Goods vs. services CPI divergence driven by spending patterns

The Daily Shot: 11-Feb-21
The United States
The Eurozone
Europe
China
Emerging Markets
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. The January CPI report was a bit weaker than the markets were expecting.
 
Headline CPI:
 

 
Core CPI:
 

 
Treasury yields pulled back.
 
Source: @WSJ   Read full article  
 
Services remain a drag on the core CPI. The pandemic-related divergence below …
 
Source: Piper Sandler   
 
… is the result of consumer spending pattern changes.
 
Source: Economics and Strategy Group, National Bank of Canada  
 
Shelter inflation keeps moderating.
 

 
Owners’ equivalent rent CPI has been under pressure, especially in large cities.
 
Source: Nomura Securities  
 
A couple of other items contributed to core CPI weakness in January.
 
New cars:
 

 
A massive decline in admission prices for sports events:
 

 
Alternative measures of inflation continue to trend lower.
 

 
Next, we have a select set of CPI components.
 
Airline fare:
 

 
Inpatient hospital services:
 

 
Elderly care at home:
 

 
Funeral expenses:
 

 
Bank services:
 

 
College tuition:
 

 
Household paper products:
 

 
Laundry equipment:
 

 
Economists expect a rebound in inflation shortly. It’s unclear, however, just how sustainable the rebound will be.
 
Source: ING  

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2. Mortgage applications for house purchase are holding up.
 

 
3. Here are a couple of updates on the labor market.
 
Permanent employment drop relative to the previous two recessions:
 
Source: BofA Global Research, @WallStJesus  
 
Is the proposed minimum wage increase to $15/hr too much?
 
Source: Commerzbank Research  

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4. Here is the cumulative (fiscal year-to-date) federal budget deficit.
 

 
5. Finally, we have some updates on international trade.
 
Major trading partners:
 
Source: Oxford Economics  
 
The 2020 trade deficit by country:
 
Source: @wolfofwolfst   Read full article  
 
Manufacturing trade deficit:
 
Source: @EconomicPolicy  


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The Eurozone

1. The euro-area manufacturing output recovery has been uneven.
 
The Netherlands:
 

 
Finland:
 

 
France:
 

 
BCA Research expects a sharp recovery in Germany’s industrial production.
 
Source: BCA Research  

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2. French wage growth has outpaced the rest of the Eurozone over the past couple of decades.
 
Source: Natixis  
 
3. This chart shows Germany’s month-over-month core CPI components.
 
Source: @OliverRakau  
 
4. The US – Eurozone gap in COVID-related fiscal stimulus levels has been remarkable.
 
Source: UniCredit, Octavian Adrian Tanase  


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Europe

1. The Norges bank has been the largest buyer of the Norwegian krone since 2014 (on behalf of the government).
 
Source: Morgan Stanley Research  
 
2. Czech industrial production surged in December.
 

 
3. Iceland’s unemployment rate continues to climb as the tourism sector remains depressed.
 


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China

1. The renminbi keeps grinding higher (the offshore yuan shown below).
 

 
2. Sales of household appliances have accelerated.
 
Source: Longview Economics  
 
3. VC activity remains robust.
 
Source: Bloomberg   Read full article  


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Emerging Markets

1. Brazil’s retail sales tumbled in December.
 

 
2. Mexico’s same-store sales continue to shrink.
 

 
3. South Africa’s business confidence is holding up well.
 

 
4. This chart shows new COVID cases in select African nations.
 
Source: @financialtimes   Read full article  
 
5. Turkey’s unemployment rate remains elevated.
 

 
6. Israel’s consumer confidence is recovering amid vaccination progress.
 

 
7. This scatterplot shows investment-grade EM sovereign debt spreads vs. duration, …
 
Source: CreditSights  
 
…and here are EM high-yield sovereign debt spreads.
 
Source: CreditSights  


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Commodities

1. US corn futures tumbled after the key government report (WASDE) showed a smaller than expected drop in domestic stockpile estimates. Soy futures declined as well.
 

 
2. Chicago hog futures keep climbing.
 
Source: Reuters   Read full article  
 

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3. Tin prices have shot up, but Fitch Solutions expects a correction.
 
Source: Fitch Solutions Macro Research  
 
4. Diamond prices have been rising since the COVID selloff.
 
Source: @WSJ   Read full article  
 
Source: @WSJ   Read full article  


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Energy

1. Technicals point to downside risk for WTI crude.
 
h/t Sophie Caronello  
 
2. The US is expected to remain “energy independent.”
 
Source: @EIAgov  
 
3. US refinery inputs are recovering.
 
Source: Princeton Energy Advisors  
 
But gasoline demand remains about 10% below pre-pandemic levels.
 
Source: Princeton Energy Advisors  

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4. Crude oil and gasoline inventories remain inside the 5-year range.
 

 
5. US natural gas futures are testing resistance at $3/mmbtu.
 
Source: barchart.com  
 
6. Propane prices have risen sharply this year.
 
Source: @WSJ   Read full article  


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Equities

1. Popular short-squeeze stocks have almost fully reversed their Reddit-fueled surge.
 
Source: Alpine Macro  
 
2. “Stuck at home with just some cash and free trades …”
 
Source: BofA Global Research, @WallStJesus  
 
3. The Reddit crowd has set its sights on cannabis stocks.
 
Online search activity:
 
Source: Google Trends  
 
Stock prices:
 

 
Source: Reuters   Read full article  

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4. Goldman’s non-profitable tech index is approaching 250% year-over-year performance.
 

 
5. Outperformance of the most shorted stocks has coincided with a surge in call option volume.
 
Source: Deutsche Bank Research  
 
6. Japan has seen the largest forward earnings estimate revision so far this year. 
 
Source: SunTrust Private Wealth Management  
 
7. Cyclical sectors have seen the strongest upward earnings revisions.
 
Source: SunTrust Private Wealth Management  
 
8. Based on the yield curve steepening, S&P 500 financials could have further room to run.
 
Source: Alpine Macro  
 
9. The first phase of this bull market, which should be the strongest from a return standpoint, is likely over, according to SunTrust.
 
Source: SunTrust Private Wealth Management  
 
The current bull market continues to track the 1982 and 2009 paths (nearing a pause).
 
Source: SunTrust Private Wealth Management  
 
Investor complacency remains a near-term market risk.
 
Source: SunTrust Private Wealth Management  


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Credit

1. Some of the most leveraged companies will be refinancing their debt as yields decline below coupon levels.
 
Source: @markets   Read full article  
 
2. Here is the relative performance (total return) of BB vs. BBB bonds, high-yield vs. investment-grade, and CCC vs. B-rated debt.
 
Source: CreditSights  
 
3. Many US trucking companies failed last year.
 
Source: @WSJ   Read full article  


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Rates

1. The 10yr Treasury swapped into yen (via cross-currency swaps) looks attractive relative to JGBs.
 

 
2. At the current QE pace, the Fed won’t absorb much of the additional Treasury debt coming to market.
 
Source: Nordea Markets  
 
3. The following charts show the real Fed’s policy rate in relation to the neutral rate of interest.
 
Using headline PCE:
 
Source: Scotiabank Economics  
 
5-year breakeven rate:
 
Source: Scotiabank Economics  
 
5-year inflation swap rate:
 
Source: Scotiabank Economics  


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Global Developments

1. New COVID cases are declining in most countries.
 
Source: Evercore ISI  
 
2. Money market fund assets under management have surged over the past two years. This could mean risk-taking in markets has further room to run, according to Morgan Stanley.
 
Source: Morgan Stanley Research  
 
3. Here is a summary of the fiscal response to COVID in advanced economies.
 
Source: Capital Economics  


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Food for Thought

1. The global vaccination race:
 
Source: @chartrdaily  
 
2. THC concentration in cannabis over time (getting more potent):
 
Source: @PotResearch, @KeithNHumphreys, @AddictionJrnl  
 
3. US drug overdoses:
 
Source: @WSJ   Read full article  
 
4. Germany’s religion map:
 
Source: @nerdy_maps  
 
5. US independents’ political ideology:
 
Source: Gallup   Read full article  
 
6. Teleworking due to the pandemic:
 
Source: @WSJ   Read full article  
 
7. US state income taxes:
 
Source: @financialtimes   Read full article  
 
8. Websites using Flash:
 
Source: Statista  
 
9. Canine body language:
 
Source: Canine Strategies  

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