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Soaring Rates Lead To Slowest Growth In Household Debt In Two Years As Mortgage Originations Plummet

Soaring Rates Lead To Slowest Growth In Household Debt In Two Years As Mortgage Originations Plummet

Total household debt rose by $148 billion,…

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Soaring Rates Lead To Slowest Growth In Household Debt In Two Years As Mortgage Originations Plummet

Total household debt rose by $148 billion, or 0.9%, to $17.05 trillion in the first quarter of 2023, according to the latest Quarterly Report on Household Debt and Credit.

This was the weakest quarterly debt increase in two years...

... hardly a good look for an economy that is entirely credit-driven, and may explain why the Citi US eco surprise index just dipped negative after a 4 month stretch in the green.

A detailed look at current debt balances by component:

  • Mortgage balances shown on consumer credit reports increased by $121 billion during the first quarter of 2023 and stood at $12.04 trillion at the end of March, a modest increase.
  • Balances on home equity lines of credit (HELOC) increased by $3 billion, the fourth consecutive quarterly increase following a nearly 13 year declining trend; the outstanding HELOC balance stands at $339 billion.
  • Credit card balances were flat in the first quarter, at $986 billion, bucking the typical trend of balance declines in first quarters.
  • Auto loan balances increased by $10 billion in the first quarter, continuing the upward trajectory that has been in place since 2011.
  • Other balances, which include retail cards and other consumer loans, increased by $5 billion.
  • Student loan balances now stand at $1.604 trillion, up by $9 billion from the previous quarter. In total, non-housing balances grew by $24 billion

While total debt hit another record high, the impact of soaring interest rates was felt with originations sharply lower across the board:

  • Mortgage originations, which include refinances, dropped sharply in the first quarter of 2023 to $324 billion, the lowest level seen since 2014, a quarter that was unusually low due to the “taper tantrum”
    • The median credit score for newly originated mortgages decreased slightly to 765.
    • What is remarkable is the collapse in mortgage originations in the highest FICO score bucket, which drove the housing market since 2020, and which has now cratered.

  • The volume of newly originated auto loans was $162 billion, a reduction from pandemic-era highs but still elevated compared to pre-Covid volumes.

  • The median credit score on newly originated auto loans ticked up 10 points, to 721, suggesting some tightening.

  • Aggregate limits on credit card accounts increased by $119 billion, representing a 2.7% increase from Q4 2022 levels.
  • Limits on home equity lines of credit were up by $9 billion in the first quarter.

Also not surprising is that in a time of near record high rates, the share of current debt becoming delinquent increased for most debt types. The delinquency transition rate for credit cards and auto loans increased by 0.6 and 0.2%, respectively approaching or surpassing their pre-pandemic levels.

With countless debt-easing measures having been implemented in recent years (mostly post-covid) soon coming to an end, the mean-reversion here will be brutal.

The New York Fed also issued an accompanying Liberty Street Economics blog post taking a closer look at housing equity and mortgage refinancing as tools for funding consumer spending. Fourteen million mortgages were refinanced during the pandemic refinancing boom, during which $430 billion of home equity was extracted through cash-out refinances. About 64% of these mortgages were "rate refinances", resulting in an average payment reduction of $220 monthly for those borrowers.

"The mortgage refinancing boom is over, but its impact will be seen for decades to come," said Andrew Haughwout, Director of Household and Public Policy Research at the New York Fed. "As a result of significant equity drawdowns, mortgage borrowers reduced their annual payments by tens of billions of dollars, providing additional funding for spending or paydowns in other debt categories."

The Quarterly Report includes a summary of key takeaways and their supporting data points. Overarching trends from the Report's summary include:

Housing Debt

  • There was $324 billion in newly originated mortgage debt in 2023Q1. With the pandemic-era refinance boom over and a slowdown in home sales, reported refinance and purchase mortgage originations both declined substantially in the first quarter.
  • Although the foreclosure moratoria have been lifted nationally, new foreclosures have stayed very low since the CARES Act moratorium was put into place. About 35,000 individuals had new foreclosure notations on their credit reports, roughly flat with the fourth quarter.

Student Loans

  • Outstanding student loan debt stood at $1.604 trillion in 2023 Q1.
  • Less than 1% of aggregate student debt was 90+ days delinquent or in default in 2023 Q1, a small decline from the previous quarter. Delinquency rates fell substantially in the previous quarter due to the implementation of the Fresh Start program, which made previously defaulted loan balances current.

Unfortunately, the party is almost over as student loan payments are set to restart (by August 30th at the latest), around the time the Supreme Court will rule that Biden’s $20K forgiveness plan is unconstitutional. In short, the student loan delinquencies are about to come back with a historic vengeance.

Putting it all together: boomers who used the covid crisis to refi their homes into a record low mortgage rate and paid down their debt are sitting pretty; meanwhile millennials and Gen Zers who are stuck renting and whose student loans are about to kick in again...

... are facing a world of pain, especially those who are already not current on their auto loans.

More in the full presentation below.

Tyler Durden Mon, 05/15/2023 - 12:45

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Market Report – 2nd October 2023

The US Non-Farm Payroll jobs report due on Friday is the key data point of the coming week.  Analysts predict payrolls will fall…
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  • The US Non-Farm Payroll jobs report due on Friday is the key data point of the coming week. 
  • Analysts predict payrolls will fall to 150,000 from 187,000 last month and the unemployment rate to hold at 3.8%.
  • Average hourly earnings are expected to increase 0.3% month-on-month.
  • Any deviation from those forecasts can be expected to trigger price moves in all the major currency markets.

US dollar strength continues to be the underlying theme of the currency markets, with EURUSD currently testing the key 1.04823 support level and the GBPUSD downward price channel showing few signs of reversing. The US Non-Farm Payrolls jobs report, due to be released on Friday, is always an important milestone in the trading month, and September’s numbers could offer clues as to how far the current trend has left to run.

US Dollar

The Non-Farm Payrolls employment report, released on the first Friday of every month, often sets the tone for the following week’s trading. After this September, which saw EURUSD and GBPUSD give up 2.48% and 3.70% in value, respectively, Friday’s report is the most important item on the coming week’s economic calendar. The jobs report will be a crucial indicator of whether the rush to the dollar is likely to continue or if a reversal could be about to form.

ISM Purchasing and Services data will also offer an insight into the health of the US economy, and big corporations will kick off earnings season next week. There is also the backdrop of the US Federal budget and a possible government shutdown to consider, but for now, the NFP is the most likely catalyst of the next price moves.

Daily Price Chart – US Dollar Basket Index – Daily Price Chart – 20 SMA

us dollar basket daily price chart 20 sma

Source: IG

EURUSD

The coming week is quiet in terms of euro-specific data releases, but updates from other regions look set to influence the value of euro-based currency pairs. Due on Friday, the NFP number out of the states will very likely impact prices in the largest currency market in the world – the Eurodollar. Before that, on Tuesday, the interest rate decision due to be announced by the Reserve Bank of Australia will influence EURAUD price levels. However, comments from that central bank can also be taken as a guide regarding the mood of the rest of the central bank peer group.

Daily Price Chart – EURUSD – Daily Price Chart – 1.04823

eurusd daily price chart oct 2 2023

Source: IG

EURUSD has started the week trading midrange between two significant support and resistance price levels. To the downside is the 1.04823 support level, which marks the price low of 6th January. That still represents the current year-to-date low for EURUSD, but the tests of that level on Wednesday (1.04880) and Thursday (1.04910) suggest that bearish momentum is still strong.

Whilst the bounce off that level was strong enough for traders to think a trend reversal could be imminent, there is also resistance to further upward moves in the region of 1.06351. That price level relates to the swing-low price pattern formed on 31st May and previously acted as support between 14th and 25th September.

GBPUSD

As with the euro, traders of sterling-based currency pairs will see prices influenced by announcements from other regions rather than UK authorities this week. The run-up to the release of the NFP jobs report could see GBPUSD continue to trade within a range formed by key support/resistance price levels.

Price level 1.23081 marks the upper end of the current price channel and is the low price recorded during the swing-low price move of 25th May. This level didn’t offer as much support as expected when it was breached on 21st September, and with the RSI on the Daily Price Chart at 29.09, there are signs the market is oversold and is due a bounce.

Daily Price Chart – GBPUSD – Daily Price Chart

gbpusd daily price chart oct 2 2023

Source: IG

The downward trend, which started on 13th July, has formed a price channel which has trendlines which have been barely tested over a period of weeks. That leaves plenty of room for the price of GBPUSD to continue to weaken and move towards the major support level of 1.18030, which marks the year-to-date price low of 8th March.

USDJPY

The recent decision by the Bank of Japan to continue with its dovish approach to interest rates has left room for USDJPY to track upwards, guided by the 20 SMA on the Daily Price Chart. That metric remains the key indicator, and until price breaks through that level (currently 148.21), there is room for a test of the multi-year price high 151.946 printed on 21st October 2022.

Daily Price Chart – USDJPY – Daily Price Chart

usdjpy daily price chart oct 2 2023

Source: IG

Monday sees the Japan Tankan Index number for Q3 be released. Analysts forecast that the index will rise to 7, but as with the other major currency pairs, the major news event of the week is the NFP employment report due on Friday.

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    Bonds, Bullion, & Black Gold Battered As Hawkish FedSpeak & Inflation Fears Lift The Dollar

    Bonds, Bullion, & Black Gold Battered As Hawkish FedSpeak & Inflation Fears Lift The Dollar

    Rate-change expectations shifted hawkishly…

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    Bonds, Bullion, & Black Gold Battered As Hawkish FedSpeak & Inflation Fears Lift The Dollar

    Rate-change expectations shifted hawkishly today, after drifting dovishly for the last week, on the heels of the Manufacturing PMI's report which showed the rate of inflation quickened to the sharpest pace in five months and FedSpeak which confirmed Powell's "higher for longer" messaging.

    Source: Bloomberg

    In the US, S&P Global noted

    “Less encouraging was the news on the inflation outlook, as producers’ costs rose at the fastest rate for five months, largely on the back of higher oil prices. These increased costs are already feeding through to higher prices to customers, which will inevitably result in some renewed upward pressure on inflation.”

    Globally, JPMorgan warned that there were further signs of price pressures building in September.

    Input costs and output charges both rose for the second consecutive months, with rates of inflation accelerating for both measures.

    Fed Gov Michelle Bowman again said that multiple interest-rate hikes may be required to get inflation down:

    “I continue to expect that further rate increases will likely be needed to return inflation to 2% in a timely way,” Bowman said in remarks prepared for delivery to bankers in Banff, Canada.

    “I see a continued risk that high energy prices could reverse some of the progress we have seen on inflation in recent months.”

    Fed Vice Chair Michael Barr said the US central bank is “likely at or very near” a level of interest rates that is sufficiently restrictive:

     “I think it is likely that we’ll need to keep rates up for some time in order to get inflation down to 2%. I’m confident that we’ll get there.”

    Traders were buying protection against a less-hawkish Fed. Bloomberg notes significant SOFR flows on the day have been skewed toward dovish protection into year-end, standing to benefit from no more additional rate hikes from the Fed.

    The hawkish shift sent the dollar higher, rallying back up to perfectly tag the stops from Wednesday highs...

    Source: Bloomberg

    The stronger dollar weighed on crude oil prices, with WTI sliding back below $89, as Citi's Ed Morse muttered something about Oil "going back to the $70s" as “demand looks constrained as the pandemic recovery factors continue to ease off and peak transport fuel demand looms, while supply is growing in non-OPEC+ suppliers”

    And gold was dumped to fresh cycle lows, selling off for the 6th day in a row (9th drop in the last 10 days)...

    Source: Bloomberg

    Spot Platinum prices plunged to their lowest since Oct 2022...

    Source: Bloomberg

    Treasuries were sold across the board with the belly  (5s-10s) suffering the most...

    Source: Bloomberg

    Which steepened the yield curve (2s10s) to its least-inverted since the peak of the SVB crisis...

    Source: Bloomberg

    Bitcoin continued to drift higher, spiking above $28,500 intraday

    Source: Bloomberg

    Stocks were very mixed on the day with Small Caps clubbed like a baby seal while Mega-Cap tech outperformed leave The Dow and S&P trying to get back above water...

    Value stocks puked relative to Growth, erasing their recent gains...

    Source: Bloomberg

    'Most shorted' stocks were hammered for the second day in a row with no squeeze attempts...

    Source: Bloomberg

    Utes were the biggest losers today (NEE's plunge did not help) and Tech stocks were the only sector to end green...

    Source: Bloomberg

    That's quite a puke in Utes...

    Source: Bloomberg

    Goldman's data could hint at capitulative flows: CTAs as short $17.8bn of global equities (31st %tile), while In the US, CTAs are short $17.5bn of equities after selling -$59bn over the last two weeks, representing the largest two week selling since Covid!

    And finally, financial conditions continue to tighten, suggesting stocks may have more room to run to the downside...

    Source: Bloomberg

    Is that the 'deflation' that Powell is looking for?

    Tyler Durden Mon, 10/02/2023 - 16:00

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    UC Riverside startup company wins prestigious NIH grant

    Soon after he joined UC Riverside in 2015, Maurizio Pellecchia, a professor of biomedical sciences in the UCR School of Medicine, began working with…

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    Soon after he joined UC Riverside in 2015, Maurizio Pellecchia, a professor of biomedical sciences in the UCR School of Medicine, began working with the UCR Research and Economic Development office to create on campus an incubator space. He envisioned that space as a home for UCR scientists to create startup companies to prove the commercial potential of their technologies. That multi-year effort helped create in the Multidisciplinary Research Building the EPIC Life Sciences Incubator that currently houses young companies in agricultural technology, biomedical technologies, bioengineering, and medicinal chemistry.

    Credit: Stan Lim, UC Riverside.

    Soon after he joined UC Riverside in 2015, Maurizio Pellecchia, a professor of biomedical sciences in the UCR School of Medicine, began working with the UCR Research and Economic Development office to create on campus an incubator space. He envisioned that space as a home for UCR scientists to create startup companies to prove the commercial potential of their technologies. That multi-year effort helped create in the Multidisciplinary Research Building the EPIC Life Sciences Incubator that currently houses young companies in agricultural technology, biomedical technologies, bioengineering, and medicinal chemistry.

    One of the tenant companies in the incubator space is Armida Labs, Inc, a pharmaceutical company founded two years ago by Pellecchia with Carlo Baggio, formerly a senior scientist in Pellecchia’s research group, as its chief technology officer and director of chemical biology. Armida Labs, which is developing a breakthrough pancreatic cancer therapy called Targefrin™, has now been awarded a highly competitive $400,000 Phase I Small Business Innovation Research, or SBIR, grant from the National Cancer Institute of the National Institutes of Health. The grant, of which Baggio is principal investigator, will allow the company to complete important next steps toward the preparation of human clinical trials. 

    “Our goal is to develop the drug Targefrin, which UCR has patented,” said Pellecchia, who holds the Daniel Hays Chair in Cancer Research at UCR. “We want to translate Targefrin from a laboratory discovery to a product that can fight pancreatic cancer, and potentially other cancers, and improve public health.”

    Pellecchia, who is the main inventor of Targefrin, explained that the SBIR grant makes it possible for Armida Labs to gather industry-standard pharmacokinetics and efficacy data, which are expensive to obtain. 

    “Without the grant, our studies would remain at the pre-clinical level,” said Pellecchia, who directs the School of Medicine’s Center for Molecular and Translational Medicine. “The Phase I SBIR grant will allow us to scale up the manufacture of Targefrin and to test this drug in more sophisticated pharmacology studies in models of metastatic pancreatic cancer. These data will help us craft the necessary follow-up studies that will enable filing an investigational new drug application with the Food and Drug Administration, and if successful, begin human clinical studies.”

    The SBIR grant Armida Labs received is a Phase I grant, which means it is a pilot phase grant. Only recipients of a Phase I grant can apply to the NIH for a Phase II grant. 

    “Phase II grants, which can be up to around $2 million, can allow us to apply for an IND,” Pellecchia said. “We expect our pilot studies will take about six months to one year to do. If these studies are successful, we will submit a Phase II application, which will allow us to complete toxicity studies in two animal models.” 

    An investigational new drug, or IND, is a drug that the Food and Drug Administration has not yet approved for general use. Researchers use INDs in clinical trials to investigate their safety and efficacy. Before testing in human subjects, however, researchers need to apply for an IND with the Food and Drug Administration.

    According to Pellecchia, the EPIC Life Sciences Incubator greatly simplified the launch of Armida Labs, the first UCR faculty biopharmaceutical company in the City of Riverside. He said it is a lot easier to start a company in an incubator space than to have to rent an empty lab space somewhere to start doing research.

    “Developing and growing a biotech company requires huge amounts of capital,” he said. “In contrast, a minimal amount of capital is needed to launch a startup in an incubator space. As a result, we were able to get Armida Labs off the ground and thus apply to the National Cancer Institute for seed funding. To go from a pre-clinical laboratory discovery all the way to drug development in patients, similar projects to Targefrin often require as much as $2-5 million. With our new award, we aim to complete valuable steps to attract further investment.”

    The EPIC Life Sciences Incubator, which is managed by Maricela Argueta and directed by David Pearson, aims to be a home for startups like Armida Labs by providing vital technology and equipment, as well as access to UCR’s core technical facilities, faculty, and entrepreneurial development services from the Office of Technology Partnerships led by Associate Vice Chancellor Rosibel Ochoa. It offers advice, makes connections with venture capital firms, administers the incubator space, and provides personnel for coordinating the use of shared equipment. 

    Pellecchia is excited to have launched Armida Labs and acquired the SBIR grant. As the company grows, it will hire more personnel.

    “Nothing would make me happier than to see our UCR research translated into experimental therapeutics. I am also thrilled to create new biotech jobs in Riverside, a region lacking incubator spaces where biotech companies can start and grow,” Pellecchia said. “At UCR, we graduate thousands of students and train many postdocs. But we are really educating and training them only to see them go elsewhere. We want them to stay and thrive in Riverside.”


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