Funds’ tech allocations hit the lowest level since 2008

The Daily Shot: 19-Jan-22
Equities
Credit
Rates
Energy
Cryptocurrency
Emerging Markets
China
Asia – Pacific
The Eurozone
Europe
The United Kingdom
The United States
Food for Thought



 

Equities

1. Rising real yields continue to pressure stocks.
 

 

 
2. With both stocks and bonds selling off, the 50/50 portfolio had the worst day since May.
 

 
3. More pain to come this year? Stocks typically experience a correction during the early stage of a rate hike cycle.
 
Source: MRB Partners  
 
5. Rotation out of growth shares continues.
 

 
Funds’ tech allocations hit the lowest level since 2008, according to a survey from BofA.
 
Source: BofA Global Research  

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6. The Nasdaq Composite dipped below the 200-day moving average.
 

 
Breadth continues to deteriorate. The percentage of Nasdaq 100 members trading above their 200-day moving average dipped below 50% for the first time since early 2020.
 

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7. Small caps are struggling.
 

 
8. High-dividend shares are outperforming, …
 

 
… as investors rotate into defensive sectors.
 

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9. Analysts expect a slowdown in Q4 earnings driven by a decline in sales and margin growth. However, earnings will probably beat forecasts.
 
Source: Deutsche Bank Research  
 
10. Meme stocks continue to rack up losses.
 
Source: @LizAnnSonders  
 
Stocks with high levels of options trading (often favored by retail investors) are tanking.
 

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11. The VIX curve has been flattening, but we are yet to see a full inversion.
 


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Credit

1. Leveraged loans continue to outperform HY bonds as Treasury yields climb.
 

 
2. Investment-grade corporate debt duration has been rising over the past couple of decades, making the market more vulnerable to rate increases.
 
Source: MRB Partners  
 
3. Large US corporate bankruptcies are increasingly filed in Houston courts.
 
Source: @financialtimes   Read full article  


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Rates

1. The Treasury curve continues to flatten at the longer end as the market expects the Fed rate hikes to slow US economic growth.
 

 
Since the Treasury yield curve has already flattened a lot, the Fed may not be able to raise rates aggressively without inverting the curve, which typically preceded a recession, according to Alpine Macro.
 
Source: Alpine Macro  

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2. Goldman sees the 10yr Treasury yield climbing toward 2.5% by the end of 2024.
 
Source: @ISABELNET_SA, @GoldmanSachs  
 
3. Here is the TIPS curve (real yields).
 

 
4. SOFR futures volume and open interest have surged as LIBOR is phased out.
 
Source: @CMEGroup  


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Energy

1. Brent crude hit the highest level since 2014 but is now in overbought territory.
 

 
The curve has been moving deeper into backwardation, …
 

 
… as crude oil deficit has been exceeding expectations.
 
Source: Goldman Sachs; @chigrl  

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2. Underinvestment in oil production has contributed to tight supplies.
 
Source: @topdowncharts   Read full article  
 
3. Natural gas demand is expected to rise this year, mainly driven by an increase in LNG exports. Meanwhile, a decline in gas demand from power generation could be driven by an increase in renewables market share or gas-to-oil switching.
 
Source: CreditSights  


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Cryptocurrency

1. Cryptos remain soft as the stock market takes a hit.
 

 
Bitcoin has traded in lockstep with the Nasdaq 100 (chart shows the z-score of daily returns based on a 1-month rolling window).
 
Source: @CoinbaseInsto  

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2. Here is a look at bitcoin and related asset performance since the launch of the ProShares Bitcoin Strategy ETF (BITO) in October.
 
Source: @donnelly_brent  
 
3. Coinbase exchange trading volumes have declined over the past month.
 
Source: @CoinbaseInsto  
 
4. Here is a look at the most traded tokens by volume over the past week on Coinbase.
 
Source: @CoinbaseInsto  


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Emerging Markets

1. The risk of a military conflict in Eastern Europe continues to impact local markets.
 
The Ukrainian hryvnia (lowest levels since the 2014/15 war):
 

 
Ukrainian bond spreads:
 
Source: Oxford Economics  
 
Russian USD-denominated bond yield.
 

 
Russian stocks (vs. broad EM index):
 

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2. EM ratings outlook continues to improve.
 
Source: Fitch Ratings  


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China

1. The China-US rate spreads keep tightening.
 

 
2. Investors continue to dump developers’ debt.
 
Country Garden bonds:
 

 
China USD-denominated HY bond index:
 

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3. China’s coal futures suddenly jumped as prices rise globally.
 

 
4. Retail sales growth has stalled.
 
Source: Commerzbank Research  
 
5. Downside risks to economic growth persit.
 
Source: BCA Research  
 
6. Industrial production growth has slowed compared to pre-pandemic levels, particularly in the auto, metals, and mineral sectors.
 
Source: DBS  


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Asia – Pacific

1. Japan’s auto production bounced back during Q4 as the parts shortage eased, although it is still below 2020 levels.
 
Source: DBS  
 
2. Australia’s savings ratio rose as consumption fell in recent months.
 
Source: RBA  


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The Eurozone

1. The 10yr Bund yield is finally above zero. Here is the yield curve.
 

 
2. Germany’s ZEW expectations index surprised to the upside.
 

 
3. ZEW inflation expectations point to moderating CPI in the Eurozone.
 
Source: @DanielKral1  
 
4. How concerned is the ECB about accelerating home price appreciation?
 
Source: ANZ Research  
 
5. The rate volatility market is pricing in a bear flattening move in the yield curve.
 
Source: Deutsche Bank Research  


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Europe

1. EU car registrations showed very little improvement going into the year-end.
 

 
2. Households will pay much higher energy bills this year.
 
Source: Bloomberg   Read full article  
 
3. This chart shows home price appreciation vs. gains in rents.
 
Source: @EU_Eurostat   Read full article  


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The United Kingdom

1. The employment report was strong, with estimated payrolls jumping sharply in December.
 

 
The unemployment rate continues to fall.
 

 
The end of furloughs did not boost redundancies in 2021.
 
Source: ING  
 
Higher vacancy rates increased wages in many sectors.
 
Source: ING  

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2. Next, we have the voting intention polls.
 
Source: Pantheon Macroeconomics  


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The United States

1. Treasury yields continue to surge.
 

 
2. The first regional Fed manufacturing report (from the NY Fed) was a shocker as new orders weakened.
 

 
This report does not bode well for January factory activity at the national level (ISM).
 
Source: Oxford Economics  
 
Prices continue to climb.
 
Source: Piper Sandler¬†  
 
And manufacturers expect further acceleration in input and output prices. It suggests that despite the January setback, factories still have plenty of pricing power.
 

 
CapEx expectations have been surging.
 

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3. The Evercore ISI company survey showed deterioration in business conditions/sentiment.
 
Source: Evercore ISI Research  
 
Retailers, in particular, were more gloomy.
 
Source: Evercore ISI Research  

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4. Homebuilder optimism ticked lower but remains elevated.
 

 
5. New business applications have been unprecedented since the start of the pandemic.
 
Source: The Economist   Read full article  
 
6. Leasing terms are increasing – a sign that commercial real estate markets are healing and renters are becoming more comfortable with their long-term space needs.
 
Source: J.P. Morgan Asset Management  
 
7. Finally, this chart shows debit and credit card spending by risk score.
 
Source: AEI Center on Housing Markets and Finance  


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Food for Thought

1. Objects launched into outer space:
 
Source: Our World in Data  
 
2. Service robots for domestic tasks:
 
Source: Statista  
 
3. Experience with telework across OECD:
 
Source: OECD   Read full article  
 
4. US political party affiliation, recent trend:
 
Source: @axios   Read full article  
 
5. Migrants’ origins and destinations:
 
Source: Statista  
 
6. An increase in COVID cases and hospitalizations among US children:
 
Source: The Economist   Read full article  
 
7. The evolution of COVID variants:
 
Source: @WSJ   Read full article  
 
8. US consumer inflation components:
 
Source: @chartrdaily  
 
9. Visiting the Moon:
 
Source: @axios   Read full article  

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