Posted on by The Daily Shot Editor: Lev Borodovsky

“China-like” growth expected in the US this year

The Daily Shot: 22-Mar-21
• The United States
• The Eurozone
• Asia – Pacific
• China
• Emerging Markets
• Commodities
• Energy
• Equities
• Rates
• Food for Thought

 

The United States

1. Let’s begin with some updates on inflation.
 
• Business inflation expectations are at a decade high.
 
Source: III Capital Management  
 
• Manuacturers’ rising costs (here) continue to signal higher consumer inflation ahead.
 
Source: ANZ Research  
 
• Supply chain disruptions have been boosting input prices. In addition to chip shortages …
 
Source: Moody’s Investors Service  
 
… and bottlenecks at California ports, …
 
Source: @WSJ   Read full article  
 
… the Texas deep freeze created a shortage of plastics.
 
Source: @WSJ   Read full article  
 
And freight rates are climbing.
 
Source: Cass Information Systems  
 
• The key question is whether the CPI increase will be sustained. Here is a forecast from Capital Economics.
 
Source: Capital Economics  
 
• The rise in gasoline prices will add close to 2 percentage points to headline CPI by April, according to Capital Economics (base effects). But the sharp rise will be short-lived.
 
Source: Capital Economics  
 
• The fastest 20% of CPI components have risen for several years, while the slower 20% have remained centered on zero. Here is a comment from Jim Vogel, FHN Financial.

Bottom Line: The time to start considering a real shift to sustained inflation is when the lowest 20th percentile of prices – with those prices weighted evenly – begins to rise along with the upper 20th percentile.

Source: FHN Financial  
 
• The cyclical components of the core PCE inflation have been trending lower.
 
Source: @ScottMinerd  

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2. High-frequency indicators point to accelerating economic growth.
 
• Airline traffic:
 
Source: Pantheon Macroeconomics  
 
• Restaurant activity as well as spending on salons and spas:
 
Source: @WSJ   Read full article  
 
• Small business sales:
 
Source: Morgan Stanley Research  
 
• Evercore ISI business survey:
 
Source: Evercore ISI  
 
Evercore ISI business survey of retailers:
 
Source: Evercore ISI  
 
• Hotel occupancy:
 
Source: Pantheon Macroeconomics  

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3. As a result of the above trends and the massive stimulus injection, …
 
Source: Morgan Stanley Research  
 
… economists increasingly expect China-like GDP growth this year.
 

 
Here is a forecast from Oxford Economics.
 
Source: @GregDaco, @OxfordEconomics  

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4. Urban housing costs have declined sharply in western states. Prices in southern cities held up better.
 
Source: FHN Financial  
 
5. Mortgage rates are grinding higher, …
 

 
… boosted by rising MBS yields.
 

Back to Index

 

The Eurozone

1. Let’s start with the latest budget balance forecasts by country (from ING).
 
Source: ING  
 
2. Here is the composition of the ECB’s balance sheet growth, …
 
Source: ECB   Read full article  
 
… which is pushing excess reserves to new records.
 
Source: @fwred  

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3. Next, we have some updates on Germany.
 
• New COVID cases:
 
Source: Pantheon Macroeconomics  
 
• Truck toll milage:
 
Source: @OliverRakau  
 
• Angela Merkel’s approval ratings:
 
Source: Morning Consult  

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4. EU vaccination cases have been lagging, …
 
Source: Statista  
 
… but the pace has picked up in the Eurozone.
 
Source: Pantheon Macroeconomics  
 
Here are a couple of scenarios.
 
Source: Longview Economics  

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Asia – Pacific

1. Japanese bank shares have outperformed sharply in recent weeks.
 
h/t @shoko_oda  
 
2. Here are some updates on South Korea.
 
• Exports are holding up well.
 

 
• Corporate bond spreads are widening.
 
Source: Kyungji Cho   
 
• President Moon’s approval ratings have deteriorated.
 
Source: Morning Consult  

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China

1. Households have been leveraging up.
 
Source: Longview Economics  
 
2. This chart shows the total interest payments.
 
Source: ANZ Research  
 
3. Demand for long-term loans has risen significantly.
 
Source: BCA Research  
 
4. Some coal companies may have trouble rolling their debt.
 
Source: Molly Dai, @markets   Read full article  
 
5. The 2021 reduction in the local government bond issuance quota was relatively small.
 
Source: BCA Research  

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Emerging Markets

1. Turkey’s aggressive rate hike last week (here) cost the central bank chief his job.
 
Source: @WSJ   Read full article  
 
The lira tumbled in response.
 


 
By the way, here is why the central bank hiked rates.
 
Source: @financialtimes   Read full article  

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2. Next, we have some updates on Russia.
 
• The central bank surprised the market with a rate hike.
 
Source: @markets   Read full article  
 

 
• Real rates have been stable.
 
Source: ING  
 
• Domestic bond yields are climbing.
 

 
• Here are some economic indicators.
 
– The unemployment rate:
 

 
– Retail sales:
 

 
• Wage growth:
 

 
• Cargo shipments:
 

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3. The market expects a rate hike in Mexico later this year.
 
Source: Scotiabank Economics  
 

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4. Bolsonaro’s approval ratings have deteriorated.
 
Source: Morning Consult  
 
5. COVID cases in the Philippines are accelerating.
 
Source: JHU CSSE  
 
6. Here are some updates on India.
 
• New cases are rising again.
 
Source: Pantheon Macroeconomics  
 
• F/X reserves rose sharply.
 
Source: Gavekal Research  
 
• The rupee is slightly overvalued relative to its 10-year average.
 
Source: Fitch Solutions Macro Research  

——————–

 
7. The Lebanese pound tumbled in the black market.
 
Source: @steve_hanke  
 
8. This chart shows key correlations with EM sovereign risk.
 
Source: IIF  
 
9. The cost of borrowing in local currency has increased sharply over the past month, …
 
Source: IIF  
 
… despite relatively low inflation.
 
Source: IIF  

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Commodities

1. Iron ore is down 6.5% in China today.
 

 
2. Dry bulk shipping costs keep climbing.
 

 
3. Fund investors are very bullish on commodities. Too much enthusiasm, perhaps?
 
Source: BofA Global Research  
 
4. This chart shows US beef exports by country. Not being part of TPP puts the US at a disadvantage in Japan.
 
Source: @WSJ   Read full article  

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Energy

1. US fracking activity continues to improve.
 

 
• Nine rigs were added last week.
 

 
• Well start-ups have rebounded.
 
Source: Longview Economics  
 
• Shares of fracking companies have been outperforming.
 

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2. Higher oil prices would boost energy sector earnings (3 charts).
 
Source: Longview Economics  
 
Source: Deutsche Bank Research  
 
Source: Deutsche Bank Research  

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3. “Clean energy” stocks have given up some of the recent gains.
 

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Equities

1. Companies with weak balance sheets have outperformed sharply (2 charts).
 

 
Source: @kgreifeld, @markets, @VildanaHajric   Read full article  

——————–

 
2. Next, we have some sector updates.
 
• Transportation:
 

 
• Retail:
 

 
• Sector performance around the dot-com bubble:
 
Source: Deutsche Bank Research  
 
• Analysts’ recommendations:
 
Source: @FactSet  

——————–

 
3. Canada, France, and UK equities have held up well relative to their developed-market peers over the past month.
 
Source: Capital Economics  
 
4. This chart shows market capitalizations as a share of the M2 money supply.
 
Source: Gavekal Research  
 
5. Traders have been buying call options at the open.
 
Source: @spotgamma  
 
6. The low level of US corporate bond spreads is essentially a proxy for equity risk premia, according to Capital Economics (2 charts).
 
Source: Capital Economics  
 
Source: Stifel  

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7. Finally, we have the relative sizes of equity markets in 1899 and 2021.
 
Source: @RyanDetrick, @CreditSuisse  

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Rates

1. The combination of the US Treasury pulling liquidity from its account at the Fed (here) and the Fed’s ongoing QE program …
 

 
… sent reserve balances to record levels.
 

 
At the same time, private-sector deposits are surging.
 

 
In response to the above developments, the Fed boosted counterparty limits on its reverse repo program to create a floor on short-term rates. The central bank does not want to see negative rates.
 
Source: Reuters   Read full article  

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2. Yields climbed the most in the intermediate maturities last week.
 

 
3. The Fed is letting the bank leverage-ratio exemption expire.
 
Source: Reuters   Read full article  
 
Will it result in lower Treasury holdings at banks? It’s unlikely because the largest banks can get around these limitations.
 

 
4. Inflation expectations based on inflation caps keep rising.
 
Source: @WSJ   Read full article  
 
5. Treasury term premium keeps climbing.
 

 
6. Here is the ratio of TLT (long-term Treasuries ETF) to SPY (S&P 500). Is the selloff in Treasuries over for now?
 
Source: @TeddyVallee  

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Food for Thought

1. Abandoning savings bonds:
 
Source: MagnifyMoney   Read full article  
 
2. Automobile manufacturing as % of GDP:
 
Source: Bloomberg   Read full article  
 
3. Most valuable apparel brands:
 
Source: Statista  
 
4. US federal spending and revenues:
 
Source: @WSJ   Read full article  
 
5. Federal debt vs. prior estimates:
 
Source: Deutsche Bank Research  
 
6. Leaving San Francisco:
 
Source: San Francisco Chronicle   Read full article  
 
7. Older workers in the US:
 
Source: @GregDaco, @Noahpinion, @bopinion   Read full article  
 
8. Vaccine effects on hospitalizations:
 
Source: @financialtimes   Read full article  
 
9. Most hated office jargon:
 
Source: Statista  

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