Even odds of two rate hikes next year

The Daily Shot: 05-Apr-21
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Asia – Pacific
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Rates
• Food for Thought

The United States

1. The US economy is heating up as the job market strengthens. The March headline payrolls report topped economists’ forecast.

While hiring was robust last month, it should be noted that the upside surprise was mostly due to seasonal adjustments – see the comment from Mizuho Securities below.

Source: Mizuho Securities USA

• There is still plenty of room for job gains ahead before we reach the pre-COVID trend.

Source: Pantheon Macroeconomics

• The breadth of hiring improved last month.

Source: Oxford Economics

• The unemployment rate continues to decline.

Here is the underemployment rate.

• Permanent unemployment has leveled off.

Source: @WSJ Read full article

• Long-term unemployment keeps climbing.

Source: Piper Sandler

• Labor force participation is recovering.

Source: @WSJ Read full article

Over the long run, the labor force participation rate will resume its downward trend as the population ages. Here is a forecast from Oxford Economics.

Source: Oxford Economics

• Below are a few additional labor market trends.

– Employment recovery by sector:

Source: @WSJ Read full article

– Employment leaders and laggards:

Source: @bbgvisualdata Read full article

– Prime-age employment-to-population ratio vs. 2008:

Source: Mizuho Securities USA

– Unable to work due to pandemic-related layoffs:

Source: @WSJ Read full article

– Changes in construction jobs since March 2020:

Source: Associated Builders and Contractors

– Teleworking:

Source: @WSJ Read full article

– Job openings on Indeed:

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2. The ISM Manufacturing PMI showed exceptional strengthen in US factory activity (well above consensus).

The ISM index has been somewhat distorted to the upside by supply-chain delays.

Source: Mizuho Securities USA

That’s part of the reason for the divergence between the ISM and Markit indices.

Source: @DrTKSwift

Indeed, supplier delays have reached multi-year highs, ….

… as customer inventories dwindle, …

… and backlogs spike.

Other components of the ISM report continue to show rapid expansion.

• Employment:

• New orders:

• Production:

The ISM index has diverged from China’s manufacturing PMI.

Source: Pantheon Macroeconomics

By the way, US stocks don’t perform well when the ISM index rises above 60.

Source: @ISABELNET_SA, @GoldmanSachs

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3. The NY Fed’s national economic activity index is hitting record levels.

4. The Evercore ISI survey of retailers is the highest in over a decade.

Source: Evercore ISI

5. Automobile sales surged last month.

6. The March economic data surprises, especially the jobs report, brought forward market-based Fed rate hike expectations. Here is the 2-year Treasury yield.

A rate hike next year is now fully baked into the futures market (and then some).

Moreover, the market is now pricing a 50%+ chance of two rate hikes next year. This is entirely inconsistent with the FOMC’s forecasts and Powell’s statements.

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Canada

1. February’s building permits were stronger than expected.

2. Factory activity accelerated last month.

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The United Kingdom

1. Manufacturing activity hit a decade high.

Source: IHS Markit

Factories are backed up.

Output prices are climbing rapidly.

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2. Long-term market-based inflation expectations are surging.

3. Here is the share of the population with COVID antibodies.

Source: Statista

4. Are vaccine passports a good idea?

Source: @YouGov Read full article

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The Eurozone

1. The final release of the Markit Manufacturing PMI report confirmed rapid growth last month.

• Italy:

• The Netherlands:

• Spain:

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2. German retail sales stalled in February.

3. Here is Italy’s cumulative budget by year.

4. The ECB boosted its inflation forecasts for this year, but longer-term projections haven’t changed much.

Source: ECB Read full article

5. Investors are positioned for long-term economic underperformance of the euro area relative to the US.

Source: BCA Research

6. Real rate differentials with the US point to further downside for the euro.

Source: @ISABELNET_SA, @NordeaMarkets

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Asia – Pacific

1. Traders are boosting their bets against the yen.

2. South Korea’s core CPI is back at 1%.

3. The Melbourne Institute inflation measure for Australia is at pre-COVID levels.

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Emerging Markets

1. Let’s begin with Brazil.

• The March manufacturing PMI report showed further loss of momentum.

• February’s industrial production surprised to the downside.

• Exports soared last month:

• Here is the debt-to-GDP ratio:

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2. Chile’s economic activity remained subdued in February.

3. Colombia’s unemployment rate is still elevated.

4. Mexico’s lending continues to shrink.

5. South Africa’s factory activity accelerated last month.

The nation’s trade surplus continues to surprise to the upside.

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6. Russia’s manufacturing growth remains tepid.

Source: IHS Markit

7. Foreign investors yanked quite a bit of capital from Turkey after Erdogan fired the central bank chief.

8. Indonesia’s inflation has been moderating.

9. Business sentiment in Thailand has rebounded.

10. Here is the inter-country equity correlation over time.

Source: TS Lombard

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Cryptocurrency

1. Ethereum hit a record high, outperforming Bitcoin.

Source: MarketWatch Read full article

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2. Miners are now long bitcoin.

Source: glassnode, @DocumentingBTC

3. This chart shows the open interest in gold and bitcoin futures.

Source: @johnauthers, @bopinion Read full article

4. Bitcoin mining electricity usage is now above that of Sweden.

Source: Cambridge Centre for Alternative Finance

5. Blockchain startups are attracting substantial VC capital.

Source: @markets Read full article

6. Here is the average price of non-fungible tokens (NFT).

Source: @markets Read full article

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Commodities

1. Searches and news mentions of “supercycle” have spiked. Are commodities due for a pull-back? (2 charts)

Source: Variant Perception

Source: Variant Perception

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2. The copper/gold ratio is testing resistance.

Source: Dantes Outlook

3. Speculative bets on US corn futures keep climbing.

Source: @WSJ Read full article

Source: @kannbwx

But money managers are now net short wheat futures.

Source: @kannbwx

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4. China’s steel market has been tightening.

Source: Gavekal Research

5. Reduced output of plastics in the US boosted PVC export prices.

Source: The Daily Feather

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Energy

US fracking activity is rebounding.

• Rig count:

• Frac spread count:

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Equities

1. The S&P 500 hit another record high.

Source: @axios Read full article

And VIX closed below 17.5 for the first time since March of 2020.

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2. The S&P 500 outperformance vs. Treasuries is at extreme levels.

Source: @benbreitholtz

Is the US stock/bond return ratio nearing a peak?

Source: Variant Perception

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3. Stocks favored by the Reddit crowd are still up near 80% year-to-date (on average).

But equity purchases by individual investors are slowing.

Source: @WSJ Read full article

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4. The tech sector has delivered the best earnings over the last five years on the MSCI World Index.

Source: BlackRock

5. Historically, stocks with lower volatility tend to produce larger long-term returns per unit of risk.

Source: Mitch Bollinger

6. Small-cap call skew has flattened out, and many stocks now have an inverted call skew.

Source: Refinitiv, @themarketear

7. This chart shows equity factors’ performance for March and Q1.

Source: S&P Global Market Intelligence

8. Global stocks do well in April.

Source: @ISABELNET_SA, @MorganStanley

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Credit

1. It was a rough start of the year for investment-grade bonds.

h/t @jtcrombie

2. US convertible issuance has soared this year. Many companies are issuing convertibles with zero interest rates and at historically high conversion premiums (as much as 60%), making converts a cheap source of capital, according to III Capital Management.

Source: III Capital Management

3. Financial and non-financial commercial paper balances have diverged. Corporations have been terming out their debt, while banks (especially foreign lenders) are taking advantage of historically low CP rates.

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Rates

1. Here is the Q1 performance of global government bonds.

Source: @markets Read full article

2. This chart shows the trajectories of realized Treasury yield volatilities.

Source: Tradeweb

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Food for Thought

1. Job postings offering a four-day workweek:

Source: Bloomberg Read full article

2. Working from home post-COVID:

Source: UBS

3. Potential for remote work by country:

Source: McKinsey Read full article

4. Global EV markets:

Source: @WSJ Read full article

5. Food e-commerce:

Source: Statista

6. Falling road construction costs:

Source: McKinsey Read full article

7. Tips gap:

Source: polici Read full article

8. Daily prayer:

Source: Statista

9. COVID restrictions:

Source: Statista

10. US nursing home cases and deaths:

Source: @CohoKelly

11. Who wants to visit the International Space Station?

Source: @YouGovAmerica Read full article

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