The Treasury curve continues to flatten

The Daily Shot: 01-Dec-21
The United States
Canada
The United Kingdom
The Eurozone
Europe
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Energy
Equities
Rates
Global Developments
Food for Thought



 

The United States

1. Chair Powell struck a more hawkish tone, focusing on inflation risks and surprising the markets.
 
Source: @WSJ   Read full article  
 
Stocks sold off but are rebounding this morning.
 

 
Short-term Treasury yields jumped.
 

 
The market continues to fully price in two rate hikes next year.
 

 
On the other hand, the 30yr yield hit the lowest level since January.
 

 
The yield curve flattened.
 

 
Real rates (inflation-linked Treasury yields) also rose sharply.
 

 
Gold sold off.
 

——————–

 
2. The Conference Board’s consumer confidence index ticked lower in November.
 

 
Source: Mizuho Securities USA  
 
This index has diverged sharply from the U. Michigan sentiment indicator.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
The Conference Board’s measure is sensitive to the labor market which remains robust. The U. Michigan index, on the other hand, is sensitive to inflation.
 
Indeed, the Conference Board’s “jobs plentiful” index hit a record high.
 
Source: @BChappatta  
 
Here is the labor differential (jobs “plentiful” – “hard to get”).
 

——————–

 
3. The Chicago PMI declined sharply in November.
 

 
Source: MarketWatch   Read full article  
 
This move contradicts the regional Fed indices. Part of the reason is that the Chicago PMI is sensitive to swings in Boeing’s orders, which tend to be volatile.
 
Source: Pantheon Macroeconomics  

——————–

 
4. Morgan Stanley’s CapEx indicator points to robust business investment in Q4.
 
Source: Morgan Stanley Research  
 
5. Home price appreciation has peaked but continues to clock gains of nearly 1% per month.
 

 

 
Separately, sales of new homes that have not been started yet are nearly three standard deviations above the mean.
 
Source: Oxford Economics  

——————–

 
6. US wage growth has decoupled from the rest of the developed world. Is this trend sustainable?
 
Source: Goldman Sachs  
 
Wage losses during the pandemic have now been fully made up.
 
Source: Morgan Stanley Research  

——————–

 
7. The Delta variant had a visible impact on sectors linked to social interaction.
 
Source: Citi Private Bank  


Back to Index

 

Canada

1. The Q3 GDP growth topped forecasts.
 

 
Here are the contributions.
 
Source: Scotiabank Economics  

——————–

 
2. Unit labor costs have been rising quickly.
 
Source: Scotiabank Economics  
 
3. COVID restrictions are still elevated relative to the US.
 
Source: Scotiabank Economics  


Back to Index

 

The United Kingdom

1. Consumer activity is already impacted by the omicron news.
 
Source: Pantheon Macroeconomics  
 
2. This chart shows COVID cases and hospitalizations.
 
Source: Fitch Ratings  
 
3. Next, we have some data on the UK’s trade in services.
 
Source: OECD   Read full article  
 
4. UK workers are increasingly overeducated.
 
Source: @resfoundation  


Back to Index

 

The Eurozone

1. The November CPI hit a record high, easily surpassing forecasts.
 

 
Here is the core CPI.
 

 
Inflation in France and Italy also hit multi-year highs.
 

 

 
The French PPI is approaching 15%.
 

 
Here are the CPI drivers by sector …
 
Source: Nordea Markets  
 
… and by country.
 
Source: Nordea Markets  
 
These latest CPI figures do not square well with the ECB’s projections.
 
Headline:
 
Source: @fwred  
 
Core:
 
Source: @fwred  

——————–

 
2. German real yields hit another record low.
 

 
3. Germany’s labor market continues to recover.
 

 
4. Italy’s Q3 GDP growth was again driven by household consumption.
 
Source: Pantheon Macroeconomics  
 
5. What are the drivers of slower delivery times in the Eurozone?
 
Source: ECB   Read full article  


Back to Index

 

Europe

1. Demand for put options jumped in recent days.
 
h/t @JPBarnert  
 
Implied volatility climbed.
 

——————–

 
2. Next, we have some updates on Sweden.
 
GDP growth (strong):
 

 
Source: Nordea Markets  
 
Retail sales:
 

 
Economic sentiment:
 

 
Riksbank rate projections:
 
Source: ING  

——————–

 
3. Finally, we have the road freight transport data for the EU.
 
Source: Eurostat   Read full article  


Back to Index

 

Asia – Pacific

1. As we saw in the flash report, South Korea’s exports hit a record high.
 

 
The PMI report shows tepid growth in South Korea’s factory activity.
 
Source: IHS Markit  

——————–

 
2. Taiwan’s manufacturing growth is off the highs but is holding up well.
 
Source: IHS Markit  
 
3. Australia’s Q3 GDP decline was less severe than expected.
 


Back to Index

 

China

1. The PMI report from Markit wasn’t as upbeat as the official one (#3 here). New orders declined.
 

 
Factory employment is shrinking.
 
Source: IHS Markit  
 
The Markit report did, however, show moderation in price pressures.
 

——————–

 
2. Stock margin balances have been declining as investors turn more cautious.
 

 
3. Hong Kong’s retail sales are finally back at pre-COVID levels.
 

 
4. Developer loans have been more problematic for banks than mortgages.
 
Source: Gavekal Research  


Back to Index

 

Emerging Markets

1. ASEAN factory growth moderated in November but remains robust.
 
Source: IHS Markit  
 
Indonesia:
 
Source: IHS Markit  
 
Malaysia:
 
Source: IHS Markit  
 
Thailand:
 
Source: IHS Markit  
 
Vietnam:
 
Source: IHS Markit  
 
The Philippines:
 
Source: IHS Markit  

——————–

 
2. India’s GDP is back at pre-COVID levels.
 

 
Factory activity surged in November.
 
Source: IHS Markit  

——————–

 
3. Turkey’s Q3 GDP report was solid.
 

 
But that didn’t help the lira.
 

 
Yields on dollar bonds jumped.
 

——————–

 
4. With the exception of China, EM inflation continues to run above developed-market economies.
 
Source: Barclays Research  


Back to Index

 

Cryptocurrency

1. Ether continues to outperform as the broader crypto market stabilizes after last week’s sell-off.
 
Source: FinViz  
 
2. The ETH/BTC price ratio is attempting to break above a five-month range.
 
Source: CoinDesk   Read full article  
 
3. Bitcoin’s market cap relative to the total crypto market cap, or dominance ratio, has declined to the lowest level since September. Altcoins are outperforming again.
 
Source: CoinDesk   Read full article  
 
4. Metaverse tokens have rallied since Facebook changed its name to Meta.
 
Source: @Delphi_Digital  


Back to Index

 

Energy

1. Brent went into correction territory, with technicals signaling “oversold.”
 

 
2. OPEC+ will not reach its target capacity, according to JP Morgan.
 
Source: JP Morgan Research; @HFI_Research  
 
3. Here is a probability-based Brent price outlook from Numera Analytics
 
Source: Numera Analytics  
 
4. The oil market is expected to be in surplus next year.
 
Source: Longview Economics  
 
5. US natural gas futures were down 6% on Tuesday.
 


Back to Index

 

Equities

1. Stock futures are higher this morning, with Nasdaq 100 outperforming.
 

 
2. The Russell 2000 continues to underperform the Nasdaq 100.
 

 
3. Next, we have some equity factor/style trends.
 
Value shares hit another multi-year low vs. growth (2 charts).
 

 

 
Low-vol stocks look volatile in this environment, pulled down by consumer staples.
 

 
High-dividend shares are struggling, as financials and utilities underperform.
 

 
Inflation-sensitive stocks lagged the S&P 500 over the past couple of days.
 

——————–

 
4. Now, let’s take a look at some sector trends
 
Banks:
 

 
Utilities:
 

 
Consumer staples:
 

 
Retail (store traffic trailed last year’s Thanksgiving shopping):
 

——————–

 
5. Speculative growth stocks are down sharply over the past few days. Rising real rates are not helping.
 

 
6. The controversial Hindenburg Omen, which compares new highs versus new lows, just triggered.
 
Source: SentimenTrader  
 
7. CNN’s Fear & Greed indicator is firmly in the “fear” territory.
 
Source: CNN Business  
 
8. S&P 500 breadth has weakened throughout the year, which means fewer stocks have been participating in the broader market uptrend.
 
Source: SentimenTrader  
 
9. Inflation doesn’t generally help earnings growth.
 
Source: Deutsche Bank Research  
 
10. Macro trends have been driving the variability in stock returns.
 
Source: Christof Leisinger  
 
11. Intangibles are an ever-expanding share of the total corporate assets in the S&P 500.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  


Back to Index

 

Rates

1. The market-implied nominal neutral rate continues to trend lower.
 

 
2. Liquidity in the Treasury market has deteriorated again (higher numbers = lower liquidity).
 
Source: LPL Research  


Back to Index

 

Global Developments

1. The credit impulse continues to suggest weakness in risk-on assets.
 
Source: Oxford Economics  
 
2. Goldman Sachs expects another strong year for global growth in 2022 (2 charts).
 
Source: Goldman Sachs  
 
Source: Goldman Sachs  

——————–

 
3. This scatterplot suggests a strong link between money supply growth and inflation.
 
Source: IIF  
 
4. Corporate dividends are rebounding.
 
Source: @financialtimes   Read full article  
 
5. Finally, we have the global current account balances.
 
Source: @EtraAlex, @ExanteData  


——————–

Back to Index

 

Food for Thought

1. Omicron rapidly becoming dominant in parts of South Africa:
 
Source: @chrischirp  
 
2. Omicron virus has many more S1 (spike) mutations than previous variants:
 
Source: @trvrb   Read full article  
 
3. Immunity evasion vs. intrinsic transmissibility:
 
Source: @trvrb  
 
4. Share of the population fully vaccinated:
 
Source: @WSJ   Read full article  
 
5. Betting market odds of omicron becoming 1% of US COVID cases by January:
 
Source: Kalshi  

——————–

 
6. India’s average annual temperature:
 
Source: Bloomberg   Read full article  
 
7. Corporate donations:
 
Source: @axios  
 
8. Views on democracy in the US:
 
Source: Pew Research Center   Read full article  
 
9. Views on violent crime:
 
Source: Pew Research Center   Read full article  
 
10. How many pairs of shoes do you own?
 
Source: @CivicScience  

——————–


Back to Index