Treasuries slump on Georgia election surprise

The Daily Shot: 06-Jan-21
The United States
The United Kingdom
The Eurozone
Europe
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Alternatives
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. The betting markets are now predicting that Democrats will take control of the Senate after the Georgia races.
 
Source: @PredictIt  
 
This was a surprise for the markets. The impact on equities is unclear as massive stimulus programs may offset higher corporate taxes. Stock futures are a bit softer in early trading. What is more certain is that a Democratic sweep would pressure Treasuries due to much higher issuance (to fund stimulus programs). Treasury yields climbed.
 

 
Will the Fed be forced to increase the pace of Treasury purchases to keep rising yields from choking off the recovery?

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2. The December ISM Manufacturing PMI surprised to the upside as factory activity heats up (2 charts).
 
Source: Mizuho Securities USA  
 

 
This report bodes well for US industrial production.
 
Source: Piper Sandler   
 
The new orders index is near the highs.
 

 
Manufacturing employment is back in growth mode (PMI > 50).
 

 
As we saw in the Markit PMI report (here), supplier delivery problems worsened last month (note that Markit and ISM show supplier delivery indices differently).
 

 
And these supply bottlenecks provided a significant boost for the headline ISM figure.
 
Source: Mizuho Securities USA  
 
Supply-chain issues contributed to rapidly rising costs for manufacturers.
 

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3. Did US payrolls contract in December as the pandemic worsened? Here is a forecast from Oxford Economics.
 
Source: Oxford Economics  
 
4. The minimum wage is rising in a number of states.
 
Source: The Economist   Read full article  
 
5. Morgan Stanley expects inflation to climb well above 2% next year.
 
Source: Morgan Stanley Research  
 
The 10-year breakeven rate (market-based inflation expectations) is now above 2%.
 

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6. How ill Americans spend their second stimulus check?
 
Source: @CivicScience   Read full article  
 
7. US COVID-related hospitalizations hit another record.
 
Source: CovidTracking.com  
 
Vaccinations are ramping up in several states, but the pace has been uneven.
 
Source: @bbgvisualdata   Read full article  


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The United Kingdom

1. The lockdowns are expected to worsen the double-dip recession. Here are a couple of forecasts.
 
Pantheon Macroeconomics:
 
Source: Pantheon Macroeconomics  
 
Bloomberg Economics:
 
Source: @markets   Read full article  

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2. Hospitalizations hit a record high.
 
Source: Statista  


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The Eurozone

1. German retail sales strengthened further in November.
 

 
The nation’s unemployment continues to decline (the market expected an increase).
 

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2. The broad money supply is now 11% above last year’s levels. This is due to the ECB’s securities purchases (which generate private-sector deposits) and, to a lesser extent, increased corporate borrowing.
 

 
The charts below show loan growth for businesses and households.
 


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Europe

1. Will zero-rate mortgages spread beyond Denmark?
 
Source: @business   Read full article  
 
2. Switzerland remains in deflation.
 

 
3. The Czech budget deficit has blown out to unprecedented levels.
 

 
4. This chart shows “excess” deaths in the EU (mostly due to COVID).
 
Source: EuroMOMO    Read full article  


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Asia – Pacific

1. Singapore’s business activity is back in growth mode, …
 

 
… and retail sales have almost fully recovered (as of November).
 

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2. The Taiwan dollar hit the highest level in decades.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
3. South Korea’s population declined last year.
 

 
Source: @WSJ   Read full article  

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4. New Zealand’s housing market is heating up.
 


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China

1. The stock market is at multi-year highs.
 

 
2. Service-sector PMI pulled back in December, but growth remains robust.
 

 
3. The PPI has been rebounding, which is a positive sign for industrial profits.
 
Source: Alpine Macro  
 
4. Imports from the US remain below the Phase-1 targets.
 
Source: @WSJ   Read full article  
 
5. The New York Stock Exchange said it would not delist China’s telecoms, sending share prices higher.
 
Source: @WSJ   Read full article  
 
But the exchange is now backtracking and may delist them after all.
 
Source: @markets   Read full article  

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6. Where is Jack Ma?
 
Source: CNBC   Read full article  
 
Regulators may force Ant Group to share consumer data in an effort to “better control financial risk.”
 
Source: @WSJ   Read full article  
 
Government pressure is weighing on Alibaba’s stock price. 
 
Source: @DantesOutlook  

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7. Hong Kong’s business activity slipped back into contraction mode in December.
 


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Emerging Markets

1. Brazil’s manufacturing producer prices are surging.
 

 
The commodity terms-of-trade index has gone vertical. It measures the relative performance of commodity export vs. import prices.
 

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2. The Israeli shekel hit a 24-year high. The currency strength is deflationary, creating a problem for the central bank.
 

 
3. EM central banks have been buying dollars and other foreign currencies to keep their domestic currency from appreciating too much.
 
Source: @adam_tooze, @jnordvig   Read full article  


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Cryptocurrency

1. Bitcoin blasted past $35k.
 

 
So far, buying pressure is below its 2014 extreme, and the cryptocurrency remains in a long-term uptrend. 
 
Source: @DantesOutlook  

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2. Trading volume across the top crypto exchanges surged on Monday, hitting an all-time high. 
 
Source: CryptoCompare  
 
CME Bitcoin futures volume also hit an all-time high this week, crossing $2.7 billion. Traders have noted that investor demand for out-of-the-money put options is rising.
 
Source: @skewdotcom  

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3. This chart shows the one-year volatility of Bitcoin versus other assets.
 
Source: Woobull Charts  
 
4. The number of liquid coins relative to illiquid coins dropped significantly after the COVID-19 market panic. This is an indication of strong investor holding sentiment, according to Glassnode. Liquidity is measured as the ratio of cumulative outflows vs. inflows of individuals and institutions that hold coins. 
 
Source: Glassnode, @kenoshaking  


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Commodities

1. The current commodity cycle (which peaked in 2008) is tracking historical cycles closely.
 
Source: Stifel  
 
Stifel forecasts gains in commodities, with the rally lasting a few years. 
 
Source: Stifel  

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2. Copper hit the highest level since 2013.
 

 
3. The rally in sugar futures is accelerating.
 

 
4. US corn futures front contract is trading near $5 per bushel for the first time since 2014 (there was a massive drought in 2013).
 

 
Soybean prices are at multi-year highs as well.
 

 
Rising grain prices have boosted US farm sentiment.
 
Source: Purdue University/CME Group Ag Economy Barometer  


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Energy

1. Oil futures rose sharply as Saudi Arabia decides to cut production.
 
Source: barchart.com  
 
Source: Reuters   Read full article  
 
The Brent curve moved deeper into backwardation.
 

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2. Coal prices in China are rising amid looming supply shortages. 
 
Source: Fitch Solutions Macro Research  


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Equities

1. Goldman sees the S&P 500 at 4,300 by the end of the year as earnings rebound.
 
Source: @ISABELNET_SA, @GoldmanSachs  
 
2. Below is the historical distribution of forward P/E multiples.
 
Source: BCA Research  
 
3. Investors shifted away from technology and consumer staples ETFs and into real estate ETFs last month.
 
Source: SPDR Americas Research, @mattbartolini  
 
4. Recently, hedge funds have been buying more tech stocks as they pare back consumer discretionary longs.
 
Source: Goldman Sachs  
 
5. Here is a look at sector weights in the iShares Russell 1,000 (large caps) growth and value ETFs.
 
Source: Stifel  
 
Russell 1,000 value vs. growth remains in a long-term downtrend. 
 
Source: Stifel  
 
6. The S&P 500 growth index has become extremely concentrated. The value index, on the other hand, has been moving in the opposite direction.
 
Source: S&P Global Market Intelligence  


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Alternatives

1. US stock indices outperformed alternative asset classes last year.
 
Source: @WSJ   Read full article  
 
2. The US private equity industry’s IRRs dipped into negative territory in Q1 of 2020. However, valuations probably rebounded sharply over the following quarters.
 
Source: PitchBook   Read full article  
 
3. IT investments made up about 20% of all private equity deals in the US last year. 
 
Source: PitchBook   Read full article  
 
4. Private equity firms have already been backing away from US energy investments in recent years.
 
Source: PitchBook   Read full article  


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Credit

1. It’s been a good year for fixed-income ETF flows (other than government bond ETFs).
 
Source: @bbgvisualdata   Read full article  
 
2. Large-company bankruptcies hit the highest level since 2009, driven by retailers.
 
Source: @markets   Read full article  


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Rates

1. The Treasury curve steepened further in response to the Georgia elections.
 
10yr vs. 2yr:
 

 
30yr vs. 5yr:
 

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2. JP Morgan’s clients have been short Treasuries.
 
Source: JP Morgan, @MagnusMacro  
 
3. Here is the breakdown of the Fed’s balance sheet over time.
 
Source: Goldman Sachs  
 
4. US mortgage originations had been quite profitable last year.
 
Source: @WSJ   Read full article  
 
5. This chart shows the world’s monetary base.
 
Source: Natixis  


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Global Developments

1. Government debt climbed sharply last year.
 
Source: @financialtimes   Read full article  
 
Debt in advanced economies has been rising faster than in EM (in dollar terms). The trend looks quite different for interest payments, however.
 
Source: Fitch Ratings  

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2. Lockdowns increasingly weigh on global growth.
 
Source: Goldman Sachs  


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Food for Thought

1. Expensive Senate races:
 
Source: @axios   Read full article  
 
2. The demographics of lost jobs in 2020:
 
Source: @WSJ   Read full article  
 
3. How often would you like to work from home?
 
Source: @WSJ   Read full article  
 
4. COVID hospitalizations by age in Arizona:
 
Source: ADHS   Read full article  
 
5. COVID-19 vaccination doses administered per 100 people (through Jan 5th).
 
Source: Our World in Data   
 
6. Vaccine adoption (two charts):
 
Source: Morgan Stanley Research  
 
Source: Morgan Stanley Research  

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7. Air travelers in the US:
 
Source: @WSJ   Read full article  
 
8. Wealth growth vs. educational attainment:
 
Source: @stlouisfed   Read full article  
 
9. Who will be watching this year’s Super Bowl?
 
Source: Morning Consult  

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