The Daily Shot: 15-Oct-20
• China
• Australia
• The Eurozone
• Canada
• The United States
• Emerging Markets
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought
China
1. Consumer inflation continues to moderate, with the September figures coming in below market expectations.
Slower food inflation, particularly pork, has been dragging the headline CPI lower. China has made progress in rebuilding its pig population while also boosting pork imports.
Core inflation appears to have stabilized.
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2. The PPI edged lower (an increase was expected). Falling producer prices tend to pressure industrial profits.
3. Credit expansion accelerated last month, with the year-to-date bank loan growth far exceeding last year’s levels.
Here is China’s aggregate credit growth (including bonds).
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4. The 10yr yield differential with the US hit a multi-year high.
Interest rate differentials (vs. the US) and export growth remain supportive of the yuan.
Source: BCA Research
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5. China’s stock market capitalization hit a record high.
Source: @jessefelder, @FT Read full article
Institutional investors now dominate the market.
Source: @adam_tooze, @KangHexin Read full article
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6. EV sales are accelerating again despite a 10% cut in subsidies.
Source: @WSJ Read full article
7. Hong Kong’s stock market underperformance continues to widen.
Australia
1. The RBA is looking at another rate cut as well as potentially buying longer-dated bonds.
Source: News.com.au Read full article
The Aussie dollar and bond yields fell.
The yield curve flattened.
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2. Rental prices have been declining this year.
Source: @TaviCosta
The Eurozone
1. The rebound in industrial production stalled in August.
Gains have been uneven, with Germany underperforming.
Source: Pantheon Macroeconomics
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2. The second wave of COVID infections shows no signs of slowing.
Source: @WSJ Read full article
• Germany (daily new cases):
• Italy:
Source: Bloomberg Finance L.P.
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3. The ECB’s net asset purchases under PEPP have eased.
Source: TS Lombard
4. French bankruptcies tumbled this year due to the change in the law (in March). There are a lot of “zombie” firms out there these days.
Source: Gavekal
5. Goldman expects fresh gains for the euro next year.
Source: @ISABELNET_SA, @GoldmanSachs
And real rate differentials point to further euro upside.
Source: ANZ Research
Canada
1. Gains in consumer confidence have stalled.
Transit demand is slowing again.
Source: Market Ethos, Richardson GMP
Here is the Oxford Economics Recovery Tracker.
Source: @GregDaco, @OxfordEconomics
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2. Canada’s employment has been recovering considerably faster than the US.
Source: Market Ethos, Richardson GMP
3. The Canadian dollar has deviated from fair value.
Source: BCA Research
The United States
1. Producer prices increased more than expected (0.4% vs. 0.2% year-over-year).
Here is the core PPI.
• Hospital care PPI rose sharply since the start of the pandemic.
• Logisitcs-related price indices moderated last month.
– Truck transportation of freight:
– Warehouse construction costs:
• This chart shows the spike in beef prices earlier this year, as the closure of processing facilities created a massive supply/demand imbalance.
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2. Market-based inflation expectations continue to signal higher consumer inflation ahead.
Source: ANZ Research
3. The move out of cities has been mostly to the suburbs, not to rural areas.
Source: Fitch Ratings
With the 30yr mortgage rates at record lows, homebuyers have been opting for fixed-rate loans.
Source: Piper Sandler
Emerging Markets
1. Here are a couple of updates on Brazil.
• Industrial confidence has fully recovered.
• It’s been a good year for Brazil’s stock market.
Source: @WSJ Read full article
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2. Food prices have been boosting India’s wholesale inflation (which exceeded market expectations).
3. South Africa’s retail sales continue to rebound.
Commodities
1. Soybean meal futures continue to rally, partially due to higher feed demand for China’s rising pig population (see the China section).
Here is Bloomberg’s grains index.
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2. US hog prices keep climbing.
Source: Successful Farming Read full article
Source: Brownfield Ag News Read full article
Energy
1. Oil consumption in China and India is projected to rise, albeit from a low base. The US and Europe reached peak oil consumption about 15 years ago.
Source: Alpine Macro
2. Goldman expects oil prices to climb next year (much more than is currently priced into the market).
Source: @ISABELNET_SA, @GoldmanSachs
3. Oil & Gas deal activity has been slow this year.
Source: S&P Global Market Intelligence
Equities
1. With stimulus on hold, the market rally appears to have stalled.
Source: The Hill Read full article
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2. Companies with China exposure continue to outperform.
3. Gavekal warns that the underperformance of S&P 500 bank stocks vs. Treasury bonds could be a worrying sign for the broader market.
Source: Gavekal
4. Flows in and out of QQQ (Nasdaq 100 ETF) have been massive. Some suggests that these swings are due to dealers’ enormous options exposure. QQQ, which is highly liquid, is sometimes used as a delta hedge against short portfolios of single-stock options.
Source: @markets Read full article
5. Seasonality should work in market’s favor this quarter.
Source: @ISABELNET_SA, @GoldmanSachs
6. The percentage of US “zombie” firms (which are sustained by low interest rates) is at multi-decade highs.
Source: Arbor Research & Trading
And these companies are now outperforming year-to-date.
Source: Arbor Research & Trading
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7. Active funds are struggling this year (anyone who is not overweight in tech mega-caps is probably underperforming).
Source: @ISABELNET_SA, @BofAML
8. These brands dominate the ETF market.
Source: @WSJ Read full article
Credit
1. Municipal bond issuance has accelerated.
Source: The Bond Buyer Read full article
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2. US consumer debt borrowers are increasingly encountering tighter credit conditions relative to one year ago.
Source: Arbor Research & Trading
Rates
1. Economic indicators continue to signal higher Treasury yields and a steeper curve.
• Manufacturing:
Source: @jsblokland
• Consumer sentiment:
Source: @ISABELNET_SA, @MorganStanley
Goldman expects yields to rise well above the levels currently priced into the market.
Source: @ISABELNET_SA, @GoldmanSachs
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2. Longer-dated Treasuries look attractive when hedged into yen.
Source: Nordea Markets
Global Developments
1. Central banks have been financing massive budget deficits this year, …
Source: @lisaabramowicz1, @economics
… which created this unprecedented divergence between the G20 debt-to-GDP ratio and long-term rates.
Source: @Schuldensuehner Read full article
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2. The reduction in the Fed’s liquidity swap demand indicates an improvement in global risk/liquidity sentiment, which has likely pushed the dollar lower, according to TS Lombard.
Source: TS Lombard
3. Here is the Oxford Economics Global Recovery Tracker.
Source: Oxford Economics
4. The percentage of economies in recession this year has been unprecedented in modern history.
Source: Hoisington Investment Mgt via CMG Wealth Managements and Tilo Marotz Read full article
5. Below are the IMF’s GDP forecasts for 2020.
Source: The Economist Read full article
Food for Thought
1. Common coronavirus conspiracy theories:
Source: Statista
2. COVID-related hospitalizations by region in the US.
Source: CovidTracking.com
3. Positivity rates, by state:
Source: Pantheon Macroeconomics
4. US airport traffic:
Source: @jeffsparshott, @WSJ
5. How soon would you be comfortable …
Source: @CivicScience Read full article
6. Gen-Z’s support for Biden:
Source: Politico Read full article
Gen-Z tilting independent:
Source: Politico Read full article
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7. Biggest threats to the economy:
Source: Bankrate.com Read full article
8. Top-selling fast-food categories:
Source: Visual Capitalist Read full article
9. The evolution of Batman’s logo:
Source: James Eagle
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