Posted on by The Daily Shot Editor: Lev Borodovsky

The US surge in bank reserves has been concentrated at large institutions

The Daily Shot: 08-Jan-21
• The United States
• Canada
• The Eurozone
• Asia – Pacific
• Emerging Markets
• Cryptocurrency
• Commodities
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought

 

The United States

1. The ISM Services PMI surprised to the upside.
 

Source: Mizuho Securities USA  
 
While service-sector growth remained stable in December (despite the pandemic ramping up), the headline ISM figure is distorted by supplier bottlenecks. It’s the same issue we saw in the manufacturing PMI reports.
 

 
Here are the contributions to the ISM PMI.
 
Source: Mizuho Securities USA  
 
The pandemic spike did show up in the employment component.
 

 
By the way, service-sector employment continues to lag.
 
Source: @jeffsparshott  

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2. Applications for emergency unemployment benefit programs declined last week, but the overall number of new claims remained above a million.
 
Source: Oxford Economics  
 
3. The AEI Housing Center expects home prices to rise 12-13% on a year-over-year basis.
 
Source: AEI Housing Center  
 
Mortgage applications were well above 2019 levels in the last week of 2020.
 

 
And mortgage rates hit another record low.
 

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4. Government support kept incomes elevated last year.
 
Source: @WSJ   Read full article  
 
Savings spiked and remain elevated. And there is more money on the way from the federal government.
 
  Further reading  

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5. The 2020 surge in reserves has been concentrated at large banks. 
 
Source: Barclays Research  
 
6. The QE-driven spike in US deposits has been unprecedented, with the narrow money supply (M1) rising by more than 65% (year-over-year).
 

 
7. Some analysts are increasingly concerned about higher inflation ahead. As we saw earlier (chart), factory input prices have been climbing rapidly.
 
Source: Benjamin Verschuere  
 
And market-based inflation expectations keep rising – boosted by higher oil prices and forecasts for more fiscal stimulus.
 

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8. Bloomberg’s consumer sentiment index remains depressed.
 

 
Older Americans are especially pessimistic.
 

 
The above results contradict the sentiment index from Morning Consult. Whatever the case, Wednesday’s events in Washington, DC will probably put further downward pressure on consumer confidence.
 
Source: Morning Consult   Read full article  

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9. The spread between business expectations and current conditions has blown out.
 
Source: Moody’s Analytics  

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10. Next, we have some updates on trade.
 
• The trade deficit is approaching record levels.
 

 
• Excluding petroleum products, the deficit is already at record highs.
 

 
• Trade in services continues to lag.
 
Source: Oxford Economics  
 
• US imports from Canada, Mexico, China, Japan, and France declined last year. On the other hand, Switzerland and Vietnam sold more to the US.
 
Source: @TCosterg  

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Canada

1. The Ivey PMI showed a contraction in business activity last month. This index completely contradicts the report we saw from Markit.
 

 
Whatever the case, the pandemic continues to pressure the recovery. Here is the Oxford Economics Recovery Tracker.
 
Source: Oxford Economics  

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2. Exports are rebounding.
 
Source: Scotiabank Economics  
 
3. Vehicle sales have been robust.
 
Source: Scotiabank Economics  

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The Eurozone

1. Let’s begin with Germany.
 
• November factory orders were exceptionally strong.
 

 
However, that strength did not show up in industrial production.
 

 
• Imports spiked last month.
 

 
• China is increasingly important for German exporters.
 
Source: @financialtimes   Read full article  

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2. French sentiment improved at the end of last year.
 
Source: Pantheon Macroeconomics  
 
3. The Eurozone core CPI remains at record lows (going back to the formation of the euro).
 

 
But forecasts show that inflation has bottomed.
 
Source: Commerzbank Research  

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4. Eurozone retail sales tumbled in November (2 charts).
 

 
Source: Eurostat   Read full article  

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5. Manufacturing and service-sector confidence indicators have diverged.
 

 
6. Bloomberg’s Eurozone financial conditions index has fully recovered.
 

 
7. The savings rate is likely to stay elevated.
 
Source: @markets   Read full article  
 
Here is the Bank of France prediction.
 
Source: @markets   Read full article  

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8. European small-caps have been outperforming.
 
Source: Arbor Research & Trading  

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Asia – Pacific

1. EUR/JPY is on the verge of a breakout. 
 
Source: Longview Economics  
 
2. Japan’s electricity prices spiked due to cold weather and LNG shortages.
 
Source: @business   Read full article  
 
3. Taiwan’s and South Korea’s stocks are soaring.
 

 

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Emerging Markets

1. The pandemic is starting to pressure the South African rand (the new COVID strain has been devastating).
 

 
2. India’s annual GDP contraction was the largest in decades.
 
Source: @markets   Read full article  
 
3. Chilean exports are surging.
 

 
4. Brazil’s stock market index hit a new high.
 

 
5. EM currencies are rising along with company earnings and global trade growth.
 
Source: Longview Economics  

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Cryptocurrency

1. Bitcoin hit $40k!
 

 
A speculative frenzy has gripped the crypto markets – similar to what we see with stocks like Tesla.
 
Source: @axios  

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2. Here is the relative performance.
 

 
ETH has outperformed over the past week. Also, XRP experienced a short-squeeze with a near 50% rise in one day.
 
Source: FinViz  

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3. The Ether-Bitcoin one-month implied volatility spread spiked over the past week. 
 
Source: CoinDesk   Read full article  
 
4. Bitcoin mining revenue is accelerating.
 
Source: CoinDesk  

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Commodities

1. Industrial commodities in China are soaring.
 
• Steel and metallurgical coal:
 

 

 
• Pulp futures:
 

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2. The wheat rally has stalled.
 
Source: @jeffsparshott, @Lucy_Craymer   Read full article  
 
3. Here is Bloomberg’s broad commodity index.
 

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Equities

1. US indices are hitting new records
 

 
2. The Russell 2000 (small-caps) index saw unprecedented gains in recent weeks.
 

 
• Here is the index relative to its 200-day moving average.
 
Source: @LizAnnSonders  
 
• Technicals suggest further upside for the index.
 
Source: Longview Economics  
 
• The political shift in Washington also bodes well for small caps.
 
Source: @ISABELNET_SA, @BofAML  

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3. Despite this Wednesday’s ugly mess in DC, speculators were buying up call options.
 
Source: @SarahPonczek  
 
4. The spread between S&P 500 realized volatility and implied volatility (VIX) is at the lowest level since October. 
 
Source: Longview Economics  
 
5. The US equity rally has been stalling in foreign-currency terms (due to a weak dollar).
 
Source: Gavekal Research  
 
6. Defensive sectors appear cheap relative to the broader market. 
 
Source: Oxford Economics  

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Credit

1. High-yield munis rallied in response to Democrats taking control of the US Senate.
 
Source: @markets   Read full article  
 

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2. Bond fund flows have been impressive.
 
Source: BofA Global Research, @TayTayLLP  

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Rates

1. The US yield curve has steepened substantially over the past few days.
 

 
2. Treasury market implied volatility (MOVE) remains subdued despite the recent spike in yields.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
3. The rise in cyclical versus defensive stocks reflects expectations of higher Treasury yields. 
 
Source: Oxford Economics  

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Global Developments

1. Shipping costs are soaring.
 
Source: @JeffWeniger, Drewry  
 
2. Are taxes going up?
 
Source: Deutsche Bank Research  
 
3. Speculative bets against the US dollar are stretched (2 charts).
 
Source: @ISABELNET_SA, @SocGen_US  
 
Source: BCA Research  

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4. Investors shifted into risk assets and away from US Treasuries over the past quarter. 
 
Source: Arbor Research & Trading  

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Back to Index

 

Food for Thought

1. Uneven pace of US vaccinations:
 
Source: @bbgvisualdata   Read full article  
Source: Statista  

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2. COVID deaths in perspective:
 
Source: Data Is Beautiful  
 
3. Who is to blame for the attack on the US Capitol?
 
Source: @crampell   Read full article  
 
4. Religious makeup of the 117th Congress:
 
Source: Pew Research Center   Read full article  
 
5. Spending at warehouse clubs:
 
Source: @WSJ   Read full article  
 
6. Pulling money from retirement:
 
Source: @axios   Read full article  
 
7. Manhattan office vacancies:
 
Source: @business   Read full article  
 
8. Conspiracy theories:
 
Source: The Brussels Times   Read full article  

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