Buy-the-dip crowd is proven right once again

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 Please note that The Daily Shot will not be published on Friday, September 3rd and Monday, September 6th.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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