The Daily Shot: 23-Aug-21
• Administrative Update
• The United States
• The United Kingdom
• The Eurozone
• Europe
• Japan
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Alternatives:
• Credit
• Rates
• Global Developments
• Food for Thought
Administrative Update
1. Please note that The Daily Shot will not be published on Friday, September 3rd and Monday, September 6th.
2. If you post our charts on social media, we ask that you please credit “The Daily Shot” (@SoberLook or @TheDailyShot on Twitter).
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The United States
1. Robert Kaplan, one of the more hawkish Fed officials, suggested that he may rethink the timing of taper as the pandemic situation worsens (data below).
Source: MarketWatch Read full article
Source: InTouch Capital Markets
That message was a signal for the stock market to rip higher. The “buy-the-dip” crowd is proven right once again.
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2. Next, let’s take a look at some high-frequency indicators.
• COVID cases:
• Hospitalizations:
Source: ANZ Research
• Consumer comfort with various “going out” activities:
Source: Evercore ISI
• Google retail mobility (resilient so far):
Source: Arbor Research & Trading
• The BofA Consumer Current Conditions Indicator:
Source: BofA Global Research; Gustavo Fuhr
• The Oxford Economics Recovery Tracker by region:
Source: Oxford Economics
• Household income expectations (more on the topic here):
Source: Morgan Stanley Research
• Business conditions:
Source: Morgan Stanley Research
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3. Nonetheless, many analysts expect tapering to start in Q4. Here is a projection from Nordea.
Source: Nordea Markets
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The United Kingdom
1. July retail sales surprised to the downside.
However, this decline wasn’t COVID-related. “Going out” activity remains robust.
Source: @samueltombs
• Retail sales are still above the pre-COVID trend.
• Here is the breakdown by sector.
Source: Pantheon Macroeconomics
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2. Public sector borrowing was lower than expected last month (it also remains below the government’s forecasts). The second chart shows cumulative borrowing year-to-date.
3. UK inventories are at extreme lows relative to expected demand.
Source: Longview Economics
4. Here are the latest polls vs. the 2019 election.
Source: @EuropeElects
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The Eurozone
1. Let’s begin with Germany.
• Producer prices are surging amid supply constraints. The July increase was the highest since 2008.
Source: @OliverRakau
Some of these gains will feed into consumer prices (2 charts).
Source: @OliverRakau
Source: @markets; h/t @C_Barraud Read full article
• This chart shows household asset price inflation, with the latest gains driven mostly by property markets.
Source: @Schuldensuehner
• Social Democrats have been surging in the polls.
Source: The Guardian Read full article
Source: @EuropeElects
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2. Inflation differentials between the Eurozone and the US …
… point to a weaker euro (stronger dollar) ahead.
Source: Nordea Markets
Biden’s declining approval ratings are also boosting the dollar.
Source: @AndreasSteno Read full article
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Europe
1. Here are some updates on Sweden.
• Leadership changes:
Source: @bbgequality Read full article
• The Swedish krona (weaker):
• Capacity utilization (back at pre-COVID levels):
• Employment leading indicators (pointing to hiring surge):
Source: Nordea Markets
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2. Norway’s economy has fully recovered.
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Japan
1. The Markit PMI report showed business activity slowing sharply this month, …
Source: IHS Markit
… as COVID cases surge.
• The manufacturing PMI points to downside risks for industrial production.
Source: IHS Markit
• The services PMI index suggests that household spending has deteriorated (household consumption has already been weakening – 2nd chart).
Source: IHS Markit
Source: Morgan Stanley Research
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2. The yen has been on a steady uptrend since 1972, while inflation has trended lower since 1974.
Source: Alpine Macro
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Asia – Pacific
1. Taiwan’s export orders remain robust.
2. A majority of Asia Pacific equity indices have a maximum negative trend relative to the S&P 500.
Source: @sentimentrader
3. The Markit PMI report showed Australia’s business activity deteriorating further this month, …
Source: IHS Markit
… as COVID cases spike.
Source: Reuters Read full article
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4. COVID cases in New Zealand are on the rise.
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China
1. The renminbi continues to strengthen against other currencies.
Beijing is unlikely to tolerate significant gains in China’s currency as economic growth slows. Will we see further RRR reductions, rate cuts, or currency interventions?
Source: ANZ Research
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2. Huarong bonds are rebounding as Beijing orchestrates a bailout.
Source: @business Read full article
Source: @WSJ Read full article
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3. Investors have been rotating into clean energy stocks as Beijing cracks down on large tech firms.
Further reading
4. Coal prices are up 8% as China shuts the border crossing for Mongolian coal imports due to COVID.
5. According to Chinese authorities, nobody has died from COVID since March. A miracle …
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Emerging Markets
1. EM stocks ex-China have been underperforming.
2. Are EM equity valuations too low given US real rates?
Source: Capital Economics
3. This chart shows currency changes since the end of 2019 vs. movements in each country’s bond yield.
Source: @RobinBrooksIIF
4. Roughly 39% of EM central banks are raising rates, which could weigh on stock performance.
Source: @sentimentrader
Source: @ISABELNET_SA, @GoldmanSachs
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Cryptocurrency
1. Bitcoin is trading above $50k.
2. Ether is testing short-term resistance.
Source: bartchart.com
3. Bitcoin has an inverse relationship to gold and has traded similar to the 10-year Treasury yield over the past year.
Source: MRB Partners
3. The total value locked in DeFi platforms is approaching $150 bn again.
Source: @RyanWatkins_
Here is the Ethereum platform.
Source: @RyanWatkins_
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4. Sports NFTs remain popular.
Source: Sportico Read full article
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Commodities
1. Potash (fertilizer) prices have been surging.
Source: Financial Post Read full article
Retail costs are climbing as well.
Source: Progressive Farmer Read full article
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2. Optimism scores on sugar futures are among the highest of any commodity, which typically precedes downturns, according to SentimenTrader.
Source: @sentimentrader
The front-month sugar futures contract, although very choppy, has broken above an 8-year downtrend.
Source: Dantes Outlook
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3. Funds have been net-short platinum futures. Will we see a rebound in prices?
Source: @Ole_S_Hansen
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Energy
1. Brent crude held support at $65/bbl.
Source: @TheTerminal, Bloomberg Finance L.P.
2. US rig counts have been slow to rise, while drilled but uncompleted wells (DUC) have significantly declined over the past year.
Source: Market Ethos, Richardson GMP
3. Speculative accounts have been cutting their bets on WTI crude.
Source: Fundamental Analytics
4. When adjusted for inflation, the average US gasoline price per gallon is below its long-term average.
Source: Market Ethos, Richardson GMP
5. Energy stocks remain under pressure.
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Equities
1. US shares continue to outperform the rest of the world.
2. Companies that benefit from higher prices have underperformed recently.
3. Beijing’s crackdown and softer economic activity in China have been pressuring luxury goods stocks.
4. Utilities had a strong month.
5. Is the selloff in “going-out” industries overdone?
Source: Arbor Research & Trading
6. BoA private clients’ equity allocations remain elevated.
Source: BofA Global Research; @Saburgs
7. Equity sales over the past year have been unprecedented.
h/t David Wilson
8. S&P 500 median short interest is now at the lows not seen in two decades.
Source: @ISABELNET_SA, @GoldmanSachs
9. Trendy equity themes tend to have higher levels of implied volatility than the broader market.
Source: Citi Private Bank
10. Options skew remains elevated (chart shows skew index for SPY). It indicates strong demand for tail hedges.
11. Expiring IPO lockups in Q4 could put pressure on high-growth stocks.
Source: Goldman Sachs; @Saburgs
12. This chart shows stocks as a percentage of household financial assets over time.
Source: Ned Davis Research; Charles-Henry Monchau Read full article
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Alternatives:
1. Hedge fund leverage has been moderating.
Source: Goldman Sachs; @Saburgs
2. Quant fund AUM growth has stalled.
Source: Adnan N. Memon, Citi Business Advisory Services
3. This chart shows hedge fund launches and liquidations since 1996.
Source: @LizAnnSonders, @FT Read full article
4. Beijing and San Francisco have the greatest number of unicorns.
Source: J.P. Morgan Asset Management
5. China’s VC fundraising has been losing market share.
Source: J.P. Morgan Asset Management
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Credit
1. US banks are well-capitalized.
Source: @WSJ Read full article
2. This chart shows US mortgage delinquency rates by loan type:
Source: Mortgage Bankers Association
3. High-yield dispersion (vs. the index average spread) is starting to rise in the US and Europe (2 charts).
Source: Deutsche Bank Research
Source: Deutsche Bank Research
Dispersion is also higher across sectors (2 charts).
Source: Deutsche Bank Research
Source: Deutsche Bank Research
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4. Next, we have two high-yield debt issuance trends.
• Refinancing:
Source: S&P Global Market Intelligence
• First-time issuers:
Source: @WSJ Read full article
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Rates
1. The Fed’s RRP balances continue to climb (banks and money market funds depositing cash at the Fed).
But that’s not enough to drain liquidity created by QE and the US Treasury pulling cash from its account at the Fed.
As a result, reserves hit a record high.
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2. TLT (the iShares long-term Treasury ETF) technicals look bullish (golden cross).
3. The 10yr US breakeven rate (inflation expectations) remains in a trading range.
Source: @TheTerminal, Bloomberg Finance L.P.
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Global Developments
1. Speculators paused raising their bets on the US dollar last week.
Source: @Ole_S_Hansen
2. Vaccination rates in Asia and Oceania still lag.
Source: Nordea Markets
3. The Ningbo port partial closure is rippling across Asia’s hubs.
Source: @tracyalloway, @MessageAnnKoh Read full article
4. Workplace activity remains depressed.
Source: Bloomberg Read full article
5. This chart shows home price appreciation vs. a year ago.
Source: The Economist Read full article
6. Fund managers see global inflation peaking.
Source: BofA Global Research; @Saburgs
7. Here are the market implications from sooner/later Fed taper, according to Morgan Stanley.
Source: Morgan Stanley Research
8. Search activity for typical risk-on topics has declined over the past few weeks.
Source: Arbor Research & Trading
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Food for Thought
1. Intellectual property rights in trade agreements:
Source: @stlouisfed Read full article
2. Investment in R&D:
Source: The Economist Read full article
3. The global peace index:
Source: The Economist Read full article
4. Afghani refugee locations:
Source: Statista
5. Countries trading most with the US vs. China:
Source: @imkahloon, @gadyepstein Read full article
6. Global happiness levels:
Source: Visual Capitalist Read full article
Source: World Happiness Report
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7. President Biden’s job approval:
Source: RealClearPolitics
8. The global impact of climate change:
Source: @chartrdaily
9. Costs to deliver cargo to low-Earth orbit:
Source: The Economist Read full article
10. Increased risk for reading difficulties:
Source: Brookings Read full article
11. Low-income high test score vs. high-income low test score graduation rates:
Source: @BloombergQuint Read full article
12. Las Vegas weddings:
Source: @chartrdaily
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