Posted on by The Daily Shot Editor: Lev Borodovsky

The market is punishing companies with significant offshoring activities

The Daily Shot: 29-Mar-22
• Equities
• Credit
• Rates
• Energy
• Commodities
• Cryptocurrency
• China
• Asia – Pacific
• The Eurozone
• Canada
• The United States
• Global Developments
• Food for Thought

 

Equities

1. Banks have been underperforming despite surging bond yields (KBE = SPDR S&P Bank ETF, SPY = S&P 500 ETF).
 

 
2. Global IPO activity has slowed sharply this quarter.
 
Source: @julia_fioretti, @Swetha_Gopinath   Read full article  
 
3. Year-to-date share buyback activity hit a new record.
 
Source: Goldman Sachs  
 
4. Here is the S&P 500 return attribution over the past decade.
 
Source: PGM Global  
 
5. The market is punishing US companies that, according to Goldman, “rely on international supply chains or have a high international manufacturing footprint.” Investors want to see more onshoring.
 

 
6. Here is another look at historical market returns around geopolitical shocks.
 
Source: Goldman Sachs Investment Strategy Group  
 
7. Higher bond yields typically mean lower valuations.
 
Source: Jeff Buchbinder, LPL Research  
 
8. Healthcare’s relative share price has lagged underlying relative forward earnings over the past year, …
 
Source: MRB Partners  
 
… while relative valuations remain near historic lows.
 
Source: MRB Partners  

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9. Are homebuilders oversold?
 
Source: PGM Global  
 
10. The ProShares UltraPro Short QQQ ETF (SQQQ) assets have risen sharply this year as investors bet against Nasdaq 100 stocks.
 
Source: @WSJ   Read full article  
 
It’s worth noting that a long position in SQQQ is similar to being long a put option.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
But the long gamma position comes with a price: theta decay. The manager’s rebalancing process to keep the leverage constant creates convexity and theta. As a result, holding the trade for longer periods could be painful.
 

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Credit

1. High-yield ETFs continue to see outflows.
 

 
2. More high-yield credit is being upgraded to investment grade (2 charts).
 
Source: BofA Global Research  
 
Source: BofA Global Research  

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3. The US speculative-grade universe is concentrated in the riskier B2 and B3-rated categories.
 
Source: Moody’s Investors Service  
 
4. Corporate leverage has been moderating.
 
Source: Morgan Stanley Research  
 
5. US investment-grade spreads have widened to levels that have led to a Fed dovish pivot in the past decade.
 
Source: Deutsche Bank Research  

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Rates

1. The US inflation swap curve (inflation expectations) continues to become more inverted.
 

 
2. Goldman’s yield curve inversion diffusion index, which measures the percentage of yield curves inverted in the previous six months, is very low and does not indicate a coming recession (yet).
 
Source: Goldman Sachs Investment Strategy Group  

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Energy

1. Shares of US firms focused on natural gas have been surging.
 
Source: @WSJ   Read full article  
 

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2. Next, we have some updates on the natural gas situation in Europe.
 
• Natual gas in storage (back within the 5-year range):
 
Source: Bruegel   Read full article  
 
• LNG imports:
 
Source: Bruegel   Read full article  
 
• Gas payments in rubles?
 
Source: Reuters   Read full article  
 
The ruble is rebounding.
 

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3. European distillate inventories have been declining.
 
Source: Oxford Institute for Energy Studies  
 
4. Russian oil sales to Asia have picked up.
 
Source: Bloomberg   Read full article  

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Commodities

1. Fitch expects the rally in wheat prices to fade later this year ahead of an expected surplus (2 charts).
 
Source: Fitch Solutions Macro Research  
 
Source: Fitch Solutions Macro Research  

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2. According to ANZ, …

… sanctions by market players worldwide have caused constraints on the supply of raw materials to Russia. The country’s largest manufacturer, Rusal, was forced to shut its alumina refinery in Ukraine following the military conflict. In addition, Australia decided to ban alumina exports to Russia, and mining giant Rio Tinto halted bauxite supply to Rusal’s Aughinish refinery in Ireland.

Source: ANZ Research  

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Cryptocurrency

1. Bitcoin’s spot volume is rising more than its futures volume.
 
Source: @Negentropic_  
 
2. The price jump in ether (ETH) was also led by the spot market.
 
Source: @Negentropic_  
 
3. Overall, bitcoin’s trading volume across exchanges remains relatively thin.
 
Source: CoinDesk   Read full article  

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China

1. China’s 2-year rate is at par with the US for the first time since 2009 as monetary policies diverge.
 

 
2. Morgan Stanley sees China’s manufacturing activity moving into contraction territory.
 
Source: @acemaxx, @MorganStanley  

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Asia – Pacific

1. South Korea’s retail sales declined more than usual for February but held at multi-year highs for that time of the year.
 

 
Consumer confidence remains robust.
 

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2. Australia’s retail sales were very strong in February.
 

 
Consumer confidence remains depressed.
 

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3. The BoJ’s intervention has pinned down the 10-year JGB yield but the rest of the curve is rising.
 
Source: MarketWatch   Read full article  
 

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Japan’s labor market indicators were better than expected last month.
 

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The Eurozone

1. Shorter-term Bund yields are surging, …
 

 
… as the curve flattens.
 

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2. Export expectations have deteriorated.
 
Source: @CESifoGroup, @ifo_Institut, @KlausWohlrabe   Read full article  
 
3. What impact will a substantial gas supply cut have on GDP?
 
Source: Fitch Ratings  
 
4. Will the Eurozone CPI peak around 6%?
 
Source: Fitch Ratings  
 
5. European bank shares’ relative performance has decoupled from Bund yields.
 
Source: Morgan Stanley Research  
 
6. Finally, here are the latest French presidential election polls.
 
Source: The Economist   Read full article  

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Canada

1. Consumer confidence continues to deteriorate.
 

 
2. Will inflation peak just above 6%?
 
Source: Oxford Economics  
 
3. Will Canada’s yield curve rise above the US?
 
Source: Scotiabank Economics  
 
4. Here is the GDP forecast from Oxford Economics.
 
Source: Oxford Economics  

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The United States

1. The Dallas Fed’s regional manufacturing index eased this month.
 

 
• Companies are rapidly boosting wages.
 

 
• CapEx expectations continue to improve.
 

 
• Factories will keep hiking prices in the months ahead.
 

 
• The overall outlook for Texas-area manufacturers has worsened.
 

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2. The trade deficit in goods eased slightly in February.
 

 
Imports continue to hit record highs.
 

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3. Low inventories could bode well for future output.
 
Source: MRB Partners  
 
Wholesale inventories increased more than expected last month.
 
Source: Mizuho Securities USA  

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4. Concerns about stagflation have risen sharply.
 
Source: MarketDesk Research  
 
And it’s not limited to the US.
 
Source: JP Morgan Research; @dlacalle_IA  
 
By the way, consumer spending was below trend for most of the 1970s amid slow growth and high inflation.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  

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5. Recession risks remain muted, according to MRB’s model.
 
Source: MRB Partners  
 
But global headwinds point to slower US business activity ahead.
 
Source: Nordea Markets  

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6. The Evercore ISI Retailers Sales index has declined sharply as prices spike.
 
Source: Evercore ISI Research  
 
7. City-center rents have returned to their pre-COVID trend. Suburban rents are surging.
 
Source: @I_Am_NickBloom  

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Global Developments

1. Goldman’s risk appetite index has been rebounding.
 

 
2. March manufacturing PMIs point to resilient factory activity in advanced economies.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
3. A majority of businesses surveyed by Oxford Economics are less positive on global growth (2 charts).
 
Source: Oxford Economics  
 
Source: Oxford Economics  

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4. Emerging economies have a higher concentration of food items in their CPI baskets.
 
Source: Barclays Research  
 
5. What does the bond market tells us about the timing of the next recession?
 
Source: @VPatelFX  

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Food for Thought

1. New subscriptions and cancellations for streaming video services:
 
Source: @axios   Read full article  
 
2. Traveling for business:
 
Source: Morning Consult   Read full article  
 
3. Share of US workers in the largest metro areas:
 
Source: Brookings   Read full article  
 
4. Americans’ views on Ukraine and Russia:
 
Source: The New York Times   Read full article  
 
5. International flights into Russia:
 
Source: VesselsValue   Read full article  
 
6. Easing concerns about COVID:
 
Source: @CivicScience   Read full article  
 
7. Highly-educated immigrants in OECD countries:
 
Source: Statista  
 
8. Temperature changes in Antarctica:
 
Source: The Economist   Read full article  
 
9. Countries with McDonald’s restaurants, showing their first year with its first restaurant:
 
Source: Wikipedia   Read full article  

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