US business activity outperforming other advanced economies

The Daily Shot: 25-Jan-21
The United States
The United Kingdom
The Eurozone
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Energy
Equities
Alternatives
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. The January flash PMI report from Markit surprised to the upside. US manufacturing expansion continues to strengthen, while growth in services remains robust despite the pandemic pressures.
 
Manufacturing PMI:
 

 
Services PMI:
 

 
The trend of rising prices we saw last month spilled over into January.
 

 
Here is an example.
 
Source: @WSJ   Read full article  
 
The nation’s business activity is now outperforming other advanced economies.
 
Source: The Daily Feather  
 
Moreover, US business costs appear to be well ahead of other nations.
 
Source: Capital Economics  

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2. Existing home sales were quite strong in December. The second chart shows the year-to-date cumulative trends.
 

 
The number of US homes for sale is at multi-decade lows.
 

 
This chart is based on inventory data from Realtor.com.
 

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3. US household savings spiked last year, but renters had a tougher time saving than homeowners.
 
Source: Moody’s Analytics  
 
4. The US broad money supply (M2) is now over $4 trillion higher than a year ago.
 

 
5. How would US consumers respond to a 10% increase in income?
 
Source: Mizuho Securities USA  


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The United Kingdom

1. The January PMI report was softer than expected.
 

 
Service activity tumbled amid lockdowns.
 

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2. Retail sales picked up in December, but gains were lower than expected.
 

 
Here are a couple of additional updates.
 
Retail sales paths by sector:
 
Source: Pantheon Macroeconomics  
 
Annual changes in retail sales:
 
Source: ONS   Read full article  

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3. The government’s support for the job market is expected to climb further, …
 
Source: @bpolitics   Read full article  
 
… pushing borrowing beyond £400bn this year.
 
Source: @financialtimes   Read full article  
 
For now, government borrowing has been running below the ONS estimates.
 
Source: Pantheon Macroeconomics  

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4. These charts show the distribution of the UK’s trade with the EU in business, professional, and tourism services.
 
Source: European Commission   Read full article  


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The Eurozone

1. Manufacturing activity continued to expand this month, according to Markit’s flash PMI report.
 
Germany:
 

 
France:
 

 
The Eurozone:
 

 
However, pressured by the lockdowns (chart below), services are still in contraction territory.
 
Source: TS Lombard  
 
Germany:
 

 
France:
 

 
The Eurozone:
 

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2. The political situation in Italy remains precarious.
 
Source: @bpolitics   Read full article  
 
Bond yields climbed further on Friday.
 

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3. The frequency of the core CPI dipping below 1% increased in recent years.
 
Source: @RobinBrooksIIF, @adam_tooze, @heimbergecon  


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Asia – Pacific

1. The transition out of yen LIBOR is facing challenges (less than 5% of interest rate derivatives are linked to TONA).
 
Source: Fitch Ratings  
 
2. South Korea’s COVID cases have declined sharply in recent weeks.
 
Source: Pantheon Macroeconomics  
 
3. Taiwan’s labor market has almost fully recovered.
 


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China

1. The World Economics SMI report shows further strengthening in business activity this month.
 
Source: World Economics  
 
2. A-share valuations are not as extreme as previous peaks. 
 
Source: Alpine Macro  
 
Equity turnover and margin purchases have been rising but are well below prior highs.
 
Source: Alpine Macro  

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3. The rise in China’s total financing has been dominated by government debt.
 
Source: Evercore ISI  
 
4. Here are some data on startup investment.
 
Source: @financialtimes   Read full article  
 
5. China overtook the US in foreign direct investment last year.
 
Source: @WSJ   Read full article  


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Emerging Markets

1. Fund managers continue to boost their allocations to EM.
 
Source: BofA Global Research  
 
2. High-yield local currency bonds have been outperforming since November, although flows are still relatively light compared to broader EM fixed income (2 charts).
 
Source: Oxford Economics  
 
Source: Oxford Economics  

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3. Oil prices are set to become more inflationary for some EM countries.
 
Source: TS Lombard  
 
And with undervalued currencies, the pass-through risk of inflation is high. 
 
Source: TS Lombard  
 
Which EM countries face higher inflation risk?
 
Source: TS Lombard  

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4. Where are the “high yielders”?
 
Source: Alpine Macro  
 
5. The Chilean peso rebounded toward its 5-year average. The country’s central bank has leaned against further currency appreciation by adding to its FX reserves.
 
Source: Capital Economics  
 
6. COVID deaths in Brazil significantly outpaced the world.
 
Source: @BW   Read full article  
 
7. Here is an illustration of EM vaccine supply capacity vs. roll-out capacity.
 
Source: Deutsche Bank Research  


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Cryptocurrency

1. Here is a look at cryptocurrency returns so far this year. Bitcoin is underperforming most of its peers.
 
Source: @CoinDeskData  
 
Ethereum is up more than 130% over the past month.
 

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2. Inflows to digital asset investment products sharply declined last week following a record surge in demand.
 
Source: @CoinSharesCo  
 
3. Google searches for Bitcoin are rising in countries where local currencies have been depreciating.
 
Source: @CoinSharesCo  
 
4. Bitcoin tends to peak before the S&P 500.
 
Source: Longview Economics  
 
5. Bitcoin volatility reached its highest level since April 2020 while traditional markets have been relatively tamed. 
 
Source: @CoinDeskData  
 
6. How does the recent Bitcoin rally compare to other bubble-like price gains throughout history?
 
Source: Deutsche Bank Research  


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Energy

1. As set out by company guidance, capital expenditure is expected to decline by about 5% year-over-year. 
 
Source: Fitch Solutions Macro Research  
 
However, if oil prices continue to rise, spending could increase above early estimates from Q4. 
 
Source: Fitch Solutions Macro Research  
 
Here is a forecast for total energy investment globally.
 
Source: SP Mohanty   Read full article  

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2. US gasoline demand is rebounding.
 
Source: Princeton Energy Advisors  
 
And inventories are back inside the five-year range.
 

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3. Iraq’s oil production will take years to return to 2019 levels.
 
Source: IIF   Read full article  
 
4. Forecasters have been downgrading their projections for oil demand in 2021.
 
Source: @business   Read full article  
 
5. Will fossil fuels peak in 2027?
 
Source: McKinsey   Read full article  


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Equities

1. US stocks have been lagging the global rally in recent months.
 

 
2. Here is the S&P SmallCap 600 index relative to its 200-day moving average.
 
Source: S&P Global Market Intelligence  
 
Fund managers are extremely bullish on small caps.
 
Source: BofA Global Research  

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3. Stock gains tend to slow when US inflation exceeds 2%.
 
Source: @Ally   Read full article  
 
4. Trading activity in the most expensive stocks accelerated last year.
 
Source: Goldman Sachs, Myles Zyblock  
 
5. Here is a look at global equity valuations by 15-year percentiles. Is the upside limited now?
 
Source: Jack Ablin, Cresset Wealth Advisors  
 
6. Short interest in SPY (the largest S&P 500 ETF) hit the lowest level since the pandemic selloff.
 
Source: @WSJ   Read full article  
 
7. Margin debt spiked last year as traders became more comfortable with leverage.
 
Source: @wolfofwolfst   Read full article  
 
8. Active investment managers are extremely bullish.
 
Source: NAAIM, h/t Anastasios Avgeriou  
 
9. Quality and quality-income factor ETFs’ AUM has almost doubled over the past two years. 
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
10. Banks’ equity underwriting fees jumped last year, boosted by SPACs (2nd chart).
 
Source: @WSJ   Read full article  
 
Source: @WSJ   Read full article  

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11. A number of sectors saw a sharp increase in margins last year.
 
Source: Pantheon Macroeconomics  


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Alternatives

1. VC-backed IPO proceeds hit a record in 2020.
 
Source: @FactSet  
 
2. Real estate investment firms are sitting on $335 billion of dry powder. 
 
Source: Park Madison Partners  
 
3. Private equity fundraising slowed last year.
 
Source: @norris_report, @MelKarsh, @TheTerminal, Bloomberg Finance L.P.  
 
4. The Credit Suisse broad hedge fund index resembles a low-beta equity fund.
 
Source: Mark Serafini, Complexity Capital Management  
 
5. Hedge fund performance dispersion jumped last year.
 
Source: @ScouseView, @bopinion   Read full article  


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Credit

1. Leveraged loan prices have fully recovered amid robust inflows (2nd chart).
 

 
Source: SPDR Americas Research, @mattbartolini  

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2. Investment-grade bonds underperformed this year as Treasury yields climbed.
 
Source: @WSJ   Read full article  
 
3. US high-yield bond issuance is off to its strongest start ever.
 
Source: Goldman Sachs, h/t James W.  
 
4. BDCs have now fully recovered (after being down some 50%).
 
Source: CreditSights  
 
5. Bank interest margins declined sharply last year.
 
Source: S&P Global Market Intelligence  
 
But bond trading revenue spiked.
 
Source: @axios   Read full article  


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Rates

1. The Treasury curve significantly flattened following the last Fed taper. 
 
Source: Deutsche Bank Research  
 
However, yields were higher during the last taper, and Fed policy expectations were hawkish (2 charts).
 
Source: TS Lombard  
 
Source: TS Lombard  

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2. Will the Fed boost its bond purchases to keep up with the Treasury’s debt issuance?
 
Source: RothkoResearch  
 
Here is a comment from Capital Economics.
 
Source: Capital Economics  


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Global Developments

1. Will the dollar rise sharply if the Fed signals a slowdown in asset purchases? Not quite. There are notable differences this time; see rates section.
 
Source: Deutsche Bank Research  
 
Short dollar positioning versus major currencies is at an extreme.
 
Source: TS Lombard  

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2. Manufacturing and services trends have diverged due to lockdowns.
 
Source: Capital Economics  
 
3. Global industrial production has room to rise, given positive sentiment.
 
Source: BCA Research  


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Food for Thought

1. Households behind on their rent, by state:
 
Source: Moody’s Analytics  
 
2. Highest-paid public employees:
 
Source: Deadspin  
 
3. Children as a percentage of US population:
 
Source: Child Trends   Read full article  
 
4. US prison population:
 
Source: Prison Policy Initiative  
 
5. Literate and illiterate world population:
 
Source: Our World in Data    Read full article  
 
6. Russia vs. Ukraine military imbalance:
 
Source: Statista  
 
7. Foreign direct investment in Africa:
 
Source: China Africa Research Initiative    Read full article  
 
8. Presidential executive orders:
 
Source: The Economist   Read full article  
 
9. Tinder (dating site) profile interests:
 
Source: @katiehempenius  

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