The Daily Shot: 14-Oct-21
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Rates
• Global Developments
• Food for Thought
The United States
1. The September core CPI increased in line with expectations.
• Airline fares were a drag on inflation once again.
Source: Nomura Securities
Excluding airfares, core inflation was stronger.
Source: Pantheon Macroeconomics
Moreover, airline ticket prices will begin climbing again …
Source: Nomura Securities
… as the pandemic subsides.
Source: @financialtimes Read full article
• “Food at home” CPI jumped, which will put pressure on consumer sentiment.
• New vehicle prices continue to surge.
• Rent and owners’ equivalent rent (OER) CPI rose sharply.
Source: Pantheon Macroeconomics
Here are the regional drivers of both inflation indicators.
Source: Nomura Securities
Source: Nomura Securities
• The median CPI is still below pre-COVID levels on a year-over-year basis, but it continues to climb.
We should see further gains in the median CPI based on the NFIB small business price plans (chart from yesterday).
Source: @MikaelSarwe
• The trimmed-mean CPI is approaching its 2008 high on a year-over-year basis.
• Here is the evolution of the CPI price index (which is what the Fed now officially targets).
Source: Mizuho Securities USA
• Finally, we have a forecast for the CPI (year-over-year) from Oxford Economics.
Source: @GregDaco
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2. The Treasury curve flattened further, …
… as the 2-year yield keeps climbing.
• Long-term market-based inflation expectations continue to rise.
• Stocks that benefit from higher inflation outperformed sharply in recent days.
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3. The Fed minutes confirmed the central bank’s intentions to begin tapering this year and be done by mid-2022.
Source: @WSJ Read full article
4. The Department of Energy estimates that heating costs for households will be 30% higher this winter.
Source: EIA
Source: Reuters Read full article
Electricity costs will increase at a faster rate.
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5. Social Security beneficiaries will get a 5.9% inflation adjustment boost next year.
Source: Bloomberg Read full article
6. Americans will spend more during the holiday season this year, …
Source: @axios Read full article
… which has been a tailwind for imports (companies are trying to build inventories).
Source: S&P Global Market Intelligence
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7. The quit rate has been especially high at hotels and restaurants.
Here is one of the reasons for the above trend.
Source: @axios Read full article
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Canada
1. The rate differential with the US points to a stronger loonie.
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
2. This chart shows how Canada’s stock market sector breakdown differs from the global index.
Source: @RichardDias_CFA
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The United Kingdom
1. The August monthly GDP estimate was softer than expected.
Manufacturing and service-sector output grew.
Construction declined.
Here are the index levels.
As the last chart above shows, services have pretty much recovered to pre-pandemic levels. The chart below shows some detail.
Source: ING
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2. UK export orders have been lagging the Eurozone after Brexit.
Source: Pantheon Macroeconomics
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The Eurozone
1. Industrial production dipped in August.
Source: MarketWatch Read full article
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2. Market-implied real rates are near record lows, which shows extraordinary levels of central bank accommodation.
Source: Nordea Markets
3. The ECB (Eurosystem) financed 95% of net government debt issued since February 2020.
Source: ING
4. Barclays expects lower than projected government deficits next year, mainly because policies resulting from the new German coalition will likely be gradual.
Source: Barclays Research
5. Non-bank credit activity has been gaining market share.
Source: BIS Read full article
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Asia – Pacific
1. The Singapore dollar moved higher after a surprise tightening from the central bank.
Source: Reuters Read full article
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2. South Korea’s export prices continue to surge.
3. New Zealand’s home sales deteriorated after the coronavirus lockdowns.
4. Australia’s employment report was mixed.
• Job losses were higher than expected.
But they were all in part-time positions.
• The unemployment rate held up better than expected.
But the participation rate tumbled again. Many of the part-time workers who lost their jobs exited the labor force.
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China
1. The headline inflation declined again, now firmly below 1%. The core CPI was roughly unchanged.
Falling pork prices keep pressuring the headline CPI.
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2. Producer prices continue to surge.
Coal and other energy/industrial commodities have been the main drivers of the PPI gains. The PPI – CPI divergence could pressure margins in some sectors.
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3. Loan growth was somewhat softer than expected last month.
• Aggregate financing continues to run well below 2020 levels.
• Money supply expansion remains modest relative to recent years.
• BCA Research expects China’s credit impulse to bottom later this year, which could support a manufacturing recovery.
Source: BCA Research
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4. Next, we have some updates on the property sector.
• Developers’ bonds remain under pressure amid downgrades.
Source: Reuters Read full article
– Aoyuan:
– Greenland:
– Kaisa:
• Investors continue to use Vanke’s credit default swap as a hedge for the sector.
• The banking system’s exposure to the property sector has declined over the past few years.
Source: Barclays Research
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5. Beijing’s regulatory actions have expanded massively.
Source: Cornerstone Macro
6. The renminbi could weaken from here, especially if the PBoC eases further in response to the property sector credit crunch.
Source: Nordea Markets
7. Higher commodity prices are becoming a headwind for China’s trade surplus.
Source: Pantheon Macroeconomics
8. How is the Phase-1 trade deal with the US progressing?
Source: PIIE Read full article
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Emerging Markets
1. The Turkish lira continues to sink as Erdogan crushes the central bank.
Source: @markets Read full article
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2. Israel’s trade deficit hits another record high.
3. This chart shows the composition of Russia’s exports.
Source: Oxford Economics
Separately, the federal election figures for turnout and votes point to foul play.
Source: The Economist Read full article
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4. South Africa’s retail sales rebounded in August but remained well below pre-COVID levels.
5. Chile’s central bank hiked aggressively as inflation surges (market expected 100 bps).
6. Vietnam’s currency strengthened after the agreement with the US (to avoid being labeled a “currency manipulator”).
Source: ING
7. Market jitters surrounding the Evergrande crisis in China led to weaker equity flows in EM last month. Still, a high level of EM hard currency sovereign bond issuance in September helped lift overall flows, according to IIF.
Source: IIF
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Cryptocurrency
1. Bitcoin continues to outperform.
• Bitcoin is approaching its all-time high, recovering quickly from a near 50% drawdown two months ago.
Source: CoinDesk Read full article
• Here is a look at the evolution of bitcoin’s market price.
Source: Deutsche Bank Research
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2. Crypto exchanges have been net sellers.
Source: B2C2; @fintechfrank
3. The 30-day volatility of bitcoin and ether declined over the past few months but remains elevated given recent price swings.
Source: CoinDesk Read full article
4. Bitcoin’s open interest is still very small compared to other assets.
Source: Deutsche Bank Research
5. The US is now the largest bitcoin mining center – a new tailwind for America’s domestic energy prices.
Source: Reuters Read full article
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Commodities
1. Industrial metal prices are nearing record highs.
• The recent rise in copper prices could bode well for aluminum.
Source: Fitch Solutions Macro Research
• Copper futures broke above a short-term downtrend.
Source: Dantes Outlook
• Fitch Solutions expects further volatility in metal prices as China’s debt issues facing large property developers could weigh on construction demand.
Source: Fitch Solutions Macro Research
On the other hand, the metals market could react to power shortage issues, which could dampen production.
Source: Reuters Read full article
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2. Further gains in the dollar could become a headwind for commodities.
Source: Pavilion Global Markets
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Energy
1. US distillates inventories are at multi-year lows.
The New York Harbor diesel prices hit the highest level since 2015.
h/t @Devikakrishnak
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2. US refinery activity continues to grow.
3. Oil supply will outpace demand next year, which could weigh on prices.
Source: Fitch Solutions Macro Research
4. US crude oil output decline in 2021 has been more extensive than initially estimated.
Source: Reuters Read full article
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5. Clean energy stocks are surging.
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Equities
1. Global earnings downgrades are about to overtake upgrades.
2. The G3 credit impulse suggests that stocks will underperform bonds next year.
Source: Oxford Economics
A weakening credit impulse is a precursor for Nasdaq to start outperforming the Russell 2000 again sometime in 2022.
Source: Nordea Markets
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3. Share buybacks continue to surge.
Source: @financialtimes Read full article
4. The top 10 stocks in the S&P 500 contribute about 30% of total earnings.
Source: J.P. Morgan Asset Management
5. Companies that use simple language on earnings calls outperform those that use complex language.
Source: Nomura Securities Further reading
6. Next, we have some sector performance updates.
• Banks:
Source: Bloomberg Read full article
• Airlines (hit by rising fuel costs):
Source: IBD Read full article
• REITs:
• Consumer Discretionary:
• Metals & Mining:
• Marine industry:
Source: S&P Global Market Intelligence
• The evolution of sentiment by sector:
Source: IHS Markit
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7. Speculative stocks have been surging this week.
8. Now, let’s take a look at some factor trends.
• Month-to-date performance:
Source: S&P Global Market Intelligence
• Small caps and microcaps:
• Quality:
• Growth vs. value:
By the way, value stocks typically outperform during periods of higher inflation.
Source: Oxford Economics
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Rates
1. Flows into inflation-linked funds continue to dominate, …
Source: Deutsche Bank Research
.. driving real rates lower.
Source: BCA Research
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2. Additional curve steepening would be consistent with previous post-recession environments.
Source: Truist Advisory Services
3. The Laubach-Williams model suggests that potential GDP growth will be higher going forward, although the model could overfit the recent extreme GDP moves.
Source: Barclays Research
4. The 10-year Treasury term premium has increased since the September Fed meeting …
Source: Truist Advisory Services
…accounting for most of the recent rise in yields.
Source: BlackRock
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Global Developments
1. Advanced economies are expected to return to pre-COVID growth trends next year.
Source: IMF
2. Here is the distribution of negative-yielding debt.
Source: @financialtimes Read full article
3. Next, we have the percentage of time the CPI has been below central bank targets.
Source: Deutsche Bank Research
4. Global automobile sales have been tanking.
Source: JP Morgan; @carlquintanilla
5. Shipping costs from China/East Asia to the US west coast have risen far more than any other route over the past year.
Source: BCA Research
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Food for Thought
1. The largest consumer markets of this decade:
Source: Brookings Read full article
2. The number vs. floorspace of US commercial buildings:
Source: EIA Read full article
3. COVID vaccine efficacy over time:
Source: @financialtimes Read full article
4. Collaboration software market:
Source: Statista
5. Market share of e-commerce firms:
Source: IMF Read full article
6. Record carbon emissions from Siberian wildfires:
Source: @financialtimes Read full article
7. US views on marriage between Black people and White people:
Source: Gallup Read full article
8. GDP per capita vs. women’s labor force participation:
Source: Equitable Growth Read full article
9. The world’s 25 largest lakes:
Source: Visual Capitalist Read full article
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