The Other Reason BOE Panicked: 26% Of All UK Mortgages Variable Rate, Set For Imminent Repricing

 Earlier today, we described the main reason why the BOE panicked - which, with billions in pensions set to suffer catastrophic losses absent an intervention, perhaps merited the latest central bank bailout. There is another reason why the central bank stepped in.

It's not just the US where housing affordability is the worst in history: in a note from DB's Jim Reid, the bank's head of thematic strategist writes that the bank's UK Homebuilding equity research team pushed out some fascinating insights into what the recent UK issues could do to housing affordability.

The note served for Reid's latest Chart of the Day, and shows the ratio of UK mortgage payments to take home pay. The colored lines and numbers look at where this would go if you moved rates up in 50bp increments, relative to the last published version of this chart which used an average new mortgage rate of 1.9% in Q2.

For reference, Lloyds Bank were offering a 2yr fixed rate last night at 4.95%, assuming a 60-75% loan-to-value ratio, which goes up to 5.29% for 90-95% loan-to-value.

So at these levels, this would send affordability to worse levels than that seen during the GFC and within a couple of percentage points of the peak in the late 1980s/early 90s when the UK saw a savage house price crash. The report (available to pro subscribers ) also shows that in aggregate, we’re already around those levels for London.

Of course, not every mortgage needs to be refinanced today so these rates have time to change before most refinance. However, unlike the US where a 30-year fixed market dominates, the FCA suggested in August that 26% of the total outstanding UK mortgages  are variable rate and thus dependent on where the BoE’s bank rate is. It is currently 2.25% but markets are now pricing in a terminal rate above 6% which would be a huge shock if it got close to happening over the next 6-9 months as is priced in. 74% of mortgages are fixed (mostly between 1-2%), and half of these will need to be refinanced within the next 2 years, with half at a fixed rate beyond 2 years (but rarely beyond 5 years).

So 26% of mortgage payments are at risk of imminent increases, 37% at risk over the next two years if rates don’t rapidly fall, and 37% can ride out this storm for a few more years.

As Reid concludes, while much can change very quickly in politics and markets, if markets are correct, "the UK housing market is in for a huge amount of pain ahead," unless the BOE were to somehow monetize all the upcoming debt issuance and sends rates back to zero.

https://www.zerohedge.com/economics/other-reason-boe-panicked-26-all-mortgages-are-variable-rate-and-set-imminent-repricing

Biden Draining SPR Like 'Campaign Credit Card' For Midterms

 President Biden's reckless draining of the US Strategic Petroleum Reserve is nothing more than an election-year gimmick akin to using a 'credit card' to buy votes, according to Tim Stewart, president of the US Oil and Gas Association.

According to data from the Department of Energy, stocks of crude oil in the SPR hit their lowest levels since 1984 for the week ending Sept. 16.

"This is the first time in history, honestly, that the Strategic Petroleum Reserve has been used as a campaign credit card to buy down political risk for the midterms," Stewart told Just the News.

"Let me put it in perspective if I could," he continued. "At the current rate, the U.S. is selling more oil out of its emergency reserves than the production of most medium-sized OPEC countries like Algeria or Angola. We're selling twice as much per day than we're producing out of Alaska. That puts us somewhere between Exxon and Conoco in terms of ... the impact we're having on the daily supply — and this is happening without new oil going into replace it."

The conversation then turned to 'energy expert' Hunter Biden, who host John Solomon asked for Stewart's reaction to "the idea that the president's son ... could be working behind the scenes quietly to take our great energy wealth, send it over to China, while the boss, the president, the 'Big Guy' that they refer to in the documents, he's trying to lower our reliance [on fossil fuels] and keep us from using our energy wealth here."

Stewart, who noted that the oil and gas trading industry is "very, very complex," replied: "I've been in this business for 25 years or so. And I can tell you, I am no more qualified to be a trader or a broker than an influence-peddling son of a former vice president. [Hunter Biden] had nothing to offer except for access, and access to his father, who in turn could make a call. And that's really what's wrong with Washington right now. And that is why this story is so so troubling to many of us."

Stewart decried the "sheer hypocrisy" of Joe Biden "spending decades beating up on the oil and gas industry, profiting by it for that four years when he's not in public office, and then coming back in and trying to to hamstring and to kneecap our industry again." -JTN

Watch:

https://www.zerohedge.com/political/biden-draining-spr-campaign-credit-card-midterms

China real estate shares, bonds slump on report of developer default

 Investors dumped shares and bonds of Chinese property developers on Wednesday, after a media report that CIFI Holdings (Group) Co had defaulted, adding to worries over the crisis-stricken real estate sector.

Hong Kong-listed shares of CIFI Holdings tumbled 26% in morning trading to a record low, after credit intelligence provider Reorg reported that the Chinese developer had missed payment on certain non-standard debt.

In response to questions about the report, CIFI said it is actively seeking solutions, without giving further details. The company’s website said it was China’s eighth-largest listed developer last year.

The share slump, which also came after CIFI’s chairman predicted “unprecedented” liquidity stress ahead, triggered savage sell-offs in the sector.

An index tracking mainland developers listed in Hong Kong tumbled more than 5% to record lows.

In Shanghai, bonds issued by property firms including CIFI Holdings, Sunac Real Estate and Gemdale Corp were among the biggest losers. The Shanghai Stock Exchange later said it was suspending trading in a CIFI bond due to abnormal fluctuations.

The panic selling, which weighed on an already bearish market, reflects lingering investor pessimism toward the property sector despite a slew of measures by Beijing to aid the sector.

It also shows markets doesn’t expect fresh property stimulus to be announced during or immediately after the 20th Communist Party Congress to be held from Oct. 16.

CIFI Holdings missed payment of debt under a project company known as Tianjin Xingzhou Real Estate Development Co, Reorg reported, citing sources.

In a letter to employees dated Sept. 27, CIFI Chairman Lin Zhong said the company’s priority now is to survive, as property sales in China remain sluggish amid COVID-19 outbreaks, an economic slowdown, and a morgtage boycott.

“Hardship and ordeal will persist for quite a long period of time,” Lin said in the letter, which was widely distributed via social media and confirmed by the company.

“In the coming months, CIFI’s cash flows will meet unprecedented challenges.”

A source with direct contact with Lin told Reuters that Lin is under immense pressure, as there’s no fresh, big policy support in sight, so “it’s unclear when the industry can see a gleam of hope.”

Last week, CIFI was downgraded by Fitch Ratings, which cited the developer’s declining liquidity buffer and higher leverage.

Woes in China’s property market worsened in August, with official data showing home prices, sales and investment all falling, adding pressure on the sputtering economy. A number of leading developers have defaulted on bonds.

https://wkzo.com/2022/09/28/china-real-estate-shares-bonds-slump-on-report-of-cifi-default/

30-Year US Mortgage Rises Above 7% For The First Time Since 2000; Fastest Surge In History

 Less than two weeks ago we cited Freddie Mac according to which the average 30 year US mortgage just rose above 6% for the first time since 2008, with real-estate brokerage Redfin commemorating the move by saying that "This Is The Sharpest Turn In The Housing Market Since The 2008 Crash." Well, just a few days later, Jeff Gundlach was so kind to point out this evening...

...that  the national average 30 year mortgage rate just soared above 7.0%, hitting 7.08% and the highest since December 11, 2000.

This was the fastest 1% increase in mortgage rates in history; and the fact that it took place inside of a month is even more remarkable.

There is nothing we can add here that isn't self-explanatory, and that we haven't said already, like for example the fastest ever collapse in YoY Case-Shiller prices, as well as the first sequential drop in 112 years...

... not to mention that the typical home now sells for less than the asking price...

... but what is perhaps most remarkable is that according to the Altanta Fed, as of a few weeks ago, the median American household would needed to spend 44.5% of their income to afford payments on a median-priced home in the US, the highest percentage on record with data going back to 2006.

Well, as of today, that number is just over 50%. That's right: more than half of the average US household's income goes to paying housing payments, nearly double what this number was just two years ago.

That such a move can't end in anything but tears is obvious to everyone... but the Fed, which still thinks it can somehow avoid the most destructive of hard landings.

https://www.zerohedge.com/markets/30-year-us-mortgage-rises-above-7-first-time-2000-fastest-surge-history

California EV Mandates Will Further Stress An Already Exhausted Electric Grid

 So apparently the idea of EVs providing a problem-free and pollution-free utopia where everybody lives in total harmony and there are no problems isn't quite the reality of the situation.

The reality in California, as the Wall Street Journal wrote about this week, is actually that EV charging is putting stress onto an aging grid and forcing the state to think about ways to generate more power. 

The state's plan to end gas powered vehicles by 2035 means that power needs in the state are going to increase. Meanwhile, as California's grid has already been stressed this year, the state has been asking citizens to be mindful of when they charge their EVs - and even when they use their major appliances.

Which, of course, begs the question: how the hell is the state going to go all electric within 12 years?

First, it'll need buy-in from its citizens over charging habits. Dan Bowermaster, senior program manager for electric transportation at EPRI, a nonprofit research group, told WSJ: “Are people going to top off every night? Are people going to wait every few days and then charge up all at once? There are a lot of questions about customer behavior.”

Utilities and auto makers are already trying to offer incentives for owners to charge at certain times and using favorable methods, the report says. 

The state is expected to have 5.4 million passenger EVs and 193,000 medium and heavy duty EVs by 2030, the state’s energy commission estimates. This charging will amount to 5% of the electric load at peak hours, compared to about 1% now. 

Despite this, Liane Randolph, chair of the California Air Resources Board, is optimistic. She told the WSJ: “The reality is the grid is only stressed in a limited period, a few hours in the early evening on certain types of days. Most of the time it’s fine.” 

Oh, okay. Problem solved.

Well not quite. A study out of Stanford released last week showed that the grid could face problems late at night when cars are charged at home. Siobhan Powell, the study’s lead author, commented: “If everyone were doing that, it would cause really big problems.”

At home charging draws about the same power as using 2.5 air conditioners, the report says. 

John Moura, director of reliability assessment and performance analysis at the North American Electric Reliability Corp., added: “There’s some energy challenges in how we’re bringing on new resources to meet this new growth of electricity demand.” 

“The disaster kind of comes from the rally cries from the public that utilities aren’t connecting their EVs fast enough. And now that bumps up against EV mandates. That’s the train-crash scenario.”

https://www.zerohedge.com/markets/train-crash-scenario-california-ev-mandates-will-further-stress-already-exhausted-electric

EU Chief Calls Nord Stream Attack 'Sabotage', Warns Of 'Strongest Possible Response'

 Update (1910ET): 

European Commission chief Ursula von der Leyen confirmed the Nord Stream pipeline system leaks were caused by "sabotage," and warned of the "strongest possible response" should active European energy infrastructure be attacked. 

Earlier, Danish Prime Minister Mette Frederiksen described the three separate leaks on NS1 and NS2 as "deliberate acts," adding: "It’s hard to imagine that it’s accidental."

On Monday, Swedish seismologists reported the detection of underwater explosions - shortly after which large patches of roiling gas could be seen on the surface in the same area.

As rumors swirl over who is responsible for the incident, one message it sent was clear - vital systems are vulnerable to attack.

"The most important message that somebody wants to send, is what one is capable of doing with an offline pipeline can also be done with active pipelines, or undersea cables, or other infrastructure," said Julian Pawlak, a researcher at the German Institute for Defense and Strategic Studies, in a statement to the NY Times.

In response, Denmark and Norway announced increased security around their energy infrastructure, and Norway, now Europe’s most important producer of gas and oil, called for “increased vigilance by all operators and vessel owners.” In a statement, Norway’s energy minister, Terje Aasland, cited “reports of increased drone activity” around its coast, and said that much of what he had learned of the Nord Stream incidents “indicates acts of sabotage.” -NY Times

And while Poland's former Defense Minister appeared to thank the United States for the attack (a perfectly good explanation for which we're sure is will be offered), Poland's PM, Mateusz Morawiecki, laid the blame on Russia for targeting the pipelines - suggesting that the attack was an attempt to escalate the Ukraine conflict.

"We do not know the details of what happened yet, but we can clearly see that it is an act of sabotage," said Morawiecki, adding "An act that probably marks the next stage in the escalation of this situation in Ukraine."

* * * 

Update (1445ET): 

German magazine Spiegel said the US Central Intelligence Agency (CIA) recently warned Berlin about the increasing signs of a possible planned attack on the Nord Stream pipeline system. 

Spiegel reported, citing unnamed sources, that the CIA tipped off Berlin in the summer about possible attacks on NS1 and NS2. 

* * * 

Update (1415 ET): 

Prime Minister of Denmark Mette Frederiksen told reporters Nord Stream pipeline system damage to NS1 and NS2 "are deliberate actions, not an accident."  

"It is now the clear assessment by authorities that these are deliberate actions. It was not an accident.

"There is no information yet to indicate who may be behind this action, Frederiksen said, adding that authorities don't see NS1 and NS2 damage as a military threat against Denmark. 

* * * 

Update (1215ET):

CNN's White House and national security reporter Natasha Bertrand said the Biden administration "is not going to speculate on the cause" of the Nord Stream pipeline system damage to NS1 and NS2. 

"The US stands ready to support European partners' efforts as they investigate," Bertrand said. 

Another CNN national security reporter, Kylie Atwood, tweeted that US Secretary of State Antony Blinken said it would be "in no one's interest" if NS leaks were confirmed as the result of an attack or sabotage.

Remember what Undersecretary of State for Political Affairs Victoria Nuland said earlier this year... 

* * * 

Update (1025ET):

AFP News reported the US is 'ready to provide support' to Europe after the Nord Stream pipeline system leaks. 

There was no further information on what type of support, but one can only imagine it would involve increased LNG cargo shipments to the EU.  

There's only one issue... 

* * * 

Update (0932ET): 

Swedish broadcaster SVT reported that the Swedish National Seismic Network detected two underwater explosions near the Nord Stream pipeline system on Monday. 

"One of the explosions had a magnitude of 2.3, and was registered at as many as 30 measuring stations in southern Sweden," SVT said. 

Bjorn Lund, a professor in seismology and director of the Swedish National Seismic Network, said these two seismic events were explosions.  

Here's a map of the three leaks on the Nord Stream pipeline system. 

Bloomberg's Javier Blas said the size of the "gas leak is huge." 

So the question remains what (or who) caused the blasts? 

Remember what President Biden said weeks before Russia invaded Ukraine:  

 "If Russia invades...then there will be no longer a Nord Stream 2. We will bring an end to it."

* * * 

Update (0920ET):

Swedish daily newspaper Aftonbaldet quoted the Swedish Defense Force's chief of operations, Michael Claesson, who said it's not ruled out that there's a connection to the gas leaks and Russia's mobilization last week. 

Claesson then told the paper that the incident was a "military matter." 

* * * 

Update (0910ET): 

Danish Defense Forces published the first images of the gas leaks from the Nord Stream pipeline system near the exclusive economic zone southeast of Bornholm island, according to the Swedish daily newspaper Aftonbaldet. 

The first images show a large surface area of gas bubbles in the Baltic Sea. 

Here are more images of one of the leaks. 

Another leak was reported by the Danish Defense Forces to be 1 kilometer in diameter on the surface water. 

This is an absolutely massive leak. 

A handful of EU officials suspect the pipelines were sabotaged.  

* * * 

Update (0842ET):

Sweden’s government held a crisis management meeting with other public authorities over the damage to the Nord Stream pipeline system, Swedish daily newspaper Aftonbaldet said, citing comments from Foreign Minister Ann Linde. 

Linde said Sweden may discuss the pipeline damage with Denmark later today.  

Denmark is tightening security around all energy assets as some European officials speculate the NS pipeline system was sabotaged. 

* * * 

The plot thickens about what caused damage to three lines of the Nord Stream gas-pipeline system under the Baltic Sea to Europe as some European officials now suspect sabotage.

Nord Stream AG, the operator of the NS pipeline system, published a statement Tuesday that read, "the destruction that happened within one day at three lines of the Nord Stream pipeline system is unprecedented ... and impossible now to estimate the timeframe for restoring operations of the gas shipment infrastructure." 

On Monday, NS2 gas pipeline and two NS1 lines reported rapid pressure drops, with gas leaks reported by Swedish and Danish authorities in the Baltic Sea near the exclusive economic zone southeast of Bornholm island. 

A more in-depth view of the incident area. 

Pressure drops in the NS gas-pipeline system could be the biggest signal that flows via NS1 might not resume this winter. Germany and surrounding countries are investigating the incident. NS2 cannot impact flows to the EU because the controversial idled conduit was never operational after German Chancellor Olaf Scholz canceled it after Russia invaded Ukraine earlier this year.

Klaus Mueller, the president of the German energy network regulator, tweeted that the market situation remains "tense," but Germany and the EU are no longer dependent on NS supplies. 

Nord Stream AG issued an outage message that is active until Oct. 26, while the German economy ministry said it's investigating the incident. 

Dutch front-month gas, the European benchmark, was up nearly 10% at 190.50 euros per megawatt-hour on Tuesday morning. 

The simultaneous pressure drop of the NS lines suggests some market participants may watch for any indication of sabotage. 

Denmark's Prime Minister Mette Frederiksen said it was hard to imagine NS gas leaks were caused by a "coincidence." 

Frederiksen didn't rule out sabotage, though she said it was too early to draw any conclusions, according to Reuters, quoting public broadcaster DR during a visit to Poland. 

A German security official told Bloomberg that NS damage appears to be the result of "sabotage."

The evidence points to a violent act, rather than a technical issue, according to a German security official, who asked not to be identified because the matter is being probed. -Bloomberg 

German daily newspaper Tagesspiegel reported that "the Nord Stream pipelines may have been damaged by targeted attacks and leaked as a result."

A source close to the government, quoted in the newspaper, said, "everything speaks against a coincidence."

"We cannot imagine a scenario that is not a targeted attack," the source said.

Die Welt, another German newspaper, reported the timing of the NS damage may suggest sabotage and was unlikely to be an accident. 

Reporters asked Kremlin spokesman Dmitry Peskov if the NS system's pressure drop could be due to sabotage. He responded: "It is impossible to exclude any options."

There appears to be no immediate end to the gas leak from NS pipelines, according to the Danish national daily newspaper Berlingske, which quoted Danish Energy Authority. 

The energy authority said, "a lot of gas is coming out, so it is not a small crack, it's a really big hole. Nord Stream leaks can be a deliberate act, but it can also be something else, it's just extremely rare that something like this happens."

https://www.zerohedge.com/commodities/damage-nord-stream-pipelines-unprecedented-may-have-been-sabotaged