Posted on by The Daily Shot Editor: Lev Borodovsky

How much will the oil shock impact US GDP?

The Daily Shot: 11-Mar-22
• The United States
• The Eurozone
• Europe
• Japan
• China
• Emerging Markets
• Cryptocurrency
• Energy
• Equities
• Credit
• Rates
• Food for Thought

 

The United States

1. The CPI report was in line with expectations, as inflation
hit the highest level in over 40 years.
 

 
Here is the attribution (year-over-year and month-over-month).
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
This chart shows some of the key components.
 
Source: @M_McDonough  
 
We will have more on the CPI report next week.

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2. Households will be forced to significantly shift their spending patterns in response to inflation.
 
Source: Pantheon Macroeconomics  
 
3. The 2-year Treasury yield is now well above pre-pandemic levels.
 

 
And the market is once again pricing in nearly seven Fed rate hikes this year.
 
Source: @M_McDonough  

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4. Unemployment claims remain near multi-year lows for this time of the year.
 

 

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5. Nominal wage growth hit the highest level in over 30 years.
 
Source: @AtlantaFed  
 
Wage gains for hourly workers have been particularly strong.
 
Source: @AtlantaFed  
 
While job switching has delivered substantial pay increases, employees staying at their jobs are getting healthy raises as well.
 
Source: @AtlantaFed  
 
However, surging inflation has been offsetting wage increases.
 

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6. The pandemic era resulted in rapid gains in household wealth, even when adjusted for inflation. Higher inflation and weaker stock prices will put a dent in this trend in Q1.
 

 
7. Inflation will increasingly become a drag on economic activity.
 
Source: Trahan Macro Research  
 
How much will the oil shock impact US GDP? Here is an estimate from Oxford Economics.
 
Source: Oxford Economics  

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8. Finally, this chart shows growth in the working-age population by decade.
 
Source: Wells Fargo Securities  

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The Eurozone

1. The ECB will wind down QE sooner than expected.
 
Source: CNBC   Read full article  
 
Below are two projections.
 
– Pantheon Macroeconomics:
 
Source: Pantheon Macroeconomics  
 
– Nordea Markets:
 
Source: Nordea Markets  
 
Bond yields jumped. Here is the 10yr Italy-Germany spread.
 

 
This chart shows Austria’s 100-year bond price.
 

 
• But the central bank will delay rate hikes due to the war. The euro’s rebound was short-lived.
 

 
Wells Fargo sees the first hike in December.
 
Source: Wells Fargo Securities  
 
• The ECB downgraded its GDP forecasts and boosted inflation projections.
 
Source: @fwred  

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2. The euro is holding long-term support for now.
 

 
3. Input shortages in Europe probably peaked in Q4 2021.
 
Source: TS Lombard  
 
4. What happens to the GDP if energy imports from Russia stop?
 
Source: Nordea Markets  

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Europe

1. Norway’s CPI is rebounding.
 

 
2. Czech inflation climbed above 11%.
 

 
3. Poland’s bond yields continue to surge.
 

 
4. European shares look cheap.
 
• Equity risk premium:
 
Source: Longview Economics  
 
• PE ratio vs. the US:
 
Source: Longview Economics  
 
Equity outflows have been severe.
 
Source: BofA Global Research; @MikeZaccardi  

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Japan

1. The yen continues to weaken vs. the dollar, hitting a five-year low amid widening yield differentials.
 

 
2. Inflation should accelerate once the impact of some temporary factors ebbs.
 
Source: Pantheon Macroeconomics  

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China

1. Stocks have been under severe pressure, …
 

 
… with the Hang Seng Index drawdown hitting 38%.
 

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2. The Hong Kong dollar is moving toward the weaker end of its permitted range.
 

 
3. Bloomberg’s USD-denominated HY bond index yield is now above 25%.
 

 
4. Loan growth was weaker than expected in February, although there is quite a bit of seasonal noise this time of the year. Aggregate financing was particularly soft.
 
• Monthly:
 

 
• Cumulative:
 

 
Money supply growth indicators were also lower than expected.
 

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5. Beijing is having difficulties containing omicron.
 
Source: @WSJ   Read full article  

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Emerging Markets

1. Brazil’s retail sales ticked higher in January.
 

 
Job creation was lower than expected.
 

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2. South Africa’s industrial production improved in January.
 

 
3. India’s equities look expensive relative to China.
 
Source: Longview Economics  
 
4. Vietnam’s vehicle sales were strong last month.
 

 
This chart shows US imports from Vietnam.
 

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5. Russia reported unchanged forex reserves last week.
 

 
6. Remarkably, Ukraine produced its CPI report on time.
 

 
7. LatAm shares could keep outperforming this year.
 
Source: Numera Analytics  

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Cryptocurrency

1. Cryptos had a tough week so far.
 
Source: FinViz  
 
The news-driven rallies …
 
Source: Reuters   Read full article  
 
Source: MarketWatch   Read full article  
 
… are not holding.
 

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2. Bitcoin’s implied volatility is starting to rise.
 
Source: Skew   Read full article  
 
3. The decline in bitcoin’s put/call ratio indicates less bearishness among option traders over the past month.
 
Source: Skew   Read full article  
 
4. Crypto assets had the highest Sharpe ratio relative to other assets over the past three years.
 
Source: @Grayscale  
 
Still, despite superior returns, an allocation to crypto can produce significant drawdowns, especially during risk-off environments.
 
Source: @Grayscale  

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5. Bitcoin’s correlation with stocks has risen over the past year, while its correlation with commodities declined toward zero.
 
Source: CoinDesk   Read full article  
 
6. Here is a look at accumulation/distribution among bitcoin holders.
 
Source: @glassnode  
 
7. Fees paid to miners on the Ethereum network to facilitate transactions (gas fees) are back near previous lows.
 
Source: @coinmetrics  
 
8. Russia-based crypto activity remains elevated.
 
Source: Bloomberg   Read full article  

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Energy

1. Energy markets are well off the highs.
 
• Brent:
 

 
• Diesel (Gasoil is down 25% from the highs):
 

 
• European natural gas:
 

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2. Russia sells oil at a big discount, but it’s important to note that their prices are still much higher than what they got before the war.
 
Source: @ChartsToday  
 
3. At what point do we hit demand destruction?
 
Source: Merrill Lynch, BofA Global Research  
 
4. This chart shows the discrepancy in performance across oil ETFs. The United States Oil Fund (USO) is a significant outlier.
 
Source: FactorResearch   Read full article  
 
5. On average, oil ETFs are more correlated with WTI than Brent.
 
Source: FactorResearch   Read full article  
 
6. Uranium prices are surging.
 
Source: @markets   Read full article  

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Equities

1. How did equity markets perform around World War II?
 
Source: Deutsche Bank Research  
 
Source: Ray Dalio    Read full article  
 
What about during the 1970s oil crisis?
 
Source: Deutsche Bank Research  

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2. The “tech wreck” has been ugly.
 
Source: @financialtimes; h/t Walter   Read full article  
 
3. Profits are increasingly important in this environment. Non-profitable tech stocks are widening their underperformance.
 

 
4. Equity risk premium suggests that stocks are attractive.
 
Source: Longview Economics  
 
5. The value/growth relative performance tracks commodity cycles.
 
Source: Stifel  
 
6. The market depth of S&P 500 futures has been deteriorating.
 
Source: JP Morgan Research; @themarketear  
 
7. Open market purchases by corporate insiders for companies in the SPDR Tech ETF (XLK) are at an extreme.
 
Source: SentimenTrader  
 
8. The materials sector saw massive inflows this month.
 
Source: BofA Global Research; @MikeZaccardi  

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Credit

1. Boosted by strong energy prices, …
 
h/t @LivRaiReports  
 
… US high-yield debt continues to outperform investment-grade.
 
• HY/IG spread ratio:
 

 
• Bond prices:
 

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2. US high-yield is also outperforming European HY bonds.
 
Source: Longview Economics  
 
3. Leveraged loans have been under pressure.
 

 
4. Corporate credit continues to see fund outflows.
 
Source: BofA Global Research; @MikeZaccardi  

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Rates

1. Long-term inflation expectations have decoupled from crude oil.
 
Source: MRB Partners  
 
2. The market-based inflation expectations curve (breakeven) continues to invert.
 

 
3. Market depth for Treasuries and Bunds has deteriorated this year.
 
Source: JP Morgan Research; @themarketear  

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Food for Thought

1. QR code usage:
 
Source: @axios   Read full article  
 
2. Internet access by income range:
 
Source: @CivicScience  
 
3. Winter Olympics participation by gender:
 
Source: The Economist   Read full article  
 
4. Public trust in various groups:
 
Source: Pew Research Center   Read full article  
 
5. Pedestrian traffic fatalities:
 
Source: @axios   Read full article  
 
6. Russia’s fourth financial crisis in 25 years:
 
Source: The Economist   Read full article  
 
7. Loneliness at school:
 
Source: BCA Research  
 
8. Babysitting rates:
 
Source: @axios   Read full article  

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Have a great weekend!

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