Key reason behind the Fed’s dovishness

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



 

The United States

1. Durable goods orders declined in February for the first time in ten months. Cold weather was the culprit once again.
 

 
To be sure, growth in durable goods orders remains intact, and we should see a rebound this month.
 
Current recovery vs. 2008:
 
Source: Mizuho Securities USA  
 
Capital goods orders (dollar amount):
 
Source: Piper Sandler   

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2. The overall impact of the polar vortex in February was worse than expected. Here is the Citi Economic Surprise Index.
 

 
3. According to Markit PMI, business activity has been robust this month.
 
Manufacturing:
 

 
Services:
 

 
As we saw previously, supplier delays are creating a backlog.
 
Delivery times (for this index, a lower number means longer delivery times):
 

 
Work backlogs:
 

 
As a result, businesses are paying more to their suppliers and charging higher prices.
 
Manufacturing:
 

 
Services:
 

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3. Next, we have a couple of updates on inflation.
 
Short-term market-based inflation expectations are pricing in 2.1-2.3% core PCE inflation one and two years ahead.
 
Source: Deutsche Bank Research  
 
Adjusted for COVID-related changes in spending patterns, the CPI is substantially higher.
 
Source: @lisaabramowicz1   Read full article  

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4. Loan applications for home purchase are once again at multi-year highs for this time of the year (despite higher mortgage rates).
 

 
5. The Home Depot share price shows strength in housing and home renovation.
 

 
6. Based on online search activity, households are less interested in saving (which could be good for stocks and consumer spending).
 
Source: @benbreitholtz  
 
7. Small and medium-size business CEO confidence has rebounded, pointing to stronger growth ahead.
 
Source: The Vistage CEO Confidence Index  
 
8. Here is the key reason behind the Fed’s dovishness in the face of a rebounding economy.
 
Source: @federalreserve, @GregDaco  


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Canada

1. TSX underperformance relative to the S&P 500 appears stretched.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
The recovery in commodity prices could boost Canadian company earnings relative to the US.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  

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2. The Oxford Economics Recovery Tracker continues to trend higher.
 
Source: Oxford Economics  


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The United Kingdom

1. Inflation tumbled last month, …
 

 
… driven by clothing and footwear. This was a temporary decline.
 

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2. Producer prices are rebounding, which is a global trend.
 

 
3. Manufacturing activity surged this month, and services are back in growth mode.
 

 

 
However, some manufacturers are still struggling to sell products abroad.
 
Source: ING  

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4. Oxford Economics expects the pound to strengthen over the next few years.
 
Source: Oxford Economics  
 
5. This chart shows the demographics of last year’s declines in wage growth.
 
Source: @resfoundation  


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The Eurozone

1. Manufacturing activity accelerated this month.
 

 

 
And services also surprised to the upside.
 

 

 
Here is the composite PMI at the Eurozone level.
 

 
The Citi Economic Surprise Index jumped.
 

 
Will the “third wave” derail the rebound?
 
Source: Statista  
 
Like the US (although not to the same extent), euro-area manufacturers are experiencing supplier delivery delays and higher input prices.
 
Source: @WilliamsonChris  

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2. Consumer confidence is rebounding.
 

 
3. Market-based inflation expectations keep climbing.
 


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Asia – Pacific

1. Investors are more confident in higher inflation in Japan, according to a survey by Absolute Strategy.
 
Source: Absolute Strategy Research  
 
2. The Taiwan dollar rally is fading.
 

 
Taiwan’s broad money supply growth is at multi-decade highs.
 

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3. South Korea’s department store sales rose sharply vs. last year due to base effects (from Feb 2020).
 

 
The nation’s export rebound has been impressive.
 
Source: Statista  

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4. Vaccination rates in Asia are lagging.
 
Source: @WSJ   Read full article  


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China

1. Stocks continue to underperform.
 

 
Renewed talk of US delistings is pressuring tech stocks.
 
Source: @next_china  
 
Shares in Hong Kong are also heavy.
 

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2. The renminbi rally is fading.
 

 
3. Forecasters expect China’s exports to rise further this year.
 
Source: @tracyalloway, @hancocktom, @hongjinshan   Read full article  
 
4. The China Beige Book report shows strengthening business metrics this quarter.
 
Source: China Beige Book  
 
CapEx is rebounding but remains well below pre-COVID levels.
 
Source: China Beige Book  


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Emerging Markets

1. Turkey’s consumer confidence was recovering before the recent market rout.
 

 
2. South Africa’s CPI tumbled to multi-year lows.
 

 
3. Mexico’s bond yields keep climbing.
 


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Commodities

1. Will higher commodity prices encourage greater capital spending?
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
2. US wheat futures have been rolling over.
 
Source: @WSJ   Read full article  
 


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Energy

1. Crude oil rebounded on Wednesday, although it’s softer again this morning.
 

 
Brent held support at $60/bbl.
 

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2. US refinery inputs are almost back to pre-polar-vortex levels.
 

 
Here is gasoline demand.
 

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3. Measured in days of supply, US oil inventories declined last week.
 

 
4. Refinery margins have rebounded this year.
 
Source: @WSJ   Read full article  
 
5. US imports of Russian oil have been rising in recent years.
 
Source: Bloomberg Businessweek   Read full article  


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Equities

1. So far, the S&P 500 has been resilient despite the selloff in bonds. 
 
Source: Alpine Macro  
 
2. Share buybacks have accelerated.
 
Source: @ISABELNET_SA, @BofAML  
 
3. Here is another look at fund flows.
 
Source: @sentimentrader  
 
4. Equity positioning is elevated, …
 
Source: Deutsche Bank Research  
 
… driven by discretionary investors. Systematic strategy equity exposure remains relatively low.
 
Source: Deutsche Bank Research  

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5. Public pensions are heavily overweight equities.
 
Source: Deutsche Bank Research  
 
However, private pensions returned to a more balanced 50/50 equity/fixed income mix over the past decade.
 
Source: Deutsche Bank Research  

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6. Here is the aggregate financial asset allocation over time.
 
Source: Goldman Sachs; @themarketear  
 
7. Apartment REITs are outperforming as economic activity recovers.
 
Source: Alpine Macro  
 
8. It’s been a good quarter for tech acquisitions by SPACs.
 
Source: S&P Global Market Intelligence  
 
9. Finally, this chart shows the largest company in the S&P 500 over time.
 
Source: Goldman Sachs; @SamRo  


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Credit

US corporate high-yield spreads remain tight despite (relatively) elevated equity volatility.
 
Source: Variant Perception  
 
In real terms, US HY yields are at 30-year lows, while investment-grade yields are negative.
 
Source: Variant Perception  


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Rates

1. The long-bond selloff looks overextended.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
2. A steeper curve typically means higher rate volatility.
 
Source: @ISABELNET_SA, @GoldmanSachs  


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Global Developments

1. This chart shows one-year returns across different assets.
 
Source: S&P Global Market Intelligence  
 
2. Next, we have some updates on the Suez Canal situation.
 
Mass per vessel:
 
Source: S&P Global Market Intelligence  
 
Types of ships impacted:
 
Source: @tracyalloway   Read full article  


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Food for Thought

1. Industry reputation trends:
 
Source: @adam_tooze, @FT   Read full article  
 
2. Chip production capacity vs. vehicle production:
 
Source: TS Lombard  
 
3. Tourism rebound expectations:
 
Source: @WSJ   Read full article  
 
4. The US $1.9 trillion fiscal package:
 
Source: @financialtimes   Read full article  
 
5. Somali piracy:
 
Source: Statista  
 
6. Vaccine orders per capita:
 
Source: OECD   Read full article  
 
7. Satisfaction with the way things are going in the US:
 
Source: Gallup   Read full article  
 
8. Will any long-term good come out of the pandemic?
 
Source: The Harris Poll   Read full article  
 
9. Best and worst online cancellation experience:
 
Source: Brightback  
 
10. The evolution of select logos:
 
Source: Polici  

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