The New York Federal Reserve stated Monday in its latest Survey of Consumer Expectations that 1-year inflation expectations increased from 4.2% to 4.7% in March. According to the report, the figure for the 3-year inflation expectations came in at 2.8%, up from 2.7% last month, while for the 5-year declined to 2.5% from 2.6%. “Credit access perceptions deteriorated, with the share of households reporting that it is harder to obtain credit than one year ago rising and reaching a series high,” the report said. NN: this was not suppose to happen.
What Commercial Real Estate Stress Means for Banks and Bond Funds
In the last month or so, two macro risks have become top of mind for investors. One is the stability of regional banks. The other is the weakness in the commercial real estate market. On some level, they’re separate stories, but they’re also linked, since regional banks tend to do more commercial real estate lending than larger, national banks. Of course, the links are complicated. CRE is not a monolith — and banks are just one source of financing for CRE projects, alongside private credit funds, insurance companies and other sources of capital. On this episode of the podcast, we speak with Jim Costello, chief economist for real assets at MSCI, about what to watch for.
Indian Fuel Demand Continues To Rise
- India’s fuel demand increased by 5% in March compared to a year earlier, reaching 20.5 million tons.
- Demand for both gasoline and diesel climbed in March compared to March last year and February this year.
- Fuel consumption in India is expected to rise by 4.7% in the fiscal year between April 2023 and March 2024. India’s fuel demand jumped by 5% in March compared to a year earlier, official data showed on Monday, as the world’s third-largest crude oil importer continues to see consumption growing.Indian fuel consumption stood at 20.5 million tons last month, according to data from India’s Oil Ministry cited by Reuters. Demand for both diesel and gasoline rose in March compared to both March last year and February this year, the data showed. Gasoline demand jumped by 6.8% year-on-year. In February, Indian fuel demand was estimated to have jumped to the highest level in at least 24 years, and refiners in India raised crude throughput by 2% in February compared to January. Indian refiners processed 20.85 million tons of crude in February. In barrel-per-day terms, the throughput was at 5.46 million bpd, the highest in bpd terms in Reuters records dating back to 2009. Fuel consumption in India is expected to rise by 4.7% in the fiscal year between April 2023 and March 2024, estimates by the Indian Ministry of Petroleum and natural gas showed earlier this year. India’s gasoline demand is forecast to increase by 7.1% over the next fiscal year, while gasoil demand is expected to rise by 4.2%, according to the projections. India’s robust fuel demand coincides with record-high crude oil imports from Russia, with Indian refineries snapping up cheaper Russian crude. Russia’s largest oil firm, state-controlled Rosneft, signed last month a term agreement with Indian Oil Corporation to raise the supply of Russian crude to India significantly. From a negligible buyer of Russia’s oil before the Russian invasion of Ukraine, India has become a key export market for Moscow and is importing record volumes of Russian crude. In February, Russia remained India’s top oil supplier for a fifth consecutive month. India is not abiding by the G7 price cap as it seeks opportunistic purchases of cheap crude, and it doesn’t intend to
2 Trillion in Real Estate Debt will Refinance 300 Bases Points Higher…… IF THEY CAN FIND THE MONEY
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Morgan Stanley sees refinancing risks front and center
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Office, retail property valuations could fall as much as 40%
Almost $1.5 trillion of US commercial real estate debt comes due for repayment before the end of 2025. The big question facing those borrowers is who’s going to lend to them?
“Refinancing risks are front and center” for owners of properties from office buildings to stores and warehouses, Morgan Stanley analysts including James Egan wrote in a note this past week. “The maturity wall here is front-loaded. So are the associated risks.”
The investment bank estimates office and retail property valuations could fall as much as 40% from peak to trough, increasing the risk of defaults.
Adding to the headache, small and regional banks — the biggest source of credit to the industry last year — have been rocked by deposit outflows following the demise of Silicon Valley Bank, raising concerns that will crimp their ability to provide finance to borrowers.
Smaller Banks Pushed Into Commercial Real Estate Lending
Source:MSCI
The wall of debt is set to get worse before it gets better. Maturities climb for the coming four years, peaking at $550 billion in 2027, according to the MS note. Banks also own more than half of the agency commercial mortgage-backed securities — bonds supported by property loans and issued by US government-sponsored entities such as Fannie Mae — increasing their exposure to the sector. “The role that banks have played in this ecosystem, not only as lenders but also as buyers,” will compound the wave of refinancing coming due, the analysts wrote. Rising interest rates and worries about defaults have already hurt CMBS deals. Sales of the securities without government backing fell about 80% in the first quarter from a year earlier, according to data compiled by Bloomberg News. Sentiment toward multifamily housing also remains much more positive as rents continue to rise, one reason why Blackstone Real Estate Income Trust had a positive return in February even as rising numbers of investors lodge withdrawal requests. The availability of agency-backed loans will help owners of those properties when they need to refinance.
The lenders are the biggest credit provider in each real estate category
Source: MSCI
Still, when apartment blocks are excluded, the scale of the problems facing banks becomes even starker.
As much as 70% of the other commercial real estate loans that mature over the next five years are held by banks, according to the report.
“Commercial real estate needs to re-price and alternative ways to refinance the debt are needed,” the analysts said. European real estate issuers, meanwhile, have the equivalent of more than €24 billion due for repayment over the remainder of the year, Bloomberg Intelligence analyst Tolu Alamutu wrote in a note. “We are definitely seeing real estate companies do all they can to delever – scaling back investment programs, more joint ventures, bond buybacks and where possible, dividend cuts,” she said in an email. “Disposals are a key focus too. Some recent comments from real estate issuers suggest it’s still not easy to sell large portfolios.”
BlackMask PodCast:
TICKING TIME BOMB
Russia slashed oil production by 700,000 barrels a day in March, far more than originally planned
- Russia cut oil production by 700,000 barrels of oil a day in March, per Bloomberg.
- That is a bigger reduction than the 500,000 barrels a day that the country pledged to cut originally.
- The reduced output comes as OPEC+ pledges production curbs of 1.1 million barrels a day starting in May.
Russia reduced its production of crude oil by 700,000 barrels a day last month, a larger cut than previously pledged, Bloomberg reported. However, Bloomberg said the data sows doubt over how much oil Russia actually produced, as it doesn’t align with the country’s seaborne exports and domestic refinery supplies. In February, Russia announced plans to cut 500,000 barrels a day of its crude oil production throughout March, in retaliation to Western sanctions and energy price caps over its invasion of Ukraine. After already extending the reduction to June, Russia’s Deputy Prime Minister Alexander Novak announced Sunday that the output cuts would be continued to the end of the year. On the back of his comments — as well as weekend news that OPEC+ would also be cutting its oil output by 1.1 million barrels a day — oil markets rallied,
indicating the potential for crude prices to return to $100 a barrel this year.
The collective reduction in the commodity’s supply may also cause future volatility and force Western nations to reassess the $60 price cap on Russian oil. OPEC nations pursued the cutbacks following a momentary drop in oil prices during March’s banking turmoil and fears of a recession that could hurt energy demand.
Bloomberg’s data shows that Russia pumped around 1.285 million tons of crude oil a day, or over 9.4 million barrels. At the same time, exports of the commodity grew considerably, up 4.13 million barrels a day in the last week of March.
S&P raises China’s 2023 GDP forecast from 4.8% to 5.5%
Brainard: Jobs report consistent with steady growth
White House National Economic Council Director Lael Brainard said on Friday that the latest United States jobs report is “really nice” and consistent with stable growth. “I see a lot of positives in the job market,” Brainard told MSNBC. “I think generally this report is consistent with steady and stable growth,” she added and attributed the recent layoffs in the tech sector to the fact that s”some other industries that may have over-hired” and are not “rethinking a little bit.” Earlier, the US Bureau of Labor Statistics reported that the country added 236,000 nonfarm jobs in March, while unemployment was up from February at 3.5%. Brainard emphasized the Biden administration’s efforts to lower the prices of gas, prescription drugs and health care premiums. “We are very focused on bringing costs down for working Americans,” Brainard added.
US nonfarm payrolls rise by 236,000 in March….. 160,892,000: Number of Americans Employed Sets Fourth Straight Record in March
US payrolls rose last month as the unemployment rate fell, Making another increase in the FED FUNDS rate a slam dunk. . Nonfarm payrolls increased 236,000 after an upwardly revised 326,000 advance in February, the Bureau of Labor Statistics said Friday. The unemployment rate fell to 3.5% and average hourly earnings climbed 4.2% from a year ago. Average hourly earnings on a monthly basis rose 0.3%.
160,892,000: Number of Americans Employed Sets Fourth Straight Record in March
After setting three straight monthly records, the number of employed Americans leaped again last month, reaching another all-time high in March. The Labor Department’s Bureau of Labor Statistics says 160,892,000 Americans were employed last month, an increase of 577,000 over February’s record 160,315,000. BLS defines employed Americans as those who, during the reference week, did some work for pay or profit, or did at least 15 hours of unpaid work in a family-operated business.
As the number of employed Americans jumped again last month, the number of unemployed Americans — no job, but looking — dropped by 97,000, producing an unemployment rate of 3.5 percent, down a tenth of a point from February. (The 3.4 percent unemployment rate in January was the lowest it’s been since 1969.)
Among the major worker groups, the unemployment rate for Hispanics decreased to 4.6 percent in March, essentially offsetting an increase in the prior month. The unemployment rates for adult men (3.4 percent), adult women (3.1 percent), teenagers (9.8 percent), Whites (3.2 percent), Blacks (5.0 percent), and Asians (2.8 percent) showed little or no change over the month. In another positive sign, the labor force participation rate climbed a tenth of a point to 62.6 percent, the highest it’s been in three years. In March, the civilian non-institutional population in the United States was 266,272,000. That included all people 16 and older who did not live in an institution, such as a prison, nursing home or long-term care facility. Of that civilian non-institutional population, 166,731,000 were participating in the labor force, meaning they were either employed or unemployed — they either had a job or were actively looking for one during the last month. This resulted in a labor force participation rate of 62.6 percent, the highest it’s been since Joe Biden became president, and up from 62.5 percent in February. BLS says the non-farm economy added 236,000 jobs last month, job creation has averaged around 334,000 in the prior six months.
Breaking it down by industry:
— Leisure and hospitality added 72,000 jobs in March, lower than the average monthly gain of 95,000 over the prior 6 months;
— Government employment, +47,000;
— Professional and business services, +39,000;
— Health care, +34,000 jobs;
— Transportation and warehousing, +10,000;
— Retail trade, -15,000;
— Employment showed little change over the month in other major industries, including mining, quarrying, and oil and gas extraction; construction; manufacturing; wholesale trade; information; financial activities; and other services.
The number of Americans counted as not in the workforce — no job and not looking for one — dropped in March for a third straight month to 99,541,000. This group includes a growing number of retirees. And the number of people not in the labor force who want a job — 4,925,000 — hasn’t been this low since December 2019. (These individuals were not counted as unemployed because they were not actively looking for work during the 4 weeks preceding the survey or were unavailable to take a job.)
In March, average hourly earnings for all employees on private nonfarm payrolls rose by 9 cents, or 0.3 percent, to $33.18. Over the past 12 months, average hourly earnings have increased by 4.2 percent.
The change in total nonfarm payroll employment for January was revised down by 32,000, from +504,000 to +472,000, and the change for February was revised up by 15,000, from +311,000 to +326,000. With these revisions, employment in January and February combined is 17,000 lower than previously reported. NN: lately the much watched inflation reports have been ballyhooed as “going down” coming in under estimates. That is WallStreet estimates… When reality is ALL the reports show inflation still climbing and a red hot job market. Their are no signs of a slow down in the important statistics the FED bases its interest rate decisions on… Talk about fake news.
North Sea Oil Production Could Fall By 80% By 2030
- Offshore companies reduce their spending in the North Sea, leading to a decrease in oil production.
- Without additional funding, the UK may become reliant on foreign fossil fuels to meet its energy demands.
- The introduction of a windfall tax has been blamed for the lack of interest in British waters.
According to the industry body Offshore Energies UK, investments in the North Sea have dipped significantly. This could result in much lower oil production by the end of the decade unless the government can attract greater investment to the sector. While environmental groups are praising the drop in funding, energy experts are concerned about what this means for the U.K.’s energy security, with some suggesting it may have to rely on foreign fossil fuels to meet its needs. Offshore Energies found that 90 percent of offshore firms had reduced their spending in the North Sea, amounting to billions in total. It determined that the lower level of investment could result in a decrease in production of 80 percent by 2030, equivalent to 500 million fewer barrels of oil if the government cannot attract more funding to the waters. This could lead the U.K. to rely on imports of oil and natural gas. The introduction of a windfall tax has been blamed for the lack of interest in British waters. The government introduced the tax last year as energy companies saw record profits as oil and gas prices rose sharply. This was largely in response to supply shortages and sanctions on Russian gas. Headline tax rates for companies rose from 40 percent to 75 percent, although several companies still posted profits. BP announced it had seen record profits of $22.7 billion in 2022. However, many companies believe it could be cheaper to invest in oil and gas operations in countries where taxes are significantly lower. Others have shifted investments to new ‘low-carbon’ oil operations, in a move away from traditional oil-producing regions. Other reasons for the reduction in investment include high levels of inflation, expensive material costs, and a lack of access to finance. Several industry experts see fossil fuels as playing a huge part in the U.K.’s mid-term energy security. Ross Dornan from Offshore Energies stated, “By the mid-2030s, according to the Climate Change Committee, oil and gas will still provide half our energy needs.” Therefore, “We should be aiming to get as much as possible of that energy from our own resources – meaning the North Sea,” Dornan explained. Dornan highlighted the need for the U.K. to attract investment in the sector or become reliant on other countries for its oil supply. Bseisu and other industry leaders believe it is vital for the U.K. to make the North Sea attractive to investors and maintain its oil and gas activities to bring in the revenues needed to fund the green transition. Without money from oil and gas, the government may not have the funds it needs to accelerate the rollout of renewable energy and related technologies. Further, it may need to spend more on oil and gas imports if its domestic production falls short of the country’s rising energy demand. NN: They just got to shoot themselves in the head. Enough gas lies under the surface in the North Sea to supple all of the Russia gas taken out of Europe. So what are they doing. Why they are building wind farms in the North Sea that will provide a fraction of the energy they need. Its the season of the idiots!
Fed’s Bullard: Financial stress low compared to 2008 crisis……
Federal Reserve Bank of St. Louis President James Bullard said on Thursday that financial conditions have become tighter with the collapse of Silicon Valley Bank and Credit Suisse, among others, but that “financial stress and financial conditions metrics as of today remain low” compared to those during the financial crisis in 2007-2009 and the COVID-19 pandemic. Bullard said the response to the crisis was strong and that regulators are ready to take further measures if necessary. He explained that “even with considerable forward guidance, it is relatively common that not all financial entities adjust their businesses appropriately to the changing environment,” such as rising interest rates, but that does not have to mean they are “harbingers of poor US macroeconomic performance.”
Fed’s Mester says inflation needs to be ‘brought down’
Cleveland Federal Reserve Bank President Loretta Mester stated that she thinks inflation levels in the United States need to be brought down from current levels, suggesting the Fed may consider raising its rates to over 5%. Despite the challenges posed by inflation, Mester noted that the Federal Reserve’s recent actions have helped stabilize the banking sector and that the Fed took swift action to help prevent a financial crisis. Mester also expressed support for the institution’s recent rate hike, which she sees as a necessary measure to maintain a stable economy.