Several Fed officials want to accelerate the withdrawal of monetary accommodation

The Daily Shot: 22-Nov-21
Administrative Update
The United States
The Eurozone
Europe
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

Administrative Update

1. As a reminder, The Daily Shot will not be published on November 24th, 25th, and 26th.
 
2. If you encounter a technical issue with The Daily Shot, please refer to one of the sections on this page.


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The United States

1. The recent surge in inflation and robust labor markets are forcing the Federal Reserve to take a more hawkish stance. Last week, several Fed officials indicated that the withdrawal of monetary accommodation (taper and rate hikes) should be accelerated.
 
Clarida:
 
Source: Bloomberg   Read full article  
 
Waller:
 
Source: Reuters   Read full article  
 
Bullard:
 
Source: MarketWatch   Read full article  
 
The probability of two rate hikes by next July climbed to 60%.
 

 
Short-term yields increased further, …
 

 
… as the yield curve continues to flatten.
 

 
Rising expectations for a more hawkish Fed and stronger US economic data …
 
Source: Scotiabank Economics  
 
… are supporting the US dollar.
 

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2. This is the strongest Capex cycle the US has seen since the 1940s.
 
Source: Morgan Stanley Research  
 
3. Hours worked have been elevated during the pandemic recovery – a sign of robust labor demand.
 
Source: Deutsche Bank Research  
 
Among small businesses, there is far more concern about hiring than sales.
 
Source: Deutsche Bank Research  

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4. Based on Google search activity, supply chain concerns have peaked in Asia and Europe. Is North America next?
 
Source: Arbor Research & Trading  
 
5. US COVID cases are rising again.
 


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The Eurozone

1. COVID cases and hospitalizations in Germany continue to climb, …
 
Source: Bloomberg   Read full article  
 
… which, in combination with a more hawkish Fed, is pressuring the euro.
 

 
The whole German yield curve is now back in negative territory.
 

 
Separately, Germany’s producer prices continue to surge.
 

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2. Have Italian industrial sales peaked?
 

 
3. Looking for a positive-carry hedge against the euro breakup? The Danish-French bond spread fits the profile.
 
Source: Gavekal Research  


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Europe

1. Norway’s GDP is now above the pre-COVID trend.
 

 
2. Poland’s consumer sentiment has deteriorated as the pandemic takes a toll.
 

 
3. Here is the COVID trend across Europe.
 
Source: ANZ Research  
 
4. Next, let’s take a look at social protection benefits in the EU.
 
Source: @EU_Eurostat   Read full article  


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Asia – Pacific

1. Japan’s government budget has blown out again, but it’s not clear how much of it will be spent.
 
Source: Pantheon Macroeconomics  
 
2. South Korea’s exports surged this month, hitting a record high.
 

 
The fourth COVID wave has had a smaller impact in South Korea.
 
Source: Barclays Research  

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3. Weaker employment conditions highlight the case for a dovish RBA.
 
Source: BCA Research  


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China

1. The renminbi continues to surge against a basket of currencies.
 

 
2. The power price spike in China has taken a toll on various energy-intensive industries.
 
Source: Barclays Research  


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Emerging Markets

1. India’s equity market is rolling over.
 

 
2. Pakistan’s central bank hiked rates more than expected to defend the currency.
 

 
3. Saudi stocks took a hit in response to weaker oil prices.
 

 
4. Philippine sovereign credit spreads tend to widen much less than EM peers during risk-off periods.
 
Source: BCA Research  
 
5. Government debt increased sharply in some EM Asia economies.
 
Source: Fitch Ratings  
 
6. Brazil is headed for stagflation as economists downgrade the GDP forecasts while pushing inflation projections sharply higher.
 

 
7. Some emerging market economies will have to contend with emission reduction as a growth dampener.
 
Source: TS Lombard  
 
8. EM shares continue to underperform.
 


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Cryptocurrency

1. The 50-day moving average represents resistance for bitcoin …
 

 
… and support for ether.
 

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2. Crypto/blockchain contributed to the rise in VC mega-deals this year.
 
Source: PitchBook  
 
3. Bitcoin can experience severe drawdowns.
 
Source: CoinDesk   Read full article  
 
4. Long-term bitcoin holders do not appear to be selling their coins in a panic yet, according to blockchain data compiled by Glassnode.
 
Source: @glassnode  
 
5. Altcoins are once again becoming a larger component of Twitter discourse.
 
Source: Arbor Research & Trading  


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Commodities

1. Demand for aluminum in auto production is expected to remain strong next year.
 
Source: Fitch Solutions Macro Research  
 
2. The LME copper price has a low chance of remaining at current levels over the next 12 months, according to Numera Analytics.
 
Source: Numera Analytics  
 
3. Fitch Solutions expects China’s government to continue boosting domestic availability of coal over the coming months, which should reduce import demand and depress seaborne coal prices (2 charts).
 
Source: Fitch Solutions Macro Research  
 
Source: Fitch Solutions Macro Research  

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4. Funds have been boosting their exposure to gold.
 
Source: Deutsche Bank Research  
 
5. US wheat prices are surging.
 
Source: Reuters   Read full article  
 


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Energy

1. Crude oil futures have been rolling over, with Brent dipping below the Bollinger Band.
 
Source: Reuters   Read full article  
 

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2. The US accounts for the bulk of the existing oil shortfall (chart shows global oil production deviation from the pre-pandemic path).
 
Source: Numera Analytics  


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Equities

1. The Nasdaq 100 looks overbought as it hits another record high.
 

 
2. Cyclical sectors continue to outperform defensives.
 

 
3. Large-cap value stocks are widening their underperformance vs. growth.
 

 
However, small-cap value stocks are well ahead of growth year-to-date (partially driven by demand from retail investors).
 

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4. This chart shows the divergence between small- and large-cap earnings-per-share expectations.
 
Source: Yardeni Research  
 
5. The put-call ratio remains depressed, pointing to investor complacency.
 
Source: Deutsche Bank Research  
 
6. IPO activity is hitting record highs.
 
Global:
 
Source: @markets   Read full article  
 
US:
 
Source: @WSJmarkets   Read full article  

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7. How does the S&P 500 perform during periods of high inflation.
 
Source: Arbor Research & Trading  
 
8. Since 1978, a negative outcome in Q4 for the S&P 500 was always associated with a credit event. 
 
Source: BofA Global Research  
 
9. Next, we have some sector updates.
 
Sector sensitivities to movements in the Treasury yield curve:
 
Source: Citi Private Bank  
 
Strong profit margins across most sectors:
 
Source: MarketDesk Research  
 
Consumer discretionary vs. consumer staples:
 

 
Aerospace and Defense:
 


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Credit

1. Bank lending standards on US commercial real estate continue to ease.
 
Source: Federal Reserve   Read full article  
 
2. Next, we have a couple of updates on the CLO market.
 
Issuance:
 
Source: Deutsche Bank Research  
 
New vs. established managers:
 
Source: Deutsche Bank Research  

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3. Commercial real estate delinquent loan balances continue to moderate.
 
Source: Moody’s Investors Service  
 
4. The maximum size of resi mortgages eligible for backing by Fannie Mae and Freddie Mac keeps climbing with property prices.
 
Source: @WSJ   Read full article  


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Rates

1. As US banks increased their liquid assets, mainly in the form of Treasuries and mortgage-backed securities, their need for short-term funding has declined.
 
Source: Federal Reserve   Read full article  
 
2. Fund managers are pessimistic about bonds.
 
Source: BofA Global Research  
 
3. Who owns Treasury securities?
 
Source: @BJMbraun  
 
Who holds global government debt?
 
Source: ODI   Read full article  

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4. Real yields tend to be negative when debt spikes.
 
Source: Deutsche Bank Research  


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Global Developments

1. Fund managers believe that inflation has peaked.
 
Source: BofA Global Research  
 
2. Here is the share of economies with accelerating headline and core CPI.
 
Source: @acemaxx, @MorganStanley  
 
3. Below is a look at supply-chain disruptions boosting input and output prices.
 
Source: @RobinBrooksIIF  
 
4. The IMF expects only advanced economies to return to pre-pandemic growth trends next year.
 
Source: IMF  
 
5. China’s weak credit impulse points to downside risks for global semiconductor sales.
 
Source: @BittelJulien  


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Food for Thought

1. Thinking about retirement:
 
Preferred retirement locations:
 
Source: MagnifyMoney   Read full article  
 
Concerns about retirement:
 
Source: MagnifyMoney   Read full article  
 
Saving for retirement:
 
Source: MagnifyMoney   Read full article  
 
Preferred retirement age:
 
Source: MagnifyMoney   Read full article  

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2. Life expectancy by education in the US:
 
Source: NBER   Read full article  
 
3. Goods inflation:
 
Source: Visual Capitalist   Read full article  
 
4. Land border activity in the US:
 
Source: Statista  
 
5. US public construction spending:
 
Source: @WSJ   Read full article  
 
6. How other advanced economies view aspects of US society:
 
Source: Pew Research Center   Read full article  
 
7. Deterioration in mental health during the COVID era:
 
Source: @stescarpetta   Read full article  
 
9. Is science getting more “exciting” (“innovative”, “promising”, “unprecedented,” and “groundbreaking”)?
 
Source: BofA Global Research   Further reading  

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