The Daily Shot: 16-Apr-21
• Rates
• Commodities
• Equities
• Credit
• Emerging Markets
• China
• Japan
• Europe
• The United States
• Food for Thought
Rates
1. The unexpected Treasury rally this week set the tone for global markets.
Japanese and other international fixed-income investors, who were net sellers earlier this year, are back in the Treasury market. US debt hedged into yen remains relatively attractive.
Declining US real yields (TIPS) also have a significant impact on risk assets, …
… sending US equity indices to record highs.
Source: @WSJ Read full article
Here is the correlation between the Nasdaq 100 and TIPS prices.
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2. China’s holdings of Treasury securities continue to rebound (driven in part by strong US imports).
Source: Bloomberg Read full article
3. US mortgage rates declined sharply this week (with Treasury yields).
4. The Fed’s balance sheet is approaching $8 trillion. The central bank now owns over $7 trillion of Treasury and Agency MBS debt (2nd chart).
5. The 10-year Treasury note futures contract has been deeply oversold.
Source: Longview Economics
Traders have been buying up Treasury futures and shorting cash bonds. They prefer using the 10yr “ultra-long” CBOT futures because they pose less cheapest-to-deliver risk. Here are the net positions of leveraged funds.
h/t @StephenSpratt
The Treasury rally this week caused an unwind in some of these futures-cash spread trades.
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Commodities
1. Lower US mortgage rates (above) sent lumber futures to new highs.
2. Precious metals are also benefitting from falling Treasury yields.
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Equities
1. Despite strong Q1 results (due to trading) …
Source: @Tobin_Tweets
… bank shares underperformed as yields declined (see the rates section).
On the other hand, utilities and property operators (REITs) benefitted from lower rates.
2. Here are a few other sector trends.
• Tech:
• Healthcare:
• Industrials:
• Transportation:
• Energy:
• Materials:
• This chart shows global fund managers’ sector positioning (based on a BofA survey).
Source: BofA Global Research; @lisaabramowicz1
• Which sectors are vulnerable to an increase in the corporate tax rate?
Source: BCA Research
• Which sectors should outperform in the next 12 months?
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
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3. Next, we have the relative performance of some thematic portfolios.
• Cannabis:
• Clean energy:
• Inflation-sensitive shares:
• Shipping stocks experienced a massive rally this year.
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4. Stocks preferred by retail investors have been lagging in recent weeks.
Even Reddit-hyped stocks have been trading sideways.
But according to JP Morgan, retail investors are back in the options market.
Source: JP Morgan; Bloomberg Read full article
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5. The following chart shows the ratio of the S&P 500 forward P/E and VIX – a useful measure of market sentiment.
Source: @RichardDias_CFA
Bullish sentiment is at an extreme, according to an investor survey by Scotiabank.
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
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6. The S&P 500 normalized P/E ratio keeps climbing.
Source: @ISABELNET_SA, @BofAML
7. The weighting of highly leveraged companies in the Russell 2000 index is at record highs.
Source: Societe Generale’s Cross Asset Research; @themarketear
8. The average first-day return for IPOs is not yet as high as the dot-com peak.
Source: Alpine Macro
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Credit
1. Investment-grade corporate spreads are at multi-year lows.
The on-the-run IG CDX spread is now at 50bps (“index” of credit default swaps).
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2. Leveraged loan issuance has been strong this year.
Source: Deutsche Bank Research
There is plenty of demand from CLOs.
Source: Deutsche Bank Research
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Emerging Markets
1. EM bonds got a lift from lower Treasury yields.
And so did EM currencies.
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2. Ukraine hiked rates by 100bps (the market expected 50bps) amid concerns about capital outflows due to the Russian threat.
Inflation has been rising quickly.
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3. India’s wholesale prices rose more than expected.
4. The Chilean peso rally has stalled as USD/CLP hit support at 700.
Source: barchart.com
Chile’s central bank will begin hiking rates next year.
Source: Scotiabank Economics
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China
1. The Q1 GDP report was a bit disappointing.
2. The March industrial production figure was weaker than expected (the big spike is due to base effects).
Fixed-asset investment was roughly in line with expectations.
Retail sales topped forecasts.
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3. Home price appreciation remains robust.
4. The Huarong situation is spooking bond investors.
Source: Bloomberg Read full article
Source: @WSJ Read full article
Here is the credit default swap spread.
Source: @TheTerminal, Bloomberg Finance L.P.
Investment-grade bond yields are climbing.
Source: @WSJ Read full article
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5. China’s credit impulse has declined substantially.
Source: Evercore ISI
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Japan
1. Yield differentials suggest a lower USD/JPY.
Source: Variant Perception
The rise in Japanese exports could lead to stronger foreign demand for the yen.
Source: Variant Perception
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2. Growth in Japan’s broad money supply has been approaching 10%.
Source: Fitch Ratings
3. This chart shows Americans’ views of Japan over time.
Source: Gallup Read full article
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Europe
1. Italian government debt has grown rapidly since the start of the pandemic.
And more increases are coming before we hit a peak.
Source: Bloomberg Read full article
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2. Germany’s vaccination program is accelerating.
Source: @OliverRakau
3. Coming from a low base, Europe’s economic surprise index is higher than the US, Japan, and China.
Source: Scotiabank Economics
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The United States
1. The nation’s economic growth is accelerating. Retail sales rose nearly 10% in March.
• Americans were spending their stimulus checks.
Source: Pantheon Macroeconomics
• Building materials were very popular.
• Here is the breakdown by sector.
Source: @GregDaco, @OxfordEconomics
• This chart provides a comparison with the post-2008 recovery.
Source: Mizuho Securities USA
• The spike in retail sales means a much stronger overall consumer spending.
Source: @GregDaco
According to Oxford Economics, we are looking at a 9% (annualized) growth in Q1 – driven by this spike in consumption.
Source: @GregDaco, @OxfordEconomics
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2. The industrial production report was a bit disappointing as the economy came out of the February deep freeze.
Some of the weakness was due to supply-chain problems. Chip shortages put downward pressure on auto production.
Capacity utilization moved higher.
There are more gains ahead for the nation’s manufacturing output. Here is a comparison with the ISM index.
Source: Pantheon Macroeconomics
Furthermore, the regional reports from the NY Fed and the Philly Fed point to exceptionally strong growth in factory activity this month. More on this on Monday.
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3. Jobless claims are trending lower as the labor market recovers.
Source: @GregDaco
4. Below are some high-frequency indicators.
• Consumer sentiment:
• Air travel:
Source: @WSJ Read full article
• Comfort in entertainment activities:
Source: Morning Consult
• The Oxford Economics Recovery Tracker:
Source: Oxford Economics
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5. Homebuilder optimism edged higher this month amid strong demand.
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Food for Thought
1. US households dipping into their toilet paper stockpile:
Source: @WSJ Read full article
2. Age of cars and trucks in the US:
Source: The New York Times Read full article
3. Retail sales of licensed merchandise:
Source: Statista
4. Mortgage originations by credit score:
Source: @WSJ Read full article
5. The online dating market:
Source: @markets Read full article
6. The deficit impact of stimulus bills:
Source: @WSJ Read full article
7. Child share of the US population:
Source: Brookings Read full article
8. Student debt demographics:
Source: Invisibly Read full article
9. LG’s exit from the smartphone market:
Source: Statista
10. The Simpsons viewership per episode:
Source: @chartrdaily
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Have a great weekend!
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