The Daily Shot: 05-May-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 Federal Reserve hiked rates by 50 bps, as expected.
There were no major surprises in the FOMC statement, …
Source: @NickTimiraos
… as the central bank launched quantitative tightening.
Source: Capital Economics
This chart shows the mechanics of the Treasury and MBS securities runoff.
Source: Nordea Markets
There was one comment from Chair Powell that got the markets very excited. The “jumbo” rate hikes are off the table for now.
A 75-basis-point increase is not something that the committee is actively considering … I think expectations are that we’ll start to see inflation, you know, flattening out.
The probability of a 75 bps hike in June declined sharply. It’s worth noting that if inflation continues to surprise to the upside, the idea of 75 bps hikes will make a comeback.
Here is how different markets reacted to Powell’s comment.
• The 2-year Treasury yield:
• The Treasury curve (steeper):
• Real rates (TIPS yield):
• The US dollar:
• Stocks (2 charts):
Source: @kgreifeld, @markets, @VildanaHajric, @luwangnyc Read full article
• Gold:
• Bitcoin:
Implied volatility in rates markets eased.
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2. The ADP private employment report was softer than expected.
Source: ADP Research Institute
Small businesses shed jobs in April (2 charts).
Source: ADP Research Institute
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3. The ISM Services PMI declined last month as demand growth weakened (similar to the manufacturing report).
Source: Mizuho Securities USA
• Hiring has stalled.
• Supplier delays remain a challenge, although the index is off the highs.
• Companies are rapidly raising prices.
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4. Mortgage applications for home purchase are not crashing, …
… despite deteriorating affordability.
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5. Net migration has been boosting inflation in some cities.
Source: @TaylorAMarr Read full article
6. The total trade deficit (goods & services) hit a new record, …
… as imports surged. Easing congestion at West Coast ports finally allowed companies to bring in some of the backlogged orders. Going forward, we are likely to see imports easing from record highs.
Source: Capital Economics
Domestically, we see shipping demand starting to moderate.
Source: Evercore ISI Research
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The United Kingdom
1. Mortgage approvals held steady in March.
Depressed consumer sentiment will be a drag on credit demand going forward.
Source: Pantheon Macroeconomics
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2. The UK is showing signs of dissaving.
Source: Barclays Research
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The Eurozone
1. The market continues to boost expectations for the ECB rate hikes.
The 2-year swap rate exceeded 1% for the first time in a decade.
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2. German manufacturing orders declined more than expected in March.
3. The Italian 10yr bond spread to Germany is nearing 2%.
4. The updated services PMI report shows strength in April.
• Spain:
• Italy:
Companies are rapidly boosting prices.
Going forward, shrinking liquidity in the euro area doesn’t bode well for business activity growth.
Source: Pantheon Macroeconomics
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5. Retail sales slowed in March.
6. Germany’s trade balance remains depressed due to elevated energy costs.
7. The Eurozone would enter severe stagflation as a result of a full embargo on Russian energy.
Source: Barclays Research
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Asia – Pacific
1. One of the big drivers of Japan’s weak inflation outcomes is demographics.
Source: PGM Global
2. Australian exports are holding near record highs, …
… driven by resources.
Source: @ANZ_Research
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China
1. The Markit Services PMI showed a collapse in business activity last month due to lockdowns.
Mobility remains depressed.
Source: Numera Analytics
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2. New infrastructure development is underway, which could ease downward pressure on the economy.
Source: Scotiabank Economics
3. Households are not in a hurry to spend …
Source: BCA Research
… and are less interested in real estate.
Source: BCA Research
Automobile sales are depressed.
Source: Fitch Ratings
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4. Hong Kong’s economic activity was back in growth mode last month.
Source: IHS Markit
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Emerging Markets
1. India’s RBI unexpectedly hiked rates this week.
Source: Scotiabank Economics
Bond yields surged.
India’s service sector growth accelerated last month.
Source: IHS Markit
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2. ASEAN manufacturing activity gained further momentum in April.
Source: IHS Markit
• Thailand:
Source: IHS Markit
• The Philippines:
Source: IHS Markit
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3. The Russian ruble hit the highest level since the initial COVID shock in 2020.
4. Brazil’s central bank hiked the target rate by 100 bps again, signaling that further rate increases may be smaller.
The nation’s service-sector activity is surging.
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5. Slower South Korean exports are signaling a peak in exports across EM economies (and perhaps globally).
Source: Capital Economics
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Cryptocurrency
1. Bitcoin’s Fear & Greed Index continues to hover around “extreme fear” territory.
Source: @ArcaneResearch
2. Bitcoin is outperforming other large cryptos so far this year but gave up some of its lead over the past few days (2 charts).
Source: CoinDesk Read full article
Source: CoinDesk Read full article
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3. Small-cap tokens have underperformed large-cap tokens so far this year, indicating a lower appetite for risk among crypto traders.
Source: @ArcaneResearch
4. Crypto investment products saw outflows last week, led by bitcoin and ethereum-based funds.
Source: CoinShares Read full article
5. Why do some Americans own crypto?
Source: Morning Consult Read full article
Here are the reasons US adults say they don’t own crypto.
Source: Morning Consult Read full article
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Commodities
1. Metals and mining, energy, and industrial stocks are still trading near record-low valuations.
Source: PGM Global
2. US agriculture exports to China are off to a strong start.
Source: @kannbwx
3. New York cotton futures continue to surge due to robust demand from China and US crops negatively impacted by adverse weather conditions.
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Energy
1. Crude prices are firmer as the EU prepares a ban on Russian oil.
Source: Reuters Read full article
By the way, who owns tankers transporting Russian oil?
Source: @RobinBrooksIIF, @JonathanPingle
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2. The US East Coast is rapidly running out of diesel as inventories tumble.
Diesel crack spreads hit a record high.
Source: @Javier, @bopinion Read full article
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3. US refinery runs have deteriorated, …
… impacting not only distillates …
… but gasoline inventories as well.
Total refined product inventories continue to shrink.
Source: @HFI_Research
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4. As we saw yesterday, CapEx has not kept pace with rising oil prices.
Source: PGM Global
5. Here are some scenarios for US oil production, from Longview.
Source: Longview Economics
6. German power prices are surging again.
7. US natural gas prices hit the highest level since 2008.
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Equities
1. Companies are embracing CapEx to gain efficiency as labor costs surge.
Source: BofA Global Research
2. This chart shows the drivers of equity allocation based on Alpine Macro’s model.
Source: Alpine Macro
3. Smart beta ETF flows have been strong this year.
Source: SPDR Americas Research, @mattbartolini
4. Next, we have the forward P/E ratio (valuation measure) by company size, relative to long-term averages.
Source: Truist Advisory Services
5. The P/E ratio compression has been severe in 2022 (see chart).
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
6. S&P 500 futures liquidity has deteriorated.
Source: Chris Murphy, Susquehanna International Group
7. Equity factors with high beta to growth were punished last month.
Source: S&P Global Market Intelligence
8. Risk-parity portfolios are still significantly underweight stocks.
Source: Deutsche Bank Research
CTAs are starting to increase their exposure to equities.
Source: Deutsche Bank Research
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Credit
1. The amount of distressed debt has been rising.
Source: @bloomberglaw Read full article
2. Investment-grade borrowers’ coverage ratio hit a record high.
Source: BofA Global Research; @MikeZaccardi
3. Despite poor performance, …
Source: Deutsche Bank Research
… IG fund flows have been strengthening.
Source: Deutsche Bank Research
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4. When adjusted for credit quality, preferred yields are among the highest across most global fixed income markets.
Source: Citi Private Bank
Historically, preferreds have seen strong total returns following 5%+ drawdowns.
Source: Citi Private Bank
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5. Here is a look at yields across credit asset classes relative to historical averages.
Source: Truist Advisory Services
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Rates
1. Treasuries hedged into euros are no longer attractive relative to Bunds.
2. Unlike previous hiking cycles, speculators are mostly net short Treasury bond futures (although not as much compared with the 2016-2018 cycle).
Source: Deutsche Bank Research
3. Economic indicators suggest that longer-dated Treasury yields should be lower.
• The Citi Economic Surprise Index:
Source: Yardeni Research
• Copper-to-gold ratio:
Source: @TheTerminal, Bloomberg Finance L.P.
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Global Developments
1. How long will supply-chain disruptions last?
Source: Oxford Economics
How are businesses addressing supplier risks?
Source: Oxford Economics
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2. The global credit impulse points to further weakness in sentiment.
Source: Chart and data provided by Macrobond
3. This chart shows the G10 currency attractiveness ratings (from BCA Research).
Source: BCA Research
4. Stocks and bonds look oversold.
Source: MRB Partners
5. Here is the trend in corporate income tax rates.
Source: IMF
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Food for Thought
1. US pandemic-era unemployment programs:
Source: BANK OF ITALY Read full article
2. Changing jobs for a pay bump:
Source: @WSJ Read full article
3. Projected growth in e-commerce:
Source: Statista
4. Domestic violence in the US:
Source: @statspanda1 Read full article
5. Changes in US senators’ approval ratings since Q1:
Source: Morning Consult Read full article
Most popular and unpopular US senators:
Source: Morning Consult Read full article
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6. Preventable COVID deaths:
Source: Health System Tracker Read full article
7. Military aid for Ukraine:
Source: Statista
8. Married couples as a share of total US households:
Source: USA Facts
9. Dubbed audio vs. subtitles:
Source: Morning Consult Read full article
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