inventories rose 0.3% in August, marking the fifth consecutive month of expansion
• Retail inventories increased by 0.6% in August, with motor-vehicle inventories rising 0.8%
• Business sales declined 0.2% in August, following a 1.1% increase in the previous month

Jobless Claims

• Initial jobless claims, a measure of how many workers were laid off across the U.S., decreased to 241,000 in the week ended October 11, down 19,000 from the prior week
• The four-week moving average was 236,250, up 4750 from the prior week
• Continuing claims – those filed by workers unemployed for longer than a week – increased by 9,000 to 1.867 million in the week ended October 4. This figure is reported with a one-week lag



Fed’s Balance Sheet

• The Federal Reserve’s assets totaled $7.039 trillion in the week ended October 18, down $7.6 billion from the prior week
• Treasury holdings totaled $4.363 trillion, down $1.9 billion from the prior week
• Holdings of mortgage-backed securities (MBS) were $2.28 trillion in the week, up $0.0 billion from the prior week



Total Public Debt

• Total public debt outstanding was $35.77 trillion as of October 18, an increase of 6.4% from the previous year
• Debt held by the public was $26.51 trillion, and intragovernmental holdings were $7.16 trillion



Inflation Factors

CPI:

• The consumer-price index rose 2.4% in September year over year
• On a monthly basis, the CPI increased 0.2% in September on a seasonally adjusted basis, after increasing 0.2% in August
• The index for all items less food and energy (core CPI) rose 0.3% in September, after rising 0.3% in August
• Core CPI increased 3.3% for the 12 months ending September

Food and Beverages:

• The food at home index increased 1.3% in September from the same month a year earlier, and increased 0.4% in September month over month
• The food away from home index increased 3.9% in September from the same month a year earlier, and increased 0.3% in September month over month

Commodities:

• The energy commodities index decreased (4.0%) in September after decreasing (0.6%)
• The energy commodities index fell (15.3%) over the last 12 months
• The energy services index (0.4%) in September after decreasing (0.8%) in June
• The energy services index rose 3.4% over the last 12 months
• The gasoline index rose (15.3%) over the last 12 months
• The fuel oil index fell (22.4%) over the last 12 months
• The index for electricity rose 3.7% over the last 12 months
• The index for natural gas fell 2.0% over the last 12 months

Supply Chain:

• Drewry’s composite World Container Index decreased to $3,215.92 per 40ft container
• Drewry’s composite World Container Index has increased by 135.9% over the last 12 months

Housing Market:

• The shelter index increased 0.2% in September after increasing 0.5% in August
• The rent index increased 0.2% in September after increasing 0.5% in August
• The index for lodging away from home decreased (3.8%) in August after decreasing (0.7%) in June

Federal Funds Rate

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

World News

• Middle East

  • On Saturday, a drone from Lebanon bypassed Israeli defense systems and exploded near Prime Minister Netanyahu’s residence in Caesarea. While no injuries were reported, the attack followed a threat from Hezbollah, although they have not claimed responsibility
  • Following the death of Hamas leader Yahya Sinwar, the Biden administration is pushing for an end to the Gaza war, though neither Israel nor Hamas is ready for a ceasefire
  • Secretary of State Antony Blinken is scheduled to visit Israel and other Middle Eastern countries next week to negotiate a postwar plan, which includes securing the release of hostages and ensuring Hamas does not return to power in Gaza
  • The U.S. is also working to prevent a broader regional conflict, particularly amid concerns that Israel may retaliate against Iran for the recent missile attack

• Russia

  • Ukrainian President Volodymyr Zelenskyy has urged European leaders for an immediate NATO invitation as part of his five-point plan to end the war by 2025
  • France’s foreign minister, Jean-Noël Barrot, supports Ukraine’s “victory plan” and announced that France would deliver the first batch of Mirage 2000 combat jets to Ukraine in early 2025
  • South Korea’s intelligence reported that 1,500 North Korean special forces have been sent to Russia to support its war efforts in Ukraine
  • Russia has expanded a shadow fleet of oil tankers, transporting up to 70% of its seaborne oil despite sanctions, with concerns over the environmental risks posed by uninsured and poorly maintained ships

• China

  • China conducted a one-day “Joint Sword-2024B” military exercise around Taiwan, involving air, naval, and coast guard forces, in response to Taiwan’s recent reaffirmation of its sovereignty
  • China announced new measures to support its property sector, including fast-tracking credit for struggling developers and allocating 4 trillion yuan ($550 billion) in loans for projects on the government’s “white list,” but markets reacted negatively, seeing the measures as milder than expected
  • China’s economy grew by 4.6% year-over-year in Q3, slightly down from 4.7% in Q2, reflecting the ongoing challenges for policymakers in boosting growth amid waning investor optimism about stimulus measures
  • In response to the EU imposing additional tariffs of up to 45% on China-made electric vehicles, China is considering raising tariffs on imports of large-engine, fuel-powered vehicles

• Europe

  • The European Central Bank lowered its key interest rate on Thursday, marking the first back-to-back rate cuts in borrowing costs since 2011, reflecting concerns about the weakening economic outlook
  • Eurozone inflation is now projected to reach the ECB’s 2% target earlier than initially expected, with forecasts pointing to achieving this goal in 2025
  • Since June, the ECB has reduced its key interest rate three times, with each cut being a quarter of a percentage point, and future rate adjustments remain possible based on evolving economic condition

• Japan

  • Japan’s inflation rate slowed to 2.5% in September, down from 3.0% in August, largely due to government energy subsidies. This gives the Bank of Japan more time to decide on future rate hikes, but concerns remain over whether inflation is sustained by wage growth, as service inflation remains weak

• UK

  • U.K. retail sales volumes rose 0.3% in September, driven by strong spending on technology products. The boost in consumer spending is raising hopes for a soft economic landing, with inflation nearing the Bank of England’s 2% target, potentially paving the way for interest rate cuts

• 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

• Cuba

  • Alejandro Cuba experienced a nationwide blackout on Friday, following government orders to shut down nonessential businesses to conserve energy amid severe fuel shortages, deteriorating infrastructure, and a worsening economic crisis

• Africa

  • A new deal gives Ethiopia naval access to Somaliland in exchange for recognizing Somaliland’s independence, escalating tensions with Somalia, which strongly opposes the move. The conflict risks undermining anti-al-Shabaab efforts, involving Egypt, and destabilizing the Horn of Africa further, raising international concerns

• Canada

  • Canadian Prime Minister Justin Trudeau called India’s alleged interference in Canada “a horrific mistake,” following the expulsion of six Indian diplomats over their alleged involvement in the killing of a Sikh separatist leader. India denied the allegations and expelled Canadian diplomats in retaliation, blaming Trudeau for damaging relation

• India

  • A former employee of India’s intelligence service has been charged by U.S. prosecutors for allegedly directing a plot to kill Sikh activist Gurpatwant Singh Pannun in New York, escalating tensions between India and Western countries regarding the targeting of Sikh separatists

• Australia

  • King Charles and Queen Camilla have begun their tour of Australia, starting with a church service in Sydney. This is the King’s first visit since becoming Australia’s head of state in 2022 and since starting cancer treatment earlier this year. The six-day visit includes meeting leaders, celebrating Australian culture, and supporting environmental initiatives, with a trip to Samoa to follow

Commodities

• Oil Prices

  • WTI: $69.34 per barrel
    • (8.23%) WoW; (3.22%) YTD; (22.41%) YoY
  • Brent: $73.13 per barrel
    • (7.48%) WoW; (5.08%) YTD; (20.84%) YoY

• US Production

  • U.S. oil production amounted to 13.5 million bpd for the week ended October 11, up 0.2 million bpd
    from the prior week

• Rig Count

  • The total number of oil rigs amounted to 585, down 1 from last week

• Inventories

  • Crude Oil

    • Total U.S. crude oil inventories now amount to 420.6 million barrels, up 0.2% YoY
    • Refiners operated at a capacity utilization rate of 87.7% for the week, up from 86.7% in the prior week
    • U.S. crude oil imports now amount to 6.239 million barrels per day, down (7.0%) YoY

  • Gasoline

    • Retail average regular gasoline prices amounted to $3.19 per gallon in the week of October 18,
      down (10.3%) YoY
      • Gasoline prices on the East Coast amounted to $3.15, down (10.0%) YoY
      • Gasoline prices in the Midwest amounted to $3.18, down (6.5%) YoY
      • Gasoline prices on the Gulf Coast amounted to $2.83, down (9.5%) YoY
      • Gasoline prices in the Rocky Mountain region amounted to $3.38, down (11.5%) YoY
      • Gasoline prices on the West Coast amounted to $4.18, down (18.4%) YoY
    • Motor gasoline inventories were down by 2.2 million barrels from the prior week
    • Motor gasoline inventories amounted to 212.7 million barrels, down (4.7%) YoY
    • Production of motor gasoline averaged 9.29 million bpd, down (4.8%) YoY
    • Demand for motor gasoline amounted to 8.620 million bpd, down (3.6%) YoY

  • Distillates

    • Distillate inventories decreased by -3.5 million in the week of October 18
    • Total distillate inventories amounted to 115.0 million barrels, up 1.1% YoY
    • Distillate production averaged 4.754 million bpd, up 1.3% YoY
    • Demand for distillates averaged 4.212 million bpd in the week, down (4.6%) YoY

  • Natural Gas

    • Natural gas inventories increased by 76 billion cubic feet last week
    • Total natural gas inventories now amount to 3,705 billion cubic feet, up 2.2% YoY

    

Credit News

High yield bond yields decreased 8bps to 7.11% and spreads decreased 5bps to 319bps. Leveraged loan yields decreased 4bps to 8.40% and spreads decreased 4bps to 476bps. WTD Leveraged loan returns were positive 28bps. WTD high yield bond returns were positive 31bps. 10yr treasury yields were flat at 4.10%. HY spreads tightened to a post GFC low as the asset class is responding favorably to receding labor market concerns and robust consumer spending.

High-yield:

Week ended 10/18/2024

• 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 10/18/2024

• 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 10/18/2024

• 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:

Prices Drop in 26 of 28 Big Metros, even San Diego, Los Angeles 

By Metropolitan Statistical Area (MSA), the top 20 month-to-month price declines:
1. San Francisco: -1.1%
2. San Jose: -0.9%
3. Austin: -0.8%
4. Tampa: -0.7%
5. Denver: -0.6%
6. San Diego: -0.5%
7. Sacramento: -0.5%
8. Dallas: -0.5%
9. Atlanta: -0.5%
10. Houston: -0.4%
11. Phoenix: -0.4%
12. Portland: -0.4%
13. Kansas City: -0.4%
14. Columbus: -0.4%
15. Miami: -0.3%
16. Boston: -0.3%
17. Seattle: -0.3%
18. Minneapolis: -0.3%
19. Charlotte: -0.3%
20. Nashville: -0.3%

Down from their 2022 peaks:  Home prices in 19 of the 28 MSAs here were down from their peaks in 2022, led by these 10

1. Austin: -20.4%
2. San Francisco: -9.4%
3. Phoenix: -8.0%
4. Denver: -6.4%
5. Salt Lake City: -5.7%
6. Portland: -5.1%
7. Seattle: -4.7%
8. Dallas: -4.4%
9. Honolulu: -4.4%
10. Nashville: -2.6%

The two exceptions were Baltimore, where prices were unchanged, and the vast New York City metro where prices rose 0.3% to a new high, according to data from the “raw” Zillow Home Value Index (ZHVI).

• Active listings have been surging for months in practically every major market, including in formerly hot markets such as Florida.
• While inventories are piling up, buyers are on strike because prices are too high even though mortgage rates have dropped a bunch over the 10 months through mid-September.
• The lower mortgage brought out the sellers, but not the buyers who remain on strike because prices are too high.

Fannie Mae economists, in their forecast for the remainder of 2024 said, “we expect affordability to remain the primary constraint on housing activity for the foreseeable future, and we now think full-year 2024 will produce the fewest existing home sales since 1995.”

Freight Rates

Drewry World Container Index

China-Global & Shanghai Export Container Freight Index