Commercial bankruptcies and CMBS defaults increasing rapidly.
The major averages opened lower despite generally positive domestic data. That said international markets remain troublesome with 6 British real estate funds now gated to prevent withdrawals and Asian markets wobbling of late. Investors seek return on capital, but sometimes that concern shifts to return of capital as those invested in the aforementioned real estate funds can now attest.
The Institute of Supply Manufacturers Non-Manufacturing or Services index jumped a much larger than expected 3.6 points in June to 56.5 on strength in new orders and employment. Another huge beat, 5 standards of deviation this time it is at odds with the similar index from Markit that gained just .1 to 51.4 missing expectations in the process.
The International Trade Deficit increased to 41.1 billion in May as exports fell and imports jumped. That said this deficit has bounced along at about 40 odd billion a month for some time now. Exports and imports have now declined for 17 straight months, classic weak end user demand credit bust.
On that subject commercial bankruptcies surged 35% in June from a year ago, an 8th consecutive increase. The first half saw a total of 19,470 commercial bankruptcies filed as per the American Bankruptcy Institute an increase of 29% and a 7-year high. Also of note defaults on Commercial Mortgage Backed Securities or CMBS is spiking as well up four straight months to 4.6% of all loans. Additional data shows that the Dollar balance rose steadily from the lows of 2013 until late 2015 when they tripled according to Morgan Stanley and Trepp. This follows a recent warning from the Federal Reserve on the vulnerability of CMBS.
Once again the incoming data is all over the map and I’m having a hard time accepting the dramatic expectations beats as the bigger picture shows that since late 2015 or so things are generally going in the wrong direction. Valuations and debt also remain painfully elevated and earned income is subdued suggesting an accident waiting to happen.
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