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Treasury Secretary Signals End to Russia’s Debt Payments



Treasury Secretary Janet Yellen announced that it is “reasonably likely” that the license for Russia’s debt may be allowed to expire on May 25th. The US has been licensing specific countries’ ability, under the current Western Union non-sanctioned regime, but with possible future restrictions due in place from June 26th forward following Russian intervention into Ukraine, which led several eastern European nations including Poland seeking greater autonomy within Europe over security matters.

Russia has enough money to pay its debts, but it’s been unable to access about $315 billion in foreign reserves due to an imposed economic sanction from the West. However, with help from other countries and international organizations like OPEC or China who have refused payments on their Treasuries holdings. There was no alternative option left for Russia when they were faced with potential bankruptcy at least until now, thanks mostly because Janet Yellen spoke out against such actions which might lead us into another Great Depression.

Russia has continued to pay its creditors without accessing those frozen assets. The country’s finance ministry said in April that Russia made a payment on $565 million Eurobond due this year, as well as an additional installment of approximately 84 million dollars for another bond set to mature by 2024 which were both paid out in US Dollars according to contract stipulations with no problems found so far at customs. The news was announced last week but since then there have been questions raised about whether or not all payments will be taxed because some proceeds may contain interest earnings.

The expiring carve-out is a risk to Russian stability because it will effectively block them from paying their US bondholders.

The US has introduced new sanctions that ban transactions with Russia’s central bank, finance ministry, and national wealth fund. However, the Treasury Department recently issued a license for some debt payment-related business which allows it to go on as before in order “to avoid any adverse impacts on critical foreign currency flows.

“Sanctions have been a big problem for the Russian economy, but I’m not too worried about this being an issue,” said Federal Reserve Chair Janet Yellen during her testimony before Congress. “We had expected that they would end eventually and when it did most investors were able to sell their investments.”

“Russia is not able to borrow right now in global financial markets. It has no access to capital markets,” Yellen said, adding that if they were unable “to find a legal way” for the payments and technically defaulted on their debt then this wouldn’t represent a significant change within Russia’s situation as it is cut off from all previous borrowing efforts anyway-the country had been isolated since its economic crisis began back in the fall of 2018.


Russia has spent the last several years trying to prop up its ruble. They’ve done this by hiking interest rates, preventing Russian brokers from selling securities held by foreigners and demanding payment for gas deliveries in rials – even as global sanctions continue to bite!

The outlook for Russia is not optimistic. They are facing a looming risk of default and squabbles with European countries over gas payments, which could limit their ability to prop up the value of the ruble against international competition in any way that would be sustainable for the long term.

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Economic News

Is a Housing Market Crisis Imminent?




Housing Market

According to the Census Bureau, new housing market sales rose less than expected in May after a dip in April.

May sales of new single-family homes were 10.7 percentage points above April’s revised total of 629,000. In April, the new housing market plummeted 16.6 percent month-over-month to its lowest level since April 2020.  May sales were 5.9% below the May 2021 projection of 740,000.

First-time buyers are being driven out of the market by rising mortgage rates, limited inventory, inflation, and record-high home prices—34% higher than two years ago. Many folks can’t afford a house right now. Average 30-year mortgage rates climbed from 3.1% to 6.28% on June 14.

As consumer prices rise, the Federal Reserve raises its main interest rate, making borrowing more expensive, increasing housing costs, and decreasing spending.

House prices make many homes unaffordable. May 2022 new home sales averaged $449,000. The average monthly sales price was $511,400. The global cost-of-living crisis affects customers’ finances, restricting their ability to acquire new homes.

A housing-market crash?

As demand wanes, the housing market may weaken, prompting some to predict a bubble burst or market crash. Mark Zandi, chief economist at Moody’s Analytics, said he expects a “coast-to-coast” correction this week. During the pandemic, homebuyers were tempted by low mortgage rates. As the market and new-home development recovered from the global financial crisis, purchasers fought for fewer properties.


Home builders are less confident about building new homes due to rising costs and declining buyer demand, which could lead to a scarcity of supply. Many experts doubt the home market will implode like it did in 2008, which would be the worst-case scenario. When “no-doc loans” were still available 14 years ago, applicants were more likely to default.

Zillow economist Nicole Bachaud told Forbes that “lending standards have gotten tighter and credit scores for new mortgages are much higher on average now than they were in the early 2000s.”

“What’s much more likely is a gradual slowdown in the pace of price appreciation where home prices continue growing, just not as fast as they are now,” Bachaud said. Homeowners and lenders are also considerably stronger now than then, with higher property values and more home equity. Both won’t panic over the slowdown. The housing market may “correct” itself more gently, responding to declining demand as home prices fall. First-time purchasers, mostly Millennials, could start buying homes again.


Fannie Mae’s top economist Doug Duncan said, “Mortgage rates have ratcheted up dramatically over the past few months, and historically such large movements have ended with a housing slowdown”. Lending Tree senior economist Jacob Channel told the New York Post that rising interest rates had cooled the housing market. “This current ‘correction’ is neither unexpected nor necessarily a bad thing — especially as it will give some buyers a bit more breathing room when they’re housing hunting,” Channel stated.

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Economic News

Federal Reserve Could Raise Its Benchmark Rate 75 Basis Points





On Wednesday, the President of the Federal Reserve Bank of Cleveland, Loretta Mester, stated that if the current state of the economy has not changed by the time the Federal Reserve Board of Governors meets in July to determine the next move in monetary policy, she will be advocating for an increase of interest rates of 75 basis points.

In recent months, one of the most important factors driving market activity has been the Federal Reserve’s plan to continue its path of monetary tightening. This comes as the Fed looks to take aggressive action to rein in skyrocketing inflation, despite acknowledging the risk that steeper interest rate rises will increase the likelihood of an economic recession.

Inflation is currently at a 40-year high, so the Federal Reserve decided to raise its benchmark interest rate by 75 basis points earlier this month. This was the largest rise in the rate since 1994.

Mester, who is a voting member of the Federal Open Market Committee, stated that the meeting in July will likely entail a dispute among FOMC policymakers over whether to opt for 50 basis points or 75 basis points. Mester is a member of the Federal Open Market Committee.

She stated in a recent interview that “If conditions were exactly the way they were today going into that meeting — if the meeting were today — I would be advocating for 75 because I haven’t seen the kind of numbers on the inflation side that I need to see in order to think that we can go back to a 50 increase.”

Mester stated that she will be doing an analysis of the current supply and demand situations in the coming weeks prior to the meeting in order to establish the most desirable course of action regarding the tightening of monetary policy.

The present goal range for the federal funds rate is between 1.5 and 1.75 percent; however, according to the “dot plot” of individual FOMC members’ views, the Fed’s benchmark rate will be 3.4% by the end of the year.


Mester said, “I think it’s really important that we do that, and do it expeditiously and do it consistently as we go forward, so it’s after that point where I think there is more uncertainty about how far we’ll need to go in order to rein in inflation.” “I think getting interest rates up to that 3-3.5 percent, it’s really important that we do that, and do it expeditiously and do it consistently as we go forward.”

‘Harsh adjustment’

U.S. markets dropped significantly on Tuesday following the release of a dismal reading of consumer confidence. The reading, which came in at 98.7 instead of the Dow Jones consensus estimate of 100, added to the unease that investors already felt regarding the sluggish growth of the economy and the potential compounding effect of aggressive monetary policy tightening.

Mester said that the experience of consumers with inflation, which reached 8.6 percent at the headline level in May, was “clouding” their confidence in the economy. In May, the headline inflation rate was 8.6 percent.

She stated that the Federal Reserve is “on a path now to bring our interest rates up to a more normal level and then probably a little bit higher into restrictive territory, so that we can get those inflation rates down so that we can sustain a good economy going forward.”

“Job one for us now is to get inflation rates under control, and I think right now that’s coloring how consumers are feeling about the economy and where it’s going.”

Mester agreed that there is a possibility of a recession as the Fed moves forward with its program of tightening. As a result of the Federal Reserve’s efforts to reduce demand and bring it closer to constrained supply, her baseline projection is for growth to be slower this year, below what she refers to as “trend growth.” She sets the value of “trend growth” at 2%.

She stated, “I expect to see unemployment rates rise over the next two years to a little above 4% or 4.25%, and again that’s still very good labor market conditions.”


“So we’re in this transition right now, and I think that’s going to be a painful one in some respects and it’s going to be a bumpy ride in some respects, but it’s very necessary that we do it to get those inflation numbers down.”

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Economic News

Wheat Producers are Helping to Bring Down Food Prices





Wheat producers are helping to down food pricesIt has been four months since Russia invaded Ukraine, which caused trade flows to be disrupted and caused futures’ prices to rise. The fear of a grain crisis is slowly giving way to the hope that important producers will harvest large enough harvests to help repair war-torn reserves. This is essential for the production of wheat, which is needed to feed the world’s population, corn, which is needed to feed hogs, chickens, and cattle, and oilseeds, which are needed to make food.

“Supply may not be as impaired as we think because other areas will compensate for any losses from Ukraine, and it is happening across the board,” said Marc Ostwald, global strategist at ADM Investor Services in London.

It is anticipated that Australia, which is one of the top exporters of wheat, will produce another massive crop this year. On the other hand, corn is piling up outside bins in the principal growing region of Brazil. The worry that spring weather problems would drastically cut down on the amount of land used for growing grain and soybeans in North America has dissipated.

The Bloomberg Agriculture Spot Subindex is on course to have its worst monthly loss since 2011. Concerns about decreasing grain and oilseed supplies, as well as fears that an economic downturn could reduce demand, have pushed crop futures lower from recent highs. While such improvements often take time to reach grocery shelves, Darden Restaurants Inc., owner of the Olive Garden and LongHorn Steakhouse restaurants, reports that chicken and beef prices are cooling slightly.

Fuel pump costs will also have a significant impact on the direction of food inflation for the rest of the year. According to Joe Glauber, former head economist of the US Department of Agriculture, supermarket prices are projected to “moderate over the next six months, particularly if oil prices decline.”

As of June 24, the average daily price of a gallon of gasoline in the United States had fallen for ten consecutive days after reaching some of its highest levels on record. Crude oil futures are down more than 10% from a near all-time high in the days after Russia’s late-February invasion on Ukraine, one of the world’s largest grain and vegetable-oil shippers. Fertilizer, a major expense for farmers, has fallen after reaching new highs.

The United Nations’ food price index fell from a record high in March after the war stifled Ukrainian exports and provoked a slew of sanctions against Russia. Even if the rate of increase slows, high food prices will continue to put pressure on the poor. A government prediction released last week predicts that food prices will rise by much to 8.5 percent this year, however the analysis did not account for the recent decline in agricultural futures.

Furthermore, Goldman Sachs Group Inc., one of the more positive commodity watchers, claimed prices haven’t peaked yet, despite Bloomberg’s broad index of spot commodities falling around 13% from a record high.


“We agree that when the economy is in a recession for long enough, commodity demand falls and hence prices, fall,” experts such as Jeffrey Currie stated in a note. “We are not yet at that state, with economic growth and end-user demand simply slowing, not falling outright.”

Darden Restaurants is enthusiastic about the future. The Orlando, Fla.-based company says it is not passing on higher meat, dairy, and wheat prices to customers because it does not expect the higher expenses to last. Meat prices are starting to “come down a little bit,” and impending crop harvests could help lower wheat prices, according to Chief Financial Officer Rajesh Vennam last week.

Wheat and soybean futures have lost roughly 15% this month, while maize has fallen 13%. Coffee, sugar, and cocoa have all taken a step back.

Food is more of a national security issue in China than an inflation concern. As grain and cooking-oil prices fall, June consumer-price growth in China is projected to be less than 2.5 percent, according to Zhaopeng Xing, senior China analyst at ANZ Bank China Co. in Shanghai.

However, given the uncertain future for grain supplies from Ukraine, India, and other key exporters, he believes it is still too early to declare an end to food inflation.

Palm oil, the world’s most widely used vegetable oil, has fallen almost 30% from its peak as leading shipper Indonesia increases exports to reduce bloated stocks. The decline, combined with a drop in soybean oil and other commodities, might mean cheaper household products like chocolate, margarine, and shampoo. However, as with other agricultural markets, any sign of supply disruption or adverse weather might spark another wild ride.

For the time being, the reduction in essential commodities may provide a much-needed halt in inflation.

“Markets would really love to be able to breathe less stressfully again,” said Arnaldo Correa, a partner at Archer Consulting in Sao Paulo. “Light a candle for your guardian angel, and let’s see how things will play out.”


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