The Daily Shot: 03-Feb-22
• The United States
• The Eurozone
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Rates
• Global Developments
• Food for Thought
The United States
1. The January ADP report was ugly, showing a loss of 300k private-sector payrolls. What happened? At least 20 million Americans were infected with omicron in January. Many couldn’t come to work, with some not getting paid – which reduced the number of people counted as employed.
Source: ADP Research Institute
Job losses were broad.
Source: ADP Research Institute
The market expects the official figures to show a gain of 100k in private payrolls this Friday, but there is quite a bit of uncertainty around that figure.
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2. Mortgage applications remain very strong despite higher rates.
3. Is consumer spending shifting toward services?
Source: @WSJ Read full article
Source: Chart and data provided by Macrobond
Source: Mizuho Securities USA
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4. Next, we have some inflation trends.
• Here is a look at inflation spikes across historical events.
Source: Citi Private Bank
• Inflation has been outpacing the employment cost index.
Source: Citi Private Bank
• Gasoline prices are nearing multi-year highs again, which is pressuring consumer sentiment.
• Below is the Fed’s measure of inflation expectations, which will influence the central bank’s policy decisions as tightening takes shape.
Source: Reuters Read full article
• The rise in corporate profits suggests input costs pressures are being passed through to consumers.
Source: PGM Global
• This chart shows the number of CPI items for each range of price increases.
Source: Reuters Read full article
• The reversal in fund flows to Treasury Inflation-Protected Securities (TIPS) suggests that inflation is peaking.
5. Does higher inflation mean a shorter expansion cycle this time?
Source: Bain & Company
• Most economists see the current cycle continuing for a while.
Source: Chart and data provided by Macrobond Read full article
• The risk of recession remains low based on these measures.
Source: Gavekal Research
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6. The federal debt has exceeded $30 trillion.
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The Eurozone
1. The euro-area inflation report was a shocker, with the CPI climbing above 5% for the first time. Energy was the biggest driver of inflation, but the core CPI (2nd panel) surprised to the upside as well.
Source: Numera Analytics
Source: Nordea Markets
This was the highest upside CPI surprise on record.
Source: @fwred
Italy’s inflation hit the highest level in decades.
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2. Bond yields continue to rise as the market prepares for the ECB to shift to a less dovish posture.
• Here are some potential scenarios for the ECB’s direction and their impact on the euro.
Source: ING
• The ECB will be forced to adjust its inflation projections much higher. Here is a forecast from Pantheon Macroeconomics.
Source: Pantheon Macroeconomics
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Asia – Pacific
1. The 5yr JGB is approaching zero for the first time in seven years.
The curve has been steepening.
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2. South Korean manufacturing shifted back into growth mode last month.
Source: IHS Markit
3. Australian building approvals were better than expected in December.
The nation’s trade surplus declined again at the end of the year.
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China
1. China is very dependent on its property sector – both directly and indirectly.
Source: KKR
Construction activity has been soft.
Source: Gavekal Research
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2. China accelerated the construction of offshore wind turbines last year.
Source: @DrSimEvans
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Emerging Markets
1. Let’s begin with Brazil.
• The central bank hiked rates by 150 bps again but going forward, the increases are likely to be smaller.
Source: Financial Post Read full article
• The yield curve inverted further.
• Industrial production jumped in December, but indicators (including the PMI report) suggest that activity deteriorated in January.
• Vehicle sales were terrible in January.
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3. Mexican auto sales were soft as well.
But Chile continues to surprise to the upside.
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4. Russia’s industrial production finished the year on a strong note.
5. Erdogan’s party continues to lose popularity as inflation surges.
Source: Wells Fargo Securities
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Cryptocurrency
1. The bitcoin downtrend resistance is holding.
2. Ether is starting to outperform major cryptos, …
Source: FinViz
… but bitcoin is still ahead of other tokens over the past month.
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3. Bitcoin’s trading volume across exchanges continues to decline, which is typical after a sell-off.
Source: CoinDesk Read full article
4. The ETH/BTC price ratio is holding short-term support.
Source: CoinDesk Read full article
5. Here is the index of global cryptocurrency adoption.
Source: Statista
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Commodities
1. This commodity rally has been impressive.
Source: Deutsche Bank Research
Are commodity prices peaking? What does it mean for commodity exporters? Here is a forecast from Capital Economics.
Source: Capital Economics
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2. US hogs and cattle futures surged this week as traders watch a major storm in the Midwest.
Source: Reuters Read full article
Source: AccuWeather
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Energy
1. US petroleum inventories remain tight.
• Crude oil:
• Crude oil at Cushing, OK.
• Distillates:
• Total petroleum inventories:
Source: Fundamental Analytics
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2. Gasoline demand has been relatively soft.
3. Crack spreads continue to widen.
4. European natural gas prices are well off the highs, but the uptrend support is holding.
Source: @TheTerminal, Bloomberg Finance L.P.
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Equities
1. Some bad news from Meta on Wednesday sent the share price sharply lower after the close, pulling the Nasdaq 100 down by 2%.
Source: CNBC Read full article
Here are the index futures.
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2. Small-cap underperformance continues to widen.
3. Value typically lags quality after leading in a down market. However, value stocks have been consistently cheaper this cycle, which historically matters more for performance, according to Fidelity (2 charts).
Source: Denise Chisholm; Fidelity Investments
Source: Denise Chisholm; Fidelity Investments
• Fund flows shifted sharply toward value last month.
Source: SPDR Americas Research, @mattbartolini
• But the economic backdrop is becoming less supportive for the value factor.
Source: Oxford Economics
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4. Despite high valuation multiples, …
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
… a majority of institutional investors surveyed by Scotiabank expect a 5%-15% upside in North American equities this year.
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
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5. Short interest levels remain depressed.
Source: Goldman Sachs; @WallStJesus
6. Sector funds’ annualized total returns have lagged broad market benchmarks by a wide margin over most trailing periods.
Source: Amy C. Arnott, Morningstar Read full article
7. The dispersion in sector returns has blown out as energy outperforms.
Source: S&P Global Market Intelligence
Here is the spread between the best- and worst-performing sectors across major indices.
Source: S&P Global Market Intelligence
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8. Finally, we have some data from LPL Research showing the massive growth in sustainable-investing funds.
Source: LPL Research
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Rates
1. The value of negative-yielding global debt continues to tumble as the euro-area inflation surges and JGBs sell off.
All 10-year yields are now positive.
Source: @RichardDias_CFA
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2. Treasury General Account (TGA) balances (at the Fed) are close to the anticipated seasonal peak.
Source: Deutsche Bank Research
3. The SOMA runoff will significantly increase the Treasury’s privately-held borrowing amount, particularly next year.
Source: Deutsche Bank Research
4. Treasury yields tend to peak around the first rate hike.
Source: MarketDesk Research
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Global Developments
1. Valuations across all asset classes have been near record highs.
Source: Goldman Sachs Asset Management
Goldman expects returns across major asset classes to be lower this year and beyond.
Source: Goldman Sachs Asset Management
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2. The dollar appears overvalued on a real effective exchange rate (REER) basis.
Source: BCA Research
3. Weaker aggregate stimulus in China will hit global manufacturing activity this year.
Source: Stifel
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Food for Thought
1. Best cities for international students:
Source: Statista
2. All-time temperature records:
Source: The New York Times Read full article
3. How long European leaders have stayed in office:
Source: Datawrapper Read full article
4. Netflix streaming inflation:
Source: @chartrdaily
5. Spending time online:
Source: Pew Research Center Read full article
6. Popular online games:
Source: Statista
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