Technicals point to a market rebound

The Daily Shot: 26-Jan-22
Equities
Credit
Rates
Commodities
Energy
Cryptocurrencies
Emerging Markets
China
Asia – Pacific
The Eurozone
The United Kingdom
The United States
Global Developments
Food for Thought



 

Equities

1. Stocks remained under pressure on Tuesday. It’s been a rough start to the year.
 
Source: @C_Barraud, Bloomberg   Read full article  
 
2. Technicals suggest that we are close to a rebound.
 
The S&P 500 and global “fear & greed” indicators are near extremes (2 charts).
 

 
Source: @DavidInglesTV  
 
Here is the share of S&P 500 members hitting 4-week lows.
 
Source: @TimmerFidelity  
 
The short end of the VIX curve (9 days vs. 1 month) has inverted substantially (which indicates risk aversion).
 

 
Put option activity has been very elevated.
 

 
The RSI indicators are in oversold territory.
 
Source: barchart.com  
 
Here is the RSI for the QQQ/SPY ratio.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Deutsche Bank’s positioning indicator points to investor caution.
 
Source: Deutsche Bank Research  
 
Here is the systematic funds’ positioning.
 
Source: Deutsche Bank Research  
 
Fundamentals, however, tell us that the selloff hasn’t been particularly severe.
 
The Nasdaq 100 forward P/E ratio dipped below 25x, but these stocks are still pricey.
 

 
The S&P 500 price has outpaced earnings and dividend growth since the start of the pandemic. The latest selloff hasn’t brought us back to “fundamentals.”
 
Source: Jack Ablin, Cresset Wealth Advisors  

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3. How should we think about the Russia/Ukraine risk? History tells us that stocks tend to be resilient when it comes to geopolitical events.
 
Source: LPL Research  
 
4. Intraday volatility has been much higher than close-to-close moves. As a result, standard volatility measures are understating market swings.
 
Source: Chris Murphy, Susquehanna International Group  
 
Source: S&P Global Market Intelligence  

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5. Microcaps (favored by the Reddit crowd) are in bear-market territory.
 
Source: @AndrewThrasher  
 
And here is the drawdown for non-profitable tech.
 
Source: @LizAnnSonders  

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6. ETF volume surged relative to individual stocks.
 
Source: Chris Murphy, Susquehanna International Group  
 
7. Retail investors are doing some dip-buying.
 
Source: JP Morgan Research; @MichaelGoodwell  
 
8. S&P 500 companies that have a track record of increasing dividends have been outperforming.
 

 
9. Risk-parity strategies have been lagging the S&P 500 for weeks. Not anymore.
 


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Credit

1. BB-rated corporate bonds have been underperforming (2 charts).
 

 
Source: Deutsche Bank Research  

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2. This chart shows where we are with credit asset performance month-to-date (total returns). Treasuries are included for comparison.
 

 
3. Green bond issuance is expected to keep surging.
 
Source: @WSJ   Read full article  


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Rates

1. Have market-based inflation expectations peaked for now?
 
Source: BCA Research  
 
2. Treasury market realized volatility hit the highest level since the COVID peak.
 
Source: Morgan Stanley Research  
 
3. Here is the term SOFR rate vs. LIBOR.
 
Source: Deutsche Bank Research  


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Commodities

Palladium has been outperforming.
 
h/t Walter  
 
Is it overbought?
 
Source: barchart.com  


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Energy

1. The outperformance of energy shares has been impressive (2 charts).
 

 
Source: @bespokeinvest   Read full article  

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2. The Brent curve is moving deeper into backwardation (negative slope), which signals tight market conditions.
 
April – March spread:
 
Source: @HFI_Research  
 
May – April:
 
Source: @HFI_Research  


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Cryptocurrencies

1. Cryptocurrencies are starting to stabilize after the recent sell-off.
 
Source: FinViz  
 
2. Bitcoin’s market cap relative to the total crypto market cap has risen so far this year, which could signal a “flight to safety” in crypto similar to 2018.
 
Source: CoinDesk   Read full article  
 
3. Bitcoin’s market value relative to its realized value (MVRV) is not yet at an extreme low, suggesting BTC is only slightly below “fair value.”
 
Source: @coinmetrics  
 
4. A majority of financial and tech firms surveyed by Arca and Coalition Greenwich have been active in digital assets/blockchain for at least three years.
 
Source: Arca; Coalition Greenwich   Read full article  
 
5. The Coinbase stock rout continues.
 
Source: @markets   Read full article  
 
6. Binance dominates crypto spot exchange volumes.
 
Source: The Block  
 
7. Market participants are concerned about a severe shakeout in the DeFi space.
 
Source: CoinMarketCap   Further reading  


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Emerging Markets

1. Mexico’s economic activity ticked higher in November but remained depressed.
 

 
2. Brazil’s consumer confidence has been softening.
 

 
The government’s tax collections finished the year on a strong note.
 

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3. Are LatAm central banks nearing the end of their hiking cycle?
 
Source: Numera Analytics  
 
4. EM policy rates have returned near pre-pandemic levels.
 
Source: TS Lombard  
 
Which central banks are behind the curve?
 
Source: Oxford Economics  

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5. Emerging markets are home to a majority of the best-performing stocks over 2020 and 2021.
 
Source: Goldman Sachs Asset Management  
 
6. High-beta EM debt will be increasingly vulnerable to rising Treasury yields.
 
Source: TS Lombard  
 
7. This chart shows real sovereign bond yields across select economies.
 
Source: Oxford Economics  


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China

1. How long will Beijing tolerate the renminbi’s strength given its impact on financial conditions? The first panel shows CNY vs. USD and the second is CNY vs. a basket of currencies.
 

 
The renminbi is also outperforming other EM currencies.
 
Source: @acemaxx, @MorganStanley  

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2. Stocks are near bear-market territory.
 

 
3. Beijing’s letting developers tap presale funds is giving some stressed firms a lifeline.
 
Source: ANZ Research  
 
Source: South China Morning Post   Read full article  

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4. China’s government bonds have been outperforming other assets around the world, including stocks.
 
Source: Gavekal Research  


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Asia – Pacific

1. Growth in South Korean and Taiwanese exports has weakened amid slowing global manufacturing conditions.
 
Source: Danske Bank  
 
2. COVID cases are surging in Japan.
 

 
3. Australian stocks look oversold.
 


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The Eurozone

1. Just as we saw with the ZEW indicator (#2 here), the Ifo index shows improving business sentiment in Germany this month.
 

 
Source: ifo Institute  

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2. Spain’s PPI climbed above 35%.
 

 
3. What will the ECB’s quantitative tightening look like?
 
Source: ING  
 
4. Equity risk premiums remain elevated.
 
Source: BCA Research  


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The United Kingdom

1. The CBI report showed that strong industrial orders carried over into January.
 

 
But business sentiment deteriorated.
 

 
Inventories were extraordinarily low going into the year-end.
 

 
The index of selling prices is holding near extreme levels.
 

 
Source: Reuters   Read full article  
 
The CBI report points to robust manufacturing investment ahead.
 
Source: Pantheon Macroeconomics  

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2. Levies to pay for policy initiatives represent a substantial part of UK retail electricity bills.
 
Source: Oxford institute for Energy Studies  


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The United States

1. Consumer confidence ticked lower in January but was firmer than expected.
 

 
Sentiment was supported by robust employment trends.
 
Source: Mizuho Securities USA  
 
The labor differential continues to signal strength in the jobs market.
 

 
But income expectations have worsened.
 
Source: The Daily Feather  
 
The two indices have diverged sharply.
 
Source: @RenMacLLC  
 
Sentiment has been outpacing mobility/retail activity.
 
Source: Wells Fargo Securities  
 
Buying conditions for vehicles jumped in January.
 

 
COVID cases appear to be peaking. Will it be enough to offset the stock market rout and improve sentiment next month?
 

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2. Next, we have some updates on the housing market.
 
The pace of home price appreciation strengthened a bit in November.
 

 
Will housing starts peak this year?
 
Source: Wells Fargo Securities  
 
Rising equity in homes has not led to increases in home equity borrowing.
 
Source: TS Lombard  
 
Apartment occupancy rates started the year on a strong note.
 
Source: Evercore ISI Research  
 
Lending standards for multi-family properties have loosened considerably.
 
Source: ¬†Park Madison Partners  
 
Homebuilders view their inventories as very tight.
 
Source: Evercore ISI Research  
 
Many Millennials are planning to buy a home soon.
 
Source: @AliWolfEcon  
 
Here is the housing “P/E” ratio (see the comment from Wells Fargo below).
 
Source: Wells Fargo Securities  

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3. The Richmond Fed’s manufacturing index pulled back this month.
 

 
Hiring stalled.
 

 
Manufacturers’ wage expectations eased somewaht.
 

 
Price gains remain at extreme levels.
 

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4. Most investors surveyed by Deutsche Bank expect a recession within the next 2-3 years.
 
Source: Deutsche Bank Research  
 
But recent business cycles have been much longer.
 
Source: Deutsche Bank Research  


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Global Developments

1. How would a sharp slowdown in China impact the rest of the world?
 
Source: OECD   Read full article  
 
2. This chart shows just how cyclical the semiconductor industry is.
 
Source: ANZ Research  
 
3. The global trade-to-output ratio has been remarkably flat since the financial crisis.
 
Source: BCA Research  


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Food for Thought

1. Why do employees want to quit?
 
Source: PlanBeyond¬†   Read full article  
 
2. States raising the minimum wage in 2022:
 
Source: @axios   Read full article  
 
3. Active Web 3.0 developers:
 
Source: @JayHao8, @ElectricCapital   Read full article  
 
4. BlackBerry’s revenue over time:
 
Source: @chartrdaily  
 
5. Labels applied to the people who stormed the US Capitol:
 
Source: @YouGovAmerica   Read full article  
 
6. Personal experience with COVID:
 
Source: Data for Progress   Read full article  
 
7. Will Russia invade Ukraine?
 
Source: YouGov  
 
8. Three common activities, by age:
 
Source: @graykimbrough  
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