Manufacturers expect supply chain stress to ease in the months ahead

The Daily Shot: 18-Feb-22
The United States
Canada
The Eurozone
Europe
Asia – Pacific
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Credit
Rates:
Global Developments
Food for Thought



 

The United States

1. The Philly Fed’s manufacturing index declined this month, …
 

 
… pointing to softer factory activity at the national level.
 
Source: Pantheon Macroeconomics  
 
Businesses see slower growth ahead, as evidenced by the expected employee workweek index.
 

 
Price pressures remain elevated.
 

 
Here is the key takeaway from the Philly Fed’s report. Manufacturers are expecting supply chain stress to ease over the next six months.
 
Expected unfilled orders:
 

 
Expected delivery times:
 

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2. US goods spending has been slowing, …
 
Source: Wells Fargo Securities  
 
… as disposable income weakens.
 
Source: Mizuho Securities USA  

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3. Below are some updates on the labor market.
 
Jobless claims ticked higher last week, but we are likely to see a return to multi-year lows in the weeks ahead.
 

 
The economy is getting closer to full employment as both the labor force participation rate and employment/population ratio approach pre-pandemic levels.
 
Source: BCA Research  
 
This chart shows a structural decline in labor force growth.
 
Source: Wellington Management   Read full article  

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4. Next, we have some updates on the housing market.
 
Housing starts were softer than expected last month (especially single-family) due to workers out sick with omicron as well as some adverse weather conditions. Higher mortgage rates will soon begin to take a toll on residential construction.
 

 
Housing starts and completions continue to diverge as labor and supplies shortages delay projects.
 

 
There are a lot of apartments currently under construction.
 

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5. More Americans are flying, …
 
Source: @WSJ   Read full article  
 
… and flight cancellations are back to normal.
 
Source: Goldman Sachs; @carlquintanilla  


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Canada

1. Home price appreciation has been accelerating again.
 

 
Rising home prices create an upside risk for consumer inflation.
 
Source: Numera Analytics  

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2. Foreigners have been buying Canadian securities.
 

 
3. The Canadian dollar appears overbought and could weaken, according to MRB Partners.
 
Source: MRB Partners  


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The Eurozone

1. New car registrations were awful last month.
 

 
2. Dutch unemployment continues to move lower.
 

 
3. French banks borrowed the most under the ECB’s TLTRO III program.
 
Source: Pantheon Macroeconomics  
 
4. Economic conditions evolved very differently during the pandemic vs. the Financial Crisis.
 
Source: IMF   Read full article  


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Europe

1. Let’s begin with Norway.
 
The economy has been hot, with the GDP now nearing the pre-COVID trend.
 

 
But the GDP growth is expected to moderate this year.
 
Source: Norges Bank  
 
Short-term rates in Norway are increasing after hitting all-time lows during the pandemic.
 
Source: Norges Bank  

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2. Higher yields suggest that European banks could outperform further.
 
Source: Chart and data provided by Macrobond  
 
3. This map shows employment rates across the EU.
 
Source: EC   Read full article  


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Asia – Pacific

1. Japan’s core CPI hit a multi-year low – deep in negative territory.
 

 
Part of the reason is the sharp decline in mobile phone service prices.
 

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2. People are starting to visit Australia again.
 
Source: @ScuttyFrom, @WestpacMacro  
 
3. Here is some good news for New Zealand’s dairy industry: stronger milk prices, weaker currency.
 
Source: @sharon_zollner  


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Emerging Markets

1. Internal momentum in Brazil’s Bovespa Index is on the cusp of turning positive for the first time in more than six months.
 
Source: SentimenTrader  
 
Brazil’s real rates remain elevated compared with regional peers.
 
Source: Barclays Research  

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2. Will we see some downward pressure on the Chilean peso this year? According to Andrés Pérez of Itaú, …

… the Ministry of Finance should auction roughly USD13.1 billion this year, to finance peso requirements, substantially lower than the estimated USD33.8 billion sold in 2021 and USD18.7 billion in 2020. As such, there should be less demand for CLP.

Source: Banco Itaú  
 
3. There are (relatively) a lot of cars in Malaysia.
 
Source: Natixis  
 
4. Many sovereign credits got downgraded since the start of the pandemic.
 
Source: @financialtimes   Read full article  
 
5. Here is a look at the history of sovereign defaults.
 
Source: Kiel Institute   Read full article  


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Cryptocurrency

1. Bitcoin’s short-term implied volatility is starting to rise.
 
Source: Skew   Read full article  
 
2. Here is a look at open interest and volume of BTC and ETH futures compared with major traditional futures markets.
 
Source: CFTC   Read full article  
 
3. Bitcoin-gold correlation has been negative recently amid the Ukraine/Russia crisis (2 charts).
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 

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4. Illicit crypto transactions are up sharply.
 
Source: @technology   Read full article  


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Commodities

1. Bloomberg’s broad commodities index continues to hit record highs.
 

 
2. US soybean exports are up sharply as Brazil is hit with adverse weather conditions.
 

 
3. Swiss gold exports to China surged to the highest level in years.
 
Source: Reuters   Read full article  


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Energy

1. Oil and gas majors are starting to increase spending, but not as much relative to previous cycles.
 
Source: Longview Economics  
 
2. US natural gas output could substantially increase this year, which may weigh on prices.
 
Source: Longview Economics  
 
3. Fund managers have not been this overweight in energy shares in over a decade.
 
Source: BofA Global Research  


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Equities

1. Friday could be volatile due to options expirations.
 
Source: Goldman Sachs   Further reading  
 
2. Investors are very bearish. We could see a sharp bounce in prices.
 
Source: @danny_kirsch  
 
3. Liquidity has been deteriorating.
 
Source: @FadingRallies  
 
4. How much margin contraction should we expect from surging labor costs?
 
Source: Merrill Lynch  
 
5. Fund managers haven’t been this concerned about monetary risks in years.
 
Source: BofA Global Research  
 
6. Next, we have some equity factor updates.
 
Momentum stocks in the Russell 1,000 large-cap index are starting to underperform value stocks.
 
Source: Mizuho Securities USA  
 
Here are some trends over the past five business days.
 
Momenum:
 

 
Low-vol:
 

 
High-dividend:
 

 
Value vs. growth:
 

 
By the way, fund managers are very bullish on value relative to growth.
 
Source: BofA Global Research  

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7. Next, we have some sector performance updates.
 
Defensive sectors:
 
Consumer staples:
 

 
Utilities:
 

 
Other sectors:
 
Metals & Mining:
 

 
Transportation:
 

 
Tech and Communication Services (3 charts):
 

 

 

 
By the way, Goldman’s strong balance sheet index is underperforming due to the rout in tech.
 

 
FInally, here is how fund managers are positioned across different sectors.
 
Source: BofA Global Research  


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Credit

1. Corporate investment-grade spreads keep widening.
 

 
2. High-yield funds continue to see outflows.
 
Source: @lcdnews   Read full article  
 
3. The US leveraged loan maturity wall has shifted out substantially.
 
Source: @lcdnews   Read full article  
 
4. CLOs’ cost of capital is becoming more expensive.
 
Source: Bloomberg   Read full article  


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Rates:

1. The divergence between oil and long-term US inflation expectations continues to widen. Something has to give.
 

 
2. TIPS yields (US real yields) keep rising.
 

 
Source: Bloomberg   Read full article  

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3. The lesson for the Fed in recent months has been to start taper sooner next time to allow more flexibility on rates.
 

 
4. The reason the Street isn’t too bearish on bonds is due to rising downside risks to economic growth
 
Source: @verrone_chris, @StrategasRP, @strategasasset  


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Global Developments

1. Commodity-based currencies have diverged from commodity prices over the past year.
 
Source: BCA Research  
 
2. Here is a look at inflation targets for central banks across major advanced economies.
 
Source: Norges Bank  
 
3. Which countries’ export sectors are most exposed to Russia?
 
Source: Wells Fargo Securities  
 
4. How long has it been since the last rate hike?
 
Source: Chart and data provided by Macrobond  


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Food for Thought

1. Super Bowl ad effectiveness:
 
Source: @CivicScience   Read full article  
 
2. Music event ticket buyers:
 
Source: Statista  
 
3. US business owners:
 
Source: Wells Fargo Securities  
 
4. Bridges in poor condition:
 
Source: @axios   Read full article  
 
5. Rates for obtaining a bachelors (or higher) degree among African Americans over the past two decades:
 
Source: Wells Fargo Securities  
 
6. Preferred response to Russia’s action on Ukraine:
 
Source: Morning Consult  
 
7. The motivations of mass shooters:
 
Source: The Violence Project   Read full article  
 
Signs of increased agitation before the shooting incident:
 
Source: The Violence Project   Read full article  

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8. US booze sales:
 
Source: @WSJ   Read full article  

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Have a great weekend!


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