Is China’s fresh stimulus a positive development for global stocks?

The Daily Shot: 26-Apr-22
Equities
Commodities
Energy
Cryptocurrency
Emerging Markets
China
Asia – Pacific
Japan
The Eurozone
The United Kingdom
The United States
Global Developments
Food for Thought



 

Equities

1. Beijing announced additional support for its economy and markets.
 
Source: @business   Read full article  
 
Common wisdom would suggest that this new stimulus should boost global stocks. However, improving growth in China could have an adverse effect by strengthening commodity prices and accelerating inflation. The correlation between commodities and stocks is now most negative since the financial crisis.
 

 
Further economic weakness in China’s economy could put downward pressure on commodities, lowering the risk of some extreme Fed tightening scenarios. But will Bejing provide enough stimulus to avert a substantial slowdown?
 
Source: Alpine Macro  

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2. Another indicator to watch closely is US real yields, which continue to trend higher. High-multiple stocks could remain under pressure.
 

 
3. Mega-cap valuations are still “stretched,” making them vulnerable to earnings misses.
 
Source: Yardeni Research  
 
Small-cap valuations, on the other hand, remain depressed.
 
Source: Yardeni Research  

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4. Defensive sectors, such as consumer staples have been outperforming.
 

 
Cyclicals’ relative valuations vs. defensives are now at recessionary levels. Could we see cyclicals rebound?
 
Source: @SethCL  

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5. Companies with low labor costs have been lagging recently.
 

 
Which sectors are most labor-intensive?
 
Source: BofA Global Research; @MikeZaccardi  


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Commodities

1. Commodity prices are still near the lows relative to stocks.
 
Source: Alpine Macro  
 
2. Commodities have been positively correlated to the US dollar (2 charts), which is unlikely to be sustained.
 

 
Source: Alpine Macro  

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3. ANZ’s copper demand indicator suggests consumption is holding up despite China’s lockdowns. Will the recent price dip stabilize?
 
Source: @ANZ_Research  
 
For now, copper is consolidating (weak momentum) and has maintained a series of higher price lows over the past year.
 
Source: Dantes Outlook  


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Energy

1. Following an initial plunge, Russia’s oil production could return to levels seen in Q1 by year-end, albeit still below its pre-pandemic trend, according to Longview.
 
Source: Longview Economics  
 
Below is a breakdown of Russia’s oil exports via tankers over the past few months.
 
Source: Longview Economics  
 
And here is the breakdown of European destinations.
 
Source: @WSJ   Read full article  

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2. This chart shows crude oil production and consumption by country (a more helpful chart might be the total liquids balance).
 
Source: @RichardDias_CFA  
 
3. Next, we have some updates on natural gas.
 
US LNG exports by liquefication source and the balance of Asia/Europe destinations:
 
Source: Lujia Cao,¬†BloombergNEF   Read full article  
 
Is US natural gas output approaching a peak?
 
Source: Alpine Macro  
 
US LNG export forecast from Alpine Macro.
 
Source: Alpine Macro  
 
EU gas storage levels:
 
Source: @financialtimes   Read full article  
 
Sources of China’s natural gas supplies:
 
Source: EIA   Read full article  


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Cryptocurrency

1. Dogecoin’s DOGE token rallied by more than 20% on Monday ahead of Twitter’s acceptance of Elon’s takeover bid.
 
Source: CoinDesk   Read full article  
 
2. Here is an overview of the Luna Foundation Guard’s purchase of $1.7 billion worth of bitcoin for its reserve.
 
Source: CoinDesk   Read full article  
 
3. This chart shows the long-term bitcoin holder net unrealized profit/loss indicator (NUPL). Currently, there are no signs of capitulation among BTC investors.
 
Source: Glassnode   Read full article  
 
4. Bitcoin fund flows have been negative this month.
 
Source: UBS Bloomberg   Read full article  


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Emerging Markets

1. Brazil’s consumer confidence ticked higher this month.
 

 
2. Mexico’s GDP remains below pre-COVID levels.
 

 
3. Economic activity in Latin America has been relatively weak.
 
Source: Scotiabank Economics  
 
Real monetary policy rates in Latin America are elevated.
 
Source: Scotiabank Economics  
 
Scotiabank expects lower inflation across Latin America over the next year.
 
Source: Scotiabank Economics  

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4. It’s been a tough 12 months for EM sovereign bonds.
 
Source: MarketDesk Research  
 
5. Inflation has been increasingly broad-based.
 
Source: TS Lombard  
 
6. It’s been a while since this many central banks have been tightening at the same time.
 
Source: MarketDesk Research  


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China

1. Tech stocks jumped in Hong Kong as Beijing announced more economic/markets support (see the Equities section),
 

 
But the Shangai Composite remains under pressure.
 

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2. Beijing has already been doing some “stealth” easing with rates.
 

 
Source: Reuters   Read full article  

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3. Morgan Stanley sees a sharp decline in the April manufacturing PMI. We already saw signs of this in the World Economics SMI report.
 
Source: @acemaxx, @MorganStanley  
 
4. China’s credit impulse and real estate floor space sold appear to be stabilizing.
 
Source: PGM Global  
 
5. The current omicron spread has been exacerbated by the low levels of vaccination rates in China and Hong Kong among the elderly.
 
Source: The Economist   Read full article  
 
The number of Chinese provinces reporting increasing Covid19 cases has nearly doubled since the end of February.
 
Source: BCA Research  

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6. Economic activity in China as measured by road and subway traffic has fallen sharply (2 charts).
 
Source: Numera Analytics  
 
Source: Numera Analytics  

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7. Steel inventories are elevated relative to last year’s levels.
 
Source: Gavekal Research  


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Asia – Pacific

1. Taiwan’s industrial production was softer than expected last month but still hit a record high for this time of the year.
 

 
2. South Korea’s GDP growth remains resilient.
 

 
3. Singapore got a wake-up call with the latest inflation report.
 

 
4. New Zealand’s credit card spending held up well last month.
 


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Japan

1. The effects of yen depreciation and higher oil prices could add to inflation.
 
Source: Scotiabank Economics  
 
2. Department store sales exceeded last year’s levels in March.
 

 
3. The labor market continues to improve.
 


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The Eurozone

1. Bund yields declined sharply on Monday.
 

 
2. Germany’s market-based inflation expectations are converging with those in the US.
 
Source: Deutsche Bank Research  
 
3. The euro is nearing the 2020 lows.
 

 
On a trade-weighted basis, the euro’s recent decline hasn’t been as severe.
 

 
There has been a rise in bullish euro speculative positioning.
 
Source: Fitch Solutions Macro Research  

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4. The Ifo Germany Busines Expectations index unexpectedly increased this month but remains depressed.
 

 
Here is the breakdown by sector.
 
Source: ifo Institute¬†  
 
The Ifo index points to softer GDP growth in Germany.
 
Source: Pantheon Macroeconomics  

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5. Euro-area construction output was very strong in the first two months of the year.
 

 
6. Spain’s PPI is nearing 50%.
 


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The United Kingdom

The CBI industrial orders index declined this month, …
 

 
,,, as business sentiment soured.
 

 
Expected gains in sales prices remain extreme.
 

 
Producer prices increases are expected to remain elevated.
 
Source: Pantheon Macroeconomics  


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The United States

1. The Dallas Fed’s manufacturing index slumped this month, …
 

 
… as outlook deteriorated.
 

 
Manufacturers are very concerned about future orders …
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
… and order growth.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Price pressures remain extreme, but the “prices paid” index seems to have peaked.
 

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2. Economic momentum is weakening. Softer demand is showing up in slower trucking activity (2 charts).
 
Source: Reuters   Read full article  
 
Source: BofA Global Research; @SamRo  

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3. The market sees faster Fed rate hikes but steeper cuts starting as soon as next year.
 

 
Recession risks are expected to rise sharply in two years, according to Bloomberg Economics.
 
Source: Anna Wong, Bloomberg Economics   Read full article  
 
4. Equities, mutual funds, and real estate account for nearly two-thirds of wealth gains since 2019.
 
Source: Oxford Economics  


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Global Developments

1. Let’s start with bond yield forecasts across advanced economies, from Capital Economics.
 
Source: Capital Economics  
 
2. This chart shows vessel orders by type vs. 2020 and 2021.
 
Source: VesselsValue   Read full article  
 
3. Real wages are shrinking for OECD labor markets except for Japan, which exhibits nearly 0% real wage growth.
 
Source: BCA Research  
 
4. ANZ’s global leading indicator has fallen sharply over the past nine months.
 
Source: @ANZ_Research  


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Food for Thought

1. Why remote workers may be disadvantaged, according to employers:
 
Source: Vyopta   Read full article  
 
2. The triple-peak workday:
 
Source: @chartrdaily  
 
3. An increase in violence in NYC:
 
Source: The Economist   Read full article  
 
4. Energy facilities’ construction costs, by type:
 
Source: USAFacts   Read full article  
 
5. Southwest border apprehensions by year and origin:
 
Source: CBP  
 
6. COVID cases vs. online search activity for “loss of smell”:
 
Source: StaSaFa.com; @simongerman600  
 
7. Students falling behind during COVID:
 
Source: McKinsey & Company   Read full article  
 
8. Comfort level with visiting different types of stores:
 
Source: Morning Consult   Read full article  
 
9. Netflix moochers:
 
Source: Morning Consult   Read full article  

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