The CPI report surprises in both strength and breadth

The Daily Shot: 11-Nov-21
The United States
The United Kingdom
The Eurozone
Japan
Australia
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Global Developments
Food for Thought



 

The United States

1. The CPI report was a shocker, with last month’s inflation rising much faster than markets expected.
 

 
Source: @M_McDonough  
 
On a year-over-year basis, CPI gains were at multi-decade highs.
 

 
Here are the CPI changes in terms of standard deviations.
 
Source: Economics and Strategy Group, National Bank of Canada  
 
And it wasn’t just the strength of the CPI gains that spooked the markets. It was the breadth of inflationary pressures.
 
The median CPI (monthly changes):
 

 
Trimmed-mean CPI:
 

 
The contribution of CPI components with 4% and higher gains:
 
Source: @inflation_guy  
 
Using a ten-year period, the core CPI index level is now running well above the 2% line (the Fed’s price target).
 

 
We will have more data on the inflation report tomorrow.

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2. The markets had a strong reaction to the CPI beat.
 
Treasury yields climbed across the board, …
 

 
… but it was the belly of the curve that was hit the hardest.
 

 

 
As a result, the curve continued to flatten at the longer end.
 

 
Inflation expectations hit multi-year highs, …
 

 
… with the short end of the inflation curve rising the most (the curve is becoming more inverted).
 

 
The probability of three rate hikes next year climbed above 80%.
 

 
The US dollar jumped as the market expects the Fed to get more hawkish.
 

 
Stocks were softer, but dip buyers are already circling.
 

 
Gold surged, despite a stronger dollar.
 

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3. Next, we have some updates on the housing market.
 
Mortgage activity for house purchase remains exceptionally strong for this time of the year.
 
Applications:
 

 
Rate locks:
 
Source: AEI Center on Housing Markets and Finance  
 
Cash-out refi activity is surging.
 
Source: AEI Center on Housing Markets and Finance  
 
Delinquencies and foreclosures continue to fall.
 

 
Low-income homeowners have seen their real estate wealth increase over the past year. 
 
Source: Morgan Stanley Research  
 
While the wealth increase is less than high-income homeowners in dollar terms, the percent change is substantial. 
 
Source: Morgan Stanley Research  
 
The loan-to-value ratio of the total US housing market is at the lowest level in at least 35 years.
 
Source: Morgan Stanley Research  
 
The homeowner vacancy rate in the US is back at historic lows. This is a key variable for building activity. 
 
Source: Mizuho Securities USA  

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4. The budget deficit was lower than expected, …
 

 
… as federal receipts surge.
 
Source: Evercore ISI  


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The United Kingdom

1. The housing market remains buoyant.
 

 
Source: Reuters   Read full article  
 
2. This map shows regional differences in disposable income relative to the UK average.
 
Source: NearAndDistant   Read full article  
 
3. Here are the general election voting intentions (differential).
 
Source: Pantheon Macroeconomics  


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The Eurozone

1. EUR/USD dropped in response to the US CPI report.
 

 
The US-Germany short-term rate differential continues to widen.
 

 
The CPI indicators have diverged.
 
Source: @helgejpedersen  

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2. Italian industrial production has held up well, but the momentum has weakened.
 

 
3. French inflation trends could impact the elections.
 
Source: Nordea Markets  
 
The polls:
 
Source: Nordea Markets  
 
The betting markets:
 
Source: @PredictIt  

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4. This chart shows COVID restrictions over time.
 
Source: Pantheon Macroeconomics  


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Japan

1. Dollar-yen could test resistance again as the market boosts the probability of three Fed rate hikes next year.
 

 
2. Japan’s PPI is surging.
 

 
3. The Economy Watchers expectations index is at multi-year highs, pointing to robust economic activity.
 

 
4. Machine tool orders continue to climb.
 

 
5. Japan’s private-sector credit has been recovering since 2011.
 
Source: BCA Research  
 
6. Japanese female labor force participation rate has been climbing, but fertility has struggled. 
 
Source: BCA Research  


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Australia

1. The jobs report was terrible, as lockdowns continued to take their toll on the economy.
 

 
The unemployment rate jumped.
 

 
Source: Reuters   Read full article  

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2. Consumer inflation expectations remain elevated but are not surging as they did in the US.
 

 
3. November hasn’t been kind to the Aussie dollar.
 


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China

1. The renminbi dropped after the US inflation report (stronger US dollar).
 

 
2. Lending has been robust as Beijing encourages banks to extend credit (including mortgages). But the overall financing has been softer than expected (second panel).
 

 
Growth in China’s money supply was mixed last month.
 

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3. Foreign investors pulled capital out of China’s stock market.
 
h/t @johnchenghc   Read full article  
 
4. Has China’s steel output bottomed?
 


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Emerging Markets

1. Brazil’s consumer inflation continues to surge.
 

 
2. Chilean equities are displaying signs of extreme optimism, which typically precede downturns.
 
Source: SentimenTrader  
 
3. EM high-yield bonds have been under pressure (in dollar terms).
 


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Cryptocurrency

1. Bitcoin briefly reached an all-time high near $69K after the higher than expected US inflation print.
 
Source: CoinDesk   Read full article  
 
Source: @markets   Read full article  

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2. The supply of bitcoin on exchanges continues to decline, which could indicate a preference among investors to hold BTC in wallets instead of making their coins available to trade on exchanges. 
 
Source: @glassnode  
 
3. Bitcoin miner revenue is approaching an all-time high.
 
Source: @glassnode  
 
4. Gold reversed its negative correlation with bitcoin on Wednesday.
 
Source: CoinDesk   Read full article  
 
5. Here are the drivers of bitcoin gains over the past few months.
 
Source: Bloomberg   Read full article  
 
6. Meme coins made up 27% of Coinbase sales last month.
 
Source: @BernsteinBolu  


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Commodities

1. US wheat futures hit a multi-year high.
 

 
2. Gold and silver miners’ free cash flow has been climbing.
 
Source: @TaviCosta  


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Energy

1. Crude oil sold off as the dollar advanced.
 

 
Over a longer period, however, energy prices have risen despite a stronger dollar.
 
Source: Capital Economics  

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2. US gasoline inventories remain near multi-year lows.
 

 
This chart shows the total inventories of refined products.
 
Source: @HFI_Research  
 
And here are the total inventories of crude oil and products.
 
Source: @HFI_Research  

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3. This map shows all solar and wind operating projects in the US.
 
Source: S&P Global Market Intelligence  


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Equities

1. The Nasdaq 100 underperformed on Wednesday as Apple and semiconductor stocks dropped.
 

 
2. The S&P 500 realized correlation continues to sink.
 

 
3. How does the S&P 500 perform after hitting all-time highs?
 
Source: S&P Global Market Intelligence  
 
4. Here is how market leadership changed since the start of the pandemic.
 
Source: S&P Global Market Intelligence  
 
5. US macro is likely to be back on top of the list of return drivers.
 
Source: IHS Markit  
 
6. Corporate sentiment has been moderating.
 
Source: BofA Global Research  
 
7. This chart compares enterprise value to earnings ratios for the S&P 500 and Nasdaq.
 
Source: Variant Perception  
 
8. The AAII investor sentiment climbed again this week.
 

 
9. US holiday sales tend to be correlated with the S&P 500 performance.
 
Source: Evercore ISI  


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Global Developments

1. Real sovereign yields keep moving deeper into negative territory.
 
Source: @helgejpedersen  
 
2. This chart shows lockdown stringency trends for China, the US, and Sweden.
 
Source: Longview Economics  
 
3. Supply chain disruption can be attributed to both longer delivery times and larger backlogs over the past year.
 
Source: Capital Economics  


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Food for Thought

1. Rivian Automotive market value after the IPO:
 
Source: Bloomberg   Read full article  
 
2. US working-age population:
 
Source: Yardeni Research  
 
3. GDP growth vs. percent of the population 65 and older:
 
Source: @EPBResearch   Read full article  
 
4. US consumer spending by category:
 
Source: Morning Consult  
 
5. COVID cases and deaths in the US by political affiliation:
 
Source: @DLeonhardt  
 
6. President Biden’s approval ratings:
 
Source: Morning Consult  
 
7. It’s Veterans Day!
 
The profile of US veterans (2 charts):
 
Source: Pew Research Center   Read full article  
 
Source: Statista  
 
Veterans in Congress:
 
Source: Pew Research Center   Read full article  
 
Percentage of veterans among the civilian population:
 
Source: US Census Bureau  

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