Posted on by The Daily Shot Editor: Lev Borodovsky

Another inflation shocker is putting pressure on the ECB to get moving

The Daily Shot: 31-Mar-22
• The Eurozone
• The United Kingdom
• Canada
• The United States
• Japan
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Rates
• Global Developments
• Food for Thought

 

The Eurozone

1. German and Spanish consumer inflation is at multi-decade highs and well above consensus forecasts.
 
Source: Reuters   Read full article  
 

 
Source: MarketWatch   Read full article  
 

 
The ECB will be under pressure to act sooner and move faster.
 
• The market now expects rapid rate hikes.
 

 
• The 2yr Bund yield is in positive territory for the first time since 2014.
 

 
Here is Austria’s 2yr yield.
 

 
• The Bund curve is flattening.
 

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2. Business confidence held up well this month, exceeding forecasts.
 

 

 
But as we saw earlier, consumer sentiment deteriorated sharply.
 
• Spending intentions:
 

 
• Concerns about higher unemployment:
 
Source: @OliverRakau  
 
We are going to see a significant downturn in spending as soaring inflation eats into incomes.
 
Source: Pantheon Macroeconomics  

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3. German economy will take a substantial hit as a result of the Russian war.
 
Source: @RobinBrooksIIF  
 
4. Europe-focused ETFs continue to see significant outflows.
 

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The United Kingdom

1. Home prices are surging.
 

 
2. Business sentiment eased in March.
 

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Canada

1. The rise in commodity prices is likely to benefit terms of trade, resulting in a higher Canadian dollar exchange rate (2 charts).
 
Source: Numera Analytics  
 
Source: Capital Economics  

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2. Canada has the opportunity to boost its export market share in crude oil, uranium, nickel, potash, and other commodities.
 
Source: @WSJ   Read full article  

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The United States

1. The ADP report was in line with expectations, showing robust job gains this month. That doesn’t necessarily translate into a strong payrolls report this Friday.
 
Source: ADP Research Institute  
 
• Job gains were broad.
 
Source: ADP Research Institute  
 
• The jobs recovery at large firms has been lagging smaller companies.
 

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2. The CFO survey shows deterioration in business sentiment amid intense price pressures.
 
Source: The CFO Survey   Read full article  
 
3. US small firms have been relatively upbeat about their business …
 
Source: MetLife and U.S. Chamber of Commerce Small Business Index.   Read full article  
 
… but are concerned about the US economy.
 
Source: MetLife and U.S. Chamber of Commerce Small Business Index.   Read full article  

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4. Hotel occupancy has been improving.
 
Source: BofA Global Research; @MikeZaccardi  
 
And airline sales are surging.
 
Source: Evercore ISI Research  

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5. Mortgage applications for house purchases are now well below last year’s levels, …
 

 
… as affordability deteriorates.
 
Source: BofA Global Research; @MikeZaccardi  
 
Refi activity is collapsing.
 

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6. Gasoline spending is taking up a larger share of consumer dollars.
 
Source: BofA Global Research; @MikeZaccardi  
 
Energy price increases have a disproportionate impact on lower-income households.
 
Source: KKR Global Institute  

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7. Wage growth for non-supervisory employees continues to outpace the overall workforce.
 
Source: Mizuho Securities USA  

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Japan

1. Industrial production held steady in February.
 

 
2. Housing starts rebounded.
 

 
3. Japan’s start-up equity index (MOTHERS) has underperformed massively in recent months.
 
h/t Aya Wagatsuma  

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Asia – Pacific

1. South Korea’s industrial production continued to surge in February.
 

 
But the monthly manufacturing survey points to a weaker outlook.
 

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2. Next, we have some updates on Australia.
 
• Job vacancies have been soaring.
 

 
• Credit expansion is accelerating.
 

 
• Household leverage is elevated.
 
Source: @markets   Read full article  
 
• Building approvals rebounded in February.
 
Source: ABS   Read full article  
 

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China

1. Omicron and lockdowns took a toll on business activity this month, which is now in contraction territory (PMIs < 50).
 
• Manufacturing:
 

 
• Non-manufacturing:
 

 
Supply chain stress levels have worsened sharply due to lockdowns.
 

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2. Is the renminbi overvalued?
 
Source: PGM Global  
 
Here are some renminbi depreciation scenarios from TS Lombard.
 
Source: TS Lombard  

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3. Sales revenue and profit margins remain below pre-pandemic levels.
 
Source: China Beige Book  

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Emerging Markets

1. Let’s begin with Russia.
 
• The economy was improving prior to the war.
 
– Retail sales (very strong):
 

 
– Real wages:
 

 
– The unemployment rate (a new low):
 

 
– Cargo shipments (a bit softer):
 

 
– Construction activity (robust):
 

 
• But now, inflation is soaring (2 charts).
 

 
Source: Bloomberg   Read full article  
 
• Here is an economic projection from IIF.
 
Source: IIF  
 
• How do you strengthen the ruble? You require ruble payments for commodities …
 
Source: Bloomberg   Read full article  
 
And it’s working.
 

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2. Turkey’s economic sentiment eased this month but is still resilient.
 

 
3. South Africa’s credit expansion is picking up momentum.
 

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Cryptocurrency

1. Bitcoin’s Fear & Greed Index entered “greed” territory – at its highest level this year, but still below the Nov. 2021 peak.
 
Source: Arcane Research   Read full article  
 
2. Bitcoin’s market cap relative to the total crypto market cap continues to fade, which indicates a greater appetite for risk among crypto traders.
 
Source: CoinDesk   Read full article  
 
3. The spread between BTC/USD and BTC/JPY flipped negative early this month as the yen started losing ground.
 
Source: @KaikoData  
 
4. South Korean crypto exchange volume plummeted since strict regulatory requirements came into force.
 
Source: @KaikoData  
 
5. Crypto-focused companies are underperforming bitcoin.
 

 
Source: Bloomberg   Read full article  

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6. Here are the largest crypto hacks.
 
Source: @WSJ   Read full article  

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Commodities

1. LME nickel has “stabilized” at a very high price. This is going to impact a number of industries.
 

 
2. Iron ore prices in China continue to surge.
 

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Energy

1. Crude oil is lower on the news of planned US (and possibly global) strategic petroleum reserve releases.
 

 
Source: Reuters   Read full article  

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2. Brent is trading at a substantial premium to “fair value” due to geopolitical risks.
 
Source: Numera Analytics  
 
3. US oil production remains well below pre-COVID levels.
 

 
The gap between prices in rigs has blown out.
 
Source: Chart and data provided by Macrobond  

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4. US oil inventories continue to fall (3 charts).
 

 
Source: @HFI_Research  
 

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5. Gasoline demand eased last week.
 

 
But refinery utilization rates remain elevated.
 

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Equities

1. The S&P 500 valuation premium to the rest of the US market keeps widening.
 

 
2. Are stocks still expensive relative to commodities? The S&P 500 ETF (SPY) is testing initial support relative to the Invesco Commodity ETF (DBC) after a break below a decade-long uptrend.
 
Source: Dantes Outlook  
 
3. Housing stocks remain under pressure as mortgage rates surge.
 

 
4. The SPDR Metals & Mining ETF is approaching initial resistance relative to the S&P 500 ETF (SPY). Will we see a breakout?
 
Source: Dantes Outlook  
 
5. Risk-parity strategies (which have “de-risked”) are lagging massively in this rebound.
 

 
6. The US business cycle has entered a late-cycle slowdown, which typically coincides with below-average equity market performance.
 
Source: KKR Global Institute  
 
Here is a look at the average next-12-month S&P 500 returns during each phase of the US business cycle.
 
Source: KKR Global Institute  
 
And this table shows equity factor performance at each stage of the business cycle.
 
Source: Research Affiliates  

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Rates

1. KKR expects real rates to remain below pre-pandemic levels, even as nominal rates rise toward 2.75%.
 
Source: KKR Global Institute  
 
2. The MBS market saw the worst performance in decades this month.
 
Source: @KathyJones  

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Global Developments

1. Rising house prices have been more extreme in developed markets (2 charts).
 
Source: Capital Economics  
 
Source: Capital Economics  
 
Home prices across OECD hit the highest level relative to incomes since the early 1970s.
 

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2. The dollar is entering a seasonally weak period.
 
Source: SentimenTrader  
 
The dollar appears to be less overvalued than last quarter.
 
Source: Capital Economics  

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3. Here is the Fed’s geopolitical risk index.
 

 
4. This chart shows average yearly returns by asset class in overheating and stagflation periods.
 
Source: Numera Analytics  

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Food for Thought

1. Moving because of WFH opportunities:
 
Source: Upwork   Read full article  
 
2. Lowering the tax bill:
 
Source: LendingTree   Read full article  
 
3. Interest in nuclear power:
 
Source: Bloomberg   Read full article  
 
4. Russian disinformation about Ukraine’s “bioweapons”:
 
Source: Brookings   Read full article  
 
5. Autocracies on the rise:
 
Source: V-Dem Institute   Read full article  
 
6. Rerouted flight from New York to Hong Kong:
 
Source: Bloomberg   Read full article  

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