The Daily Shot: 12-May-22
• The United States
• The United Kingdom
• The Eurozone
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Energy
• Equities
• Credit
• Global Developments
• Food for Thought
The United States
1. The CPI report surprised to the upside. Inflation continues to run hot.
Source: @TheTerminal, Bloomberg Finance L.P.
• The core services CPI (ex. energy services) saw the biggest monthly gain in decades, …
… boosted by shelter …
Source: Pantheon Macroeconomics
… and airline fares.
• New vehicle prices also surprised to the upside (although there was a methodology change in this series).
• Here are some of the CPI drivers.
Source: Nomura Securities
• Since the Fed’s new policy is to target price levels rather than the inflation rate, here is the evolution of the CPI index vs. the 2% target.
Source: Mizuho Securities USA
• Economists expect inflation to moderate in the months ahead.
Source: Pantheon Macroeconomics
We will have more inflation data tomorrow.
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2. Treasury yields jumped initially in response to the CPI report but retreated shortly after. The yield curve flattened.
The 10yr yield continues to decline this morning, …
… as the market prices in a deterioration in economic activity. The stock market is now signaling a manufacturing recession in the US.
Source: @TheTerminal, Bloomberg Finance L.P.
• By the way, many economic indicators are pointing to lower bond yields.
Source: BCA Research
Here is the ISM Manufacturing PMI vs. the 10yr Treasury yield.
Source: @jsblokland Read full article
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3. Deutsche Bank’s model is signaling a further acceleration in residential rental costs..
Source: Deutsche Bank Research
But the market isn’t sure that demand will be there. Shares of apartment properties and even single-family (2nd panel) rental firms have sold off sharply.
h/t @conorsen
4. Next, we have some updates on the housing market.
• Mortgage applications have been remarkably strong, given the spike in loan rates.
Anecdotal evidence suggests that buyers have been in a hurry to lock in rates before they move higher. Here is the mortgage rate lock count.
Source: AEI Center on Housing Markets and Finance
• But bankers now see slower demand for mortgages.
Source: Federal Reserve Board
• Refi activity is collapsing.
Source: AEI Center on Housing Markets and Finance
• ARM financing is picking up.
Source: @lenkiefer
• Home price appreciation is holding up well, …
Source: Redfin
Source: AEI Center on Housing Markets and Finance
… even as affordability deteriorates.
Source: Redfin
• Consumers expect home price growth to remain high.
Source: Mizuho Securities USA
• Inventories are tight.
Source: Redfin
• Demand has softened by only slightly.
Source: Redfin
• There are signs of increased contract cancelations. Here is the situation in Denver, for example.
Source: @AliWolfEcon
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5. Consumer sentiment continues to weaken.
Source: @HPS_CS, @HPSInsight, @CivicScience
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The United Kingdom
1. The pound is under pressure. And it’s not all about the dollar (2nd panel).
2. The housing market held up well last month.
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The Eurozone
1. Germany’s core CPI hit a multi-year high.
2. The ECB officials are gearing up to take action.
Source: Bloomberg Read full article
This chart shows the market-implied trajectory of short-term rates.
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Asia – Pacific
1. South Korea’s price pressures have been broad.
Source: @ANZ_Research
2. New Zealand’s home sales weakened sharply last month.
3. The Aussie dollar broke below support at 0.7 USD.
Source: barchart.com
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China
1. The renminbi resumed its decline.
This chart shows the US dollar’s 2-week appreciation against CNY in standard deviations.
Source: TS Lombard
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2. Tentative signs of stabilization in the property market?
Source: BCA Research
The stock market isn’t buying it. The rebound in property developers’ shares was short-lived.
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3. Locktowns continue to put pressure on the economy.
• Shanghai truck freight:
Source: Fitch Ratings
• Port waiting times:
Source: Fitch Ratings
• Car sales:
Source: @WSJ Read full article
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4. The Hong Kong dollar fell to the weak end of its permitted trading band. The central bank intervened.
Source: South China Morning Post Read full article
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Emerging Markets
1. Let’s begin with Brazil.
• Retail sales continued to rebound in March.
• Car sales are still soft.
• Inflation remains a challenge for the central bank.
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2. Car sales in Russia plummeted over the past two months.
Source: Bloomberg Read full article
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3. Malaysia’s central bank unexpectedly hiked rates.
4. EM inflation keeps surprising to the upside.
Source: @acemaxx, @MorganStanley
Some EM countries could enter a period of stagflation.
Source: Fitch Solutions Macro Research
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Cryptocurrency
1. Panic is setting in as bitcoin dips well below 30k.
Ether is underperforming.
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2. Isn’t bitcoin supposed to provide protection against inflation? Here is what happened after the CPI report.
Source: @M_McDonough
Bitcoin now basically trades like a high-beta stock.
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3. The Terra blockchain’s native token, LUNA, lost most of its value. LUNA is supposed to absorb price shocks of the blockchain’s algo stablecoin, TerraUSD (UST).
Source: CoinDesk Read full article
Source: CoinGecko
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4. Tether is now also below par.
Source: Google.com
5. Coinbase has been crashing.
Source: Insider Read full article
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6. Bitcoin’s trading volume ticked higher over the past few days, albeit by less than previous spikes.
Source: CoinDesk Read full article
7. Bitcoin’s CME futures open interest continues to decline.
Source: @CoinbaseInsto
8. Futures leverage increased over the past few weeks, which could lead to sharp price swings if more liquidations or deleveraging occurs.
Source: @glassnode
9. Implied volatility rose to the highest level since March.
Source: Skew Read full article
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10. Bitcoin’s put/call ratio increased.
Source: @CoinbaseInsto
11. Bitcoin’s fractal dimension measure signals a trend reversal.
Source: BCA Research
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Energy
1. US distillates inventories are at multi-year lows, …
… driven by shortages on the East Coast.
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2. Gasoline inventories are also tightening, …
… but demand hasn’t been great.
3. US crude oil inventories have improved a bit.
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4. European natural gas prices are higher after Ukraine cut off some of the Russian flows (going through parts of occupied territory).
Source: @WSJ Read full article
Natural gas storage levels in eastern Europe are relatively high, and supply has become increasingly diversified (2 charts).
Source: IIF
Source: IIF
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Equities
1. Stock market pain continued after a worse-than-expected CPI report.
We are 2% away from the S&P 500 going into bear-market land.
Given the surge in real yields, there could be more downside risk for the Nasdaq 100 vs. the S&P 500.
Source: Jack Ablin, Cresset Wealth Advisors
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2. Stocks and bonds have been correlated for the first time in years as the Fed tightens (2 charts).
Source: BofA Global Research
Source: Evercore ISI Research
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3. Various technical indicators, such as this one from BCA Research, suggest that the market is in oversold territory.
Source: BCA Research
Here is the S&P 500 forward PE ratio vs. VIX.
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
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4. This chart decomposes stock declines in advanced economies.
Source: Numera Analytics
5. Hedge funds have been cutting exposure to stocks.
Source: @CycleWacher
6. VIX ETFs (ETNs) have been experiencing outflows.
7. Consumer discretionary stocks have been getting crushed as the market increasingly expects a pullback in spending.
Here are some additional sector performance charts.
• Tech and semiconductors:
• Defensive sectors:
– Utilities:
– Consumer staples:
– Healthcare:
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Credit
1. European investment-grade bonds saw a historic correction.
Source: @acemaxx, @FT Read full article
2. The duration of US investment-grade bonds is decreasing as yields climb.
Source: PGM Global
3. New-issue CLO spreads are widening.
Source: Deutsche Bank Research
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Global Developments
1. The US dollar keeps grinding higher.
USD strength has persisted despite the hypothesis that US economic sanctions against other countries would induce dollar weakness.
Source: BCA Research
Even currencies of commodity exporters have been under pressure vs. USD.
Source: Fitch Solutions Macro Research
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2. Real wages are falling.
Source: BCA Research
3. Which countries are most exposed to variable-rate mortgages.
Source: Deutsche Bank Research
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Food for Thought
1. Gasoline prices around the world:
Source: Statista
2. Biggest obstacles to shopping for groceries online:
Source: Appinio, Spryker Read full article
3. Printed book sales:
Source: Statista
4. Concerns about COVID in the US:
Source: Gallup Read full article
5. Beer consumption per capita:
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