The Daily Shot: 24-Feb-22
• Global Developments
• Emerging Markets
• Commodities
• Energy
• Equities
• Credit
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Asia – Pacific
• Food for Thought
Global Developments
1. According to the Russian government’s news agency, TASS, …
Putin decided to conduct an operation to denazify and demilitarize Ukraine. …Russia will not allow Ukraine to have nuclear weapons.
The term “denazify” suggests that Putin intends to remove the Ukrainian government by force, which means a full-scale invasion (the Kremlin has been labeling the Ukrainian government “Nazis” for years to justify incursions).
Source: TASS
The attacks have started.
Source: News 18 Read full article
The markets were taken by surprise, with many hoping that Russia’s incursion would be limited.
• Brent crude oil blasted past $100/bbl.
• US stock futures are down sharply.
• The Russian ruble hit a record low.
Here are the moves in EM currencies this week.
• The Swiss franc, which is a “safe-haven” currency, hit the highest level since 2015 against the euro.
Central/Eastern European currencies are down sharply this week.
• Precious metals surged (Russia is the top supplier of palladium).
• TIPS yields (US implied real rates) dropped sharply.
Treasury yields are also lower.
• Cryptos tumbled.
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2. The war and the sanctions that follow will exacerbate supply chain pressures.
Source: Danske Bank
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Emerging Markets
1. Russia’s central bank is trying to stabilize the ruble (Russia has massive FX reserves).
• Russian USD bond spreads have exploded. Russia is likely to be shut out of the Eurobond market.
• Russian stocks plummetted.
• The sovereign CDS spread has blown out beyond 2014 levels.
• Russian equity capital raising in London is likely to be on hold for a while.
Source: @financialtimes Read full article
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2. Other EM equities are down sharply as well. Here is India’s SENSEX.
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3. Brazil’s inflation increased this month.
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Commodities
1. Will gold hit $2,000 shortly?
2. Grain futures are surging.
Source: @axios Read full article
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3. Palm oil hit a new high.
Source: Platts Read full article
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4. Here is Bloomberg’s broad commodity index.
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Energy
1. Brent backwardation hit a record high amid concerns about supply disruptions.
2. Until now, analysts expected the oil market to remain broadly balanced this year.
Source: Longview Economics
3. The WTI-Brent spread has widened most since US crude prices went negative during the COVID selloff.
4. European natural gas prices exploded to the upside as the attack on Ukraine started.
By the way, German electricity prices are highly correlated with natural gas.
Source: Chart and data provided by Macrobond
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5. Western nations are now more incentivized to let Iran re-enter the oil markets.
Source: Longview Economics
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Equities
1. Nasdaq futures are in bear-market territory.
VIX futures are up sharply but remain well below the post-COVID-selloff levels.
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2. All of a sudden, corporate profits matter. Unprofitable growth companies have sharply widened their underperformance on Wednesday (2 charts).
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3. OTC stock trading returns to more typical levels as the Reddit crowd retreats.
Source: @jessefelder, @FT Read full article
4. Stocks that benefit from higher inflation have been underperforming in recent days.
5. Here is a measure of the S&P 500 breadth.
6. The Nasdaq 100 underperformance continues to widen.
7. Is a downward gap in prices on the way as growth/earnings worries hit the market? Will we follow the 2018 trend?
Source: Chris Murphy, Susquehanna International Group
Or is this just an overdue correction?
Source: Chris Murphy, Susquehanna International Group
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8. Will global corporate earnings feel the effect of tighter liquidity conditions?
Source: @MikaelSarwe
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Credit
1. Investment-grade corporate bonds remain under pressure.
2. Here are Goldman’s estimates of the impact of quantitative tightening on credit issuance.
Source: Goldman Sachs Investment Research
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The United States
1. Mortgage applications for house purchase are sputtering.
Refi applications are falling quickly.
Here is the seasonally-adjusted trend.
Source: @lenkieferrising
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2. High-frequency indicators suggest that home price increases are accelerating.
Source: AEI Center on Housing Markets and Finance
3. Mid- and higher-wage workers are most concerned about the loss of income ahead.
Source: @axios
4. Will we see a rise in spending from low-income earners?
Source: MRB Partners
5. Next, we have some updates on US industrial real estate (from Wells Fargo).
• Vacancy rates:
Source: Wells Fargo Securities
• Industrial space under construction:
Source: Wells Fargo Securities
• Industrial rent growth:
Source: Wells Fargo Securities
• Commercial real estate mortgage originations:
Source: Wells Fargo Securities
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Canada
1. Historically, USD/CAD has traded in line with yield differentials at the front-end of the curve.
Source: PGM Global
2. Here is the Oxford Economics recovery tracker.
Source: Oxford Economics
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The United Kingdom
1. How far will the BoE hike rates?
Source: Wells Fargo Securities
2. The workforce should recover some lost ground this year.
Source: Pantheon Macroeconomics
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The Eurozone
1. German consumer confidence weakened this month (2 charts).
Source: Pantheon Macroeconomics
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2. French business sentiment jumped in February.
3. The ECB is expected to hike rates this year. Will the Ukraine situation delay the process?
Source: Wells Fargo Securities
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Asia – Pacific
1. The Taiwan dollar is down amid increased risk aversion.
2. Singapore’s core CPI continues to climb.
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Food for Thought
1. Previous US sanctions on Russia:
Source: Statista
2. Views on striking a nuclear deal with Iran:
Source: Morning Consult Read full article
3. North Korea’s missile program:
Source: @financialtimes Read full article
4. Drought intensity by region:
Source: Scientific American Read full article
5. Electricity exports to neighboring states:
Source: @EIAgov Read full article
6. Global production of rare earths:
Source: Statista
7. New vehicles sold above the sticker price:
Source: @WSJ Read full article
8. US retail sales at warehouse clubs and superstores:
Source: @WSJ Read full article
9. Shaving? That’s for commuters.
Source: @I_Am_NickBloom
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