The Fed’s Beige Book shows increasing focus on childcare

The Daily Shot: 03-Dec-20
The United States
Canada
The United Kingdom
The Eurozone
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. The November ADP private payrolls report was well below expectations. Job growth slowed in most sectors.
 
Source: ADP  
 
But we’ve seen this movie before. The official jobs figures have been consistently stronger than the ADP numbers. Here is the spread.
 
Source: Mizuho Securities USA  
 
Morgan Stanley expects to see a gain of 630k payrolls on Friday (consensus is 478k) and a substantial decline in the unemployment rate (consensus is 6.8%).
 
Source: Morgan Stanley Research  
Source: Morgan Stanley Research  
 
Separately, this chart shows employment growth by skill level.
 
Source: Deutsche Bank Research  

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2. The Fed’s Beige Book report appears to be somewhat more upbeat.
 
Source: @lenkiefer  
 
Here is the usage of the words “strong” and “weak.”
 
Source: @lenkiefer  
 
There has been a great deal of focus on childcare since the start of the pandemic. Closures of schools and childcare services have been hurting labor force participation (and the overall economic activity).
 
Source: @lenkiefer  

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3. Mortgage applications remain strong.
 
Source: Oxford Economics  
 
4. Class-8 truck orders (the largest rigs) spiked last month amid rising freight transport demand.
 
Source: @wolfofwolfst   Read full article  
 
5. Retail foot traffic continues to slow, …
 
Source: AEI Housing Center  
 
… and so is gasoline demand.
 
Source: Princeton Energy Advisors  

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6. US COVID-related hospitalizations exceeded 100k for the first time.
 
Source: CovidTracking.com  
 
Many nursing homes are getting hit.
 
Source: @axios   Read full article  
 
But the number of new cases should be peaking, according to Princeton Energy Advisors.
 
Source: Princeton Energy Advisors  

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7. A substantial majority of Americans would like to see another stimulus bill passed as soon as possible.
 
Source: BCA Research  


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Canada

1. Here is Scotiabank’s debt-to-GDP projection for Canada.
 
Source: Scotiabank Economics  
 
Canada’s fiscal deficit has been much higher than what we see in other developed economies.
 
Source: Scotiabank Economics  
 
But depressed interest rates keep debt servicing costs relatively low.
 
Source: Scotiabank Economics  

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2. Here is the Oxford Economics Recovery Tracker.
 
Source: Oxford Economics  


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The United Kingdom

1. UK stocks and share valuations continue to underperform.
 
Source: Pantheon Macroeconomics  
 
2. Currency options traders are increasingly nervous about the UK-EU trade negotiations.
 
h/t @vkaramanis_fx  
 
The economic risks of not reaching a deal are substantial.
 
Source: @financialtimes   Read full article  

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3. Retailers are signaling layoffs ahead.
 
Source: Pantheon Macroeconomics  


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The Eurozone

1. The euro continues to climb, exacerbating disinflationary pressures. This trend is bound to make the ECB nervous.
 

 
2. Germany has room for inventory rebuilding, which should support industrial output.
 
Source: Pantheon Macroeconomics  
 
3. This chart shows the euro-area retail mobility trends.
 
Source: ING  
 
4. COVID cases in Italy have peaked, and the fatality rate should follow.
 
Source: Princeton Energy Advisors  
 
5. Here is the breakdown of Greek government debt.
 
Source: CEPS  
 
6. It will be hard to grow the economy without significant gains in either the working-age population or productivity.
 
Source: ECB   Read full article  


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Asia – Pacific

1. The recovery in Japan’s consumer confidence has stalled.
 

 
2. Singapore’s business activity took a turn for the worse last month (PMI < 50 means contraction).
 

 
3. The Taiwan dollar continues to strengthen (USD weakening).
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
4. Next, we have some updates on Australia.
 
Loans for residential construction spiked to multi-year highs, …
 
Source: ANZ Research  
 
… signaling a building boom ahead.
 
Source: Goldman Sachs  
 
Here is the regional breakdown.
 
Source: Goldman Sachs  
 
This chart shows Australia’s construction activity index.
 

 
The trade surplus surprised to the upside again.
 


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China

1. The nation’s service sector activity accelerated further last month.
 

 
2. The renminbi’s upward trend remains intact.
 

 
The PBOC will likely tolerate modest CNY appreciation and will not raise rates early next year (given low CPI), according to Barclays.
 
Source: Barclays Research  

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3. Local governments are running a substantial deficit (which helped the economic rebound).
 
Source: ANZ Research  
 
4. Hong Kong’s business activity finally returned to growth, but it’s already under threat due to lockdowns.
 

 
Source: @bpolitics   Read full article  


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Emerging Markets

1. Brazil’s industrial production report was disappointing.
 

 
2. Latin American equities have been outperforming recently.
 
Source: BCA Research  
 
3. South Africa’s government debt risk premium stands out.
 
Source: Oxford Economics  
 
4. Thailand’s consumer confidence remains depressed.
 

 
5. EM rate-cutting cycle is winding down, according to Goldman.
 
Source: Goldman Sachs  
 
6. EM local-currency debt has lagged the market recovery in dollar terms, dragged down by heavy currency depreciation.
 
Source: BlackRock  
 
EM local rates now offer one of the strongest risk-adjusted return profiles in global fixed income.
 
Source: @dsassower  

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7. China’s massive credit expansion has been good for EM stocks.
 
Source: Alpine Macro  


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Cryptocurrency

1. Let’s start with last month’s crypto returns.
 
Source: CoinDesk   Read full article  
 
2. Flows into digital asset funds have skyrocketed, with Grayscale Investments capturing the most assets under management.
 
Source: CoinShares  
 
Source: CoinShares  

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3. More bitcoin wallets now have nonzero balances (increased participation).
 
Source: @markets   Read full article  
 
4. Bitcoin implied volatility has risen to multi-month highs.
 
Source: Skew  
 
5. Are investors rotating out of gold into Bitcoin?
 
Source: @markets   Read full article  


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Energy

1. The Brent curve remains in backwardation (bullish sentiment).
 
Source: @JavierBlas  
 
2. Net inflows to US energy ETFs surged last week to the highest total since July.
 
Source: Arbor Research & Trading  
 
3. Shipping costs are much lower for traditional fossil fuels relative to cleaner alternatives.
 
Source: IEA  
 
4. Coal production capacity in the US continues to shrink.
 

 
5. US natural gas futures remain under pressure due to warmer than usual weather.
 

Source: NOAA  


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Equities

1. Demand for equity call options keeps climbing amid increasing speculative activity.
 
h/t @LizAnnSonders  
 
Here is the put-call ratio.
 

 
Investors have been shifting into equities and out of government bonds. This is the most risk-on condition since March 2014, according to Arbor Data Science.
 
Source: Arbor Research & Trading  
 
The Citi sentiment index points to investor euphoria.
 
Source: @Citi, @LizAnnSonders  
 
This brings back memories of 1999/2000.
 
Source: Forbes   Read full article  

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2. Valuations remain a concern.
 
Source: Jim Reid, Deutsche Bank Research  
 
But the implied PE ratio for the S&P 500 would be around 19 if the index were to return to its pre-pandemic earnings-per-share trend, according to Alpine Macro.
 
Source: Alpine Macro  

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3. Smart money has missed the rally.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
4. The spread between the best- and worst-performing sectors and factors has tightened over the past two months.
 
Source: S&P Global Market Intelligence  
 
5. Next, we have some factor/style performance trends (last three months). The vaccine-driven rotation continues.
 
Momentum:
 

 
Growth vs. value:
 

 
Small caps:
 

 
Low-vol:
 

 
Dividend dogs:
 

 
Post-IPO stocks:
 

 
Gender diversity:
 

 
6. Flows into thematic ETFs continue to climb (the first chart shows total monthly flows in billions).
 
Source: SPDR Americas Research, @mattbartolini  
 
Source: SPDR Americas Research, @mattbartolini  
 
Here are some examples.
 

 

 

 


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Credit

1. BBB-rated debt leverage has risen substantially.
 
Source: CreditSights  
 
2. Energy-sector high-yield spreads are now below pre-crisis levels.
 

 
3. Real investment-grade bond spreads are headed into negative territory.
 
Source: @TaviCosta  
 
4. In aggregate, 15 of the largest US banks reported quarterly decreases in business loans, according to S&P (as companies pay down debt).
 
Source: S&P Global Market Intelligence  


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Rates

1. Will we see 1% on the 10-year Treasury shortly?
 

 
2. The Fed’s shift to targeting “average inflation” had a limited impact on inflation expectations.
 
Source: Piper Sandler   


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Global Developments

1. Let’s start with market-based inflation expectations in select economies.
 
Source: S&P Global Market Intelligence  
 
2. This chart shows fiscal measures announced in G20 countries so far this year.
 
Source: Deutsche Bank Research  
 
3. How many Twitter followers do different central banks have?
 
Source: @markets   Read full article  


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Food for Thought

1. Vaccine costs:
 
Source: Statista  
 
2. Share prices of leading vaccine developers:
 
Source: @financialtimes   Read full article  
 
3. Survey respondents who expect to be better off financially next year:
 
Source: The New York Times   Read full article  
 
4. US political polarization:
 
Source: BCA Research  
 
5. Misleading election tweets:
 
Source: Statista  
 
6. CO2 emissions globally:
 
Source: Natixis  
 
Source: Natixis  

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7. Microsoft’s advertising revenues:
 
Source: @chartrdaily  
 
8. Streaming services subscriber growth:
 
Source: @axios   Read full article  
 
9. The NFL’s COVID cases vs. win percentage:
 
Source: @luxury   Read full article  

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