China is in deflation

The Daily Shot: 10-Feb-21
China
Asia – Pacific
Japan
The Eurozone
The United Kingdom
The United States
Emerging Markets
Cryptocurrency
Commodities
Equities
Rates
Global Developments
Food for Thought



 

China

1. Consumer inflation indicators are in negative territory.
 
Headline CPI:
 

 
Core CPI:
 

 
The headline inflation has been under pressure from pork prices as the nation rebuilds its pig herd.
 

 
Some of the core CPI weakness was due to a decline in transportation costs, as Bejing asks everyone not to travel over the holidays. The spikes in this index are due to the Lunar New Year timing.
 

 
Other components of the core CPI also saw weakness.
 

 
With these trends likely to be transient, the CPI report is unlikely to sway the PBoC for now.

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2. On the other hand, the PPI has finally moved into the black. The PPI-CPI divergence is a negative for business margins.
 

 
3. China’s credit expansion started the year on a strong note as bank lending jumped.
 
Source: @markets   Read full article  
 
Here is the cumulative trend.
 

 
Aggregate financing was also robust.
 

 
However, the broad money supply growth softened (which may be a seasonal effect).
 

 
Credit expansion continues to outpace GDP growth.
 
Source: IIF  

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4. The stock market continues to rally, with smaller, tech-focused firms (ChiNext) outperforming.
 

 
5. IIF expects government debt to continue higher over the next few years.
 
Source: IIF  


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Asia – Pacific

1. South Korea’s unemployment rate hit a two-decade high.
 
Source: The Straits Times   Read full article  
 

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2. Australia’s consumer sentiment remains elevated.
 


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Japan

1. Machine tool orders held up well last month.
 

 
2. Tokyo’s office vacancy rate continues to climb.
 

 
3. Foreigners have been buying Japan’s T-bills and selling bonds.
 
Source: @markets   Read full article  
 
4. COVID cases continue to moderate.
 
Source: @WSJ   Read full article  


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The Eurozone

1. Let’s begin with Italy.
 
Mario Draghi appears to be gathering broad-based support to form a new government.
 
Source: Reuters   Read full article  
 
Source: Barclays Research  
 
The 10yr Germany – Italy bond spread is holding below 1%.
 

 
Industrial production hasn’t recovered yet.
 

 
Here are some of the challenges Draghi’s government will face.
 
Getting the budget under control:
 
Source: BCA Research  
Source: BCA Research  
 
Addressing lagging productivity:
 
Source: BCA Research  
 
Dealing with high unemployment, especially in the south:
 
Source: BCA Research  

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2. Germany’s current account surplus surprised to the upside.
 

 
3. French industrial sentiment remains steady.
 

 
The nation’s trade deficit has been trending higher over the past two decades.
 
Source: Natixis  

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4. The euro’s upward trend appears to be holding.
 

 
Real yields moved sharply lower on the January inflation spike. Will EUR/USD decline as well?
 
Source: ANZ Research  

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5. The Eurozone’s sluggish vaccination rollout will be costly.
 
Source: Pantheon Macroeconomics  


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The United Kingdom

1. The gilt curve continues to steepen.
 

 
2. Foreign-born workers saw the brunt of the UK’s employment hit.
 
Source: TS Lombard  


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The United States

1. The NFIB Small Business Optimism Index deteriorated further last month.
 

 
A substantial portion of this decline has been due to the GOP losing the White House (2 charts).
 
Source: Mizuho Securities USA  
 
Source: Piper Sandler   
 
Nonetheless, the weak NFIB report is an indication of divergence in sentiment between large and small firms.
 
Source: Oxford Economics  

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2. Next we have some updates on inflation.
 
The NFIB report (above) points to higher consumer inflation ahead.
 
Small business price plans:
 

 
Recent price changes vs. the CPI:
 
Source: Mizuho Securities USA  
 
Adjusted selling prices vs. the core CPI:
 
Source: Pantheon Macroeconomics  
 
US market-based inflation expectations are hitting multi-year highs.
 

 
Not everyone is convinced that inflation will accelerate in the near-term. This chart compares the OECD’s US leading indicator with the core CPI.
 
Source: @TCosterg  

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3. December job openings surprised to the upside.
 

 
The recovery in vacancies has been uneven.
 
Professional and business services:
 

 
Hotels and restaurants:
 

 
Here is an updated Beveridge Curve.
 
Source: Bureau of Labor Statistics  

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4. According to Moody’s Analytics, US renters owe some $57 billion in back rent, with a typical balance of $5,600 (plus fees for late payments). Lifting the eviction moratorium will be painful.
 
Source: @wolfofwolfst   Read full article  


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Emerging Markets

1. Mexico’s core CPI remains stable.
 

 
Brazil’s inflation also appears to be stabilizing.
 

 
But economists expect LatAm inflation to pick up in the months ahead.
 
Source: Barclays Research  

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2. Vietnam’s domestic vehicle sales accelerated last month.
 


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Cryptocurrency

1. Etherium hit a new high, substantially outpacing Bitcoin.
 

 
2. The total crypto market value now exceeds $1 trillion.
 
Source: BofA Global Research, @WallStJesus  
 
3. The mother of all bubbles?
 
Source: BofA Global Research, @WallStJesus  
 
4. According to Cambridge estimates, Bitcoin mining electricity usage is now on par with the total power consumption of countries such as Argentina and Norway.
 
Source: Cambridge Centre for Alternative Finance , h/t @jasonzweigwsj  


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Commodities

1. Copper futures hit the highest level since 2012.
 

 
2. China’s steel production margins are now negative.
 
Source: Macquarie, @Scutty  
 
3. Platinum prices hit a multi-year high.
 

 
4. Gold has diverged from US real rates.
 
Source: @TheTerminal, Bloomberg Finance L.P.  


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Equities

1. The unprecedented demand for call options from retail investors has created a hedging opportunity. It entails buying put options (downside protection) financed by selling expensive call options (giving up some upside).
 
Source: BofA Global Research, @WallStJesus  
 
2. Zero cash yields continue to provide support for the stock market.
 
Source: Deutsche Bank Research  
 
3. Shorts have increasingly focused on companies with low profitability.
 
Source: Deutsche Bank Research  
 
Which sectors have the highest short-interest?
 
Source: Deutsche Bank Research  

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4. Global earnings revisions hit a record high.
 
Source: BofA Global Research, @WallStJesus  
 
5. Healthcare and technology stood out in terms of generating high free-cash-flow yields and return on equity.
 
Source: BlackRock  
 
6. SPAC activity has been unprecedented.
 
Source: BofA Global Research, @WallStJesus  
 
The IPOX SPAC Index has massively outperformed the S&P 500 in recent months.
 

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7. This chart shows the distribution of IPOs by sector.
 
Source: Morningstar  
 
8. Finally, we have the distribution of US equity holdings by household net worth:
 
Source: The New York Times   Read full article  


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Rates

1. TLT (the iShares long-term Treasury ETF) posted substantial outflows.
 
Source: @markets   Read full article  
 
2. The 10yr Treasury term premium is positive for the first time since 2018.
 

 
3. Agency (Fannie Mae, Freddie Mac, etc.) purchases/guarantees of mortgage loans were massive last year.
 
Source: AEI Housing Center  


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Global Developments

1. Bankruptices declined during the current downturn (due to government support).
 
Source: @GitaGopinath  
 
2. This chart shows the cyclical equity exposure by region.
 
Source: Dantes Outlook  
 
3. Excess capacity is still a global issue.
 
Source: Mizuho Securities USA  


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Food for Thought

1. The US homeownership rate:
 
Source: Mizuho Securities USA  
 
2. Wage share in the US economy:
 
Source: Morgan Stanley Research  
 
3. What did younger Americans do with their stimulus check?
 
Source: @WSJ   Read full article  
 
4. State tax revenue:
 
Source: @WSJ   Read full article  
 
5. The market value of Tesla vs. the entire S&P 500 oil sector:
 
Source: @jessefelder, @dylangrice   Read full article  
 
6. Youth mental health crisis in the US:
 
Source: Statista  
 
7. Did drought in parts of China contribute to COVID by changing bat movement patterns?
 
Source: @DroughtLIS  
 
Source: Atmospheric and Environmental Research   Read full article  
 
Over the long run, bat species variety has changed significantly in southern China, Myanmar, and Laos.
 
Source: Beyer, Manica, Mora   Read full article  

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8. US divorce rates:
 
Source: @business   Read full article  
 
9. Three types of Adam Sandler movies:
 
Source: FiveThirtyEight   

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