Seven Fed rate hikes for 2022 are now fully priced in

The Daily Shot: 15-Mar-22
The United States
The Eurozone
Europe
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Rates
Global Developments
Food for Thought



 

The United States

1. Seven Fed rate hikes for 2022 are now fully priced in. The chart below shows the futures market’s expectations for rate increases (in addition to the 25 bps hike this month).
 

 
Investors are not yet entirely on board with that figure, but some are getting there.
 
Source: BofA Global Research  

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2. Next, we have a few updates on the housing market.
 
Demographic trends in homeownership and household formation have been improving in recent years.
 
Source: Alpine Macro  
 
Mortgage originations have been driven by borrowers with high credit scores over the past couple of years.
 
Source: PGM Global  
 
Demand for housing remains robust, …
 
Source: Redfin, @tayloramarr  
 
… with many homes selling above the list price, …
 
Source: Redfin, @tayloramarr  
 
… and price gains showing no signs of slowing.
 
Source: Redfin, @tayloramarr  
 
Inventories are exceptionally tight.
 
Source: Redfin, @tayloramarr  

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3. Now let’s look at some inflation trends.
 
Freight rates continue to surge.
 
Source: Cass Information Systems  
 
Inflation and gasoline prices are generally highly correlated.
 
Source: Oxford Institute for Energy Studies  
 
Gasoline also closely tracks the 5-year breakeven (market-based inflation expectations).
 
Source: Oxford Institute for Energy Studies  
 
Investors (fund managers) increasingly see inflation as entrenched.
 
Source: BofA Global Research  
 
Here is a look at inflation during previous geopolitical events compared with the current war.
 
Source: MUFG  
 
Inflation continues to broaden.
 
Source: @NickTimiraos   Read full article  
 
The NY Fed’s measure of US consumer inflation expectations jumped last month.
 

 
As prices rise, households expect to spend more (especially older Americans).
 
Source: NY Fed  

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4. Vehicle inventory-to-salses ratio keeps falling.
 
Source: Mizuho Securities USA  
 
5. Office occupancy levels in major cities are approaching pre-pandemic levels.
 
Source: ┬áKastle Systems   Read full article  


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The Eurozone

1. Economists have sharply reduced their GDP forecasts while bumping up inflation projections – a stagflationary trend.
 
The Eurozone:
 

 
Germany:
 

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2. Fund managers are very bearish Eurozone shares.
 
Source: BofA Global Research  
 
3. Next, we have some data on pandemic-related emergency funds (requested distributions).
 
Source: ECB   Read full article  
 
Source: ECB   Read full article  


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Europe

1. Sweden’s inflation surprised to the upside.
 

 
2. Eastern and Central European corporate earnings forecasts have been downgraded.
 
Source: PGM Global  
 
3. Polish homeowners who borrowed in Swiss francs may have a tougher time repaying their loans amid zloty weakness.
 
Source: PGM Global  
 
4. This chart shows birth rate trends in the EU.
 
Source: EC   Read full article  


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Asia – Pacific

1. Japan’s equities are pricing in an economic slowdown.
 
Source: Deutsche Bank Research  
 
2. Barclays expects South Korea’s inflation to remain elevated, albeit near the central bank’s target level next year.
 
Source: Barclays Research  
 
3. How much will higher energy prices impact each country’s trade balance?
 
Source: Fitch Ratings  
 
4. Australian and New Zealand bond yields continue to surge.
 

 

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5. Australian consumer confidence keeps deteriorating.
 

 
Separately, Australian home price appreciation hit a multi-year high at the end of 2021.
 


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China

1. Investors worry that China’s firms may get caught up in the anti-Russia sanctions.
 
Source: CNN   Read full article  
 
China clearly wants to avoid such an outcome.
 
Source: Bloomberg   Read full article  
 
Shares in Hong Kong see panic selling.
 

 
Mailand shares are tumbling as well.
 

 
The index of US-traded Chinese shares is down 75% from the peak.
 

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2. Retail sales and industrial production were stronger than expected in the first two months of the year.
 

 

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3. Foreign direct investment hit a record high.
 

 
4. The renminbi is under pressure.
 

 
By the way, the yuan’s share of global payments has been rising.
 
Source: Bloomberg   Read full article  


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Emerging Markets

1. India’s inflation report was a bit above forecasts.
 
Wholesale prices:
 

 
The CPI:
 

 
Separately, Indian exports held up well in February.
 

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2. The ruble appears to have stabilized.
 

 
3. Mexican industrial production is rebounding.
 

 
4. EM countries have increased their reserve buffers to help cover external financing needs.
 
Source: IIF  
 
5. EM economies see faster gains in food prices than the US.
 
Source: @apennatam  


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Cryptocurrency

1. The EU’s “bitcoin ban” was rejected on Monday.
 
Source: CoinDesk   Read full article  
 
2. Bitcoin’s trading volume has been low over the past few days.
 
Source: CoinDesk   Read full article  
 
3. Bitcoin’s put/call ratio continues to decline.
 
Source: @CoinbaseInsto  
 
4. Crypto investment products saw outflows totaling $110 million last week, following a seven-week run of inflows.
 
Source: CoinShares   Read full article  
 
5. Bitcoin and Ethereum investment products saw the largest outflows.
 
Source: CoinShares   Read full article  


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Commodities

1. Gold is well off the highs amid rising bond yields.
 

 
The gap between gold and TIPS yields (real rates) has closed.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
GLD call options volume has exploded.
 
Source: @WSJ   Read full article  

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2. Fund managers now see the commodities bet as the most crowded trade.
 
Source: BofA Global Research  


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Energy

1. Energy prices are pulling back from the highs.
 
Brent:
 

 
European natural gas:
 

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2. US energy shares’ outperformance has been impressive.
 

 
3. Here is the breakdown of global energy exports.
 
Source: LPL Research  
 
4. This chart shows oil consumption by country as a share of GDP.
 
Source: Wells Fargo Securities  
 
And here is US energy consumption in real GDP terms over time.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  

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5. Where do US oil imports come from?
 
Source: @financialtimes   Read full article  


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Equities

1. The Nasdaq 100 is in bear-market territory.
 

 
Fund managers are now confident that the broader US indices will also see a 20% drawdown.
 
Source: BofA Global Research  

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2. The S&P 500 entered a death cross.
 

 
3. The S&P 500 earnings yield has declined sharply relative to high-yield bonds.
 

 
4. Deutsche Bank’s positioning indicator continues to slide. By the way, some pundits keep showing rising non-commercial S&P 500 futures positioning. That’s a misleading indicator because it’s only a part of the overall picture.
 
Source: Deutsche Bank Research  
 
CTAs are getting very bearish.
 
Source: Deutsche Bank Research  
 
Hedge funds have been cutting their equity exposure.
 
Source: BofA Global Research  

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5. How expensive are the various tech subsectors?
 
Source: PGM Global  
 
6. Profit margin estimates have declined this year for most industries.
 
Source: @FactSet   Read full article  
 
7. Hedge funds’ short equity picks have been outperforming (in part because hedge funds have been cutting back their gross exposure).
 


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Rates

1. The Fed rarely hikes more than 25 basis points at a time.
 
Source: MUFG  
 
2. Here is the evolution of the Fed’s balance sheet (assets and liabilities).
 
Source: Deutsche Bank Research  
 
3. This chart shows the Fed’s holdings of Treasuries by maturity.
 
Source: MUFG  
 
4. Next, we have the breakdown of the US fixed-income market.
 
Source: SIFMA  


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Global Developments

1. Container shipping costs remain stubbornly high.
 

 
2. Economists are downgrading GDP growth forecasts (2 charts).
 
Source: Barclays Research  
 
Source: Scotiabank Economics  
 
Global growth will likely suffer further setbacks as a result of the geopolitical situation.
 
Source: Oxford Economics  

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3. The term structure of volatility inverted across most major assets, indicating broad risk-off sentiment.
 
Source: @dsassower  
 
4. Wait times to procure semiconductors keep rising.
 
Source: Bloomberg   Read full article  
 
5. Here is a list of scenarios of the Russia-Ukraine war, according to Pictet Wealth Management
 
Source: Pictet Wealth Management   Read full article  


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Food for Thought

1. US automobile transactions, by means of payment:
 
Source: @WSJ   Read full article  
 
2. US clothing spending, by income group:
 
Source: The Daily Feather  
 
3. Occupation and wages among US black workers:
 
Source: McKinsey & Company   Read full article  
 
4. Banning single-use plastics:
 
Source: Statista  
 
5. Views on telehealth:
 
Source: McKinsey & Company  
 
6. Proportions of drug-related scientific publications over time:
 
Source: @PotResearch, @tatay_julia, @drugsandmehub   Read full article  
 
7. Presence of synthetic opioids in drug overdose deaths:
 
Source: Rand Corporation  
 
8. Military equipment losses after Russia’s invasion:
 
Source: @ECONdailycharts   Read full article  
 
9. US wage growth trends by education:
 
Source: SOM Macro Strategies  
 
10. Google search activity for “cheap gas”:
 
Source: Google Trends   Further reading  

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