The Daily Shot: 20-Jan-22
• Equities
• Credit
• Rates
• Energy
• Commodities
• Cryptocurrency
• Emerging Markets
• China
• Asia – Pacific
• The Eurozone
• The United Kingdom
• Canada
• The United States
• Food for Thought
Equities
1. The Nasdaq Composite entered correction territory as investors dumped “long-duration” equities.
High-multiple growth equities continue to be driven by real rates. Here is the post-IPO portfolio’s correlation with inflation-linked Treasuries.
And inflation-linked Treasuries (TIPS) are experiencing the worst drawdown since the start of the pandemic.
But is the TIPS selloff overdone? Inflation risks are not going away in the near term.
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2. The S&P 500 duration has been climbing over the past decade.
Source: @axios
3. Small caps also experienced a substantial drawdown, …
… with the Russell 2000 entering a death cross.
• The two key small-cap indices have diverged, with the S&P 600 outperforming the Russell 2000.
• Small caps are trading at the largest discount to large caps in two decades.
Source: MRB Partners
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4. The S&P 500 dipped below its uptrend support.
But the index is trading far above its 200-week moving average – a level which has contained every post-financial crisis sell-off, other than March 2020.
Source: Evercore ISI Research
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5. US shares have been underperforming global stocks this month.
6. The gap between US dividend yields and the rest of the world has widened over the past year.
Source: J.P. Morgan Asset Management
7. The AAII bull-bear spread suggests that investors haven’t been this nervous about the market since mid-2020. It’s a bullish sign for stocks.
8. At current inflation levels, the S&P 500 P/E ratio should be lower.
Source: Jack Ablin, Cresset Wealth Advisors
9. Are retail investors capitulating after gorging on stocks over the past two years?
Source: @WSJ Read full article
10. Finally, here is the month-to-date performance of some popular thematic ETFs.
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Credit
1. Leveraged loan prices are hitting multi-year highs.
2. Here is a look at the relative risk/reward across different fixed-income asset classes.
Source: BCA Research
This chart shows the estimated impact of a 1% rise in interest rates across fixed-income assets.
Source: J.P. Morgan Asset Management
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3. AAA-rated muni-to-Treasury yield ratios remain historically low (rich valuations). Expectations of higher taxes and insufficient supply to meet demand have kept the ratio at tight levels.
Source: Truist Advisory Service Read full article
• The US municipal bond/Treasury ratio curve flattened substantially recently.
Source: Breckinridge Capital Advisors Read full article
• Muni bond mutual funds and ETFs saw significant inflows last year, similar to 2019.
Source: Truist Advisory Service Read full article
• US State and Local government balance sheets are in very good shape.
Source: BCA Research
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Rates
1. Treasuries look attractive when hedged into euro and yen. That’s one of the reasons the rise in yields may be limited.
2. A relatively modest absorption of net Treasury issuance could limit the rise in yields.
Source: Alpine Macro
3. Global negative-yielding debt levels continue to trend lower.
4. The 5-year/5-year forward Treasury yield climbed back to the lower end of the estimated range for the neutral fed funds rate.
Source: BCA Research
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Energy
1. The SPDR Energy Sector ETF’s put/call ratio is reversing from a relatively high level.
Source: SentimenTrader
Energy sector outperformance has been impressive.
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2. China is expected to overtake the US as the top source of incremental oil demand this year.
Source: CreditSights
3. The US is expected to account for the largest share of non-OPEC+ production growth this year.
Source: CreditSights
4. European natural gas inventories are low but not extreme.
Source: Commerzbank Research
Prices continue to moderate as LNG imports come to the rescue.
Source: Commerzbank Research
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Commodities
1. Precious metals have firmed up.
The TIPS yield/gold divergence has closed.
Source: @TheTerminal, Bloomberg Finance L.P.
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2. Speculators have reduced net-long copper positions over the past year.
Source: Scotiabank Economics
3. Nickel got squeezed as inventories tighten.
Source: @BloombergQuint Read full article
4. US cotton futures hit the highest level in over a decade.
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Cryptocurrency
1. The Grayscale Bitcoin Trust (GBTC) discount relative to the underlying BTC held in the fund hit a record low at 26.5%. Investors have been skeptical about Grayscale’s plan to convert the fund into a spot-based ETF.
Source: Skew Read full article
2. The percentage of BTC spot volume traded during US market hours has picked up this year.
Source: Coin Metrics Read full article
3. Crypto-focused stocks have been selling off with bitcoin.
Source: @WSJ Read full article
4. Bitcoin mining activity hit a record high.
Source: @financialtimes Read full article
5. Trading volume on Turkish-lira denominated markets on Binance reached $160 billion in 2021.
Source: Coin Metrics Read full article
6. “Dollar-backed” stablecoins have become increasingly popular in Turkey over the past year.
Source: Coin Metrics Read full article
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Emerging Markets
1. South Africa’s inflation is rebounding.
Retail sales are back at pre-COVID levels but remain below trend.
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2. Turkish home sales surged, driven by the massive lira devaluation.
3. A growing share of EM countries face above-target inflation levels.
Source: World Bank
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China
1. The PBoC continues to ease, with prime rates lowered this week.
Source: South China Morning Post Read full article
2. The renminbi is grinding higher vs. USD amid strong exports and portfolio inflows.
3. Beijing plans to ease developers’ funding crunch.
Source: Reuters Read full article
Source: Gavekal Research
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4. The rising sex ratio (gender imbalance) is boosting savings and housing prices (due to growing pressure on young men and families with sons to save more and buy homes to “compete in the marriage market”).
Source: @WSJ Read full article
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Asia – Pacific
1. Japan’s small caps have underperformed massively over the past few months.
2. Japan’s exports held near record highs last month.
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3. Next, we have some updates on Australia.
• The employment report was solid.
– Job gains:
– The unemployment rate:
Source: The Guardian Read full article
– Participation rate:
• Inflation expectations ticked lower.
• Australia is experiencing the fastest growth in housing prices since the pre-financial crisis era.
Source: RBA
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The Eurozone
1. German producer prices continue to surge.
2. Dutch consumer confidence is nearing the pandemic-era lows.
3. Next, we have ING’s scenarios for Italy’s presidential pick.
Source: ING
4. Euro-area equity and bond portfolio flows have diverged.
Source: Pantheon Macroeconomics
5. Pantheon Macroeconomics estimates strong returns in Italian and Spanish equities relative to eurozone peers over the next five years.
Source: Pantheon Macroeconomics
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The United Kingdom
1. Inflation surprised to the upside.
• CPI:
• Core CPI:
• RPI:
• Upside surprises across the board:
Source: Pantheon Macroeconomics
• And inflation is yet to peak:
Source: ING
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2. The combination of the robust employment report and the above CPI data leave the BoE no choice but to keep hiking rates.
3. Home price gains remain strong.
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Canada
1. Inflation is hitting multi-year highs.
• Headline CPI:
• Ex-food/energy:
• The blended core CPI:
• Inflation expectations:
Source: @RichardDias_CFA
Rate hikes are coming.
Source: Wells Fargo Securities
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2. Housing starts pulled back in December.
• Home price appreciation remains strong.
• And housing inventories are exceptionally tight.
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
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The United States
1. The market continues to raise the possibility of a 50 bps rate hike in March.
2. Next, we have some updates on the housing market.
• Mortgage rates are now at pre-COVID levels.
• Mortgage applications to buy a house remain strong (similar to last year’s levels).
– Refi activity is slowing.
– However, cash-out refi demand remains robust as households tap their home equity.
Source: AEI Center on Housing Markets and Finance
• Housing starts and permits were strong in December, …
… driven by multi-family housing.
Here is the seasonally-adjusted trend.
Source: Wells Fargo Securities
• Construction shortages have shifted from lumber and wood products to concrete and windows.
Source: Todd Tomalak
• Single-family housing rents continue to surge.
Source: CoreLogic
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2. Economists are downgrading their Q1 growth forecasts.
Source: @LizAnnSonders, @Bloomberg
3. Will vehicle production rebound this year?
Source: Nomura Securities
4. Next, we have a few updates on logistics bottlenecks.
• The Evercore ISI Trucking Survey points to a slightly softer demand for trucking services.
Source: Evercore ISI Research
• Empty outbound containers have been running higher than average at the LA port as shipping companies skip the loading process, weighing on US exports
Source: Oxford Economics
• Port backlogs remain extreme.
Source: @financialtimes Read full article
• Dry bulk shipping costs have been falling.
But container freight rates are still elevated.
Source: ING
• Supply chains remain stretched.
Source: Nordea Markets
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Food for Thought
1. North Korean missile tests:
Source: Statista
2. Vaccine acceptance paths (from approval to requirement for school attendance):
Source: The New York Times Read full article
3. US gun sales:
Source: 538 Read full article
4. STEM graduates in advanced economies:
Source: OECD Read full article
5. COVID’s impact on math scores:
Source: The Economist Read full article
6. US federal debt-to-GDP ratio long-term forecast:
Source: BCA Research
7. Not much improvement in midtown Manhattan foot traffic between Dec 2020 and Dec 2021:
Source: DeepMacro
8. Botox sales:
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