The Daily Shot: 15-Feb-22
• The United States
• The United Kingdom
• The Eurozone
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Rates
• Food for Thought
The United States
1. Let’s begin with the labor market.
• US nominal wage growth is now the highest in over two decades.
Source: Federal Reserve Bank of Atlanta
Wage gains among hourly workers have been particularly strong.
Source: Federal Reserve Bank of Atlanta
• Record job-switching is boosting US inflation:
Source: Reuters Read full article
• Some economists and Fed officials are becoming concerned about the wage-price spiral.
Source: Goldman Sachs; @carlquintanilla
Source: @WSJ Read full article
• 2.6 million people retired earlier than expected since the start of the pandemic.
Source: @WSJ Read full article
• Here is an overview of the labor force shortfall.
Source: Bain & Company
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2. Next, we have some updates on supply chain issues.
• Automobile inventories have been rising.
Source: Pantheon Macroeconomics
• Domestic shipping activity slowed a bit last month.
Source: Cass Information Systems
But freight rates continue to surge.
Source: Cass Information Systems
• Here is the NY Fed’s supply pressures index.
Source: @WSJ Read full article
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3. Consumer inflation expectations appear to have peaked, with the 3-year indicator dropping sharply.
Source: NY Fed
Source: @MichaelGoodwellLargest
Fund managers also see inflation moving lower from here.
Source: BofA Global Research
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4. Business investment should remain robust.
Source: Pantheon Macroeconomics
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The United Kingdom
1. Payrolls gains were a bit softer than expected in January, …
… as the labor market tightens further.
Source: Pantheon Macroeconomics
2. Real wage growth has turned negative as inflation surges.
Source: @WSJ Read full article
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The Eurozone
1. Spain’s bond yields are soaring.
The 10yr spread to Germany broke above 100 bps.
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2. The euro-area current account surplus should be a tailwind for the euro.
Source: Simon White, Bloomberg Markets Live Blog
3. Euro-area bond outflows have accelerated since negative rates became the norm in 2014.
Source: Deutsche Bank Research
4. Real wages continue to fall further into negative territory.
Source: Danske Bank
Will this trend put pressure on consumer spending?
Source: Pantheon Macroeconomics
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Asia – Pacific
1. Japan’s GDP jumped in Q4, although the gain missed consensus. The GDP remains well below pre-COVID levels.
Private consumption rose sharply, but business investment remains weak.
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2. Australia’s 2yr yield hit 1.2% for the first time since early 2019.
Separately, investors remain net-short the Aussie dollar.
Source: Morgan Stanley Research
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China
1. China’s credit impulse continues to perk up. Given historic leads (6-9 months), it suggests a bottom in global PMIs by mid-2022.
Source: Danske Bank
2. Chinese manufacturing hubs have been offering incentives for migrant workers not to go home for the holidays.
Source: DBS
3. China’s contribution to global spending on luxury goods is expected to increase over the next few years.
Source: J.P. Morgan Asset Management
• Single’s Day has the highest gross merchandise value relative to other major spending holidays.
Source: J.P. Morgan Asset Management
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Emerging Markets
1. Colombia’s economy finished last year on a strong note.
• Retail sales:
• Manufacturing:
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2. Brazil’s stocks should benefit from higher commodity prices.
Source: PGM Global
3. India’s CPI is back above 6%.
4. Russia’s 10yr bond yield is above 10% for the first time in six years.
The ruble-oil correlation has broken down.
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5. Some emerging market equity valuations are very attractive vs. their developed market peers.
Source: TS Lombard
• Q1 earnings estimates for EM companies have deteriorated over the past month.
Source: Deutsche Bank Research
• Fund managers expect EM stocks to outperform
Source: BofA Global Research
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Cryptocurrency
1. Crypto funds saw inflows last week, albeit relatively minor compared to Q4.
Source: CoinShares Read full article
Bitcoin funds accounted for a majority of inflows last week, while Ethereum funds finally broke above a nine-week spell of outflows.
Source: CoinShares Read full article
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2. This chart shows the recent increase in puts versus call options, indicating greater demand for downside protection among bitcoin traders.
Source: Glassnode Read full article
3. Bitcoin has been very responsive to changes in global money supply.
Source: Stifel
4. Tighter financial conditions could be a headwind for bitcoin.
Source: Stifel
5. Bitcoin tends to underperform gold when the Fed tightens policy.
Source: Stifel
6. Here is a look at central banks’ digital currency status.
Source: @carolynnlook, @markets Read full article
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Commodities
1. Beijing is waging war on iron ore prices.
Source: @annieLee23, @markets Read full article
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2. Gold has been rallying on the Ukraine/Russia uncertainty.
3. Dry weather in West Africa has been boosting cocoa futures.
Source: @WSJ Read full article
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Energy
1. Oil appears stretched relative to gold.
Source: Stifel
2. The Brent crude backwardation hit the highest level in decades amid tighter supplies.
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3. Energy firms’ free cash flow has been increasing rapidly.
Source: Bloomberg Read full article
4. Crack spreads are elevated.
Source: Fitch Solutions Macro Research
5. Russian gas flows to the EU have been falling.
Source: Gavekal Research
Last month’s flows were well below contractual volumes.
Source: Bloomberg Read full article
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Equities
1. Higher inflation means lower stock valuations.
Source: John Lynch, Comerica Wealth Management
• Median S&P 500 valuations have fallen back to pre-pandemic levels, but the distribution of multiples shows that many stocks still trade at rich valuations.
Source: PGM Global
• Rising rates tend to compress equity multiples.
Source: Alpine Macro
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2. Most companies are now worried about inflation. Which sectors are impacted the most?
Source: @FactSetThe Read full article
3. This chart shows positive earnings surprises vs. the S&P 500 (year-over-year).
Source: PGM Global
4. Google search activity suggests that retail investors have lost interest in the stock market. Nothing seems to be “going to the moon” these days.
Source: Google Trends
5. Equity implied volatility (VIX) has diverged from credit spreads.
Source: Chris Murphy, Susquehanna International Group
6. During the 2013 taper tantrum, investors dumped bonds, but equity inflows remained robust.
Source: Deutsche Bank Research
7. Fund managers have been reducing their allocations to stocks amid expectations of slower economic growth.
Source: BofA Global Research
8. Homebuilder shares continue to lag as US mortgage rates rise above 4% (2nd chart).
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Credit
1. CCC-rated corporate bonds keep outperforming.
2. Investment-grade bond spreads continue to widen.
3. The rate-sensitive tech sector accounts for 27% of the S&P 500, versus 10% and 6% of investment-grade and high-yield indices.
Source: Goldman Sachs
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Rates
1. Rates implied volatility is surging.
2. Fund managers have boosted their expectations for a flatter yield curve.
Source: BofA Global Research
• The market now expects the yield curve to be inverted in six months.
• And short-term interest rate futures point to Fed rate cuts between 2023 and 2024 (chart shows September 2023 vs. September 2024 Eurodollar futures).
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3. Europe has been the largest buyer of Treasuries, agency debt, and corporate bonds over the past decade.
Source: Deutsche Bank Research
Still, foreign purchases of Treasuries are small compared to the Fed’s buying spree.
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Food for Thought
1. Valentine’s Day inflation index:
Source: LPL Research
2. Reconsidering a home renovation project due to higher costs:
Source: Todd Tomalak
3. Portfolio allocations of the top 1% vs. the bottom 50%:
Source: Goldman Sachs; @MikeZaccardi
4. EV sales (updated):
Source: @fbirol Read full article
5. Personal income driving spending and GDP growth:
Source: @WSJ Read full article
6. Tennis prize money:
Source: The Economist Read full article
7. Kids falling behind in terms of their education:
Source: @CivicScience
8. Vaccinating children against COVID:
Source: KFF Read full article
9. The number of Super Bowl wins since 1967 (by NFL team):
Source: Statista
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