Households are concerned about inflation, not jobs

The Daily Shot: 02-Nov-21
The United States
Canada
The United Kingdom
The Eurozone
Europe
Japan
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Rates
Food for Thought



 

The United States

1. The ISM Manufacturing PMI was roughly in line with expectations, indicating brisk factory activity in October.
 

 
However, growth in new orders slowed sharply, with some customers frustrated by shortages and delays.
 

 
Here is the orders-to-inventories ratio.
 

 
This slowdown in orders points to softer production ahead.
 
Source: @MikaelSarwe  
 
Imports declined due to shipping delays.
 

 
Supplier delivery times remain near extremes.
 

 
By the way, supplier issues have been distorting the ISM index to the upside.
 
Source: Oxford Economics  
 
Source: Mizuho Securities USA  
 
The ‘prices paid’ index topped expectations.
 

 
Source: Reuters   Read full article  
 
CapEx commitment lead times hit a record high.
 

 
The ISM index has diverged from Treasury yields.
 
Source: Yardeni Research  

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2. West Coast port metrics continue to show clogged supply chains.
 
Source: Cornerstone Macro  
 
Source: @themarketear  
 
Supply-sensitive products have been a significant contributor to inflation.
 
Source: Deutsche Bank Research  

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3. Consumer confidence has been deteriorating.
 
Source: Gallup   Read full article  
 
Source: Cornerstone Macro  
 
But households are concerned about inflation, not jobs.
 
Source: Gallup   Read full article  
 
Buying conditions for durables and vehicles have deteriorated further in October due to prices gains.
 

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4. Online job-seeking activity has improved.
 
Source: @benbreitholtz  
 
5. Residential and non-residential construction spending trends have diverged sharply.
 
Source: Chart and data provided by Macrobond  
 
Here is an example.
 
Source: @axios  

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6. Below is a look at the fiscal impulse over the past 15 years. Will more stimulus come in the form of infrastructure packages?
 
Source: Morgan Stanley Research  
 
7. What are the betting markets telling us about a potential hike in corporate taxes?
 
Source: @ISABELNET_SA, @GoldmanSachs   Read full article  
 
8. Long-term market-based inflation expectations tumbled. The market expects the Fed to be more aggressive in taming inflation.
 


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Canada

1. Consumer confidence continues to ease. Similar to the US, this trend is driven by price gains.
 

 
2. Canada’s manufacturing growth remains robust.
 


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The United Kingdom

1. Real consumer spending is now back in line with the pre-pandemic average. Still, it will be a while before the service sector fully recovers.
 
Source: JP Morgan Research  
 
2. Commodity prices contributed to higher inflation expectations, but Oxford Economics expects this trend to weaken next year.
 
Source: Oxford Economics  
 
3. Factories are boosting prices at rates not seen before.
 

 
As a result, we could see further gains in the PPI.
 
Source: Pantheon Macroeconomics  


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The Eurozone

1. German retail sales declined sharply in September and are now back on the pre-COVID trend.
 

 
2. French household consumption remains below pre-pandemic levels.
 

 
3. Energy inflation has been surging.
 
Source: Pantheon Macroeconomics  
 
Source: Eurostat   Read full article  
 
Forecasters expect the headline inflation to moderate (following the crude oil backwardation), but they see the CPI excluding energy climbing over the next couple of years.
 
Source: ECB   Read full article  


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Europe

1. The Swedish krona continues to hit multi-year highs.
 

 
2. Denmark’s manufacturing PMI (growth in business activity) hit a record high in October.
 

 
3. Czech manufacturing growth is slowing.
 

 
4. Central European economies have seen mostly positive inflation surprises over the past quarter.
 
Source: JP Morgan Research  
 


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Japan

1. Vehicle sales deteriorated further in October.
 

 
2. The decline in mobile phone charges has been a drag on core inflation this year.
 
Source: Morgan Stanley Research  
 
3. Japanese equities have given back recent gains and remain attractively valued.
 
Source: Oxford Economics  


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Asia – Pacific

1. South Korean CPI surprised to the upside.
 

 
Source: Reuters   Read full article  
 
Rate hikes are coming.
 

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2. Next, we have some updates on Australia.
 
Consumer confidence continues to recover.
 

 
Inflation has not been intense relative to other developed economies.
 
Source: JP Morgan Research  
 
A stronger Australian dollar helped restrain import prices.
 
Source: JP Morgan Research  


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China

1. The Shanghai Shenzhen CSI 300 equity index is testing support.
 

 
Backed by Beijing, semiconductor stocks continue to outperform.
 
Source: Pavilion Global Markets  

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2. Rating agencies continue to clobber developers’ debt.
 
Source: Fitch Ratings   Read full article  
 
Source: Fitch Ratings  
 
The yield on Bloomberg’s USD-denominated HY debt index hit a new high.
 

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3. Domestic tourism in China is struggling under the weight of COVID restrictions. 
 
Source: Gavekal Research  
 
4. Following new regulations, China’s issuance of carbon-intensive bonds has decreased.
 
Source: IMF  
 
5. China’s EV sales have been surging …
 
Source: Fitch Ratings  
 
… at the expense of cars with internal combustion engines.
 
Source: Fitch Ratings  

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6. Hong Kong’s Q3 GDP growth surprised to the downside.
 

 
7. Macau casino revenue is deteriorating again.
 


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Emerging Markets

1. Let’s begin with Russia.
 
Manufacturing PMI (back in growth mode):
 

 
Retail sales:
 

 
The unemployment rate:
 

 
Real wages (squeezed by rising inflation):
 

 
Cargo shipments (very strong):
 

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2. South Africa’s private sector credit growth remains tepid.
 

 
The trade balance surprised to the downside.
 

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3. The Israeli shekel, bond yields are surging on rate hike expectations.
 
Source: @markets   Read full article  
 

 

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4. Indonesia’s core CPI remains near the lows. Overall, EM Asia’s inflation rates have been modest relative to the rest of the world.
 

 
5. As we saw yesterday, EM Asia’s factory activity has rebounded sharply. Here is the ASEAN PMI.
 
Source: IHS Markit  
 
Even Vietnam, which was hit hard by pandemic lockdowns, is back in growth territory.
 
Source: IHS Markit  

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6. Brazil’s manufacturing growth is stalling.
 
Source: IHS Markit  
 
7. EM stocks continue to underperform relative to the S&P 500.
 
h/t @SriniSivabalan  
 
Here is the attribution of year-to-date returns.
 
Source: SPDR Americas Research, @mattbartolini   Read full article  

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8. EM monetary conditions are tight relative to the US.
 
Source: Variant Perception  
 
9. Since the start of the pandemic, over $500 billion has poured into EM assets, with about 40% of the total going to China.
 
Source: IMF  


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Cryptocurrency

1. Bitcoin tends to produce positive returns in Q4.
 
Source: CoinDesk   Read full article  
 
Tuesday tends to be the best day of the week for bitcoin, followed by Wednesday.
 
Source: @CoinDeskData  

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2. How do family offices view crypto?
 
Source: @financialtimes   Read full article  
 
3. US regulators are urging lawmakers to subject stablecoins to the same strict federal oversight as banks.
 
Source: CoinDesk   Read full article  
 
4. Squid Game pump and dump?
 
Source: CoinDesk   Read full article  
 
Source: CoinMarketCap  


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Commodities

1. China’s coal price collapse keeps pressuring industrial commodities.
 
Steel rebar in Shanghai:
 

 
Iron ore in Singapore:
 

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2. Copper backwardation is climbing again.
 

 
3. US wheat prices hit multi-year highs.
 

 
Source: @markets   Read full article  
 
The US winter wheat crop is not in great shape.
 
Source: @kannbwx  

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4. The US barley crop continues to shrink.
 
Source: Bloomberg   Read full article  
 
5. Cotton futures hit a multi-year high in New York amid strong demand from China.
 

 
6. Surging fertilizer prices point to higher agricultural commodity prices ahead.
 
Source: @TaviCosta  
 
7. Here is a look at commodity returns in October.
 
Source: S&P Global Market Intelligence  


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Energy

1. Crude oil continues to move deeper into backwardation.
 

 
WTI Dec-Red-Dec (one-year) spread:
 

 
Brent 1st – 7th contract spread:
 

 
The US inflation expectations curve has not been this inverted in years due to the steep backwardation in oil.
 

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2. OPEC’s production increase was smaller than expected.
 

 
Source: Reuters   Read full article  

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3. Fitch expects a wave of refinery closures over the next few years, although sufficient margins should keep the bulk of existing refiners in operation.
 
Source: Fitch Solutions Macro Research  
 
4. Big oil’s free cash flow surge has been impressive.
 
Source: @markets   Read full article  
 
5. Hurricane Ida curbed US natural gas production more than any other hurricane in recent years.
 
Source: EIA  
 
6. Nuclear power capacity is expected to increase, especially in emerging economies.
 
Source: IEA  


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Equities

1. US small caps and microcaps surged on Monday.
 

 
The iShares Russell 2000 ETF (IWM) is testing resistance.
 
Source: @fundstrat  
 
The Russell 2000 has been underperforming the Nasdaq 100 even as Treasury yields increased.
 
Source: Pavilion Global Markets  
 
How does the Russell 2000 perform relative to the S&P 600 small-cap index?
 
Source: S&P Global Market Intelligence  
 
Will small-cap margins get hit as wage growth accelerates?
 
Source: MarketDesk Research  

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2. Speculative stocks are back in favor as the Reddit crowd returns.
 
ARK Innovation:
 

 
Non-profitable tech and stocks with the highest short interest:
 

 
Meme stocks:
 

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3. Momentum stocks are rebounding.
 

 
4. The S&P 500 is entering a seasonally strong period …
 
Source: SentimenTrader  
 
Source: @Not_Jim_Cramer  
 
… and, on average (over the past 20 years), November is typically a good month for the S&P 500.
 
Source: Cannon Advisors  
 
Historically, buying at the 208th trading day of the year and selling at the close of the last trading day of the year has resulted in positive returns with small drawdowns. 
 
Source: SentimenTrader  

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5. The return dispersion in tech mega-caps surged in October.
 
Source: S&P Global Market Intelligence  
 
How has the S&P 500 performed without the tech mega-caps?
 
Source: Yardeni Research  

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6. Equity fund inflows have been strong, driven by ETFs.
 
Source: Yardeni Research  
 
Source: @MichaelGoodwell, h/t @Callum_Thomas  

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7. Here is a look at market performance around the world.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
8. Tech and consumer discretionary sectors are losing relative strength versus energy and financials. This is consistent with the rotation from growth to value.
 
Source: Variant Perception  
 
Tech has struggled during prior episodes of tightening liquidity.
 
Source: Variant Perception  


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Rates

1. End of QE tends to be good for long-term Treasuries.
 
Source: Piper Sandler¬†  
 
2. Speculative accounts sharply increased their bets against Treasury futures.
 
Source: @ReutersJamie   Read full article  
 
Source: Deutsche Bank Research  
 
Asset managers reduced their exposure to Treasuries, …
 
Source: Deutsche Bank Research  
 
… and they are increasingly bearish on duration.
 
Source: Deutsche Bank Research  

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3. Short-term rate volatility has been surging.
 
Source: @CMEGroup  
 
4. TIPS fund inflows have been impressive as inflation jitters spread.
 
Source: SPDR Americas Research, @mattbartolini  


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Food for Thought

1. US adults living without a spouse or partner:
 
Source: Pew Research Center   Read full article  
 
2. Indigenous populations in the Americas:
 
Source: Statista  
 
3. MBA programs with the highest number of unicorn founders:
 
Source: Ilya Strebulaev, Stanford University Graduate School of Business  
 
4. The best way to win a Nobel Prize is to get nominated by another laureate.
 
Source: The Economist   Read full article  
 
5. Global defense spending:
 
Source: Merrill Lynch, BofA Global Research  
 
6. History of RNA vaccine patents:
 
Source: IMF  
 
7. Eating red meat:
 
Source: @YouGovAmerica  
 
8. Vaccine exporters:
 
Source: Bruegel   Read full article  
 
9. A GPS-tracked falcon flew from South Africa to Finland (over 6,000 miles in 42 days).
 
Source: @simongerman600   Read full article  

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