Green light for risk assets from the CPI report

The Daily Shot: 14-Apr-21
The United States
The United Kingdom
The Eurozone
Switzerland
Asia- Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Equities
Alternatives
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. The March CPI figures were a bit stronger than expected, but there was little in the report to indicate that inflation is gapping higher. The core CPI remains relatively benign, suggesting that the Fed will stay the course.
 

 
Markets breathed a sigh of relief. The US dollar tumbled – a green light for risk assets (such as equities, commodities, etc.).
 
Source: barchart.com  
 
Stocks climbed further.
 

 
Base effects drove part of the year-over-year gains in the headline CPI.
 
Source: Mizuho Securities USA  
 
Gasoline is a good example of that.
 

 
But there was also a solid pop in the month-over-month figures as well.
 
Headline:
 

 
Core:
 

 
Source: Mizuho Securities USA  
 
Core inflation decomposition:
 
Source: Nomura Securities  
 
On a price basis, inflation is still running well below the Fed’s 2% target.
 
Source: Mizuho Securities USA  
 
Economists expect further gains in inflation.
 
Oxford Economics:
 
Source: @GregDaco, @OxfordEconomics  
 
ING:
 
Source: ING  
 
Piper Sandler :
 
Source: Piper Sandler¬†  
 
Fund managers (BofA survey):
 
Source: BofA Global Research; @MacroOps  
 
Here are the trends for commodities and services components of the core CPI.
 
Source: Oxford Economics  
 
And the chart below shows some sector trends.
 
Source: Nomura Securities  
 
The median CPI continues to drift lower.
 

 
Inflation volatility is back.
 
Source: Moody’s Analytics  
 
More firms have been mentioning inflation on earnings calls.
 
Source: BofA Global Research  
 
As discussed previously, sustained inflation gains will require stronger wage growth. The latest Evercore ISI survey suggests that it’s a possibility.
 
Source: Evercore ISI  

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2. The NFIB small business optimism index was roughly in line with forecasts.
 

 
The “job openings hard to fill” indicator hit another record high, pointing to labor shortages.
 

 
The compensation index is rebounding but remains well below pre-COVID levels.
 

 
CapEx intentions deteriorated further.
 

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3. US seaborne imports soared last month as consumer spending accelerated while inventories remained tight.
 
Source: S&P Global Market Intelligence  


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The United Kingdom

1. The economy expanded in February.
 

 
Here are the key metrics.
 
Manufacturing output (above consensus):
 

 
Construction (above consensus):
 

 
Services (below expectations):
 

 
Trade deficit (wider than expected):
 

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2. UK manufacturers are still exporting less than normal.
 
Source: ING  
 
3. Gilt supply is expected to jump next year.
 
Source: @financialtimes   Read full article  


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The Eurozone

1. Germany’s ZEW Expectations indicator is off the highs but remains elevated.
 

 
2. German wholesale prices are rebounding.
 

 
3. Italy’s industrial production continued to recover in February.
 

 
4. Credit growth in Spain is gradually recovering, driven by loans to nonfinancial corporations.
 
Source: Danske Bank  
 
5. The broad money supply growth has been strong across the Eurozone, particularly in France.
 
Source: Fitch Ratings  
 
6. The ECB’s increase in securities purchases hasn’t been as aggressive as “promised.” Will the market test the central bank with higher yields?
 
Source: Pantheon Macroeconomics  


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Switzerland

1. Housing price appreciation has accelerated.
 

 
2. Speculators have reduced their net long Swiss franc positions over the past few months.
 
Source: Mizuho Securities USA  
 
3. EUR/CHF is declining from initial resistance but remains supported above 1.08.
 
Source: Dantes Outlook  


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Asia- Pacific

1. Japan’s vaccinations are lagging.
 
Source: Barclays Research  
 
2. Next, we have some updates on South Korea.
 
Export prices are recovering (gains partially due to base effects).
 

 
Loan growth has been robust.
 
Source: Fitch Ratings  
 
But household credit expansion appears to have peaked.
 

 
The unemployment rate ticked lower last month.
 

 
How do you boost your stock price? Claim that your yogurt product curbs the coronavirus spread.
 
Source: @DavidInglesTV  

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3. Singapore is out of recession.
 

 
Source: ING  

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4. Australia’s consumer confidence is at multi-year highs, according to the Westpac index.
 


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China

1. Inflation is about to accelerate.
 
Source: Barclays Research  
 
2. Will we see another state-owned company default? The bond market thinks so.
 
Source: @markets   Read full article  
 
Onshore debt defaults have been hitting records.
 
Source: @markets   Read full article  

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3. The development of China’s high-speed rail network has been impressive.
 
Source: @cesifoti, @gaojian08   Read full article  


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Emerging Markets

1. Let’s begin with Russia.
 
The nation’s bonds have underperformed recently, …
 
Source: @financialtimes   Read full article  
 
… as foreign investors pulled out.
 
Source: @financialtimes   Read full article  
 
The possibility of a summit with the US sent the ruble sharply higher.
 
Source: ABC News   Read full article  
 

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2. Romania’s industrial production weakened in February.
 

 
The nation’s core inflation remains above 4%.
 
Source: ING  

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3. Turkey’s industrial output has been strong.
 

 
4. Israel’s consumer confidence has almost fully recovered.
 

 
5. South Africa’s mining production was up on a year-over-year basis in February.
 

 
6. Brazil’s retail sales deteriorated in February.
 

 
7. Chile’s economic expectations continue to improve.
 
Source: Scotiabank Economics  
 
8. Who holds EM local-currency and USD sovereign debt?
 
Source: Bertaut, Bruno, Shin   Read full article  


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Cryptocurrency

1. Bitcoin hit a new record, trading near $65k.
 

 
2. Grayscale Bitcoin Trust shares continue to lag.
 

 
3. There is a substantial gap between Nasdaq’s reference price for Coinbase …
 
Source: @WSJ   Read full article  
 
… and the FTX futures contract (which is more than double the reference price). Will we see a massive price pop?
 
Source: FTX  


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Commodities

1. US lumber futures are hitting new records.
 

 
2. This chart shows coal consumption in Europe, the US, and Asia.
 
Source: TS Lombard  


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Equities

1. Fund managers don’t see a bubble.
 
Source: BofA Global Research  
 
2. How high should the 10yr Treasury yield get to cause a correction in stocks?
 
Source: BofA Global Research  
 
3. The distribution of forward earnings yields suggests that there are very few “cheap” stocks left (no tail at higher yields).
 
Source: Societe Generale Cross Asset Research; @johnauthers, @bopinion   Read full article  
 
4. Here is the S&P 500 risk premium.
 
Source: @ISABELNET_SA, @MorganStanley  
 
5. This has been one of the largest pre-earnings season rallies on record.
 
Source: Deutsche Bank Research  
 
6. Deutsche Bank expects another strong season for earnings beats.
 
Source: Deutsche Bank Research  
 
7. Analysts have been boosting earnings expectations in cyclical sectors.
 
Source: Societe Generale Cross Asset Research; @johnauthers, @bopinion   Read full article  
 
8. Equity ETF inflows continue to hit records.
 
Source: @ISABELNET_SA, @MorganStanley  
 
And the market is meeting the demand with more ETF offerings.
 
Source: @markets   Read full article  

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9. SPACs are widening their underperformance.
 

 
10. SPY (S&P 500 ETF) continues its streak of open-to-close gains.
 
Source: @bespokeinvest   Read full article  
 
11. The ARK Innovation ETF is now trading more in line with the Nasdaq 100.
 


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Alternatives

1. Equity hedge funds have outperformed since the start of 2020.
 
Source: @bopinion   Read full article  
 
2. Equity hedge funds are not shy about rapidly adjusting their broad allocations.
 
Source: @bopinion   Read full article  
 
3. Will we see further declines in prime brokerage revenues after the Archegos fiasco?
 
Source: @WSJ   Read full article  
 
4. Private equity investors have been showing more interest in renewables.
 
Source: @axios   Read full article  
 
5. US VC mega-round funding activity spiked last quarter.
 
Source: @axios   Read full article  


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Credit

1. BDCs are widening their outperformance.
 
Source: CreditSights  
 
2. US corporate pensions are almost 97% funded.
 
Source: Morgan Stanley Research  
 
3. What types of ABS deals are linked to LIBOR?
 
Source: Moody’s Investors Service  


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Rates

1. The 30yr Treasury auction was surprisingly strong.
 

 
2. Here is the duration of the Fed’s monthly Treasury purchases.
 
Source: Morgan Stanley Research  
 
And this chart shows the weighted average maturity of Treasuries held by the central bank (vs. the market).
 
Source: Mizuho Securities USA  


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Global Developments

1. Inflation/taper-tantrum reamins the biggest tail risk, according to the BofA fund manager survey.
 
Source: BofA Global Research  
 
2. The dollar has deviated above its long-term trend as the US current account deficit widens (similar to the late 1990s).
 
Source: Alpine Macro  
 
3. G10 currencies are still undervalued versus the dollar.
 
Source: Alpine Macro  
 
4. Here is a look at total debt/GDP ratios across major economies.
 
Source: Mizuho Securities USA  
 
5. The responsiveness of yields to government debt-to-GDP ratios tends to decline beyond the 100% threshold. Also, there are very few observations of debt/GDP above 200% outside of Japan.
 
Source: Deutsche Bank Research  


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Food for Thought

1. Most popular cars in the US:
 
Source: Insurify   Read full article  
 
2. Best-selling cars in …
 
South America:
 
Source: ClassicCars.Com   Read full article  
 
Europe:
 
Source: ClassicCars.Com   Read full article  

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3. US public transit ridership:
 
Source: @business   Read full article  
 
4. State tax revenues:
 
Source: @stlouisfed   Read full article  
 
5. Top work destinations:
 
Source: Statista  
 
6. Streaming music revenues:
 
Source: Statista  
 
7. Republicans’ favorability of major US sports leagues:
 
Source: @MorningConsult, @AlexMSilverman   Read full article  
 
8. Views on making it easier for Americans to vote:
 
Source: Pew Research Center   Read full article  
 
9. Chocolate consumption:
 
Source: Statista  

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