Posted on by The Daily Shot Editor: Lev Borodovsky

Russia’s increased gas production isn’t meeting Europe’s demand

The Daily Shot: 06-Oct-21
• Energy
• Commodities
• Rates
• Credit
• Equities
• Cryptocurrency
• Emerging Markets
• China
• Asia – Pacific
• The Eurozone
• The United Kingdom
• Canada
• The United States
• Global Developments
• Food for Thought

 

Energy

1. European energy prices have gone vertical. These unprecedented market moves will scar European and global economies by squeezing corporate margins and ultimately cutting into households’ disposable incomes and sentiment.
 
• Natural gas:
 

 
• Coal:
 

 
• Electricity price in Spain:
 

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2. Russia has been producing more natural gas than usual.
 
Source: Platts; @ira_joseph  
 
But Gazprom’s storage sites in Western Europe are running empty.
 
Source: Goldman Sachs, h/t @AndreasSteno  

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3. US natural gas futures are soaring as well, taking out the 2014 peak.
 

 
4. Brent crude is trading near $83/bbl.
 

 
5. Refinery margins continue to surge.
 
• Asia and Europe:
 

 
• The NYMEX 3:2:1 crack spread:
 

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6. Next, we have some data on global energy supplies over time.
 
Source: IEA   

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Commodities

1. Soaring energy prices sent Bloomberg’s broad commodity index to a new record.
 

 
2. Speculative accounts have been reducing their overall commodity bets.
 
Source: @macro_daily  
 
3. Open interest in COMEX copper futures has been falling.
 
Source: Reuters   Read full article  

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Rates

1. US longer-term Treasury yields resumed their climb, …
 

 
… driven by higher inflation expectations.
 

 
• The curve has been steepening, …
 

 
… with more to come.
 
Source: Truist Advisory Services  
 
• Yields are higher around the world (Canada, UK, Australia).

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2. Morgan Stanley expects the Fed’s RRP (reverse repo) program usage to peak in size when the debt ceiling is resolved (when the Treasury general account will reach its lowest point before getting rebuilt).
 
Source: Morgan Stanley Research  
 
3. Where do credit investors see the 10yr Treasury yield a year from now?
 
Source: S&P Global Market Intelligence  
 
4. The first leveraged loan tied to SOFR (LIBOR replacement) should boost confidence in the transition.
 
Source: Bloomberg   Read full article  

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Credit

1. Which of the following factors will most likely impact credit portfolios?
 
Source: S&P Global Market Intelligence  
 
2. Are corporate bond yields due for a pickup?
 
Source: McClellan Financial Publications  
 
3. Total US leveraged finance issuance surged this year.
 
Source: S&P Global Market Intelligence  

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Equities

1. US stock futures are down this morning in response to the jump in bond yields.
 

 
Will the tech mega-caps continue to hold support?
 

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2. Stocks that benefit from higher inflation continue to outperform (boosted by the energy sector).
 

 
3. Investors are betting on a further reopening of the US economy. Notice the similarity with the chart above.
 

 
4. Will earnings growth remain strong into next year?
 
Source: LPL Research  
 
By the way, earnings revisions are highly correlated to the ISM Manufacturing New Orders index.
 
Source: Cornerstone Macro  

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5. Most US shares are in correction (down at least 10% from their highs).
 
Source: Charles Schwab  
 
6. The recent sell-off looks similar to previous down moves around the option expiry dates.
 
Source: Deutsche Bank Research  
 
7. What does the decline in option skew …
 

 
… mean for stocks?
 
Source: Chris Murphy, Susquehanna International Group  

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8. The ratio of VVIX (vol of vol) to VIX has been decreasing, which tends to indicate lower demand for VIX call options.
 
Source: Chris Murphy, Susquehanna International Group  
 
9. Small caps got hit the hardest in the 2011 debt ceiling crisis.
 
Source: Cornerstone Macro  
 
Equities sold off, but bonds rallied during that stress period in 2011.
 
Source: Piper Sandler   

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10. CAPE tends to be higher when inflation is positive but low. 
 
Source: Capital Economics  
 
Will CAPE decline in the years ahead?
 
Source: Oxford Economics  

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11. Microcaps have substantially outperformed small caps this year (boosted by the Reddit crowd). Will the gap begin to close as risk aversion returns?
 

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Cryptocurrency

1. Bitcoin breached $50k and is now at the upper Bollinger Band.
 

 
Bitcoin has outperformed other large cryptocurrencies over the past month.
 
Source: FinViz  
 

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2. The bitcoin Fear & Greed Index is rising from a low point last month.
 
Source: Arcane Research   Read full article  
 
3. Roughly 10% of the circulating BTC supply returned to an unrealized profit (above cost basis), according to blockchain data.
 
Source: Glassnode  
 
4. This chart shows the total market value of crypto assets over time.
 
Source: IMF   Read full article  
 
5. The highest bitcoin trading volume in September was on Tuesdays.
 
Source: @CoinbaseInsto  
 
6. Here is how you can bet against NFT projects.
 
Source: CoinDesk   Read full article  

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Emerging Markets

1. Let’s begin with some updates on Russia.
 
• Business activity is stabilizing (PMI near 50):
 

 
Source: IHS Markit  
 
• Retail sales:
 

 
• Unemployment:
 

 
• Real wages:
 

 
• Construction activity:
 

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2. Brazil’s industrial production is now well below pre-COVID levels.
 

 
The 2yr yield breached 10%.
 

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3. EM currencies have been drifting lower as Treasury yields climb.
 

 
4. The Indian rupee is falling as energy prices spike.
 

 
5. Romania’s central bank unexpectedly hiked rates amid inflationary pressures.
 

 
6. EM stocks have been weighed down by the recent rise in the dollar.
 
Source: BCA Research  
 
EM equities are linked to the dollar and US equity returns.
 
Source: TS Lombard  
 
It appears that EM stocks have not fully priced in a slowdown in China.
 
Source: BCA Research  

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7. EM mobility is catching up to Europe and the US.
 
Source: TS Lombard  

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China

1. The leveraged developers’ credit contagion is spreading.
 
Source: @WSJ   Read full article  
 
Fantasia’s bond prices collapsed.
 

 
China’s USD-denominated HY bonds continue to sink (chart shows bond yields).
 

 
Source: @business   Read full article  

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2. What is the status of Chinese firms that have defaulted since 2018?
 
Source: Fitch Ratings  
 
3. High-rated credit spreads and interbank rates have been falling. This suggests that, so far, stress in the real estate sector has not harmed the overall banking system (2 charts).
 
Source: Longview Economics  
 
Source: Longview Economics  

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4. The recent decline in supplier deliveries could reflect slowing growth and/or supply chain delays.
 
Source: Longview Economics  

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Asia – Pacific

1. New Zealand’s central bank hiked rates as expected.
 

 
Source: Bloomberg   Read full article  
 
It was a non-event for the markets (2 charts).
 

 

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2. Aussie bond yields are climbing.
 

 
Separately, Australia’s regulators are attempting to cool the housing market.
 
Source: The Guardian   Read full article  

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3. South Korea’s inflation is on the rise.
 

 
4. Singapore’s retail sales remain soft.
 

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The Eurozone

1. French industrial production is rebounding.
 

 
2. As we saw a couple of weeks back, euro-area service-sector growth is moderating.
 

 
3. Eurozone’s savings rate remains elevated.
 
Source: Eurostat   Read full article  
 
4. What are the betting markets telling us about the next German government?
 
• The chancellor:
 
Source: @PredictIt  
 
• The coalition:
 
Source: @PredictIt  

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The United Kingdom

1. Gilt yields are surging.
 

 
2. The BoE has been financing a great deal of the government’s recent borrowing spree.
 
Source: Gavekal Research  

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Canada

1. The CFIB small/medium-size business index suddenly deteriorated in September.
 

 
Source: CFIB press release   Read full article  

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2. Building permits have been cooling but remain above the pre-COVID trend.
 

 
3. Canada’s trade surplus surprised to the upside.
 

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The United States

1. Service sector growth held up better than expected last month.
 

 
• Supply issues persist.
 

 
• And most firms continue to see rising prices.
 

 
• Here are the contributions to the index.
 
Source: Mizuho Securities USA  

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2. The nation’s trade deficit hit a new record.
 

 
3. Concerns about the debt ceiling continue to pressure short-term Treasury bills.
 
Source: Piper Sandler   
 
4. What are the reasons some Americans are not working?
 
Source: Desjardins  

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Global Developments

1. Chinese tightening earlier in the year could cause a significant deceleration in global growth at the end of 2021. 
 
Source: Stifel  
 
2. Dry bulk shipping costs continue to surge.
 

 
3. This scatterplot shows Deutsche Bank’s GDP growth and inflation forecasts for 2022.
 
Source: Deutsche Bank Research  

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Food for Thought

1. Retired Americans:
 
Source: BCA Research  
 
2. Less than five years before Medicare Part A becomes insolvent:
 
Source: CRFB  
 
3. Declining share of White people in the US:
 
Source: Pew Research Center   Read full article  
 
4. US households’ savings trends:
 
Source: MagnifyMoney   Read full article  
 
5. States with the highest and lowest business cost affordability:
 
Source: Statista  
 
6. Percentage of Americans who can name the three branches of government:
 
Source: @axios   Read full article  
 
7. Vaccination progress:
 
Source: Gallup   Read full article  
 
8. Post-COVID business-related meeting preferences (globally):
 
Source: The Economist   Read full article  
 
9. Compatibility of blood types for blood donation:
 
Source: Statista  

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