Supply chains remain stressed

The Daily Shot: 08-Feb-22
The United States
The Eurozone
Europe
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Energy
Equities
Credit
Rates
Global Developments
Quant Compensation
Food for Thought



 

The United States

1. Let’s begin with some updates on inflation.
 
Slower used car price gains point to a somewhat smaller core CPI increase in January, according to Nomura.
 
Source: Nomura Securities  
 
Services are now taking the lead from goods for the next leg of price increases. Rent will be a key component of that trend (see chart).
 
Source: MRB Partners  
 
Here is a look at the inflation/rate cycle during the 1960s-1980s.
 
Source: SOM Macro Strategies  
 
The inflation surge has not made up for downside misses from the Fed’s 2% target since 2012.
 
Source: Alpine Macro  
 
Real employment costs have declined sharply over the past year.
 
Source: @nomiprins, @FT   Read full article  
 
According to Oxford Economics, supply chains remain stressed.
 
Source: Oxford Economics  

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2. US credit card balances are holding below pre-COVID levels (and well under the trend).
 

 
Has student debt growth bottomed?
 

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3. Based on credit availability, the US is growing at about 1% above potential.
 
Source: Deutsche Bank Research  
 
4. The Fed’s long-run policy forecast is disconnected from potential nominal GDP growth.
 
Source: MRB Partners  
 
5. Several indicators point to slower growth in US manufacturing activity (ISM Manufacturing PMI) ahead.
 
Global central banks’ policy changes:
 
Source: Piper Sandler¬†  
 
Weakness in China’s economy:
 

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But inventory rebuilding should be a tailwind for manufacturing.
 
Source: Wells Fargo Securities  

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6. According to a survey from Fannie Mae, this is the worst time to buy a house in years (2 charts).
 

 
Source: Fannie Mae  
 
And yet, demand remains unusually strong, sending housing inventories to multi-year lows.
 
Source: @mikesimonsen, @altosresearch  

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7. BofA sees seven 25 bps Fed rate hikes this year (well above market expectations).
 
Source: BofA Global Research; @EffMktHype  
 
Barclays estimates the fed funds rate to be at 1.7% by the end of 2023 (a much less aggressive forecast than BofA).
 
Source: Barclays Research  


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The Eurozone

1. Will the ECB follow the markets’ new rate trajectory? (2 charts)
 

 
Source: Pantheon Macroeconomics  

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2. Longer-term inflation expectations continue to climb.
 
Source: @atalaveraEcon  
 
3. The ECB has made an effort to make its releases more comprehensible.
 
Source: Commerzbank Research  
 
4. The Sentix investor confidence index surprised to the upside this month.
 

 
5. The labor market remains tight.
 
Source: Nordea Markets  
 
What will happen to inflation and wages as the unemployment rate falls further?
 
Source: Pantheon Macroeconomics  
 
The minimum wage in Germany will surge this year.
 
Source: Nordea Markets  

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6. European household spending expectations have perked up into the end of 2021, a positive sign for 2022 consumer demand.
 
Source: KKR  
 
7. Finally, we have the latest political polls from Italy.
 
Source: @EuropeElects  


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Europe

1. Only 1/3 of goods exported from the EU to the US are consumed there. The rest are intermediate goods which are then used to produce final goods for consumption or export to other countries.
 
Source: ECB  
 
2. Here is the e-commerce/retail start-up scene in Europe.
 
Source: EcommerceDB  


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Asia – Pacific

1. The 10yr JGB yield is above 20 bps for the first time since 2016. Will the BoJ act? There is some speculation that the central bank will shift its yield-curve-control target to the 5yr note (from the 10yr). These rumors have been boosting JGB yields.
 

 
Separately, Japan’s real cash wages slumped at the end of 2021.
 

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2. Australia’s business confidence rebounded in January.
 


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China

1. Thermal coal prices are surging again.
 

 
2. The slowdown in economic growth has weighed on stock market performance over the past year.
 
Source: BCA Research  
 
Capital Economics expects economic activity to rise over the next few years, albeit below its pre-pandemic trend.
 
Source: Capital Economics  

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3. Auto supply is starting to recover, while steel remains weak.
 
Source: Gavekal Research  
 
4. Corporate bonds with shorter tenors became more favored as wealth managers reduced their portfolios’ duration to mitigate volatility.
 
Source: Fitch Ratings  
 
Onshore bond defaults have declined, while offshore defaults have risen over the past year. That’s partly due to the property developers’ credit crisis (2 charts).
 
Source: Fitch Ratings  
 
Source: Fitch Ratings  


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Emerging Markets

1. Chile’s exports have been very strong.
 

 
This chart shows copper exports (in dollar terms).
 

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2. Brazil’s vehicle production and sales remain depressed.
 

 
3. Which LatAm countries have issued the most green bonds?
 
Source: ECLAC   Read full article  
 
4. Turkey’s consumer confidence has diverged from business sentiment.
 
Source: @RichardDias_CFA  
 
5. India is experiencing a liquidity surplus. …
 
Source: Capital Economics  
 
… Will higher rates tighten liquidity?
 
Source: Capital Economics  
 
Indian stocks, especially in the staples sector, appear expensive versus the MSCI EM index.
 
Source: PGM Global  

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6. EM growth is expected to outpace advanced economies.
 
Source: LPL Research  


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Cryptocurrency

1. Bitcoin is testing the next resistance level at the upper Bollinger Band.
 
Source: barchart.com, h/t @AkshayChinchal4  
 
2. Bitcoin’s average funding rate, or the cost of holding long positions in the perpetual futures market, remains low despite the recent price rally. That could reflect low conviction, or perhaps some traders remain on the sidelines, scarred by liquidations in the prior sell-off.
 
Source: CryptoQuant   Read full article  
 
3. Crypto funds saw inflows of $85 million last week. It was the third straight week of net inflows, reflecting improving sentiment among investors.
 
Source: CoinShares   Read full article  
 
Bitcoin-focused funds accounted for a majority of fund inflows last week, while Ethereum-focused funds continued to see outflows.
 
Source: CoinShares   Read full article  


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Energy

1. Let’s start with the EIA’s liquids production forecast.
 
Source: @aeberman12  
 
2. Energy companies have been conservative with capital spending despite the revenue windfall from higher oil prices.
 
Source: Alpine Macro  
 
3. This chart shows US electricity capacity additions in 2021.
 
Source: @SPGMarketIntel   Read full article  
 
4. Next, we have some updates on Europe’s energy crisis.
 
Energy import dependency rate:
 
Source: Algebris Investments   Read full article  
 
Vulnerability to a Russian energy embargo:
 
Source: BCA Research  
 
LNG imports (2 charts):
 
Source: Reuters   Read full article  
 
Source: @WSJ   Read full article  
 
Natural gas imports by source:
 
Source: @WSJ   Read full article  
 
Estimated natural gas and electricity retail prices (2 charts):
 
Source: @FabienBossy  
 
Source: @FabienBossy  
 
Hit to GDP from doubling energy prices:
 
Source: Algebris Investments   Read full article  
 
Emissions contract price (companies burning more coal have to buy these to offset their CO2 emissions):
 


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Equities

1. Overall, Q4 earnings results have been strong.
 
Source: @FactSet   Read full article  
 
2. Stay-at-home stocks have widened their underperformance.
 

 
3. The recent sell-off resulted in many stocks moving away from overbought territory.
 
Source: Longview Economics  
 
4. It’s been a rough start of the year for momentum stocks.
 
Source: MarketDesk Research  
 
5. Equity markets with the highest valuations have underperformed this year.
 
Source: BCA Research  
 
6. Here is the risk/reward profile across US sectors from Numera Analytics.
 
Source: Numera Analytics  
 
7. This chart shows revenue by industry against its pre-covid level.
 
Source: MarketDesk Research  


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Credit

1. US investment-grade bonds look attractive when hedged into euros or yen.
 

 
2. European corporate borrowing costs are surging.
 


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Rates

1. US real yields continue to climb, …
 

 
… as TIPS funds experience significant outflows. This trend presents a headwind for growth equities.
 

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2. Investors haven’t been this gloomy on Treasuries since 2017.
 

 
Bearish sentiment toward Treasuries is near an extreme.
 
Source: Longview Economics  


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Global Developments

1. Speculative long positioning in the dollar appears stretched. However, based on Treasury note futures positioning, the dollar could have further room to run.
 
Source: PGM Global  
 
2. Next, we have a summary of manufacturing PMIs (business activity).
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
Factories have been more upbeat about future growth (2 charts).
 
Source: Deutsche Bank Research  
 
Source: Capital Economics  

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3. Many fiscal rules were suspended during the pandemic.
 
Source: IMF   Read full article  
 
Source: IMF   Read full article  


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Quant Compensation

How much do Wall Street quants get paid? Here are the results from Baruch MFE’s latest alumni survey.
 
By institution type:
 
Source: Baruch MFE  
 
By role:
 
Source: Baruch MFE  


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Food for Thought

1. Dominican Republic tourism arrivals:
 

 
2. Miles driven by vehicle type:
 
Source: @WSJ   Read full article  
 
3. Vehicle production and domestic demand:
 
Source: ECIPE   Read full article  
 
4. Home price appreciation by city:
 
Source: Wells Fargo Securities  
 
5. US birth rates by mother’s birth cohort:
 
Source: Brookings   Read full article  
 
6. Cash balances as a percent of consumer credit by education cohort:
 
Source: TS Lombard  
 
7. US military aid in 2020:
 
Source: Statista  
 
8. Global surface temperature:
 
Source: Columbia University   Read full article  
 
9. Winter Olympics medal count (1924-2018):
 
Source: Statista  
 
10. Most frequent letters in Wordle vs. the English language:
 
Source: @axios   Read full article  

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