Will we see liftoff right after tapering is complete?

The Daily Shot: 04-Nov-21
The United States
The United Kingdom
The Eurozone
Europe
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Energy
Equities
Global Developments
Food for Thought



 

The United States

1. The Federal Reserve will start tapering securities purchases this month. The initial reductions will be $10 billion in Treasuries and $5 billion in MBS per month, targeting completion for next June. The central bank left itself the option to adjust the pace of tapering.
 
The central bank still sees inflation as transitory. However, there was a subtle change in the language from “largely reflecting transitory factors” to “reflecting factors that are  expected to be transitory.”
 
Source: @johnjhardy  
 
Will we see liftoff right after tapering is complete? Much will depend on the labor market recovery, but the Fed could be shifting its views on “maximum employment.” There is a realization that some of the workers who left the labor force are not returning, and the labor market could keep tightening.
 
Source: Anna Wong, @economics   Read full article  
 
The market didn’t see any major surprises in the FOMC’s decision (taper was well telegraphed). Longer-dated Treasury yields climbed, and the curve steepened somewhat.
 

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2. The ADP private payrolls report surprised to the upside.
 
Source: ADP Research Institute  
 
Job gains were broad, with every major sector seeing an increase in employment.
 
Source: ADP Research Institute  
 
The ADP report overshot the official payroll figures in August and September. Will it happen again?
 
Source: Pantheon Macroeconomics  
 
Here is the absolute level of private employment.
 

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3. The ISM Services PMI hit a record high, pointing to accelerating growth in service industries last month.
 

 
Source: @GregDaco  
 
Supply chain issues are becoming more extreme.
 
Supplier delivery times:
 

 
Backlog of orders:
 

 
Inventory sentiment:
 

 
By the way, the Evercore ISI Retailers Survey supports the data we see from ISM.
 
Source: Evercore ISI  
 
Supply issues and tight labor markets held back hiring.
 
Source: Oxford Economics  
 
Costs continue to surge.
 

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4. Factory orders keep rising.
 

 
5. Mortgage applications to purchase a house remain healthy.
 

 
But refinancing activity has been easing.
 

 
6. CoreLogic sees home price appreciation slowing sharply next year.
 
Source: CoreLogic  


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The United Kingdom

1. The updated services PMI figure was even stronger than the flash report. Hiring remains robust.
 

 
Service firms are experiencing extreme price pressures and are passing higher costs to their customers.
 

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2. This map shows the UK’s pipeline of solar and wind projects.
 
Source: CAGE Research Centre, University of Warwick   Read full article  


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The Eurozone

1. The unemployment rate continues to move lower, and economists expect the trend to continue.
 

 
Italy’s unemployment rate:
 

 
Spain’s unemployment level:
 

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2. France is running a substantial trade deficit with the rest of the Eurozone.
 
Source: Natixis  
 
Separately, the budget deficit is now higher than it was in 2020.
 

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3. Interbank rates have been moving deeper into negative territory, driven by ample liquidity.
 


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Europe

1. Poland’s central bank hiked rates by 75 bps (more than expected) as inflation surges.
 

 
2. Next, we have some data on energy consumption.
 
Source: Natixis  


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Asia – Pacific

1. China’s property credit crunch has made it challenging for other Asian companies to sell USD-denominated bonds.
 
Source: Bloomberg   Read full article  
 
2. Australian retail sales tumbled last quarter (as expected).
 

 
Source: Reuters   Read full article  


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China

1. The carnage in China’s property credit markets continues.
 
Yuzhou:
 
Source: Fitch Ratings   Read full article  
 

 
Kaisa:
 
Source: @markets   Read full article  
 
After attempting to rebound, property stocks in Hong Kong are tumbling again.
 

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2. What are the sources of China’s fixed-asset investment?
 
Source: Fitch Ratings  
 
3. Steel prices continue to tumble.
 

 
4. Vegetable prices are surging, which will boost consumer inflation.
 
Source: @StuartLWallace   Read full article  
 
5. COVID is spreading again.
 
Source: @StuartLWallace   Read full article  
 
6. According to Gavekal Research, China has loaned nearly $1 trillion abroad.
 
Source: Gavekal Research  


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Emerging Markets

1. Turkey’s consumer inflation is nearing 20%.
 

 
The PPI hit 46%, driven by the lira’s weakness. Let’s cut rates some more and see what happens.
 

 
Separately, Turkish stocks are becoming less relevant for EM investors.
 
Source: @Gavekal  

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2. India’s service-sector PMI surged last month, pointing to a strong recovery after the lockdowns.
 

 
3. Russia’s CPI continues to climb.
 

 
The nation’s service industries are back in contraction.
 

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4. Brazil’s exports have been slowing.
 

 
5. Are EM bonds oversold?
 
Source: Alpine Macro  


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Cryptocurrency

1. Ether is on track for eight consecutive positive quarters after reaching an all-time high of around $4.6K.
 

 

 
2. Long-dated implied volatility in the ETH options market is well supported. It appears that investors are starting to position for the ETH2 launch (network upgrade) next year. 
 
Source: @CoinbaseInsto  
 
3. Bitcoin’s implied volatility has been low relative to previous major market events. 
 
Source: Skew   Read full article  


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Energy

1. Crude oil sold off, with traders spooked by bearish geopolitics.
 

 
Source: ABC News   Read full article  
 
Source: World Oil   Read full article  

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2. US gasoline demand is holding near multi-year highs.
 

 
Gasoline inventories remain near the lows.
 

 
And refinery runs are stalling.
 

 
3. Distillates inventories jumped last week.
 

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4. Infrastructure investment requirements make current carbon reduction goals challenging ($3 trillion of investment needed for net-zero by 2050).
 
Source: Goldman Sachs  


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Equities

1. Indices continue to hit record highs, as market technicals look increasingly stretched.
 

 
By the way, it’s been nearly 500 days since the S&P 500 dipped below its 200-day moving average.
 

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2. A short squeeze has accelerated market gains in recent weeks.
 

 
3. Some analysts are increasingly nervous about valuations.
 
Shiller PE Ratio (2 charts):
 
Source: multpl  
 
Source: Goldman Sachs  
 
Price-to-sales:
 

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4. Next, we have some sector updates (over the past 30 days).
 
Retail (boosted by a short squeeze):
 

 
Consumer discretionary:
 

 
Tech:
 

 
Communication services:
 

 
Transportation (supported by supply-chain issues):
 

 
Industrials:
 

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5. Tech and financial ETFs saw inflows last month while investors rotated out of materials and industrials.
 
Source: SPDR Americas Research, @mattbartolini  
 
So far, this is the second-highest inflow in a calendar year for smart-beta funds (chart in billions).
 
Source: SPDR Americas Research, @mattbartolini  
 
Here is a look at flows by active strategies.
 
Source: SPDR Americas Research, @mattbartolini  

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6. It’s been a great few days for small caps.
 

 
7. US stocks continue to widen their outperformance vs. the rest of the world.
 

 
8. Implied correlation in the stock market has been tumbling in recent weeks.
 

 
9. The volume of single stock options hit a record high in October.
 
Source: @WallStJesus  


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Global Developments

1. The global cyclical/defensive stock ratio is back near 2000 highs.
 
Source: Acorn Macro Consulting Ltd.  
 
2.  Since 1971, across 152 countries, not one had inflation that averaged below 2%. Only 45 had inflation averaging below 5%. 
 
Source: Deutsche Bank Research  
 
3.  Working-age population growth is about to turn negative in China and the developed world. 
 
Source: Capital Economics  


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Food for Thought

1. Shopping online:
 
Source: Michael Brown, Visa Business and Economic Insights  
 
2. Gift wrap inflation:
 
Source: Michael Brown, Visa Business and Economic Insights  
 
3. Social spending on child care for toddlers:
 
Source: The New York Times   Read full article  
 
4. Apple’s advertising business growth after iPhone privacy changes:
 
Source: @financialtimes   Read full article  
 
5. Top countries studied by development economists:
 
Source: Quartz   Read full article  
 
6. Would you like a surprise party?
 
Source: YouGov   Read full article  

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