The put/call ratio surge signals a market bounce

The Daily Shot: 27-Apr-22
Equities
Energy
Commodities
Credit
Rates
Cryptocurrency
Emerging Markets
China
Asia – Pacific
The Eurozone
Europe
The United States
Global Developments
Food for Thought



 

Equities

1. Stocks tumbled on Tuesday amid concerns about slowing economic growth pressuring earnings. The market got an additional jolt from Alphabet’s weaker-than-expected results after the close.
 

 

 
Stock futures continued to drop in the extended session.
 

 
We haven’t seen daily declines like this since 2020.
 

 
At -22%, the Nasdaq Composite drawdown is comparable to the last two major drawdowns in December 2018 and March 2020.
 

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2. The S&P 500 futures are at support.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
3. According to Truist, the S&P 500 has support at the P/E multiple of 18x. If we go through that, the next level is 17x.
 
Source: Truist Advisory Services  
 
Well, we just went through 18x.
 

 
The S&P 600 (small-cap) forward P/E ratio dipped below 13x, …
 

 
… and the Nasdaq 100 dropped below 22x for the first time since early 2020.
 

 
However, analysts may be reassessing earnings projections for some mega-caps, pushing the P/E ratio higher (less attractive valuations). Economic data are also signaling softer earnings projections.
 
Source: @M_McDonough, @biannagolodryga, @davebriggstv, @MikaelSarwe  

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4. While revenues are holding up for US corporates announcing earnings this quarter, profits are under pressure (two charts).
 
Source: TS Lombard  
 
Source: TS Lombard  

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5. The put/call ratio surged on Tuesday. Typically, we see a market bounce after this ratio reaches extreme highs.
 

 
6. Dip buyers have been getting punished, with prolonged declines not seen in decades.
 
Source: Bloomberg   Read full article  
 
7. The VIX curve swung into backwardation over the past few days.
 

 
8. Finally, let’s take a look at equity factor performance year-to-date.
 
High-dividend and dividend growth:
 

 
Momentum:
 

 
Low-vol and high-beta:
 

 
Growth vs. value:
 


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Energy

1. Russia is weaponizing natural gas.
 
Source: Reuters   Read full article  
 
European natural gas futures jumped, …
 

 
… and the euro came under further pressure. We could see demand destruction across Europe, pushing some countries into recession.
 

 
By the way, Russia is also trying to spook global financial markets by talking about nuclear war risks.
 
Source: @bpolitics   Read full article  

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2. US oil companies have been drawing down their DUC inventories (see definition here).
 
Source: Moody’s Investors Service  
 
3. NY Harbor diesel shortages catapulted prices to new highs, …
 
Source: Bloomberg   Read full article  
 
… with backwardation hitting extremes.
 


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Commodities

1. Weaker demand points to downside risks for commodities, …
 
Source: TS Lombard  
 
… but supplies remain tight.
 
Source: TS Lombard  

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2. ANZ expects copper inventories to remain at multi-year lows in the short term before gradually increasing in the second half of this year.
 
Source: @ANZ_Research  
 
Speculators remain net-long copper futures.
 
Source: @ANZ_Research  

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3. This is the last thing the US (and the world) needs right now. Adverse weather has been playing havoc with US grain conditions/planting progress.
 
Source: @Ole_S_Hansen  


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Credit

1. The correlation between high-yield credit spreads and the five-year Treasury yield turned positive.
 
Source: Wellington Management   Read full article  
 
2. According to Deutsche Bank, 2022 will be a good year for CLO issuance.
 
Source: Deutsche Bank Research  
 
3. Next, we have a couple of charts on Agency MBS (by coupon).
 
Spread to Treasuries vs. duration:
 
Source: BCA Research  
 
Spread to Treasuries vs. convexity:
 
Source: BCA Research  

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4. Finally, we have structured credit spreads vs. weighted average life.
 
Source: Deutsche Bank Research  


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Rates

1. Market jitters have created tremendous demand for Treasury bills.
 

 
2. Treasury yields declined this week amid concerns about global growth.
 

 
3. The weakness in cyclical sectors vs. defensives is signaling lower Treasury yields ahead.
 
Source: @MrBlonde_macro  
 
4. Treasury market implied volatility keeps climbing.
 


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Cryptocurrency

1. Bitcoin is at support.
 

 
2. The number of tokens (smart contracts based on a blockchain) has exploded over the past few years, outnumbering the number of coins (native tokens of a particular blockchain).
 
Source: FactorResearch   Read full article  
 
3. There is almost no correlation between token volume and price.
 
Source: FactorResearch   Read full article  
 
And the same is true for coin volume and price.
 
Source: FactorResearch   Read full article  

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4. The bitcoin futures basis reached a one-year low, which typically precedes periods of price consolidation or a short squeeze.
 
Source: Arcane Research   Read full article  
 
5. A growing share of the bitcoin supply has not changed hands in more than a year.
 
Source: UBS Bloomberg   Read full article  


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Emerging Markets

1. Thai exports soared last month.
 

 
Nonetheless, the Thai baht remains under pressure.
 

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2. Apart from Indonesia, where price controls are extensive, headline inflation has exceeded or hit the upper bound of official target ranges in many EM Asia countries (2 charts).
 
Source: @ANZ_Research  
 
Source: @ANZ_Research  
 
Market expectations for rate hikes have changed dramatically over the past three months.
 
Source: @ANZ_Research  

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3. The Brazilian real took a hit this week but stopped at 5 to the dollar.
 

 
4. Mexican retail sales were firmer than expected last month.
 

 
5. EM trade surpluses have been shrinking as energy prices surged.
 
Source: TS Lombard  


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China

1. Industrial profits were robust in March.
 

 
2. New construction has been weakening.
 
Source: Gavekal Research  
 
3. Existing home price gains are now negative on a year-over-year basis.
 
Source: Longview Economics  
 
4. Non-resident capital outflows have been unusual.
 
Source: @RobinBrooksIIF, @SergiLanauIIF, @econchart  
 
5. Recent weakness in EUR/USD points to further declines in China’s currency reserves.
 
Source: PGM Global  
 
6. A substantial boost in stimulus will be required to facilitate stronger economic growth.
 
Source: BCA Research  


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Asia – Pacific

1. Dollar-yen implied vol has been climbing amid concerns about further weakness in Japan’s currency.
 
h/t @CormacMullen1   Read full article  
 
2. Next, we have some updates on South Korea.
 
The number of new COVID cases is falling, …
 
Source: @WSJ   Read full article  
 
… and mobility is recovering.
 
Source: @ANZ_Research  
 
Consumer confidence has been resilient.
 

 
South Korea’s high debt and dwindling workforce are similar to the conditions that precipitated Japan’s lost decade.
 
Source: Gavekal Research  
 
Productivity growth has declined.
 
Source: Gavekal Research  

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3. Will the Fed’s aggressive tightening result in weaker Asia exports? (2 charts)
 
Source: @ANZ_Research  
 
Source: @ANZ_Research  

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4. Here are some updates on Australia.
 
Q1 inflation was stronger than expected as fuel prices surged.
 

 
Australian stocks are giving up their recent outperformance?
 

 
The RBA’s relative balance sheet reduction is expected to be much bigger than the Fed’s.
 
Source: @ANZ_Research  


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The Eurozone

1. The Eurozone’s CPI has been dominated by energy.
 
Source: @ana_luisandrade, @economics   Read full article  
 
2. Goldman expects economic growth in the euro area to decline significantly later this year, dropping well below ECB’s projections.
 
Source: Goldman Sachs  
 
3. China’s economic weakness signals downside risks for Eurozone PMIs (business activity).
 
Source: Deutsche Bank Research  
 
4. China’s PPI points to slower producer price gains in the Eurozone.
 
Source: Pantheon Macroeconomics  
 
5. The French credit multiplier (the amount of GDP growth generated by credit expansion) has been shrinking.
 
Source: Gavekal Research  
 
Separately, the latest election turnout has been relatively low.
 
Source: BCA Research  
 
French nuclear power output has been weak this year. Europe needs to recommit to nuclear power.
 
Source: @BarryHoogduin  


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Europe

1. European business and consumer sentiment indicators have been diverging.
 
Sweden:
 
Source: @RichardDias_CFA  
 
The Czech Republic:
 

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2. This chart shows the levels and changes in debt-to-GDP ratios.
 
Source: Eurostat   Read full article  
 
3. Finally, we have Europe’s dependence on natural gas for heating homes.
 
Source: @financialtimes   Read full article  


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The United States

1. Consumer confidence held steady this month.
 

 
The labor differential is still near the highs, as households remain confident in the jobs market.
 

 
The enormous gap between the Conference Board’s and the U. Michigan sentiment indicators persists.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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2. Massive excess savings (2 charts) suggest that consumers will keep spending.
 
Source: BCA Research  
 
Source: LPL Research  
 
However, there is anecdotal evidence of slowing demand – for example in appliances.
 
Source: PYMNTS   Read full article  
 
Extreme inflation has been deterring buyers.
 

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3. US financial conditions have been deteriorating, which could be a headwind for growth. The Fed has tightened policy substantially by communicating the central bank’s intentions.

 
4. The Q1 GDP growth consensus is 1.1%.
 

 
Deutsche Bank sees zero, …
 

 
… which is consistent with the Atlanta Fed’s GDPNow model.
 
Source: @AtlantaFed   Read full article  
 
US inventories have been running hot relative to final goods sales representing a possible harbinger of less production going forward and lower GDP growth.
 
Source: PGM Global  

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5. The S&P 500 cyclicals/defensives relative performance points to weaker economic activity ahead.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
6. Durable goods orders remained strong last month, pointing to vibrant business investment.
 

 

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7. The Richmond Fed’s regional manufacturing index showed resilience this month.
 

 
Supply bottlenecks seem to have peaked.
 

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8. Next, we have some updates on the housing market.
 
New home sales were softer than expected last month.
 

 
Mortgage applications point to further weakness ahead for new home sales …
 
Source: Pantheon Macroeconomics  
 
… as mortgage rates surge.
 
Source: Economics and Strategy Group, National Bank of Canada  
 
There are a lot of new homes for sale that are still under construction.
 
Source: Wells Fargo Securities  
 
New home prices have been surging. But when adjusted for construction costs, housing prices have leveled off.
 
Source: Wells Fargo Securities  
 
Home price appreciation reached 20.2% in February, a new high.
 

 
Monthly price gains also hit a record high.
 
Source: Economics and Strategy Group, National Bank of Canada  
 
And there are no signs of slowing price increases since February, according to Redfin.
 
Source: Redfin  
 
Here is a comment from Jocelyn Paquet (National Bank of Canada).

According to the S&P CoreLogic Case-Shiller 20-City Index, home prices jumped a seasonally adjusted 2.39% in February after climbing 1.71% the prior month. This was not only the 118th consecutive monthly increase for this indicator but also the largest since data collection began in 2000 – the previous record dated from April 2013 (+1.92%). For the twentieth month in a row, all the cities covered by the index saw increases. Such a long streak of perfect diffusions had never been recorded before. Price gains in February were particularly impressive in San Diego (+3.64%), Seattle (+3.51%), Los Angeles (+3.15%), and San Francisco (+3.09%)

Source: Economics and Strategy Group, National Bank of Canada  
 
Affordability is becoming a significant headwind for the housing market.
 
Mortgage payments:
 
Source: Redfin  
 
Housing affordability index:
 
Source: @GregDaco  
 
Home prices vs. wages:
 

 
Affordability for first-time buyers:
 
Source: @DomWh1te  
 
Housing markets have been tight, making them less vulnerable to the spike in mortgage rates.
 
Source: Goldman Sachs; @patrick_saner  
 
Demographics will be a tailwind for the housing market.
 
Source: @EricFinnigan  

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9. There is a new BA.2 COVID variant spreading in the Northeast.
 
Source: Pantheon Macroeconomics  
 
Source: National Geographic   Read full article  


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Global Developments

1. Companies are increasingly uneasy about China.
 
Source: GlobalData  
 
2. The recent spike in bond yields will be a headwind for global business activity.
 
Source: TS Lombard  
 
3. Strong Swiss watch exports point to robust demand for luxury goods.
 

 
4. Global monetary policy tightening has historically led to weaker economic activity.
 
Source: Trahan Macro Research  
 
5. Negative trends in new orders relative to inventories point to falling demand and the possibility of lower demand-pull inflation.
 
Source: PGM Global  


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Food for Thought

1. Twitter’s revenue:
 
Source: @WSJ   Read full article  
 
2. Financing the Twitter acquisition:
 
Source: @WSJ   Read full article  
 
3. Largest buyouts in history:
 
Source: Statista  
 
4. Effectiveness of B2B sales channels:
 
Source: McKinsey & Company   Read full article  
 
5. Monthly mortgage payments on a median US home:
 
Source: @axios   Read full article  
 
6. Pedestrian traffic in Times Square:
 
Source: @WSJ   Read full article  
 
7. US household growth projections:
 
Source: Wells Fargo Securities  
 
8. Best-selling books in history:
 
Source: OpenAxis   Read full article  

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