#1 Daily Financial News Round Up - Nov 1,2021
Market Snapshot
Dow Jones is up by 0.16%, S&P500 is up by 0.03%, and Nasdaq Composite is up by 0.34%.
How’s crypto-market?
Bitcoin is up by 0.96%. The top three traded cryptocurrencies in the last 24 hours are Decentraland, Shiba Inu and XRP. It’s all green in the leading cryptocurrencies.
What news caught my attention?
If you went into a store and tried to purchase your favourite item, you must have noticed that the stock is backed up. This issue has been persistent for more than few months now. The supply shortage has become a critical issue since the pandemic, and it is messing up businesses. Now, CEOs are rethinking their strategy and how to navigate the supply chain issues. While some believe that this issue is short-lived, others believe this might be a permanent problem. The machinery of the supply chain based on global trade has been the poster child of improved efficiency. With the current situation, CEOs choose to stay local and not use the global supply chain even though this move will increase their costs.
With rising inflation concerns, all eyes are on Fed Chairman Jerome Powell, poised to make some announcements on Wednesday. In other developed countries, bond markets reacted to their central banks’ actions taken to curb inflation. Can we expect similar movements in the US bond? We observe increased activity in the US bond markets already. It is debatable how much of it could be attributed to the inflation concerns and the anticipation of the Fed’s movements.
US Mortgage companies issued the second-highest quantity of mortgage-backed bonds since the 2008-09 crisis in Oct 2021 - a total dollar value of $21 billion. A natural question to ask is this increased borrowing reminiscent of the bad practices that exacerbated the 2008-09 crisis? Are the mortgage companies engaging in risky lending? Should we ring the warning bells? Early evidence indicates that the average borrower FICO score on jumbo mortgages included in securitization is 775, which is about 40 points higher than pre-crisis levels. The answer is NO to ringing the warning bells. However, it would be wise to keep a cautious look at the activity in the private-label bond markets. Some possible reasons that can explain the increased borrowing are:
It is cheaper to borrow in the private market by issuing MB bonds than issuing bonds guaranteed by GSEs.
These bonds are cost-effective in the current low-interest rate environment.
My Takeaways:
The markets seem to be doing great.
Efficiency vs Reliability - is this indeed the dynamics in the supply chain? Is this the tradeoff?
Inflation seems to be the big Boogeyman of the financial markets as concerns seem to hang over all types of investors (bonds, stocks, etc.)
There is increased interesting activity in the bond markets - both corporate and mortgage-backed.