Value outperforming growth as yields climb

The Daily Shot: 23-Feb-21
Equities
Credit
Rates
Commodities
Energy
Cryptocurrency
Emerging Markets
China
Asia – Pacific
The Eurozone
The United Kingdom
Canada
The United States
Global Developments
Food for Thought



 

Equities

1. The recent increase in Treasury yields has been putting a bit of pressure on some high-flying stocks.
 
Nasdaq 100:
 

 
Tech:
 

 
Goldman’s non-profitable tech basket:
 

 
Popular thematic ETFs:
 

 
At the same time, the reflation trade has accelerated (2 charts).
 

 

 
The vaccine progress is boosting some of the beaten-down sectors.
 
Property operators (REITs):
 

 
Travel/Leisure:
 

 
Higher yields are pressuring utility stocks, …
 

 
… while helping banks. The banking sector also got a boost from some M&A developments (2nd chart).
 

 
Source: @axios   Read full article  

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2. The sector moves shown above resulted in a sharp divergence between value and growth factors (2 charts).
 

 

 
Momentum stocks underperformed.
 

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3. Firms with higher operating leverage have outperformed recently.
 
h/t @luwangnyc  
 
4. Here is a look at S&P 500 sector weights and corresponding dividend yields. 
 
Source: Daniel Moskovits  
 
5. This chart shows the number of US shares making new highs.
 
Source: Tilo Marotz, William Delwiche, Callum Thomas Topdown Charts  
 
6. Higher inflation typically results in a rising equity risk premium.
 
Source: Stifel  
 
7. Below is an overview of P/E ratios based on trailing earnings.
 
Source: @WSJ   Read full article  
 
8. SPAC acquisitions hit a record this year.
 
Source: @Drew_Singer, Bloomberg Finance L.P.  
 
9. Next, we have some updates on volatility.
 
The public is very interested in call options.
 
Source: Google Trends, h/t Tilo Marotz  
 
Realized and implied volatility measures have diverged (partially related to the trend above).
 
Source: Deutsche Bank Research  
 
The implied vol “premium” (VIX vs. modeled VIX) remains elevated.
 
Source: Deutsche Bank Research  


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Credit

1. Here is an overview of fixed-income asset volatility, yield, duration, and yield per unit of volatility.
 
Source: SPDR Americas Research, @mattbartolini  
 
2. US mortgage-backed securities (MBS) are starting to outperform long-duration Treasuries, similar to the 2013 taper tantrum.
 
Source: MarketDesk Research  
 
Source: MarketDesk Research  


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Rates

1. While the Treasury curve keeps steepening (2 charts), …
 

Source: MarketDesk Research  
 
… it is not as steep as growth indicators would imply.
 
Source: Nordea Markets  
 
The yield curve has further room to steepen based on previous cycles.
 
Source: Nordea Markets  

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2. 10-year and 30-year Treasury yields are approaching resistance (2 charts).
 
Source: Longview Economics  
Source: Longview Economics  

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3. How does the current yield increase compare to previous cycles?
 
Source: @benbreitholtz  
 
4. Real rates rather than inflation expectations drove the most recent jump in yields.
 
Source: Pantheon Macroeconomics  
 
5. Is the Treasury selloff overdone?
 
Source: @markets   Read full article  
 
6. Current fed funds futures pricing is nowhere near the levels seen during the 2013 taper tantrum.
 
Source: Nordea Markets  


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Commodities

1. Bloomberg’s spot commodity index hit a multi-year high.
 
  Further reading  
 
2. Coffee futures are sharply higher in New York as some parts of Brazil get hit with damaging rainfalls (after the drought damage).
 

 
3. Sugar futures are higher due to Brazil’s shipping bottlenecks (which also impacted soybeans).
 

 
4. Global soybean demand keeps climbing.
 
Source: Alkire Advisory   
 
5. Commodity fund inflows remain robust.
 
Source: Rabobank, Charles-Henry Monchau  


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Energy

1. Brent is making its way toward $70/bbl.
 

 
The curve is moving deeper into backwardation.
 

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2. US LNG exports are exceeding pipeline natural gas exports.
 
Source: @EIAgov  


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Cryptocurrency

Bitcoin tumbled below $50k.
 

 
Bitcoin realized volatility continues to climb, widening the gap with stocks.
 
Source: @TheTerminal, Bloomberg Finance L.P.  


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Emerging Markets

1. The Petrobras mess (#4 here) has been putting pressure on Brazil’s markets.
 
Source: Bloomberg   Read full article  
 

 

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2. EM bonds continue to move lower.
 

 
3. Foreign ownership of “fragile” EM bonds has fallen since the taper tantrum.
 
Source: Alpine Macro  
 
4. Sell-offs in US junk bonds have been more violent than EM USD sovereign bonds over the past decade.
 
Source: Alpine Macro  
 
5. This chart shows the MSCI EM equity index sector breakdown.
 
Source: Morningstar, Steven Desmyter  
 
6. Will improving exports usher EM outperformance over DM?
 
Source: @PkZweifel  


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China

1. New home prices continue to grind higher.
 

 
2. Companies with sales in China are increasingly upbeat, according to Evercore ISI.
 
Source: Evercore ISI  
 
3. According to the World Economics SMI report, China’s business activity continued to expand this month.
 
Source: World Economics  
 
4. Hong Kong’s CPI surprised to the upside (some of which is housing-related).
 


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Asia – Pacific

1. South Korea’s consumer confidence is trending higher.
 

 
2. The Reserve Bank of New Zealand’s government bond purchase program is slowing.
 
Source: Scotiabank Economics  
 
3. The market is increasingly pricing in a higher RBA policy rate in the next couple of years.
 
Source: @Scutty  
 
4. The Aussie dollar is headed for USD 0.8.
 


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The Eurozone

1. The Ifo report surprised to the upside, showing Germany’s business expectations rebounding.
 

 
The improvement was mostly driven by manufacturing.
 
Source: ifo Institute  
 
Will we see a commensurate improvement in economic growth?
 
Source: Pantheon Macroeconomics  

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2. Germany’s housing prices continue to climb.
 
Source: Commerzbank Research  
 
Property price gains also accelerated in the Netherlands.
 

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3. Will the ECB allow higher bond yields?
 
Source: MarketWatch   Read full article  


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The United Kingdom

1. Gilt yields and the pound continue to climb.
 

 

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2. Government borrowing has been below forecasts.
 
Source: Pantheon Macroeconomics  
 
3. Port activity is recovering.
 
Source: Huq   Read full article  
 
4. Here is an overview of government spending on health.
 
Source: BBC   Read full article  


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Canada

1. Consumer confidence is improving.
 

 
2. Retail sales tumbled in December.
 

 
3. Oil drilling and production have risen over the past few months.
 
Source: Scotiabank Economics  
 
4. Canadians are more eager to return to pre-COVID activity than their US counterparts.
 
Source: Scotiabank Economics  


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The United States

1. Existing home sales were quite strong in January (almost 16% above Jan 2020 levels).
 


 
Here is the regional breakdown.
 
Source: Oxford Economics  
 
The inventory of homes for sale hit a multi-decade low.
 

 
Very few listings have a price cut these days.
 
Source: The Daily Feather  

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2. The housing market strength is making its way into retail sales.
 
Source: Pantheon Macroeconomics  
 
3. Job openings continue to climb.
 
Source: @JedKolko, @indeed  
 
Some blue-collar workers are in high demand.
 
Source: @WSJ   Read full article  

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4. The deep freeze put downward pressure on mobility indicators in parts of the US.
 
Source: Arbor Research & Trading  
 
5. Here is the NY Fed’s national economic activity index (WEI).
 

 
6. The Dallas Fed’s manufacturing index rebounded this month, exceeding forecasts.
 

 
Unfilled orders spiked.
 

 
Gains in input costs are accelerating, forcing some manufacturers to boost prices for finished goods.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Forward-looking indicators pulled back.
 


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Global Developments

1. Currency moves relative to USD have been tracking rate differentials.
 
Source: Goldman Sachs, Jalák B  
 
2. Will the dollar repeat the 1985 and 2002 downtrends (implying 1.60 in EUR/USD by 2030)?
 
Source: Nordea Markets  
 
3. How did different asset classes perform during taper tantrum?
 
Source: ING  
 
4. The differential between risky vs. safe fund flows hit a new high.
 
Source: @ISABELNET_SA, @GoldmanSachs  
 
5. Swiss watch exports, an indicator of luxury demand, pulled back last month amid lockdowns.
 


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Food for Thought

1. Vaccine production capability by country:
 
Source: Statista  
 
2. Is vaccine distribution moving too slowly?
 
Source: @YouGovAmerica   Read full article  
 
3. Smallpox deaths in London:
 
Source: The Economist   Read full article  
 
4. Most important issues facing the US:
 
Source: Gallup   Read full article  
 
5 Who was the best US president according to GOP voters?
 
Source: YouGov America  
 
6. Racial income inequality by state:
 
Source: @howmuch_net   Read full article  
 
7. Netflix subscribers by region:
 
Source: @WSJ   Read full article  
 
8. Changes in US January retail sales, by sector:
 
Source: Statista  
 
9. Car emissions per mile vs. cost per month:
 
Source: Morning Consult   Read full article  
 
10. Two-letter combinations that have a meaning:
 
Source: Timothy Hibbins  

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