Crisis averted until early December

The Daily Shot: 08-Oct-21
The United States
Canada
The United Kingdom
The Eurozone
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Credit
Global Developments
Food for Thought



 

The United States

1. The US Senate approved a short-term increase in the debt ceiling, raising the level by $480 billion. The timing was critical because the US Treasury’s cash balances hit the lowest level since 2017.
 

 
But the 480-billion boost will not last long, and the markets will face the same predicament in early December. Here is the T-bill maturing on December 9th.
 

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2. Treasury yields keep grinding higher ahead of the employment report.
 

 
3. Initial jobless claims continue to show improvement in the labor market, with further declines expected (2nd chart).
 

 
Source: Pantheon Macroeconomics  
 
Economists are estimating a 500k increase in employment last month (consensus).
 

 
Below is a forecast from Oxford Economics.
 
Source: @GregDaco  
 
Separately, the bulk of the recent job openings have been in small and medium-sized businesses.
 
Source: Desjardins  

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4. The reversal of the pandemic fiscal impulse will be a drag on the GDP next year.
 
Source: Oxford Economics  
 
5. The Philly Fed’s regional manufacturing survey (leading vs. lagging components) leads the broader ISM index. And right now, it is flashing a significant drop in early 2022. 
 
Source: Nordea Markets  
 
6. Next, we have some updates on consumer credit.
 
Credit card debt remains well below pre-COVID levels.
 

 
Credit card rates are back above 17% – near the highs.
 

 
Here is the status of the US government’s student debt portfolio.
 
Source: @WSJ   Read full article  
 
This chart shows households’ excess savings by income category.
 
Source: Morgan Stanley Research  

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7. Finally, we have some data on inflation.
 
Long-term market-based inflation expectations (highest since 2013):
 

 
Businesses experiencing inflation (CFO survey):
 
Source: Gartner; @JeffWeniger  
 
Inflation in 12 months (a survey of credit investors) :
 
Source: S&P Global Market Intelligence  
 
The Dallas Fed’s trimmed mean PCE inflation (closely watched by the Fed):
 

 
Small business plans to boost prices vs. the median CPI:
 
Source: Nordea Markets  
 
Incomes feeding into the CPI:
 
Source: Cornerstone Macro  
 
Low automobile inventories boosting prices:
 
Source: Pantheon Macroeconomics  
 
Wholesale used car prices (updated):
 

 
The 2% price target (as opposed to a rate target) depends on the starting point.
 
Source: Mizuho Securities USA  


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Canada

1. Short-term bond yields are surging as more rate hikes get priced in.
 

 
Source: @WSJ   Read full article  

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2. Real rates have been exceptionally low.
 
Source: @RichardDias_CFA  
 
3. The Ivey PMI index showed robust business activity in September, with prices surging.
 

 
4. Here are the GDP changes by sector since the start of the pandemic.
 
Source: Scotiabank Economics  
 
5. The energy sector’s strength offset the softness in autos, boosting Canada’s trade surplus with the US.
 
Source: Economics and Strategy Group, National Bank of Canada  


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The United Kingdom

1. Market-based inflation expectations continue to surge.
 

 
2. This chart shows the UK’s stock-bond correlation since 1875.
 
Source: TS Lombard  
 
3. UK savings are returning to pre-COVID levels.
 
Source: Barclays Research  
 
4. As we mentioned earlier, the UK weather has not cooperated this year. Weaker renewables production exacerbated the energy crisis.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  


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The Eurozone

1. Longer-term rates are climbing.
 

 
2. Italian retail sales improved in August, continuing on the pre-COVID trend.
 

 
3. France’s trade volume keeps climbing.
 

 
4. The Dutch CPI is back at 3%.
 

 
5. Manufacturing price expectations point to higher Eurozone inflation ahead.
 
Source: @RichardDias_CFA  
 
6. Here is the composition of the ECB’s (Eurosystem) balance sheet.
 
Source: ECB   Read full article  
 
7. Pantheon Macroeconomics expects the unemployment rate to continue on a downward path.
 
Source: Pantheon Macroeconomics  


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Asia – Pacific

1. Japan’s Economy Watchers Expectations Index surged last month, pointing to a rebound in economic activity.
 

 
2. Australia’s bond yields continue to climb.
 


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China

1. The credit crisis in the property sector shows no signs of letting up.
 
Sunac’s bond price continues to sink.
 

 
Bloomberg’s leveraged dollar-denominated corporate bond index yield is nearing 17%.
 

 
Venke Real Estate is not highly leveraged, but investors are using its credit default swaps to hedge risks in the sector.
 

 
Many developers already defaulted this year.
 
Source: Gavekal Research  
 
By the way, the developers’ credit crunch is not about lack of demand.
 
Source: MacroPolo  

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2. The renminbi continues to climb against a basket of currencies, which will further tighten China’s financial conditions and put pressure on exporters.
 

 
3. Service-sector activity grew last month, with the Markit PMI surprising to the upside.
 


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Emerging Markets

1. The Indian rupee tumbled further after the RBI left rates unchanged.
 

 
Separately, here is a summary of India’s energy crisis.
 
Source: Statista  

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2. Israel’s manufacturing output continues to surge.
 

 
3. Mexican core CPI is approaching 5%.
 

 
4. Inflation risks have diverged across EM economies. 
 
Source: TS Lombard  


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Cryptocurrency

1. Bond investors haven’t been happy in the crypto space.
 
Source: @WSJ   Read full article  
 
2. Crypto and blockchain VC funding hit a record high last quarter.
 
Source: @WSJ   Read full article  
 
3. How different are crypto investors from the broader population?
 
Source: VOX EU   Read full article  


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Commodities

1. Cotton futures continue to surge.
 

 
2. China’s property developer credit crisis poses a risk for industrial metals.
 
Source: Macro Trends Group, Bain   Read full article  
 
3. Next, we have lithium and cobalt expected demand growth from EV battery production.
 
Source: @financialtimes   Read full article  


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Energy

1. European energy prices are off the highs.
 
Gas:
 

 
Coal:
 

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2. Brent crude is nearing the 2018 high. US oil is approaching $80/bbl.
 

 
3. US energy consumption, as a share of the GDP, is far lower now than it was in the 1970s. As a result, the spike in prices is not expected to have a substantial impact on growth.
 
Source: Alpine Macro  


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Equities

1. Companies with substantial sales in China are widening their underperformance.
 

 
2. Buybacks are making a strong comeback, becoming a tailwind for stocks.
 
Source: BCA Research  
 
3. Many M&A deals have been funded with stock.
 
Source: @axios   Read full article  
 
4. US equities have been outperforming EAFE for the longest time since the 1990s.
 
Source: J.P. Morgan Asset Management  
 
5. This chart shows the S&P 500 sector composition over time.
 
Source: @ISABELNET_SA, @GoldmanSachs  
 
6. What percentage of active funds outperformed their benchmark over the past three years?
 
Source: @ToddCFRA  
 
7. ARK Innovation saw some outflows last month.
 
Source: @jessefelder, @FT   Read full article  


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Credit

1. Let’s start with some data on CLOs.
 
CLO activity:
 
Source: Deutsche Bank Research  
 
Source: S&P Global Market Intelligence  
 
Investment period of new deals:
 
Source: S&P Global Market Intelligence  

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2. Loan defaults continue to decline.
 
Source: S&P Global Market Intelligence  
 
3. There has been a great deal of borrowing to fund dividend payouts.
 
Source: S&P Global Market Intelligence  


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Global Developments

1. Container rates declined from the highs (especially China-US).
 

 
The logistics managers’ index has recorded its longest stretch above 70, i.e. significant growth. Has the index peaked?
 
Source: Logistics Managers’ Index   Further reading  
 
Transportation capacity is struggling, but the declines have been moderating (a reading above 50 would indicate capacity is expanding again). 
 
Source: Capital Economics  

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2. The global food price index continues to surge.
 

 
3. The rise in the stock/bond correlation points to greater sensitivity of the dollar to nominal yields.
 
Source: JPMorgan  


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Food for Thought

1. Job losses and gains at the most productive firms:
 
Source: OECD   Read full article  
 
2. Tesla deliveries:
 
Source: @chartrdaily  
 
3. Americans’ views of business sectors:
 
Source: Gallup   Read full article  
 
4. Manhattan apartment sales:
 
Source: Bloomberg   Read full article  
 
New York City office visits (vs. 2019):
 
Source: Placer.ai  
 
New York City retail and tourism visits:
 
Source: Placer.ai  

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5. The global semiconductor sector:
 
Source: The Economist   Read full article  
 
6. Facebook’s outage:
 
Source: @chartrdaily  
 
7. Apple’s growth:
 
Source: Statista  
 
8. Productivity vs. compensation:
 
Source: EPI  
 
9. Binge drinking:
 
Source: @CivicScience  

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Have a great weekend!


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