Atlanta Fed’s GDP tracker suggests that economic growth has stalled this quarter

The Daily Shot: 31-Jan-22
The United States
The United Kingdom
The Eurozone
Europe
Japan
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Food for Thought



 

The United States

1. Employment costs rose again last quarter, although the increase was a bit lower than expected. On a year-over-year basis, the increase was the highest in two decades.
 

 
Benefits costs have been picking up momentum.
 
Source: Wells Fargo Securities  
 
Here is the breakdown by industry (the compensation component).
 
Source: Wells Fargo Securities  
 
Employment costs are still below the pre-2008 trend.
 

 
US labor costs have diverged from other advanced economies.
 
Source: @WSJecon  
 
Companies see labor costs/shortages as the most important issue.
 
Source: @acemaxx, @MorganStanley  

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2. With employment costs rising quickly, the chances of the FOMC boosting rates by 50 bps rather than 25 bps in March hit 23%.
 
Source: Bloomberg   Read full article  
 
A 125 bps total rate increase this year (five 25 bps hikes) is now almost a certainty, according to the fed funds futures market.
 

 
The Treasury curve continues to flatten.
 

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3. Next, let’s take a look at some inflation trends.
 
The Core PCE inflation measure (the Fed’s preferred indicator) is approaching 5%.
 

 
Here are the top five contributions to the headline PCE price index (year-over-year changes).
 
Source: @M_McDonough  
 
But easing supply strains suggest that we are near the peak for consumer inflation (2 charts).
 
Source: Longview Economics  
 
Source: Alpine Macro  
 
By the way, trucker waiting times outside of LA ports have eased.
 
Source: DeepMacro  
 
Market-based inflation expectations have diverged from crude oil.
 

 
Will fighting inflation be more costly in terms of jobs this time around?
 
Source: BlackRock  

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4. Consumer spending declined in December (we saw this in the retail sales data earlier).
 

 
Personal income increase was a bit below expectations, but the level remains above the pre-COVID trend.
 

 
Savings ticked higher.
 

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5. The updated U. Michigan consumer confidence indicator hit the lowest level in a decade this month (due to inflation concerns).
 

 
6. Economists have been downgrading the current quarter’s growth forecasts as omicron takes a toll.
 

 
The Atlanta Fed’s GDP tracker suggests that economic growth has stalled this quarter.
 
Source: The Atlanta Fed  


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The United Kingdom

1. UK stocks have been outperforming.
 

 
Will this outperformance continue?
 
Source: Pantheon Macroeconomics  
 
Here are the differences between UK and US sector weights.
 
Source: Pantheon Macroeconomics  

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2. With the MPC continually surprised by inflation, …
 
Source: Pantheon Macroeconomics  
 
… five BoE rate hikes this year are almost baked into the market.
 

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3. Business sentiment has been easing from recent highs, according to the Lloyds Business Barometer.
 


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The Eurozone

1. Germany’s GDP contracted more than expected last quarter, …
 

 
… as consumer spending tumbled.
 
Source: Pantheon Macroeconomics  
 
Nonetheless, Bund yields keep climbing.
 

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2. French GDP growth topped forecasts, …
 

 
… boosted by inventory building.
 
Source: Pantheon Macroeconomics  
 
Consumer spending was a bit firmer than expected last month (holding at pre-COVID levels).
 

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3. Spain’s GDP growth was also robust in Q4.
 

 
Source: Pantheon Macroeconomics  

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4. Italian sentiment indicators surprised to the downside this month.
 

 
5. Dutch retail sales hit a record high last month, but the December increase wasn’t as strong as in 2019.
 

 
6. The euro-area economic sentiment eased further this month.
 

 
7. Will the ECB begin tightening earlier than expected?
 
Source: MRB Partners  
 
Inflation is forecast to hit 4% this year.
 
Source: Deutsche Bank Research  

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8. Loan growth was above 4% year-over-year in December.
 

 
But the broad money supply expansion continues to slow.
 


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Europe

1. Let’s begin with some updates on Sweden.
 
The Swedish krona underperformed this month.
 

 
Last year’s growth exceeded forecasts.
 

 
Household credit growth has accelerated.
 

 
Retail sales were weaker than expected last month.
 

 
Sentiment has been deteriorating.
 

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2. European bond recoveries rebounded last year.
 
Source: @BLaw   Read full article  
 
3. This chart shows renewable sources of electricity in the EU.
 
Source: Eurostat   Read full article  


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Japan

1. Industrial production ticked lower last month.
 

 
2. Retail sales did not increase as much as they usually do in December.
 

 
3. Consumer confidence dropped this month as omicron surged.
 

 
4. Coal imports hit the highest level since 2019 as LNG prices spiked.
 
Source: @markets   Read full article  
 
5. The JGB curve is steepening.
 


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China

1. The renminbi has been weaker in recent days as the Fed turns increasingly hawkish.
 

 
2. The official manufacturing PMI shows growth stalling as new orders declined.
 

 
The PMI report from Markit showed the manufacturing sector in contraction territory.
 

 
Source: Reuters   Read full article  
 
Nonmanufacturing growth slowed sharply amid lockdowns.
 

 
Employment indicators are weak in both manufacturing and services.
 

 

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3. Hong Kong’s Q4 GDP growth was softer than expected.
 

 
4. PPI inflation has likely peaked, according to TS Lombard’s model.
 
Source: TS Lombard  


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Emerging Markets

1. Brazil’s CPI continues to moderate.
 

 
Loan growth climbed above 16.5% per year.
 

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2. Colombia hiked rates aggressively last week as inflation surges.
 

 
3. Mexico’s government deficit swelled in December.
 

 
4. South Africa’s credit growth has been recovering.
 

 
5. Vietnam’s CPI is holding below 2%.
 

 
6. We should expect more yield curves to invert as rate hikes continue.
 
Source: PGM Global  
 
7. Finally, we have the month-to-date performance across EM currencies.
 


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Cryptocurrency

1. Decentralized finance (DeFi) tokens have been under pressure over the past few months.
 
Source: CoinDesk   Read full article  
 
Rising risk in DeFi and related stablecoins points to instability in the crypto market.
 
Source: CoinDesk   Read full article  
 
2. The Biden administration is expected to release an executive order to determine risks and opportunities in crypto next month. Some industry insiders expect the administration to hand control of stablecoins to banks.
 
Source: Decrypt   Read full article  
 
3. Most altcoins significantly underperformed bitcoin more than what they were expected to do during a market downturn.
 
Source: CoinDesk   Read full article  
 
4. A majority of institutional investors surveyed by Scotiabank do not plan to invest in cryptocurrencies.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
5. On a two-month basis, the correlation between bitcoin and US stocks hit a new high.
 


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Commodities

1. Agricultural commodities are rallying.
 
US soybeans and corn:
 

 
Cotton:
 

 
Bloomberg’s agricultural commodities index.
 

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2. Commodities have diverged from the dollar.
 
Source: PGM Global  


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Energy

1. Brent crude is trading above $91/bbl.
 

 
Source: Reuters   Read full article  
 
Backwardation hit a multi-year high.
 

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2. US rig count keeps moving higher.
 

 
Source: Reuters   Read full article  

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3. Next, we have some updates on US natural gas.
 
Futures surged above $5.0/mmbtu.
 

 
Source: Reuters   Read full article  
 
Source: FX EmpireĀ    Read full article  
 
Backardation has increased.
 

 
Gas in storage remains near its 5-year average.
 

 
Production is climbing.
 
Source: Cornerstone Macro  


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Equities

1. Friday’s market rebound was impressive.
 

 
2. Volatility is at the highest level since April of 2020.
 

 
This chart shows the Nasdaq 100 overnight moves.
 
Source: Chris Murphy, Susquehanna International Group  

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3. Speculative accounts boosted their bets on S&P 500 futures.
 

 
4. What happens if one buys the S&P 500 after a 10% selloff?
 
Source: Goldman Sachs; @MikeZaccardi  
 
5. There was no capitulation in fund flows over the past few weeks.
 
Source: Goldman Sachs; @WallStJesus  
 
This chart shows last week’s domestic ETF flows by sector.
 

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6. Q4 earnings growth was robust (2 charts).
 
Source: Lindsey Bell, Ally  
 
Source: @FactSet   Read full article  

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7. Stifel expects a significant market correction due to tighter financial conditions.
 
Source: Stifel  
 
8. This chart shows the Nasdaq 100 relative to global stocks vs. the US dollar.
 
Source: PGM Global  
 
9. Finally, we have dividend yields across several indices relative to the 10yr Treasury.
 
Source: S&P Global Market Intelligence  


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Food for Thought

1. US households’ excess savings by income bracket:
 
Source: @WSJ   Read full article  
 
2. COVID has been killing dialysis patients.
 
Source: @propublica   Read full article  
 
3. Donor blood supply:
 
Source: Statista  
 
4. The Fed’s regional bank boards are becoming more diverse.
 
Source: Reuters   Read full article  
 
5. Moving capitals:
 

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