The Daily Shot: 18-Mar-22
• The United States
• The United Kingdom
• The Eurozone
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought
The United States
1. The 5-year US breakeven rate (inflation expectations) hit a new high as oil prices rebound.
The market is increasingly pricing in the possibility of eight 25 bps Fed rate hikes this year (seven in addition to the one we just had).
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2. The labor market remains robust, with initial jobless claims holding near the lows.
Continuing claims have decoupled from the trends we saw in previous years.
However, based on the data from Homebase, Pantheon Macroeconomics sees soft job gains this month.
Source: Pantheon Macroeconomics
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3. Next, we have some updates on the housing market.
• Housing starts were strong last month.
Construction permits also held up well.
• The gap between residential permits and completions continues to widen, pointing to construction delays.
Source: Mizuho Securities USA
• Multi-family permits hit a record high.
Source: Wells Fargo Securities
• Homebuilder sentiment (see chart) points to softer residential construction activity ahead.
Source: Piper Sandler
• The 30-year mortgage rate is now above 4.5%
The increase in mortgage rates since the beginning of the year has been massive.
• First-time homebuyers are getting squeezed out of the housing market due to deteriorating affordability.
Source: Reuters Read full article
Source: Reuters Read full article
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4. US manufacturing output increased last month.
Capacity utilization is nearing the 2018 peak.
Automobile production deteriorated again last month.
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5. The Philly Fed’s manufacturing report showed improvement this month, …
… diverging from the NY Fed’s regional index.
Source: Pantheon Macroeconomics
• Hiring has been exceptionally strong.
However, forward-looking indicators were less upbeat.
• Supply chain stress persists.
• Factories expect rising inventories ahead.
• Price pressures remain extreme.
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7. Below are some updates on retail sales.
• Retail spending is holding well above the pre-COVID trend.
But the situation is not as upbeat in real terms.
Source: @MikaelSarwe
• Here are the changes in retail sales by sector.
– February:
Source: @GregDaco
– Since the start of the pandemic:
Source: Wells Fargo Securities
8. Consumers are shifting spending behavior in response to surging prices.
Source: Trahan Macro Research
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The United Kingdom
1. The Bank of England hiked rates as expected.
But the statement was dovish. The word used in February was “likely” in reference to further rate increases. This time, the language was “might be.”
Based on its current assessment of the economic situation, the Committee judged that some further modest tightening in monetary policy might be appropriate in the coming months, but there were risks on both sides of that judgement depending on how medium-term prospects for inflation evolved.
The central bank boosted its inflation forecast.
Source: Bloomberg Read full article
Implied policy rates downshifted.
Gilt yields and the pound declined.
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2. UK equities have been outperforming.
Source: Bloomberg Read full article
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The Eurozone
1. New car registrations remained soft in February but did not weaken further. The situation might change this month as consumer sentiment deteriorates.
2. Spain’s trade deficit hit a multi-year high as energy prices spiked.
3. Dutch unemployment is at a two-decade low (at least).
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Asia – Pacific
1. Has Japan’s core CPI bottomed?
2. The cyclical direction of AUD/USD closely tracks the consumer sentiment differential between Australia and the US.
Source: Alpine Macro
• Aussie bonds have a low-risk profile, especially due to an improving economic outlook, according to Alpine Macro.
Source: Alpine Macro
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China
1. This chart shows China’s employment growth and the age dependency ratio.
Source: CME Group Read full article
2. What are the drivers of China’s export growth?
Source: ANZ Research
3. Macau visitor activity remains a shadow of its pre-COVID levels.
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Emerging Markets
1. Brazil’s economic activity softened in January.
2. Russia made a payment on its dollar bonds.
Source: Reuters Read full article
• Bond prices jumped, albeit from very low levels.
CDS spreads tightened.
The Russian economy is expected to wipe out nearly two decades of growth.
Source: IIF
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3. Vietnam’s banks are not well capitalized relative to regional peers
Source: Fitch Ratings
4. Fiscal deficits in some EM countries have not normalized.
Source: IIF
Some countries are planning to cut spending.
Source: IIF
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Cryptocurrency
1. Bitcoin’s trading volume spiked on Wednesday after the Fed rate hike but remains low relative to prior highs.
Source: CoinDesk Read full article
2. A wedge has formed in bitcoin.
3. The rise in bitcoin’s market cap relative to the total crypto market cap has stalled over the past few days as altcoins rallied. Still, the ratio remains elevated this year.
Source: CoinDesk Read full article
4. Argentina could discourage the use of crypto as part of a deal signed with the IMF to restructure a $45 billion loan received in 2018.
Source: CoinDesk Read full article
5. This chart shows bitcoin holdings of publicly listed mining companies.
Source: @ArcaneResearch
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Commodities
1. Based on the Shanghai futures, LME nickel has further room to fall.
Source: CNBC Read full article
Source: Bloomberg
Fitch Solutions expects major nickel producers (mostly Indonesia) to increase production, but it will unlikely compensate for the loss of Russian supplies to the global market.
Source: Fitch Solutions Macro Research
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2. Low global stocks of aluminum and nickel have contributed to sharp price rallies.
Source: Fitch Solutions Macro Research
3. Fitch Solutions revised its steel price forecast higher this year ($980/tonne vs. previous $750/tonne) because of the Russia/Ukraine conflict and renewed stimulus for infrastructure in China. Still, prices are expected to fall over the next few years.
Source: Fitch Solutions Macro Research
4. Here is the world’s commodity import exposure to Russia, Ukraine, and Belarus.
Source: Oxford Economics
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Energy
1. Crude oil is rebounding.
2. The Russian crude oil discount to Brent continues to widen, …
Source: Neste
… attracting some buyers.
Source: ABC News Read full article
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3. US natural gas in storage is low for this time of the year but is still within the five-year range.
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Equities
1. It has been a good week for stocks so far.
2. Fund managers increasingly prefer large-cap stocks.
Source: BofA Global Research
3. A basket of meme stocks is holding near pre-COVID levels.
4. Next, let’s take a look at some equity factor trends in recent days.
• Growth and value:
• High-beta and low-vol:
• Momentum:
• Dividend yield and dividend growth:
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5. Finally, we have some sector trends.
• Consumer discretionary vs. consumer staples:
• Financials:
• Healthcare:
• Utilities:
• Transportation/logisitics:
• Semiconductors:
• Energy:
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Credit
1. Leveraged loan prices appear to have stabilized as equities rebounded.
The market has been nervous.
Source: Bloomberg Read full article
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2. High yield has outperformed the S&P 500 over the past three months as compared to its historical beta.
Source: Goldman Sachs, {h/t} III Capital Management
Even at the individual firm level within high-yield credit, the beta over the past three months is still lower than what occurred in the 2018 sell-off.
Source: Goldman Sachs, {h/t} III Capital Management
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3. Muni bonds have been under pressure.
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Rates
Treasury market liquidity has been worsening.
Source: Goldman Sachs
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Global Developments
1. Google search activity for “Russia nuclear weapons” spiked.
Source: BCA Research
This concern is not without merit.
Source: @bpolitics Read full article
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2. Swiss watch exports point to robust demand for luxury goods.
3. This graphic illustrates regional investments by sovereign wealth funds and state-owned enterprises.
Source: LSE Read full article
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Food for Thought
1. Americans’ views on tech companies:
Source: BCA Research
2. AI research papers:
Source: Statista
3. In mathematics, these are called “orthogonal” functions.
Source: Gallup Read full article
4. The Russian invasion (updated):
Source: The Economist Read full article
5. Average car dealer profit from a new vehicle sale:
Source: @WSJ Read full article
6. Video game popularity:
Source: ECHELON INSIGHTS Read full article
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Have a great weekend!
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