Households expect significant deterioration in their financial situation

The Daily Shot: 14-Mar-22
The United States
Canada
The United Kingdom
The Eurozone
Europe
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Credit
Rates
Food for Thought



 

The United States

1. The U. Michigan consumer sentiment indicator deteriorated further this month as gasoline prices surged.
 

 
Households expect further worsening in their financial situation …
 

 
… despite easing concerns about job losses.
 

 
Buying conditions for vehicles appear to have bottomed.
 

 
Here is the sentiment indicator among independent voters.
 
Source: Mizuho Securities USA  

——————–

 
2. Next, we have some updates on inflation.
 
The U. Michigan inflation expectations:
 

 
Source: Mizuho Securities USA  
 
Market-based inflation expectations:
 

 
CPI forecasts (most point to headline inflation peaking above 8%):
 
Deutsche Bank:
 
Source: Deutsche Bank Research  
 
Wells Fargo:
 
Source: Wells Fargo Securities  
 
Companies citing inflation on earnings calls, by industry:
 
Source: @FactSet   Read full article  
 
Alternative core CPI measures:
 
Median and trimmed-mean CPI:
 

 
Sticky CPI:
 

 
The Core CPI index vs. the 2% price growth:
 

 
Select trends from the February CPI report:
 
CPI components:
 
Source: @WSJ   Read full article  
 
Food at home:
 

 
Shelter:
 

 
Vehicles (the second chart shows used vehicles month-over-month):
 

 
Source: Deutsche Bank Research  
 
Floor coverings:
 

 
Physicians’ services:
 

——————–

 
3. The US Budget deficit is running below 2019 levels amid robust tax receipts.
 

 
4. The 2-year Treasury yield continues to climb as more rate hikes get priced in.
 

 
The market has now almost fully priced in seven rate hikes this year.
 

 
The 10-year yield is back above 2%.
 

 
The Treasury curve keeps flattening.
 

 

——————–

 
5. Growth in consumer credit has slowed.
 
Source: MarketDesk Research  


Back to Index

 

Canada

1. The February jobs report topped expectations.
 

 
Employment is approaching the pre-COVID trend.
 

 
The unemployment rate tumbled.
 

 
And the labor force participation rate rebounded from January.
 

——————–

 
2. Capacity utilization jumped in Q4.
 

 
3. Transportation, oil, and gas extraction are leading the way in terms of capital expenditures so far this year.
 
Source: Oxford Economics  
 
Transportation and warehousing continue to represent the largest share of capital expenditures.
 
Source: Oxford Economics  
 
Private sector investment intentions have been weaker than expected this year.
 
Source: Oxford Economics  

——————–

 
4. The high level of household debt could pose a risk to financial stability.
 
Source: BCA Research  
 
5. Apartment completions have surpassed single-family homes.
 
Source: BCA Research  


Back to Index

 

The United Kingdom

1. Shares of smaller firms have been lagging large caps.
 

 
2. The January GDP report was stronger than expected, topping pre-COVID levels.
 

 
Private-sector output has been lagging.
 
Source: Pantheon Macroeconomics  
 
Manufacturing production:
 

 
Services:
 

 
Construction:
 

 
3. The trade deficit hit a new record as energy prices surged.
 


Back to Index

 

The Eurozone

1. Here are some economic trends vs. the US.
 
Household income:
 
Source: ECB   Read full article  
 
Real consumption:
 
Source: ECB   Read full article  
 
Real investment:
 
Source: ECB   Read full article  
 
Savings:
 
Source: ECB   Read full article  

——————–

 
2. Housing costs are on the rise for tenants, especially for those with shorter-term tenure.
 
Source: ECB  
 
This chart shows homeownership rates in the euro area by country.
 
Source: ECB  

——————–

 
3. How much will energy prices hit the euro-area economy?
 
Source: Bloomberg   Read full article  
 
This article talks about Italian truckers stopping work due to surging fuel costs.
 
Source: ANSA.it   Read full article  

——————–

 
4. Here is the Q1 GDP forecast from Pantheon Macroeconomics.
 
Source: Pantheon Macroeconomics  


Back to Index

 

Europe

1. Vulnerable currencies rebounded last week.
 

 
2. The European Union has become heavily dependent on Russia for hydrocarbons.
 
Source: IIF  
 
Source: @fwred  
 
How long can Europe last without Russian natural gas without hitting demand destruction?
 
Source: Oxford Institute for Energy Studies  

——————–

 
3. Here are some trends in self-employment.
 
Source: Eurostat   Read full article  


Back to Index

 

Asia – Pacific

1. Asian currencies are under pressure.
 
The South Korean won:
 

 
The Taiwan dollar:
 

 
2. Equity fund flows into Taiwan have been strong this year.
 
Source: EPFR  
 
3. Here is a projection for South Korea’s government debt (as % of GDP).
 
Source: Fitch Ratings  
 
4. New Zealand’s home sales remain soft.
 

 
5. The Aussie dollar is undervalued.
 
Source: Alpine Macro  
 
An upswing in China’s credit impulse would be positive for the Aussie dollar, which could close the valuation gap.
 
Source: Alpine Macro  
 
Separately, wage growth has been relatively modest and is within the RBA’s target range.
 
Source: BCA Research  


Back to Index

 

China

1. Equity markets continue to tumble.
 
Mainland:
 

 
Hong Kong:
 

 
Earnings yields of China’s shares keep climbing relative to the US.
 
Source: @SofiaHCBBG  
 
Hong Kong-based and international investors have been pulling capital out of mainland China’s stock market.
 

——————–

 
2. The renminbi rally has stalled.
 

 
3. COVID cases have been rising, …
 
Source: Our World in Data¬†  
 
… which is pressuring iron ore prices.
 

——————–

 
4. Dollar-denominated HY bonds continue to hit multi-year lows.
 

 
5. Worker protests in service industries have been outpacing manufacturing,
 
Source: China Labour Bulletin   Read full article  


Back to Index

 

Emerging Markets

1. Let’s begin with last week’s performance.
 
Currencies:
 

 
EM ETFs (Russia is no longer part of this list):
 

 
2. Invesco’s EM Sovereign Debt ETF (PCY) holdings are having a rough start to the year. Outside of Russia/Ukraine, most losses are attributed to the rise in US interest rates, not a widening of credit spreads, according to III Capital Management.
 
Source: III Capital Management  
 
EM debt outflows accelerated recently.
 
Source: BofA Global Research; @MikeZaccardi  

——————–

 
3. Next, we have some updates on Russia.
 
The monetary base surged at the start of the war as the central bank boosted support for the banking system.
 

 
Domestic financial institutions control most of Russia’s bank system assets.
 
Source: IIF  
 
Financial conditions have deteriorated dramatically.
 
Source: IIF  
 
The current account swelled in February amid surging energy prices.
 
Source: @RobinBrooksIIF  

——————–

 
4. India’s industrial production was a bit lower than expected but edged above the January peak.
 

 
5. Brazil’s CPI is holding above 10%.
 


Back to Index

 

Cryptocurrency

1. A proposed rule that could amount to a ban on bitcoin will be voted on by the European Union parliament on Monday. That could be a source of volatility.
 
Source: CoinDesk   Read full article  
 
2. The ETH/BTC price ratio is below its 40-week moving average, similar to what occurred during the 2018 crypto bear market.
 
Source: CoinDesk   Read full article  
 
3. NFT transaction volume has deteriorated.
 
Source: @jessefelder, @FT   Read full article  


Back to Index

 

Commodities

1. Precious metals continue to see strong inflows.
 

 
The performance across gold ETFs has been quite divergent from the underlying commodity.
 
Source: FactorResearch   Read full article  

——————–

 
2. Next, we have last week’s performance across different commodity markets.
 


Back to Index

 

Energy

1. The US rig count continues to rebound.
 

 
US shale oil production and fracking fleet counts are recovering, albeit still below pre-pandemic levels.
 
Source: PGM Global  
 
PGM Global expects bullish sentiment in the oil futures market to moderate as producers sell forward contracts to lock in gains. A wave of exploration and production activity could occur later this year.
 
Source: PGM Global  

——————–

 
2. Here is a look at Russia’s oil trade.
 
Source: @NumeraAnalytics  
 
3. Below is Wells Fargo’s forecast for Brent crude price.
 
Source: Wells Fargo Securities  
 
4. Oil futures’ open interest has been falling.
 
Source: @markets   Read full article  


Back to Index

 

Equities

1. Large caps saw inflows last week.
 

 
Here are the flows by sector (2 charts).
 

 
Source: Deutsche Bank Research  

——————–

 
2. Equities no longer look overbought, according to BCA Research.
 
Source: BCA Research  
 
3. The Nasdaq 100 is below support relative to the S&P 500.
 

 
Nasdaq 100 valuations have room to fall further.
 

——————–

 
4. S&P 500 valuations are below recent pre-COVID highs.
 
Source: @FactSet   Read full article  
 
5. The S&P 500 3-month skew has been falling (out-of-the-money puts are becoming relatively cheaper).
 
h/t @ossingerj  
 
6. Next we have some updates on last week’s performance.
 
Sectors:
 

 
Largest tech stocks:
 

 
Equity factors:
 

 
Thematic ETFs:
 

 
By the way, this chart shows the recent popularity of different thematic ETFs, by strategy.
 
Source: @jessefelder, @FT   Read full article  

——————–

 
7. Recent price swings in the S&P 500 resemble past bear markets.
 
Source: SentimenTrader  
 
8. Historically, equities have recouped losses quickly following global conflicts.
 
Source: Oxford Economics  


Back to Index

 

Credit

1. High-yield funds saw substantial outflows this year.
 

 
Source: Deutsche Bank Research  

——————–

 
2. This chart shows last week’s performance by asset class.
 


Back to Index

 

Rates

1. Investors are extremely net short duration.
 
Source: BCA Research  
 
2. The risk profile of Treasuries has improved over the past year, according to Alpine Research.
 
Source: Alpine Macro  
 
3. A breakout for the 30yr Treasury yield?
 
Source: LPL Research  


——————–

Back to Index

 

Food for Thought

1. Ukrainian refugees:
 
Source: EEA   Read full article  
 
2. Seizures of heroin and fentanyl:
 
Source: Rand Corporation  
 
3. COVID fatality ratio:
 
Source: @financialtimes   Read full article  
 
4. Offshore wind farms:
 
Source: @financialtimes   Read full article  
 
5. Supplying NYC with hydropower:
 
Source: @BBGVisualDataMore   Read full article  
 
6. Paying attention to local news:
 
Source: @axios   Read full article  
 
7. Hotel occupancy rates relative to 2019:
 
Source: Wells Fargo Securities  
 
8. Americans with a driver’s license:
 
Source: Sivak Applied Research  

——————–


Back to Index