Month: June 2022

Posted on

Recession risks mount

The Daily Shot: 30-Jun-22
• The United States
• The United Kingdom
• The Eurozone
• Europe
• Japan
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought

 

The United States

1. Mortgage applications to purchase a home dropped sharply last week and are now down 24% vs. last year.
 

 
• Banks have been reporting softer demand for mortgages.
 
Source: Alpine Macro  
 
• A higher percentage of borrowers have been tapping adjustable-rate mortgages to reduce initial monthly payments.
 
Source: @LizAnnSonders, @DataArbor, @MBAMortgage  

——————–

 
2. More low-income households surveyed by the Census Bureau are behind on rent as of early June.
 
Source: @atanzi, @markets   Read full article  
 
3. Tight financial conditions will substantially boost recession risks by mid-2023, according to Deutsche Bank.
 
Source: Deutsche Bank Research  
 
• A majority of institutional investors expect a recession to occur next year.
 
Source: Deutsche Bank Research  
 
• Cyclical cargo railcar loadings are indicating a slowdown.
 
Source: TS Lombard  
 
• The spread between the Conference Board’s consumer expectations and current conditions is signaling a recession.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

——————–

 
4. Households are beginning to show concerns about the labor market.
 
Source: Quill Intelligence  
 
Food service job openings growth has slowed.
 
Source: BofA Global Research; @MikeZaccardi  

——————–

 
5. Real compensation costs are now well below pre-COVID levels.
 
Source: S&P Global Ratings  
 
6. The market is pricing bigger Fed rate cuts starting in the first half of next year.
 

 
7. Market pricing for the real neutral rate reflects deteriorating longer-term potential GDP growth (see comment from Piper Sandler).
 
Source: Piper Sandler   

Back to Index

 

The United Kingdom

1. The Lloyds business sentiment index is rolling over.
 

 
2. ANZ Research cut its GDP forecast to 3.6% this year, flattened by base effects. ANZ also sees below potential growth of 1% next year.
 
Source: @ANZ_Research  
 
3. Labor demand is moderating.
 
Source: Pantheon Macroeconomics  
 
4. This trend is unlikely to continue, given higher rates and awful consumer sentiment.
 
Source: @financialtimes   Read full article  

Back to Index

 

The Eurozone

1. Bund yields are sharply lower as global recession risks climb.
 

 
DAX is down as well amid risk-off sentiment.
 

 
Market pricing for the ECB rate hikes this year has been moderating in recent days.
 

——————–

 
2. German inflation came in below forecasts.
 

 

 
But this is no cause for celebration – the decline was due to temporary government relief measures.
 
Source: Bloomberg   Read full article  

Pantheon Macroeconomics: – For some reason, the consensus failed to adequately factor-in two one-off inflation-depressing fiscal measures; the fuel duty cut and the introduction of discounted rail fare-the nine-euro ticket-weighing on both the headline and core.

Spain’s inflation continues to surge, hitting 10% this month.
 

 

 
And here is the Belgian CPI.
 

——————–

 
3. Generally, business confidence has been holding up well.
 

 
But construction sentiment is rolling over.
 

 
And retailers are reporting weaker conditions.
 

 
Below is the overall economic confidence, which includes consumer sentiment.
 

Back to Index

 

Europe

1. Let’s begin with Sweden.
 
• Confidence indicators:
 

 
• Household inflation expectations:
 
Source: Nordea Markets  
 
• Retail sales (2 charts):
 

 
Source: Nordea Markets  

——————–

 
2. How important is tourism for EU economies?
 
Source: Piper Sandler   

Back to Index

 

Japan

1. Consumer confidence continues to weaken.
 

 
2. Industrial production tanked in May due to China’s lockdowns.
 

 
3. Housing starts surprised to the downside.
 

Back to Index

 

Asia – Pacific

1. South Korea’s business surveys are softer this month.
 

 
2. New Zealand’s business confidence continues to deteriorate.
 

 
3. Australia’s credit growth surprised to the upside.
 

Back to Index

 

China

1. The official PMI report showed business returning to growth.
 
• Manufacturing:
 

 
• Non-manufacturing:
 

 
Factory input price gains are slowing, …
 

 
… and order backlogs are easing.
 

——————–

 
2. Diverging monetary policy paths resulted in China’s bonds sharply outperforming Treasuries.
 
Source: Gavekal Research  
 
3. Urban unemployment remains elevated.
 
Source: @ANZ_Research  
 
4. China’s foreign trade growth in high-tech products has been slowing.
 
Source: ING  

Back to Index

 

Emerging Markets

1. The Chilean peso continues to sink.
 

 
Chile’s unemployment rate was lower than expected in May.
 

——————–

 
2. Thai manufacturing production declined on supply shortages due to China’s lockdown.
 

 
3. No equity market capitation yet?
 
Source: BCA Research  

Back to Index

 

Cryptocurrency

1. Bitcoin is back below $20k.
 

 
2. Bitcoin miners who have been under income stress lately are in full distribution mode, selling an estimated 3,000-4,000 BTC per month.
 
Source: @glassnode  
 
3. Large bitcoin investors (holding more than 1,000 BTC) have added to their balances during the recent sell-off. These holders account for roughly 45% of total BTC supply and have not yet capitulated.
 
Source: @glassnode  
 
The same is true for smaller bitcoin holders.
 
Source: @glassnode  

——————–

 
4. Grayscale is planning to sue the SEC after its bid for a spot-based bitcoin ETF was rejected.
 
Source: CoinDesk   Read full article  
 
The Grayscale Bitcoin Trust’s (GBTC) discount has narrowed over the past week.
 
Source: Skew  

Back to Index

 

Energy

1. US refinery inputs are firmer.
 

 
And gasoline inventories are starting to recover (2 charts).
 

 

——————–

 
2. US oil inventories are nearing the 5-year range.
 

 
3. Open interest in Brent and WTI futures hit a 7-year low.
 
Source: @JavierBlas  

Back to Index

 

Equities

1. Stock futures are heavy this morning as recession risks mount.
 

 
2. It has been a difficult first half of the year for stocks.
 
Source: S&P Dow Jones Indices  
 
Here are the US equity market value drawdowns as a share of GDP.
 
Source: @strategasasset  

——————–

 
3. We’ve had a very volatile 5-week period.
 
Source: @sentimentrader, @JasonGoepfert  
 
4. Will the S&P 500 break below the 3-year moving average?
 
Source: BCA Research  
 
5. How extensive can bear market rallies get?
 
Source: Evercore ISI Research  
 
6. Retail investors continue to buy the dip, but it’s not enough to offset institutional sales.
 
Source: Vanda Research  
 
7. Global equity valuations have been linked to US real rates.
 
Source: Capital Economics  
 
8. Sales growth and inflation tend to be correlated.
 
Source: Truist Advisory Services  
 
9. Small and mid-cap shares continue to trade at a substantial discount to large caps.
 
Source: Yardeni Research  
 
The selloff in credit points to downside risks for small caps.
 
Source: BCA Research  

——————–

 
10. Almost a third of financial industry employees started working after the financial crisis.
 
Source: Trahan Macro Research  

Back to Index

 

Credit

1. European high-yield debt markets are struggling.
 

 
2. Airline bonds have been selling off.
 

 
Source: Bloomberg Law   Read full article  

——————–

 
3. This scatterplot shows the amount of B- debt maturing through the end of 2023 vs. the number of issuers.
 
Source: S&P Global Ratings  

Back to Index

 

Rates

1. The copper-to-gold ratio is pricing in slower growth. Will Treasury yields follow?
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
2. This has been the worst start of the year for Treasuries since 1788.
 
Source: Deutsche Bank Research  
 
3. The Treasury curve is rapidly flattening between the 1-year and the 10-year maturities.
 
Source: Tradeweb  
 
Here is another leading indicator: the Fed’s near-term forward spread.
 

——————–

 
4. The iShares TIPS Bond ETF (TIP) is testing resistance relative to the iShares 7-10 Year Treasury Bond ETF (IEF).
 
Source: Azan Habib; Paradigm Capital  

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Global Developments

1. Commodities and the dollar are up this year. Everything else is down.
 
Source: JP Morgan Research; @Scutty  
 
2. Traders have been boosting bets on the US dollar index futures.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
Historically, the dollar has weakened when the equity market has troughed, typically around the midpoint of a US recession.
 
Source: Deutsche Bank Research  

——————–

 
3. The June SMI report from World Economics shows global business activity entering contraction territory.
 
Source: World Economics  

——————–

Back to Index

 

Food for Thought

1. Using a bike as a primary mode of transportation for short trips:
 
Source: @financialtimes   Read full article  
 
2. City liveability rankings by region:
 
Source: The Economist   Read full article  
 
3. Spending on pharmaceuticals:
 
Source: @chartrdaily  
 
4. Medication abortions as a share of total US abortions:
 
Source: @chartrdaily  
 
Google search activity for “medication abortion”:
 

——————–

5. Share of childcare done by men and fertility rates:
 
Source: @financialtimes   Read full article  
 
6. Global emissions by category:
 
Source: Wells Fargo Securities  
 
7. Betting markets’ probabilities for the 2024 Republican presidential nomination:
 
Source: @PredictIt  
 
8. Best UK music act of the last 50 years:
 
Source: @markets   Read full article  

——————–

Back to Index

Posted on

Robot orders have increased alongside rising wages

The Daily Shot: 29-Jun-22
• The United States
• The Eurozone
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought

 

The United States

1. The Conference Board’s consumer confidence report came in below forecasts, with the expectations index tumbling to levels not seen in nearly a decade. This was one of the triggers for Tuesday’s 2% drop in the S&P 500, as recession concerns mount.
 

 
• The Conference Board’s inflation expectations index hit a record high.
 

 
• Consumers are increasingly gloomy about the stock market.
 

 
• The labor differential (“jobs plentiful” vs. “jobs hard to get”) remains elevated.
 

 
However, consumers are becoming concerned about job prospects going forward. The “future employment” component is now a drag on the overall confidence index.
 
Source: Mizuho Securities USA  
 
• The Conference Board’s sentiment indicator remains well above the U. Michigan’s survey.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

——————–

 
2. The Richmond Fed’s regional manufacturing index plunged this month, …
 

 
… as demand deteriorates. Sounds familiar? This trend is playing out across the country.
 

 
• Outlook slumped.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
• Supply chain delays are easing, …
 

 
… and order backlogs are depleted, as demand slows.
 

 
• Factories expect fewer hours for workers in the months ahead.
 

 
• Despite weaker demand, manufacturers are still boosting prices.
 

 
The regional Fed indicators point to manufacturing contraction at the national level this month.
 
Source: Yardeni Research  

——————–

 
2. Supply bottlenecks are now on land.
 
Source: Bloomberg   Read full article  
 
But as we saw across the regional manufacturing reports, delivery times are getting shorter as demand stalls.
 
Source: Yardeni Research  

——————–

 
3. The market still doesn’t expect the Fed to raise rates much above 3.5%.
 

 
What if these expectations are too dovish? Could the market be off by nearly 100 bps as the Wells Fargo projections show? What would that mean for equity markets?
 
Source: Wells Fargo Securities  

——————–

 
4. Financial conditions tightened faster in this hiking cycle than in previous ones.
 
Source: @ReutersJamie; FRBSF   Read full article  
 
5. Home price appreciation hit a new record in April according to the Case-Shiller housing price index.
 

 
• The breadth of the rally in home prices has been unprecedented.
 
Source: Economics and Strategy Group, National Bank of Canada  
 
• S&P Global Ratings expects home prices to keep climbing, albeit at a slower rate.
 
Source: S&P Global Ratings  
 
• The divergence between home prices and wages continues to widen.
 

 
• What does record-high home price appreciation tell us about housing-related inflation?
 
Source: ING  

——————–

 
6. The goods trade gap eased further in May, which is a tailwind for Q2 GDP growth.
 

 
7. Robot orders have increased alongside rising wages.
 
Source: Alpine Macro  

Back to Index

 

The Eurozone

1. There was a hint of slower inflation in Germany.
 

 
Bund futures jumped and the euro sold off.
 

 

——————–

 
2. French consumer confidence continued to plummet in June (similar to what we see in Germany).
 

 
3. Tumbling consumer sentiment will be a drag on retail sales.
 
Source: Pantheon Macroeconomics  
 
4. German electricity prices have surged to an all-time high. Forward contracts, which lock in energy costs, are getting more expensive by the day.
 
Source: @JavierBlas   Read full article  

Back to Index

 

Asia – Pacific

1. Japan’s May retail sales were softer than expected.
 

 
2. South Korea’s consumer confidence is rolling over.
 

 
3. Taiwan’s currency and stocks are under pressure amid capital outflows.
 
Source: ING  
 
4. Australian retail sales have been very strong.
 

 
Separately, the market expects the RBA to outpace the Fed’s tightening next year.
 
Source: Masaki Kondo, @TheTerminal, Bloomberg Finance L.P.  

Back to Index

 

China

1. It’s been a good month for China’s stocks.
 
Source: S&P Dow Jones Indices  
 
2. This chart shows Beijing’s regulatory vs. stimulus actions.
 
Source: Piper Sandler   
 
3. China’s rental housing share is relatively low.
 
Source: Gavekal Research  

Back to Index

 

Emerging Markets

1. The rupee continues to hit record lows, as capital outflows from India accelerate.
 

 
2. The Hungarian central bank shocked the markets with a 185 bps rate hike, …
 

 
Source: Reuters   Read full article  
 
… as the currency weakens.
 

——————–

 
3. Mexican unemployment remains relatively low.
 

 
4. LatAm equities have been lagging commodities.
 
Source: Alpine Macro  

Back to Index

 

Cryptocurrency

1. It has been a tough month for cryptos.
 
Source: FinViz  
 
2. Gold has outperformed crypto during the current risk-off environment.
 
Source: MRB Partners  
 
3. Tighter liquidity is a headwind for cryptos.
 
Source: MRB Partners  
 
4. Ether has been in oversold territory for 54 days.
 
Source: @bespokeinvest   Read full article  
 
5. The total crypto market cap is at support.
 
Source: All Star Charts  

Back to Index

 

Commodities

1. Copper is weaker again this morning, …
 

 
… and China’s traders are boosting their bets against the metal.
 
Source: Numera Analytics  

——————–

 
2. Thermal coal prices keep climbing.
 
Source: S&P Global Commodity Insights  

Back to Index

 

Equities

1. A sustained risk-on rally would require a reversal in real yields.
 
Source: Alpine Macro  
 
2. The cyclicals/defensives ratio has reversed the COVID-era gains.
 

 
3. Profit margin growth consensus estimates are much too optimistic.
 
Source: Goldman Sachs; @carlquintanilla  
 
4. Analysts’ earnings forecasts tend to be overly optimistic around recessions.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
5. Should we expect a 70s-style multi-year sideways market?
 
Source: Evercore ISI Research  
 
6. This is why investors are so concerned about the current economic downturn becoming a recession.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
7. Tighter financial conditions require higher compensation for investors to take on risk. The S&P 500 dividend yield is about 40 bps too low. Since companies are not about to boost dividends in this environment, stock prices need to be substantially lower.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
8. Next, we have some sector performance updates.
 
• Consumer Discretionary:
 

 
• Tech/semiconductors:
 

 

 
• Transportation:
 

 
• Energy:
 

 
• Consumer Staples:
 

 
• Healthcare:
 

 
• Utilities:
 

——————–

 
9. Office properties have underperformed sharply in recent weeks.
 

Back to Index

 

Credit

1. High-yield spreads continue to grind higher.
 

 
2. Leveraged finance issuance has been slowing.
 
Source: Deutsche Bank Research  
 
3. Convertibles issuance also slowed sharply as prices slump.
 
Source: @WSJ   Read full article  
 

——————–

 
4. Increased fund ownership has exacerbated muni volatility.
 
Source: @WSJ   Read full article  

Back to Index

 

Rates

Treasury term premium should rise further with quantitative tightening reaching maximum speed later this year, according to Deutsche Bank.
 
Source: Deutsche Bank Research  

Back to Index

 

Global Developments

1. Let’s start with COVID-era nominal GDP recovery across G7 economies.
 
Source: Economics and Strategy Group, National Bank of Canada  
 
2. How much do different countries rely on international trade?
 
Source: @financialtimes   Read full article  
 
3. This chart compares the 2022 GDP growth with changes in real household disposable incomes?
 
Source: OECD   Read full article  

——————–

Back to Index

 

Food for Thought

1. Devastating weather disasters in the US have increased in both frequency and size over the past 40 years.
 
Source: Wells Fargo Securities  
 
2. Food sales impacted by export restrictions (2 charts):
 
Source: @SMerler, @IFPRI  
 
Source: Reuters   Read full article  

——————–

 
3. Leaving Brooklyn (but mostly staying local):
 
Source: Placer.ai  
 
4. Adult gamers:
 
Source: Statista  
 
5. How deep are the Great Lakes?
 
Source: Visual Capitalist   Read full article  

——————–

Back to Index

Posted on

Business and consumer spending intentions have diverged

The Daily Shot: 28-Jun-22
• The United States
• Canada
• The Eurozone
• Europe
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought

 

The United States

1. US durable goods orders topped expectations, with business investment holding up well despite the headwinds (note that these figures are not adjusted for inflation).
 

 
Source: Pantheon Macroeconomics  
 
Inventory growth has been outpacing orders.
 
Source:  Peter Essele, Commonwealth Financial Network  
 
The Citi Economic Surprise Index bounced from the lows after the durable goods orders report.
 

——————–

 
2. Business and consumer spending intentions have diverged.
 
Source: @ANZ_Research  
 
3. The Dallas Fed’s regional manufacturing index tumbled this month, …
 

 
… as demand slumped …
 

 
… and outlook collapsed.
 

 
Manufacturers expect supply stress to ease with falling demand.
 

 
Order backlogs have melted away.
 

——————–

 
4. Pending home sales were better than expected last month but are still down 12% vs. last year.
 

 
The upside surprise was driven by stronger sales in the Northeast.
 

——————–

 
5. Next, we have some updates on inflation.
 
• This chart shows the median CPI at the start of the past 13 hiking cycles (over the past 70 years) and where inflation was at the first rate cut.
 
Source: Deutsche Bank Research  
 
Here is the CPI at the start of the first hike vs. the amount of tightening in the first year.
 
Source: Deutsche Bank Research  
 
• Market-based inflation expectations have been drifting lower.
 

 
• Here is the Evercore ISI’s estimate of the Fed’s Index of Common Inflation Expectations.
 
Source: Evercore ISI Research  
 
• The CPI is now at its long-term downtrend resistance.
 
Source: @NautilusCap  
 
• Inflation has been increasingly correlated to consumption, making price changes more vulnerable to demand shocks.
 
Source: TS Lombard  
 
• The surge in US business markups helped fuel inflation.
 
Source: Mike Konczal, Niko Lusiani   Read full article  
 
• Hospital inflation could accelerate in the months ahead as labor costs surge.
 
Source: Deutsche Bank Research  
 
• Shelter CPI has more room to rise.
 
Source: Citi Private Bank  

Back to Index

 

Canada

1. Consumer confidence continues to sink.
 

 
2. Inflation has been accelerating across the board.
 
Source: Desjardins  
 
Surging inflation continues to surprise the BoC.
 
Source: Scotiabank Economics  

——————–

 
3. The mortgage debt service ratio is near peak levels and sharply higher than the US.
 
Source: MRB Partners  

Back to Index

 

The Eurozone

1. Let’s begin with Germany.
 
• Consumer sentiment hit a record low.
 

 
• Survey data weakness signals a GDP contraction in Germany.
 
Source: Pantheon Macroeconomics  
 
• Germany is experiencing wage pressures.
 
Source: Deutsche Bank Research  
 
• German firms’ selling price expectations remain high.
 
Source: Deutsche Bank Research  

——————–

 
2. Tighter liquidity points to deteriorating business activity in the Eurozone.
 
Source: Pantheon Macroeconomics  

Back to Index

 

Europe

1. Czech consumer confidence hit a record low.
 

 
2. Here is a look at job vacancy rates in the EU.
 
Source: Eurostat   Read full article  
 
3. And this chart shows EU electricity production by source.
 
Source: @WSJ   Read full article  

Back to Index

 

China

1. The Shanghai Shenzhen CSI 300 Index is entering overbought territory.
 

 
2. Hong Kong’s exports eased in May but remain elevated.
 

Back to Index

 

Emerging Markets

1. The Indian rupee hit a record low as oil prices climb.
 

 
Source: Reuters   Read full article  

——————–

 
2. Mexico’s trade deficit was wider than expected in May.
 

 
3. JP Morgan’s LatAm currency index is at support.
 

 
4. EM ex-China economies continue to see non-resident outflows.
 
Source: @SergiLanauIIF  
 
5. Which countries risk social unrest?
 
Source: Barclays Research  

Back to Index

 

Cryptocurrency

1. Crypto investment products saw massive outflows totaling $423 million last week.
 
Source: CoinShares   Read full article  
 
Bitcoin-focused products saw the most outflows, while Ethereum-focused funds and short-bitcoin funds saw inflows.
 
Source: CoinShares   Read full article  

——————–

2. XRP has been outperforming.
 

 
3. Ether has been holding support at the 200-week moving average.
 
h/t Joanna Ossinger  
 
4. A significant number of bitcoin holders are facing unrealized losses, similar to what occurred near previous bear market lows.
 
Source: @cryptoquant_com  
 
5. Weaker economic indicators pose downside risks for bitcoin.
 
Source: Stifel  

Back to Index

 

Commodities

1. Platinum is testing support at $900/oz.
 
Source: barchart.com  
 
2. The inverse correlation between gold and real yields turned positive in recent months.
 
Source: Aazan Habib; Paradigm Capital  
 
3. Fitch Solutions expects steel prices to remain elevated because of the Russia/Ukraine war and renewed stimulus targeting China’s infrastructure. Still, over the coming decade, demand could slow as China prioritizes services over heavy industry.
 
Source: Fitch Solutions Macro Research  
 
4. Most commodities, especially base metals, are in a bear market.
 
Source: @granthawkridge  
 
5. Historically, sharp rises in commodity prices have preceded or coincided with recessions. As the momentum surge peaks, however, commodities have struggled over the next few months, according to SentimenTrader.
 
Source: SentimenTrader  

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Energy

1. OPEC output is near capacity, and Europe is asking the US to step up.
 
Source: @ShellenbergerMD  
 
US energy CapEx has been soft.
 
Source: BofA Global Research; @SamRo  
 
And global investment in fuels is still below pre-COVID levels.
 
Source: IEA   Read full article  

——————–

 
2. Oil is rebounding.
 

 
• The market remains very tight. Here is the spread between the August and the September Brent futures (backwardation).
 

——————–

 
3. This chart shows oil consumption shortfall (deviation from the pre-pandemic path) by region.
 
Source: Numera Analytics  
 
4. Russian refinery inputs are declining as sanctions affected both exports and domestic demand, but also due to maintenance, according to OIES (2 charts).
 
Source: Oxford Institute for Energy Studies  
 
Source: Oxford Institute for Energy Studies  

Back to Index

 

Equities

1. Stocks have been firmer in anticipation of rate cuts, which the market expects to start in the first half of next year. The assumption here is that the Fed will be comfortable with its progress in battling inflation by then. Perhaps.
 
Source: Piper Sandler   
 

——————–

 
2. Elevated profitability is a risk for stocks.
 
Source: MRB Partners  
 
• Earnings forecasts have been trending higher …
 
Source: PGM Global  
 
… even as economists continue to downgrade GDP growth projections.
 

 
• A number of leading indicators continue to signal a deterioration in earnings growth (2 charts).
 
Source: Alpine Macro  
 
Source: Longview Economics  
 
• Equity analysts have been “behind the curve” and are now trying to catch up. Earnings downgrades are increasingly outpacing upgrades.
 

——————–

 
3. There is plenty of room for valuations to adjust lower.
 
Source: FAURBY CAPITAL  
 
4. The dispersion in interest rate sensitivities across sectors and style factors was muted until about 2012.
 
Source: D.E. Shaw Group   Read full article  
 
Source: D.E. Shaw Group   Read full article  
 
This table shows how sector returns are affected when adjusting for equity and Treasury betas over the past decade.
 
Source: D.E. Shaw Group   Read full article  

——————–

 
5. Market breadth has improved.
 
Source: @Lvieweconomics  
 
6. Skew indicators point to limited demand for downside protection.
 
Source: @ANZ_Research  

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Credit

1. The pace of global corporate defaults has slowed so far this year compared to the previous five years.
 
Source: S&P Global Ratings  
 
Corporate defaults in the US are currently much lower than in previous years.
 
Source: S&P Global Ratings  

——————–

 
2. The share of stressed EUR HY debt remains well above pre-COVID levels.
 
Source: S&P Global Ratings   Read full article  
 
3. A lot of bond deals got pulled this month.
 
Source: Jacqueline Poh, @TheTerminal, Bloomberg Finance L.P.   Read full article  
 
4. The corporate funding strength of US life, property, and casualty insurance companies is substantial relative to public pension systems.
 
Source: Moody’s Investors Service  
 
• US public pension systems have shifted away from fixed-income securities as interest rates fell.
 
Source: Moody’s Investors Service  
 
• US public pension systems are increasingly relying on private equity and private credit in pursuit of higher returns (with higher risk). The chart shows aggregated investment allocation of the top 10 largest pension systems.
 
Source: Moody’s Investors Service  

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Rates

1. Short-term rates volatility has been massive.
 
• 2yr Treasury futures realized vol:
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
• Implied vol on 2yr rates, 6-months forward:
 
Source: Deutsche Bank Research  
 
• Implied vol for the one-month option on the 5-year Treasury futures contract:
 
Source: FHN Financial  

——————–

 
2. Here is the distribution of Fed rate changes since 1971.
 
Source: @ANZ_Research  
 
3. MBS convexity is gone as mortgage refi activity grinds to a halt (the prepay option is now too deep out-of-the-money). Durations are higher.
 
Source: Goldman Sachs; III Capital Management  

Back to Index

 

Global Developments

1. Google search activity for “recession” has been surging.
 
Source: Alpine Macro  
 
2. Here is the share of inflation components with prices climbing by more than 5%.
 
Source: @WSJ   Read full article  
 
3. Cross-border liabilities continue to rise.
 
Source: IMF   Read full article  

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Back to Index

 

Food for Thought

1. Avoiding the news:
 
Source: Statista  
 
2. Politics on Twitter:
 
Source: Pew Research Center   Read full article  
 
3. Belief in God in the US:
 
Source: Gallup   Read full article  
 
4. Foreign-born population by country:
 
Source: Statista  
 
5. Favorite destinations of Russian private jets:
 
Source: The New York Times   Read full article  
 
6. Cocaine seizures in Europe
 
Source: Statista  
 
7. Training the immune system to attack cancer cells with personalized vaccines:
 
Source: @financialtimes   Read full article  

——————–

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US bank loan growth has accelerated

The Daily Shot: 27-Jun-22
• The United States
• The United Kingdom
• The Eurozone
• Japan
• China
• Emerging Markets
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought

 

The United States

1. New home sales surprised to the upside.
 

 
But analysts see the rebound in demand as temporary.
 
– New home sales and buyer traffic:
 
Source: Wells Fargo Securities  
 
– Buyer traffic and mortgage rates:
 
Source: Citi Private Bank  
 
• Inventories remain elevated, …
 

 
… diverging from unsold existing homes.
 
Source: Wells Fargo Securities  
 
Here is the inventory breakdown by stage.
 
Source: Wells Fargo Securities  
 
• 15% of new homes sold have been over $750k.
 

——————–

 
2. According to a WSJ survey, the probability of a US recession in the next twelve months is 44%.
 
Source: @WSJ   Read full article  
 
Not everyone agrees. The odds of a recession remain relatively low, according to MRB Partners.
 
Source: MRB Partners  

——————–

 
3. The U. Michigan Consumer Expectations Index hit the lowest level since 1980.
 

 
High gasoline prices have weighed on sentiment.
 
Source: Numera Analytics  
 
Consumer sentiment has significantly decoupled from the unemployment rate, similar to what occurred in the 1970s.
 
Source: Deutsche Bank Research  

——————–

 
4. As discussed previously, what some have been calling an increase in unemployment claims is likely just a seasonal adjustment issue (see chart).
 
Source: Pantheon Macroeconomics  
 
Source: @WSJ   Read full article  
 
5. Job postings on Indeed are drifting lower.
 

 
6. A survey from the Dallas Fed shows executives expecting supply chain issues to last more than 12 months.
 
Source: Dallas Fed  
 
Nonetheless, container costs continue to decline.
 

——————–

 
7. Reserves continue to move lower, driven mostly by the Fed’s RRP facility (as well as QT).
 

 
US bank loan growth has accelerated. The second panel shows the ratio of loans to total bank assets.
 

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The United Kingdom

1. Britons view their financial future as hopeless.
 

 
2. Food inflation could exceed 12% by the end of the year.
 
Source: Pantheon Macroeconomics  
 
3. Real retail sales continue to fall.
 

 
4. Here is a look at the UK balance sheet (see comment below from Gavekal Research).
 
Source: Gavekal Research  

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The Eurozone

1. Germany’s Ifo expectations index declined in June.
 

 
Source: Reuters   Read full article  
 
Below are the trends by sector.
 
Source: ifo Institute  

——————–

 
2. Next, we have some CPI trends.
 
• Inflation breadth:
 
Source: Chart and data provided by Macrobond  
 
• Dispersion:
 
Source: Chart and data provided by Macrobond  
 
• Measures of core inflation:
 
Source: TS Lombard  

——————–

 
3. Euro-area’s real wage growth is deep in negative territory, pressuring consumer confidence.
 
Source: ING  
 
4. Italian sentiment indicators have diverged sharply.
 
• Manufacturing sentiment:
 

 
• Consumer sentiment:
 

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Japan

1. Hedge funds have soured Japan’s equities (chart shows positioning in the Nikkei futures).
 

 
2. PMI data point to higher inflation ahead.
 
Source: Pantheon Macroeconomics  

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China

1. Industrial profits are following last year’s trajectory.
 

 
2. Will this year’s stimulus efforts be enough to meaningfully boost the economy?
 
Source: PGM Global  
 
Here is a breakdown of China’s stimulus plans.
 
Source: PGM Global  

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Emerging Markets

1. The risk of Brazil going into stagflation next year has risen.
 
• GDP forecasts for 2023:
 

 
• CPI forecast:
 

 
Brazil’s consumer confidence is grinding higher.
 

——————–

 
2. Mexico’s economic activity continues to recover.
 

 
3. Colombia’s stocks, bonds, and currency took a hit last week after the election.
 

 
4. The Chilean peso is reaching new lows as commodities pull back. Is the peso oversold?
 

 
5. Russia is officially in default on external debt.
 
Source: @WSJ   Read full article  
 
The recovery is priced at about a quarter of par.
 
• CDS points:
 

 
• Bond price:
 

——————–

 
6. The Turkish lira jumped about 5% as the government took action to defend the beleaguered currency. Capital controls next?
 

 
Source: Reuters   Read full article  
 
Separately, Turkish manufacturing confidence is rolling over.
 

——————–

 
7. Next, we have some performance data from last week.
 
• Equity ETFs:
 

 
• Currencies:
 

 
• Local bonds:
 

Back to Index

 

Commodities

1. Cotton plummetted last week.
 

 

 
Fitch believes global cotton prices have peaked as demand weakened, while increased plantings and better weather could increase production.
 
Source: Fitch Solutions Macro Research  
 
Here is Bloomberg’s softs index.
 

——————–

 
2. Weather forecasts show more rainfall across the US agriculture belt. Much different versus a week ago.
 
Source: @bamwxcom  
 
Rainfall should help lower drought intensity, although farmers have been forced to adjust to a volatile planting season.
 
Source: Successful Farming   Read full article  
 
Here is Bloomberg’s grains index.
 

——————–

 
3. Finally, we have last week’s performance across key commodity markets.
 

Back to Index

 

Energy

1. European natural gas futures continue to climb.
 

 
2. Crack spreads have surged across the board.
 
Source: @Ole_S_Hansen  
 
3. The put/call ratio in WTI crude oil contracts remains low.
 
Source: Numera Analytics  

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Equities

1. Stocks staged a relief rally, with the S&P 500 up 6.45% last week, …
 

 
… amid extreme bearishness.
 
Source: @MacroCharts  

——————–

 
2. Retail investor positioning has not fallen with sentiment.
 
Source: @WillieDelwiche  
 
Retail cash balances have been rising.
 
Source: Vanda Research  

——————–

 
3. The Nasdaq 100 held support at the 200-week moving average.
 
Source: Evercore ISI Research  
 
The iShares Russell 1,000 Value ETF (IWD) is testing resistance relative to the iShares Russell 1,000 Growth ETF (IWF).
 

——————–

 
4. The US equity market’s relative performance has diverged from the US dollar.
 
Source: Capital Economics  
 
5. Where do US firms generate their profits?
 
Source: Goldman Sachs; @MikeZaccardi  
 
• The capitalization of US equities represents approximately 60% of global markets.
 
Source: MRB Partners  
 
• This chart shows broad equity sector composition across advanced economies.
 
Source: MRB Partners  

——————–

 
6. The S&P 500 continues to trade at a significant premium to the rest of the US market.
 

 
7. Next, we have some market performance data from last week.
 
• Sectors:
 

 
• Equity factors:
 

 
• Thematic ETFs:
 

 
• Largest tech firms:
 

Back to Index

 

Credit

1. US investment-grade bond spreads (OAS) have diverted from equity vol (VIX).
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
2. European investment-grade spreads are at “crisis” levels.
 

 
Dealer credit default swap spreads have risen sharply this year.
 

——————–

 
3. Next, we have last week’s performance by asset class.
 

Back to Index

 

Rates

SOFR (based on overnight repo rates) is now well below the fed funds rate (due to extreme demand for cash instruments). Will the Fed get involved in the repo market?
 

 
Futures suggest that the above discrepancy should fade later this year.
 
Source: Goldman Sachs  

Back to Index

 

Global Developments

1. Inflation has decoupled from commodities as service prices surge.
 
Source: @RichardDias_CFA  
 
2. Next, we have some performance data from last week.
 
• Trade-weighted currency indices:
 

 
• DM bond yields:
 

——————–

Back to Index

 

Food for Thought

1. US lithium-ion battery imports:
 
Source: S&P Global Market Intelligence  
 
2. LEGO’s financial performance in 2021:
 
Source: @chartrdaily  
 
3. What does it mean to be wealthy?
 
Source: MagnifyMoney   Read full article  
 
4. Population trends in select states:
 
Source: Placer.ai  
 
5. Abortion access status by state:
 
Source: @axios   Read full article  
 
Distance to the nearest abortion provider:
 
Source: The Economist   Read full article  

——————–

 
6. Annual working hours per worker:
 
Source: @wealth   Read full article  
 
7. Maritime traffic around the world:
 
Source: @VisualCap, @PythonMaps   Read full article  

——————–

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Posted on

Manufacturing orders are shrinking around the world

The Daily Shot: 24-Jun-22
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Europe
• Japan
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Energy
• Equities
• Credit
• Rates
• Food for Thought

 

The United States

1. The S&P Global PMI report showed a marked deceleration in business activity this month, with headline figures coming in well below forecasts.
 
• Manufacturing output shifted into contraction mode.
 

 
New orders slumped as demand deteriorates. This trend is not unique to the US. The June PMI data also showed new orders falling in the UK, Germany, France, and Japan.
 

 
Last year’s massive backlog of work is no more.
 

 
• The services PMI was also lower than expected, …
 

 
… with incoming new business entering contraction territory.
 

——————–

 
2. The Kansas City Fed’s regional manufacturing index held up a bit better than expected this month.
 

 
Under the hood, however, the report was not as rosy.
 
• Production:
 

 
• New orders:
 

 
Backlogs are melting away with falling demand.
 
• Supplier delivery times:
 

 
• Backlog of orders:
 
–
 
The region’s manufacturers still feel they have pricing power.
 

——————–

 
3. Tight financial conditions point to further weakness in business activity ahead.
 
Source: Nordea Markets  
 
4. Next, we have some updates on the labor market.
 
• If there is a soft patch in the labor market, it’s yet to show up in the unemployment applications data.
 

 
• Here is one reason for recent US labor shortages.
 
Source: Giovanni Peri and Reem Zaiour; h/t III Capital Management   Read full article  
 
• Will labor force participation continue to rebound?
 
Source: BCA Research  
 
• GDP growth will mostly rely on productivity improvements, as US labor force expansion stalls.
 
Source: CBO   Read full article  
 
• According to a model from the Fed, the probability of a significant jump in unemployment over the next couple of years has risen substantially.
 
Source: Board of Governors of the Federal Reserve System  

——————–

 
5. Will the CPI peak above 9%? Here is a forecast from Nordea Markets.
 
Source: Nordea Markets  
 
6. With recession risks rising, the market sent the belly of the Treasury curve lower this week.
 

 
7. The terminal rate is now just above 3.5%, as the market expects the Fed to begin cutting rates as soon as the first half of next year.
 

 
• The probability of a rate hike in February of next year has collapsed.
 

 
• The market sees the Fed cutting rates by nearly 60 bps between Q1 of next year and Q1 of 2024.
 

Back to Index

 

Canada

Canadian shares have widened their underperformance vs. the US.
 

 
Source: @markets   Read full article  
 
Here is the put option volume on the iShares MSCI Canada ETF.
 
Source: @danny_kirsch  

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The United Kingdom

1. The UK PMI report showed more resilience this month than what we see in the Eurozone.
 
• Manufacturing growth is slowing but remains positive.
 

 
However, factory orders are starting to contract.
 

 
The output price index points to a pullback in the PPI.
 
Source: Pantheon Macroeconomics  
 
• Services PMI topped expectations.
 

 
Services hiring remains robust.
 

 
Price increases slowed again this month.
 

——————–

 
2. The GFK Consumer Confidence index hit a new low.
 

 
Source: @financialtimes   Read full article  
 
3. Retail sales were soft this month.
 

 
Source: Reuters   Read full article  

——————–

 
4. Government borrowing was higher than expected in May.
 

 
5. Inflation-linked gilts slumped this year.
 
Source: S&P Dow Jones Indices  

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The Eurozone

1. Manufacturing output is contracting for the first time since the initial COVID shock in 2020.
 

 
• Headline PMI figures were below forecasts.
 
– France:
 

 
– Germany:
 

 
• New orders are slumping.
 
– France:
 

 
By the way, a separate report showed French manufacturing confidence holding up well.
 

 
– Germany:
 

 
• Here are a couple of additional indicators.
 
– The backlog of work in France:
 

 
– Outlook on future output in Germany:
 

 
• Manufacturers’ troubles are shifting from supply-chain stress to concerns about falling demand.
 

 
2. Services PMI reports were also softer than expected.
 
• France:
 

 
– Germany:
 

 
• German service firms are reporting a decline in new business.
 

 
• Cost pressures remain extreme.
 

 

——————–

 
3. The Citi Economic Surprise Index dipped into negative territory in response to the PMI miss.
 

 
4. Bond yields tumbled on recession concerns.
 

 
5. This chart shows each country’s share of natural gas imports relative to overall energy consumption.
 
Source: ECB   Read full article  

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Europe

1. Norway’s central bank hiked rates by 50 bps, the largest increase in 20 years.
 

 
The projected path of rate hikes has steepened sharply.
 
Source: Nordea Markets  

——————–

 
2. Poland’s consumer confidence slumped to multi-decade lows as prices soar.
 

 
3. Here are the drivers of the equity market dip into bear-market territory
 
Source: Numera Analytics  

Back to Index

 

Japan

1. The core CPI held steady in May.
 

 
But the services PPI continues to climb. Service sector margins are coming under pressure.
 

——————–

 
2. Manufacturing orders are in contraction territory.
 

 
3. Department store sales held up relatively well in May.
 

 
4. Foreigners have been dumping Japan’s stocks …
 

 
… and bonds.
 

Back to Index

 

Asia – Pacific

1. Taiwan’s industrial production was a bit stronger than expected last month.
 

 
2. Singapore’s inflation continues to climb.
 
Source: ING  
 
3. Australia’s residential land values seem to be in bubble territory.
 
Source: @Haymaker_0  

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China

1. Stocks continue to rebound.
 

 
2. Housing inventories have been rising.
 
Source: Barclays Research  

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Emerging Markets

1. Let’s begin with Mexico.
• Banxico followed the Fed with a 75 bps rate hike, …
 

 
… as inflation surges.
 

 
• Retail sales were strong in April.
 

——————–

 
2. The Philippine central bank boosted rates for the second time.
 

 
3. This chart shows policy rate projections from Barclays.
 
Source: Barclays Research  

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Cryptocurrency

1. Cryptos are starting to stabilize, with litecoin (LTC) leading among the top tokens.
 
Source: FinViz  
 
2. The Grayscale Bitcoin Trust (GBTC) trading volume hit a seven-month high.
 
Source: @CoinbaseInsto  
 
3. GBTC’s discount has narrowed over the past week.
 
Source: @CoinbaseInsto  
 
4. Bitcoin miner revenue has fallen to the lowest level since October 2020, as measured by the hashprice.
 
Source: CryptoQuant   Read full article  
 
Miners have been moving more BTC on exchanges (possibly to sell) amid the profit squeeze.
 
Source: CryptoQuant   Read full article  

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Energy

1. The front end of the Brent curve moved deeper into backwardation (inverted curve) as supply concerns persist.
 

 
2. US natural gas prices have been tumbling, …
 

 
… driven by the disruption in LNG exports, …
 

 
… and a larger than expected inventory build.
 
Source: NGI   Read full article  
 

——————–

 
3. About 20% of the energy generated in the United States came from renewables in 2020, up from 10% a decade ago.
 
Source: Wells Fargo Securities  
 
4. This chart shows CO2 emissions by energy source.
 
Source: Global X ETFs   Read full article  

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Equities

1. Speculative stocks bounced over the past few days.
 

 
2. Retail investors continue to buy the dip.
 
Source: Vanda Research  
 
But they have been scaling down equity purchases.
 
Source: Vanda Research  

——————–

 
3. S&P 500 earnings estimates are up 7.5% year-to-date, just as the forward P/E ratio is down some 28%.
 
Source: Trahan Macro Research  
 
Here is the forward P/E ratio for the Russell 3000 index (combined large caps and small caps).
 

 
But analysts are now chipping away at earnings forecasts, with downgrades exceeding upgrades.
 

 
And margins could be under pressure.
 
Source: Pantheon Macroeconomics  

——————–

 
4. Another 24% to go?
 
Source: Societe Generale; @markets   Read full article  
 
5. New lows continue to exceed new highs.
 
Source: @allstarcharts, @WillieDelwiche  
 
6. Next, we have some sector updates.
 
• Bank shares slumped this week.
 

 
Will the stress test results help?
 
Source: Barron’s   Read full article  
 
• The SPDR S&P Biotech ETF is testing initial resistance but is improving relative to the overall market.
 
Source: Aazan Habib; Paradigm Capital  
 
• Forward earnings of the health care sector have recently turned lower, reflecting the expected contraction in next year’s profits.
 
Source: MRB Partners  
 
Still, MRB Partners expects forward earnings to eventually reverse as health care companies deliver strong results relative to the broader market.
 
Source: MRB Partners  
 
• Here are the buy/sell recommendations by sector.
 
Source: @FactSet   Read full article  

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Credit

1. Bonds continue to see outflows, driven by credit.
 
Source: BofA Global Research  
 
2. This chart shows asset-backed and mortgage securities outstanding.
 
Source: SIFMA  

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Rates

1. Rates implied volatility remains elevated.
 

 
Realized volatility has been severe at the short end of the curve.
 
Source: Bloomberg

——————–

 
2. Bond yields have moved lower globally.
 
Source: @jnordvig, @ExanteData  

——————–

Back to Index

 

Food for Thought

1. Visits to US workplaces:
 
Source: @WSJ   Read full article  
 
2. Share of global GDP:
 
Source: World Economics  
 
3. Government spending (% of GDP) vs. population aged 65 and above:
 
Source: Trahan Macro Research  
 
4. Immigrants in the 117th US Congress:
 
Source: Statista  
 
5. COVID reinfections in England:
 
Source: @Jean__Fisch  
 
6. Can you see the panda bear?
 
Source: Ilja Klemencov  

——————–

 
Have a great weekend!

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Posted on

How did we get into this inflation mess?

The Daily Shot: 23-Jun-22
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Europe
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Alternatives
• Credit
• Global Developments
• Food for Thought

 

The United States

1. Despite the housing market headwinds, mortgage applications are holding up.
 

 
This chart shows mortgage rate locks.
 
Source: AEI Center on Housing Markets and Finance  
 
Here is another look at deteriorating housing affordability.
 
Source: @lenkiefer  

——————–

 
2. Next, we have some updates on inflation.
 
• Market-based inflation expectations have been moving lower with oil.
 

 
• The core goods PPI should moderate if oil prices stay near current levels.
 
Source: Pantheon Macroeconomics  
 
• Upstream price pressures have been extreme.
 
Source: Pantheon Macroeconomics  
 
• How did we get into this inflation mess? Here are three key reasons.
 
Source: Evercore ISI Research  
 
This is Economics 101:
 
Source: @greg_ip  

——————–

 
3. As we saw previously, the Fed is willing to allow significant collateral damage to get inflation under control.
 
Source: @WSJ   Read full article  
 
Investors have been positioning for economic pain.
 
Source: Deutsche Bank Research  

——————–

 
4. According to the HPS-CS index, consumer confidence continues to deteriorate.
 
Source: @HPS_CS, @HPSInsight, @CivicScience  
 
5. Finally, we have some updates on consumer spending.
 
• Real card spending growth is now negative.
 
Source: Bank of America Institute; h/t @SamRo  
 
• “Non-necessary” spending is down.
 
Source: AEI Center on Housing Markets and Finance  
 
• Further weakness in retail sales could spell trouble for GDP growth.
 
Source: ING  

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Canada

1. The May CPI report topped expectations – again. The trend has been ugly.
 
• Headline CPI:
 

 
• Month-over-month and 3-month changes:
 

 
• Core inflation measures (3 charts):
 

 

 

 
• CPI breadth:
 
Source: Scotiabank Economics  
 
• A couple of CPI components:
 

 

——————–

 
2. The market has penciled in a 75 bps BoC rate hike next month.
 

 
Below is the rate expectation for the year-end.
 

——————–

 
3. Canada’s stock market underperformed in recent days as oil prices moved lower while rate hike expectations climb.
 

 
4. The housing market is highly vulnerable as rates climb.
 
• Real prices:
 
Source: The Economist   Read full article  
 
• Valuation:
 
Source: MRB Partners  
 
• Affordability:
 
Source: MRB Partners  
 
• Housing activity:
 
Source: MRB Partners  

Back to Index

 

The United Kingdom

1. The CPI report was in line with expectations, with the headline index now above 9%.
 

 
Source: @M_McDonough  
 
• The peak will be above 10%, according to Pantheon Macroeconomics.
 
Source: Pantheon Macroeconomics  
 
• The core CPI is off the highs.
 

 
• But the retail price index surprised to the upside.
 

 
• Producer prices continue to surge, with upstream price pressures at extreme levels.
 

 
The CPI – PPI gap points to shrinking corporate margins.
 
Source: @samueltombs  

——————–

 
2. The official index of house price appreciation was back above 12% in April.
 

Back to Index

 

The Eurozone

1. The June PMI data was softer than expected. More on this tomorrow.
 

 
2. Consumer confidence hit the lowest level since the debt crisis, …
 

 
… which doesn’t bode well for household spending.
 
Source: Pantheon Macroeconomics  
 
Dutch consumer confidence hit a new low this month.
 

——————–

 
3. Next, we have some updates on Italy.
 
• Business investment:
 
Source: Deutsche Bank Research  
 
• The trade balance and current account balance:
 

 

 
• Population:
 
Source: Alpine Macro  

——————–

 
4. Tight financial conditions are lifting borrowing costs. The ECB will need an ongoing program to contain fragmentation risks.
 
Source: Numera Analytics  
 
5. Ukrainian refugees are boosting the euro-area labor force, which should support economic growth over the long term.
 
Source: Morgan Stanley Research   Read full article  

Back to Index

 

Europe

1. Sweden’s labor market remains tight.
 
Source: Nordea Markets  
 
The nation’s housing market is under pressure.
 
Source: Nordea Markets  

——————–

 
2. The Czech central bank hiked its benchmark rate by 125 bps to 7%. The pace of tightening has been unprecedented.
 

 
The market expects a recession, with the yield curve deeply inverted.
 

——————–

 
3. Poland’s retail sales are off the highs but remain very strong.
 

 
Source: ING  

——————–

 
4. Here is a look at the minimum wage across the EU.
 
Source: Eurofound   Read full article  

Back to Index

 

Asia – Pacific

1. Japan’s business activity picked up in June, driven by services.
 
Source: S&P Global PMI  
 
But the nation’s service sector is facing a squeeze in profit margins.
 
Source: TS Lombard  

——————–

 
2. South Korea’s PPI is back near 10%.
 

 
3. Australia’s business activity is holding up well.
 
Source: S&P Global PMI  

Back to Index

 

China

1. Stocks continue to outperform global peers.
 

 
2. USD-denominated high-yield bonds are not rebounding.
 

 
3. Developers have less money to spend on land auctions.
 
Source: Pantheon Macroeconomics  
 
4. According to the World Economics SMI report, business activity remained in contraction mode in June (SMI < 50).
 
Source: World Economics  
 
How much has China’s GDP slowed?
 
Source: Alpine Macro  

Back to Index

 

Emerging Markets

1. South Africa’s CPI topped forecasts.
 

 

 
2. Inflation across EM economies continues to surprise to the upside.
 
Source: TS Lombard  
 
3. Turkey’s consumer confidence keeps deteriorating amid hyperinflation.
 

 
4. Ukraine will have to rely on its national bank and domestic bond issuance for financing despite monetary assistance from abroad (2 charts).
 
Source: IIF  
 
Source: IIF  

Back to Index

 

Cryptocurrency

1. Bitcoin is trading far below its 200-day moving average.
 
Source: @glassnode  
 
2. Here is a look at bitcoin’s current drawdown versus previous drawdowns.
 
Source: @ArcaneResearch  
 
3. The launch of the short-bitcoin ETF could be a bullish sign.
 
Source: @allstarcharts  
 
4. This chart shows Tether’s asset reserve composition as of March 31.
 
Source: S&P Global Ratings  
 
Tether and USD Coin have the highest market cap among stablecoins.
 
Source: S&P Global Ratings  

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Commodities

1. Copper hit the lowest level since February of 2021, …
 

 
… putting more pressure on the Chilean peso.
 

 
Other industrial metals have also been selling off. Here is aluminum.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

——————–

 
2. Agricultural commodities are also moving lower.
 
• Soybeans:
 

 
• Cotton:
 

 
• Bloomberg’s agricultural commodity index:
 

 
• Palm oil is down 29% month-to-date.
 

 
Source: @markets   Read full article  

Back to Index

 

Energy

1. US energy shares slumped in recent weeks, …
 

 
… as renewable energy stocks outperform.
 

——————–

 
2. US gasoline sales are down vs. last year.
 
Source: @WSJ   Read full article  
 
By the way, gasoline prices remain below record levels in real terms.
 
Source: Dallas Fed   Read full article  

——————–

 
3. Russia has significantly cut back on natural gas deliveries to Europe, …
 
Source: @ANZ_Research  
 
Source: Barclays Research  
 
… boosting prices.
 
Source: @GasTSOua  
 
Are European natural gas inventories about to turn lower?
 
Source: Pantheon Macroeconomics  

——————–

 
4. Russia is finding ways to sell its crude oil.
 
Source: @bpolitics   Read full article  
 
Source: @markets   Read full article  
 
But its production could slow substantially in the months ahead.
 
Source: ECB   Read full article  

——————–

 
5. The US is facing high electricity demand this summer.
 
Source: @financialtimes   Read full article  
 
6. Southwestern states are expected to maintain their lead in US onshore crude oil production.
 
Source: @EIAgov  

Back to Index

 

Equities

1. The percentage of investors who are bearish is near the highest levels since the financial crisis.
 

 
2. After sharp declines this month, …
 
Source: S&P Dow Jones Indices  
 
… defensives outperformed on Wednesday.
 

——————–

 
3. Slower economic activity suggests that equity risk premium (chart below) should be higher (2nd chart).
 

 
Source: Morgan Stanley Research; @WallStJesus  

——————–

 
4. Massive fiscal stimulus boosted US corporate profits, resulting in remarkable outperformance vs. the Eurozone. What happens now as the stimulus impact ebbs?
 
Source: Robert C. King, The Jerome Levy Forecasting Center  
 
• Recent earnings downgrades have been significant, especially excluding energy and COVID-hit companies.
 
Source: Deutsche Bank Research  
 
• Consensus earnings estimates for cyclical companies are well above trend.
 
Source: Deutsche Bank Research  
 
• Deutsche Bank expects cyclical earnings to gradually return to trend levels (or slightly below), especially as economic growth slows.
 
Source: Deutsche Bank Research  
 
• Earnings suddenly matter. Firms with positive earnings have outperformed negative earnings firms every month since June of last year.
 
Source: SPDR Americas Research, @mattbartolini   Read full article  
 
• This chart shows earnings sentiment trends.
 
Source: Goldman Sachs; @WallStJesus  
 
• Double-digit declines in earnings ahead?
 
Source: @jessefelder, @IanRHarnett   Read full article  

——————–

 
5. This chart tracks 1%+ market moves across different periods.
 
Source: @allstarcharts  
 
• VIX has been elevated this year.
 
Source: S&P Dow Jones Indices  

——————–

 
6. What can US truck tonnage tell us about downside risks for the market?
 
Source: @ISABELNET_SA  

Back to Index

 

Alternatives

1. Equity hedge funds have been reducing their exposure, exacerbating the selloff. More to go?
 
Source: Deutsche Bank Research  
 
Source: Evercore ISI Research  

——————–

 
2. Secondary fund transactions have been trading at a deeper discount.
 
Source: Citi Private Bank  
 
3. Private equity and private credit AUM growth has been impressive.
 
Source: Moody’s Investors Service  
 
Large alternative managers’ assets under management have increased fivefold in the past decade, boosting market influence, according to Moody’s.
 
Source: Moody’s Investors Service  

——————–

 
4. This chart shows private capital IRRs by vintage year.
 
Source: Citi Private Bank  
 
5. For US VC deals closed in Q1, there has been a roughly 30% drop in the average late-stage valuation from last year’s highs. PitchBook expects further declines to eventually trickle down to earlier stage deal valuations.
 
Source: PitchBook  
 
6. This table shows the top countries by venture capital funding per capita so far this year.
 
Source: PitchBook  
 
7. Publicly-traded (previously) venture-backed companies have significantly underperformed relative to the S&P 500 this year.
 
Source: PitchBook  
 
8. The number of global unicorns (startups valued >$1 billion) peaked in September of last year.
 
Source: PitchBook   Read full article  
 
9. Direct real estate exposure has a weak correlation to the S&P 500, unlike REITs.
 
Source: J.P. Morgan Asset Management  
 
Here is a look at real estate performance in different inflation regimes.
 
Source: J.P. Morgan Asset Management  

Back to Index

 

Credit

1. US high-yield spreads continue to widen.
 

 
• The credit risk premium is rising across high-yield and investment-grade markets and is now firmly above pre-pandemic levels.
 
Source: Morgan Stanley Research  
 
• Fed policy shifts tend to occur around sharp turns in credit spreads.
 
Source: Morgan Stanley Research  
 
• Without the massive government intervention, credit markets should have seen a high number of defaults in the high-yield space during the pandemic, according to Morgan Stanley.
 
Source: Morgan Stanley Research  

——————–

 
2. Refinancing risks appear to be contained even if the current slow pace of leveraged finance issuance were to continue, according to S&P.
 
Source: S&P Global Ratings  
 
3. This chart shows the sector concentration of issuers from North America and EMEA rated ‘B-‘ and below with debt maturing over the next 18 months.
 
Source: S&P Global Ratings  
 
4. Here is a look at US fixed-income securities outstanding.
 
Source: SIFMA  
 
5. Who holds muni bonds?
 
Source: SIFMA  

Back to Index

 

Global Developments

1. How high will policy rates rise in the largest advanced economies? Below is a forecast from Capital Economics.
 
Source: Capital Economics  
 
2. Next, we have the distribution of global fixed-income securities outstanding.
 
Source: SIFMA  
 
3. What percentage of outstanding government debt is held by central banks?
 
Source: Simon White, Bloomberg Markets Live Blog  
 
4. The global shipping fleet is aging.
 
Source: J.P. Morgan Asset Management  
 
Here is a look at the age distribution of the world merchant fleet by vessel type.
 
Source: Statista  

——————–

Back to Index

 

Food for Thought

1. Global commercial flights:
 
Source: @WSJ   Read full article  
 
2. GDP contribution of IP-intensive industries:
 
Source: USPTO  
 
• Employment in IP-intensive industries:
 
Source: USPTO  
 
• Wages in IP-sensitive industries:
 
Source: USPTO  

——————–

 
3. GDP per capita vs. food and energy consumption (as a share of total):
 
Source: Trahan Macro Research  
 
4. Views on moral values in the US:
 
Source: Gallup   Read full article  
 
5. Reporting cybersecurity incidents:
 
Source: Moody’s Investors Service  
 
6. Most common crops by county:
 
Source: @erindataviz  

——————–

Back to Index

Posted on

How many weeks of income does it take to purchase a new vehicle?

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

 

The United States

1. Let’s begin with the housing market.
 
• Existing home sales were in line with forecasts, dipping to 2015 levels.
 

 
Sales are down almost 9% from a year ago.
 

 
And there is more pain on the way.
 
Source: Pantheon Macroeconomics  
 
• Housing inventories remain exceptionally tight but are starting to move higher.
 

 
Here is a similar index from AEI.
 
Source: AEI Center on Housing Markets and Finance  
 
• Price gains have slowed but remain positive.
 
Source: Wells Fargo Securities  
 
• Cash sales are up vs. last year.
 
Source: NAR  
 
• Mortgage payments (based on the median asking price) keep climbing, putting further pressure on affordability.
 
Source: Redfin  
 
• More sellers are lowering listing prices.
 
Source: Redfin  
 
• Redfin’s housing demand index continues to move lower but is not crashing.
 
Source: Redfin  
 
• Residential construction activity could slow substantially, …
 
Source: Pantheon Macroeconomics  
 
… prompting analysts to downgrade homebuilder share price targets.
 
Source: Bloomberg   Read full article  
 
• Household leverage has been relatively modest during the recent housing boom.
 
Source: TS Lombard  
 
• Single-family rents are about 14% higher than last year, with gains remaining broadly based.
 
Source: CoreLogic  

——————–

 
2. How does the expected Fed rate hike trajectory compare to previous cycles?
 
Source: ING  
 
Will the real fed funds rate remain negative through the cycle?
 
Source: Deutsche Bank Research  

——————–

 
3. The Chicago Fed’s national activity index was lower than expected.
 

 
4. There has been some focus in the media on the recent increase in revolving credit (credit card debt), …
 
Source: @MichaelKantro  
 
… especially as credit card rates surge.
 
Source: @wealth   Read full article  
 
But as a share of disposable income, households’ revolving credit is still well below pre-COVID levels.
 
h/t @jasonfurman  
 
Households and corporations are relatively well-positioned for the looming economic slowdown.
 
Source: Wells Fargo Securities  

——————–

 
5. In another sign of slowing consumer demand, full-service restaurants are seeing a pullback in foot traffic.
 
Source: Placer.ai  
 
Apparel store foot traffic is lower as well.
 
Source: Placer.ai  

——————–

 
6. How many weeks of income does it take to purchase a new vehicle?
 
Source: Cox Automotive  

Back to Index

 

Canada

1. April retail sales surprised to the upside, which bodes well for the Q2 GDP growth.
 

 
But vehicle sales have been deteriorating (chart shows 3-month rolling changes).
 

——————–

 
2. Consumer confidence continues to worsen, …
 

 
… as food and fuel inflation surges.
 
Source: Industrial Alliance Investment Management Inc.  

——————–

 
3. Canada’s small caps are underperforming global peers.
 
Source: PGM Global  

Back to Index

 

The United Kingdom

1. Industrial orders eased this month.
 

 
Selling prices are starting to moderate, …
 

 
… which points to a peak in the PPI.
 
Source: Pantheon Macroeconomics  

——————–

 
2. Market participants are gloomy about UK assets.
 
Source: @markets   Read full article  

Back to Index

 

The Eurozone

1. Here is the CPI projection from Barclays.
 
Source: Barclays Research  
 
2. This chart shows Germany’s manufacturing employment growth by sector.
 
Source: Statistisches Bundesamt   Read full article  
 
3. Eurozone industrial production is lagging the overall EU output (mostly due to Germany).
 
Source: Eurostat   Read full article  
 
4. Recession is coming.
 
Source: Barclays Research  

Back to Index

 

Asia – Pacific

1. The yen hit a multi-year low (chart shows the dollar surging vs. the yen).
 

 
Source: Reuters   Read full article  
 
Here is the key driver of the yen’s weakness. The pace of BoJ bond purchases has accelerated. The monthly run-rate is now double the pace of buying at “peak Abenomics,” according to Deutsche Bank.
 
Source: Deutsche Bank Research  

——————–

 
2. South Korea’s stocks remain under pressure.
 

 
3. New Zealand’s exports hit a record high.
 

Back to Index

 

China

1. Road traffic is rebounding.
 
Source: @ANZ_Research  
 
2. Steel output has diverged from construction activity.
 
Source: Gavekal Research  
 
3. Stock listing in Hong Kong slumped this year.
 
Source: @WSJ   Read full article  

Back to Index

 

Emerging Markets

1. Emerging markets are seeing substantial capital outflows this quarter, …
 
Source: IIF  
 
… exacerbated by bond fund sales.
 
Source: EPFR Global  

——————–

 
2. India’s business activity is now contracting, according to the June World Economics SMI report.
 
Source: World Economics  
 
3. Will EM economies face further growth downgrades?
 
Source: TS Lombard  

Back to Index

 

Cryptocurrency

1. Crypto investment products saw outflows totaling $39 billion last week.
Source: CoinShares   Read full article  
 
Ethereum-focused funds saw the most outflows last week, while multi-asset funds saw inflows. Short-bitcoin funds experienced record outflows, suggesting that bearish sentiment is starting to fade.
 
Source: CoinShares   Read full article  
 
By the way, the ProShares Short Bitcoin Strategy ETF (BITI) launched on Tuesday, the first of its kind in the US.
 
Source: Bloomberg   Read full article  

——————–

 
2. Crypto funds in Canada and Sweden have seen the most outflows.
 
Source: CoinShares   Read full article  
 
3. Private capital is drying up in the crypto industry.
 
Source: @ArcaneResearch  

Back to Index

 

Commodities

1. Copper remains under pressure amid concerns about China’s growth.
 

 
Iron ore resumed its decline.
 

 
Here is Bloomberg’s industrial metals index.
 

——————–

 
2. The correlation between gold and the S&P 500 is back to 85%.
 
Source: @ANZ_Research  
 
As we mentioned earlier, gold remains vulnerable to rising real yields.
 
Source: Deutsche Bank Research  

——————–

 
3. US grain prices continue to move lower amid recession concerns.
 

Back to Index

 

Energy

1. Brent crude is trending lower as sentiment shifts to risk-off.
 
Source: barchart.com  
 
2. Crack spreads remain at extreme levels.
 
Source: @bespokeinvest   Read full article  

Back to Index

 

Equities

1. Stocks bounced on Tuesday, but futures are rapidly giving up all the gains this morning as recession risks mount. The Pavlovian response these days is to sell into rallies.
 

 
2. Recession risks are trumping inflation concerns, with shares that benefit from higher prices underperforming.
 

 
3. Will the IWM ETF (Russell 2000) hold support at the pre-COVID highs?
 

 
4. Correlations among S&P 500 stocks have been rising.
 

 
5. Fund flows have not registered market capitulation. This is not what we should expect in a correction (2 charts).
 
Source: Deutsche Bank Research  
 
Source: Goldman Sachs; @WallStJesus  
 
• Fund flows have decoupled from prices.
 
Source: Deutsche Bank Research  
 
• US fund inflows continue to outperform global peers.
 
Source: Deutsche Bank Research  

——————–

 
6. Next, we have some fund flow trends by sector.
 
Source: Deutsche Bank Research  
 
Source: EPFR Global  
 
7. This chart shows global sectors’ correlation to cyclical activity.
 
Source: Citi Private Bank  
 
8. Now, let’s take a look at some sector performance data over the past few days.
 
• Consumer Discretionary:
 

 
• Tech:
 

 
• Homebuilders:
 

 
• Industrials:
 

 
• Materials:
 

 
• Utilities:
 

——————–

 
9. On a relative basis, the S&P 500 drawdown hasn’t been nearly as severe as bonds.
 
Source: Citi Private Bank  
 
10. Implied volatility of stocks and bonds combined is now above 2020 levels.
 
Source: Allianz Global Investors  

Back to Index

 

Credit

1. Leveraged loan funds are registering significant outflows.
 
Source: BofA Global Research  
 
This chart shows fund flows across credit asset classes.
 
Source: Deutsche Bank Research  

——————–

 
2. BofA argues that capitulation has taken place in credit but not in equities.
 
Source: BofA Global Research  
 
3. How correlated are different fixed-income asset classes to equities?
 
Source: J.P. Morgan Asset Management  
 
4. Here is a look at returns across recent late-stage and recession cycles since 2004 (2 charts).
 
Source: J.P. Morgan Asset Management  
 
Source: J.P. Morgan Asset Management  

Back to Index

 

Global Developments

1. Labor shortage indicators across G7 countries are showing tentative signs of easing.
 
Source: Capital Economics  
 
2. Economists continue to downgrade the 2022 growth forecasts.
 
Source: Fitch Solutions Macro Research  
 
3. Global liquidity deterioration is pressuring risk assets.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
4. World trade growth is slowing.
 
Source: J.P. Morgan Asset Management  
 
5. This table shows property risk rankings for select economies.
 
Source: @wealth   Read full article  

——————–

Back to Index

 

Food for Thought

1. More Americans can’t afford to see a doctor.
 
Source: @CivicScience   Read full article  
 
2. Addressing homelessness:
 
Source: @YouGovAmerica   Read full article  
 
3. Growing popularity of podcasts:
 
Source: Statista  
 
4. Mass shootings:
 
Source: Statista  
 
5. US working-age population with and without immigration:
 
Source: Trahan Macro Research  
 
6. Changes in the cost of hosting and attending a destination wedding:
 
Source: Wedding Price Index   Read full article  
 
7. Google search activity for popular TV series:
 
Source: @simongerman600   Read full article  

——————–

Back to Index

Posted on

Startups continue to lay off workers

The Daily Shot: 21-Jun-22
• The United States
• The United Kingdom
• The Eurozone
• Europe
• Japan
• Asia – Pacific
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought

 

The United States

1. The market is still pricing a 75 bps rate hike in July and a strong possibility of one in September as well.
 

 
The Fed’s guidance sent the fed funds shadow rate to 3.3%. The US monetary policy has tightened well before the bulk of the upcoming rate hikes.
 
Source: Deutsche Bank Research  
 
Projections for the terminal rate vary, but most economists expect the target rate to peak at 4% or higher.
 
• Danske Bank:
 
Source: Danske Bank  
 
• Wells Fargo:
 
Source: Wells Fargo Securities  
 
• Capital Economics:
 
Source: Capital Economics  
 
2. The FOMC members are highly uncertain about their economic forecasts …
 

 
… and see significant upside risks to inflation and unemployment.
 

——————–

 
3. The World Economics SMI report indicates that US business activity is already in contraction mode (SMI < 50). It appears that companies are now shedding jobs (lower left panel).
 
Source: World Economics  
 
4. Startups continue to lay off workers as VCs warn about the looming “funding winter.”
 
Source: @Layoffsfyi, @roger_lee  
 
5. Vehicle miles driven are holding up well despite record-high gasoline prices.
 
Source: Scotiabank Economics  
 
6. West Coast port delays continue to ease, …
 
Source: Wells Fargo Securities  
 
… as inventories surge, slowing demand.
 
Source: Citi Private Bank  

——————–

 
7. The NY Fed’s national consumer survey suggests that household credit availability is worsening.
 
Source: @ANZ_Research  
 
8. The NFIB small business earnings indicator has been deteriorating, but poor sales are not companies’ key concern (the main issue is inflation).
 
Source: Quill Intelligence  

Back to Index

 

The United Kingdom

1. The 30-year gilt yield reached the highest level since 2015.
 

 
2. Business investment remains depressed.
 
Source: @financialtimes   Read full article  
 
3. Here is the UK CPI forecast from Scotiabank Economics.
 
Source: Scotiabank Economics  

Back to Index

 

The Eurozone

1. German producer price inflation hit a record high. Is it peaking?
 

 
The 30yr Bund yield is approaching 2%.
 

 
2. The recent euro-area yield surge has been driven by real rates rather than inflation expectations.
 
Source: Morgan Stanley Research; @WallStJesus  
 
3. The market expects the ECB to take the deposit rate above 1.2% by the end of the year, despite fragmentation risks.
 

 
4. Eurozone construction output came off the highs in April.
 

 
5. Euro-area investment has been lagging the US.
 
Source: The European Money and Finance Forum   Read full article  

Back to Index

 

Europe

1. Central European yields continue to surge with inflation.
 
• Poland:
 

 
• The Czech Republic:
 

——————–

 
2. Will European sentiment indicators follow the US lower?
 
Source: Barclays Research  
 
3. Who holds EU government debt?
 
Source: Eurostat   Read full article  

Back to Index

 

Japan

1. The BoJ continues to distort the JGB curve …
 

 
… as the market tries to take yields higher.
 

 
This endeavor is becoming extremely expensive for the central bank, forcing it to buy massive amounts of debt to keep the 10yr yield pinned down.
 
Source: @markets   Read full article  

——————–

 
2. The JGB market implied vol surged to the highest level since the financial crisis.
 
Source: @markets   Read full article  
 
3. Institutions are boosting their bets against the yen.
 

Back to Index

 

Asia – Pacific

1. South Korea’s exports tumbled this month, …
 

 
…sending the trade deficit to a new record.
 

——————–

 
2. Taiwan’s export orders picked up in May.
 

 
3. New Zealand’s service sector activity strengthened in May.
 

 
But consumer confidence hit another record low this month.
 

Back to Index

 

Emerging Markets

1. The Colombian peso tanked in response to the election outcome (chart shows the US dollar surging against the peso).
 

 
Source: Bloomberg   Read full article  

——————–

 
2. The Chilean peso hit a new low vs. USD as copper comes under pressure.
 

 
3. Banxico will continue to hike rates for the rest of the year, according to Scotiabank Economics.
 

 
4. The ruble hit this highest level vs. USD since 2015, driven by capital controls and Russia’s lack of imports (due to sanctions). Forcing Europeans to pay in rubles for energy was also a tailwind for Russia’s currency.
 

 
Source: Bloomberg   Read full article  

——————–

 
5. The Philippine peso is testing the 2018 lows vs. the dollar as the central bank signals a relatively easy monetary policy.
 

 
6. EM economies are expected to outperform DM over the next few years.
 
Source: Bloomberg   Read full article  

Back to Index

 

Cryptocurrency

Crypto sentiment has collapsed.
 
Source: @Callum_Thomas  
 
But crypto ETF flows have been positive.
 

Back to Index

 

Commodities

1. Copper has been selling off …
 

 
… as CTAs sell.
 
Source: TD Securities; @WallStJesus  

——————–

 
2. Grains are coming off the peak.
 

 

——————–

 
3. Palm oil is in bear market as Indonesia boosts exports to reduce growing domestic inventories.
 

 
4. Commodities are still depressed relative to equities.
 
Source: Longview Economics  

Back to Index

 

Energy

1. European natural gas futures continue to climb as Russia tightens deliveries to take advantage of the US LNG disruption.
 

 
2. Uranium ETF assets and flows have surged over the past year.
 
Source: Global X ETFs   Read full article  
 
3. Nuclear facilities operate at full capacity 93% of the time.
 
Source: Global X ETFs   Read full article  

Back to Index

 

Equities

1. The breadth of the recent selloff has been unparalleled.
 
Source: Bloomberg   Read full article  
 
The Dow has been in the red in 11 out of 12 past weeks (a record).
 

 
2. Market participants are extremely gloomy. The Deutsche Bank positioning index is below negative one standard deviation.
 
Source: Deutsche Bank Research  
 
Here is the aggregate equity futures positioning.
 
Source: Deutsche Bank Research  
 
And the put/call ratio remains elevated.
 
Source: Deutsche Bank Research  

——————–

 
3. There has been a pickup in risk-on areas of the market lately.
 
Source: @NautilusCap  
 
4. Smart money is positioning for a melt-up.
 

 
But stocks don’t have a catalyst for a rebound.
 
Source: MRB Partners  

——————–

 
5. Insiders have been buying.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
6. Stocks are expensive relative to bonds.
 
Source: Longview Economics  
 
7. Retail options traders are deeply in the red.
 
Source: @sentimentrader, @jasongoepfert   Read full article  
 
8. Financials and consumer discretionary ETFs continue to see net outflows.
 

 

——————–

 
9. The Nasdaq 100 has been inversely correlated with crude oil.
 
Source: Evercore ISI Research  
 
10. XLE, the SPDR energy sector ETF, saw record put option activity last week.
 

 
11. Value stocks are trading at a significant discount relative to historical levels.
 
Source: SPDR Americas Research, @mattbartolini   Read full article  

Back to Index

 

Credit

1. It’s been a rough month for high-yield bonds so far (2 charts).
 

 
Source: Goldman Sachs; @WallStJesus  

——————–

 
2. EM corporates have been outperforming US high-yield.
 
Source: Bloomberg   Read full article  
 
3. Leveraged loan ETFs continue to see outflows.
 

 
4. Much higher yields will incentivize banks to hold more bonds at the expense of loans.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
5. Muni yields look interesting.
 
Source: Citi Private Bank  

Back to Index

 

Rates

1. The copper/gold ratio is breaking down, which could point to a drop in the 10-year Treasury yield.
 
Source: Aazan Habib; Paradigm Capital  
 
2. Overnight repo rates are now well below the fed funds rate amid strong demand for cash instruments (due to extreme risk aversion).
 

 
Demand for safe money market instruments (as well as tight supplies) is also sending the 3-month T-Bill – OIS spread to the lowest level since the financial crisis.
 

Back to Index

 

Global Developments

1. This chart shows the distribution of global central bank policy rates.
 
Source: Barclays Research  
 
2. Global consumer sentiment hit the lowest level since the financial crisis.
 
Source: @axios   Read full article  
 
3. The US and Canada have the highest retail space per capita.
 
Source: J.P. Morgan Asset Management  

——————–

Back to Index

 

Food for Thought

1. Employees are refusing to return to the office as frequently as the boss wants.
 
Source: @I_Am_NickBloom  
 
2. Same-sex couples in the US:
 
Source: US Census   Read full article  
 
3. US airline fares:
 
Source: @opinion   Read full article  
 
4. Gamblers are back:
 
Source: Scotiabank Economics  
 
5. China’s holdings of US Treasuries:
 

 
6. NBA 3-pointers:
 
Source: The New York Times   Read full article  

——————–

Back to Index

Posted on

Further signs of slowing US growth

The Daily Shot: 20-Jun-22
• The United States
• Canada
• The United Kingdom
• Europe
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Global Developments
• Food for Thought

 

The United States

1. We continue to see evidence of slowing economic growth in the US. The Conference Board’s index of leading indicators was down for three months in a row.
 

 
This chart shows the rolling 3-month changes in the Conference Board’s index.
 

——————–

 
2. US manufacturing output unexpectedly declined last month.
 

 
To be sure, factories remained busy in May, but these could be the first “hard data” signs of a slowdown in manufacturing activity.
 

 
Vehicle production has been rebounding (replenishing inventories).
 
Source: Pantheon Macroeconomics  

——————–

 
3. Economic surprise indicators are down sharply.
 

 
4. The 10yr – 2yr Treasury spread is flirting with inversion.
 

 
This indicator looks at inversions across the curve. The only reason it’s not higher is that the front end of the curve remains steep as the market prices in Fed rate hikes.
 
Source: Chart and data provided by Macrobond  

——————–

 
5. Wealth destruction has been massive in this cycle, which is likely to create a drag on consumption.
 
Source: BCA Research  
 
6. The market expects faster rate hikes since the May CPI shock, but the “terminal” (maximum) rate has declined.
 

 
Market pricing for the terminal rate is consistent with the dot plot.
 
Source: MRB Partners  
 
Will the terminal rate be high enough to achieve the Fed’s inflation-fighting goal? We want to compare it to the neutral (or “longer-run”) rate. The Fed’s expectation for the neutral rate (chart below) is roughly in line with the market (2nd chart below).
 

 

 
That puts the spread between the terminal and the neutral rate in the range of 110 – 130 bps. Will that be enough to sufficiently slow demand? What if the neutral rate is actually much higher?

——————–

 
7. The market expects the headline CPI to peak above 9%.
 
Source: Morgan Stanley Research  
 
8. The US dollar rally in this cycle has been unusually sharp.
 
Source: MarketDesk Research  

Back to Index

 

Canada

1. Home price appreciation ticked lower but remains near record levels.
 

 
2. The US Philly Fed’s manufacturing “prices paid” indicator leads Canada’s industrial product price index. For now, there are no meaningful signs of relief.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

Back to Index

 

The United Kingdom

1. Home price appreciation is holding up well despite severe weakness in consumer sentiment.
 

 
2. The 2yr gilt yield hit the highest level since 2008.
 

 
3. The market pricing for the BoE terminal (maximum) rate is slightly above 2.35%. Too low?
 
Source: BoE  

Back to Index

 

Europe

1. Growth expectations for the euro area are now higher than the US.
 
Source: Deutsche Bank Research  
 
2. Service inflation is expected to keep climbing.
 
Source: TS Lombard  
 
3. Germany is taking additional measures to reduce gas consumption as Russia slows supplies to Europe. The nation will restart coal-fired power plants and offer incentives.
 
Source:  Ministry of Economics and Technology, h/t @JavierBlas   Read full article  
 
4. Eurozone inventories have started to recover.
 
Source: Longview Economics  
 
5. Pantheon Macroeconomics expects the SNB rate hikes to outpace the ECB.
 
Source: Pantheon Macroeconomics  
 
6. Here are last week’s European currency moves vs. the euro.
 

Back to Index

 

China

1. Credit growth is picking up.
 
Source: Longview Economics  
 
2. Housing starts and property transactions have reached extreme lows. Are we near the bottom?
 
Source: Longview Economics  
 
3. Bond yields are now firmly below US Treasuries.
 
Source: @acemaxx, @markets   Read full article  
 
4. Here are the drivers of Goldman’s 2022 GDP growth forecast change.
 
Source: @acemaxx, @GoldmanSachs  

Back to Index

 

Emerging Markets

1. Brazil’s central bank is expected to keep rates elevated for some time.
 
Source: TS Lombard  
 
The Brazilian real took a hit on Friday.
 

——————–

 
2. Colombia’s economic activity has been moving above the pre-COVID trend.
 

 
3. EM stocks and bonds have been outperforming DM.
 
Source: Gavekal Research  
 
Source: Gavekal Research  

——————–

 
4. Next, we have some performance data from last week.
 
• Currencies:
 

 
• Sovereign yields (European debt sold off sharply as inflation surges).
 

 
• Equity ETFs:
 

Back to Index

 

Cryptocurrency

1. There was some panic selling over the weekend. Bitcoin dipped below $18k but rebounded to trade near $20k again.
 

 
The cryptocurrency broke below its 200-week moving average but stabilized at the $17,673 support level.
 

 
Ether dipped below $900, but is now trading near $1,100
 

——————–

 
2. The crypto market signaled capitulation as realized losses surged.
 
Source: @glassnode  
 
3. Almost all bitcoin wallet cohorts (especially those holding 1-100 BTC) are facing significant unrealized losses, worse than March 2020.
 
Source: @glassnode  
 
4. Bitcoin’s current drawdown is still less than the March 2020 and December 2018 extremes.
 
Source: Koyfin  
 
Here is a look at ETH/USD’s drawdown.
 
Source: Koyfin  

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Commodities

1. Iron ore is now down year-to-date as China’s COVID-related headwinds persist.
 

 
The Shanghai steel rebar futures are also down on the year.
 

 
2. Here is Bloomberg’s industrial metals index.
 

 
3. Gold is holding support relative to the S&P 500.
 
Source: Aazan Habib; Paradigm Capital   
 
4. Next, we have last week’s performance across key commodity markets.
 

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Energy

1. Europe’s LNG demand is expected to grow rapidly over the next few years, …
 
Source: Fitch Solutions Macro Research  
 
… as it builds out its LNG import capacity.
 
Source: @BloombergNEF   Read full article  

——————–

 
2. This chart shows Europe’s dependence on foreign natural gas suppliers.
 
Source: @bpolitics   Read full article  
 
3. US gasoline price surge was exacerbated by shrinking refining capacity.
 
Source: Numera Analytics  

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Equities

1. Let’s begin with some equity factor updates.
 
• Growth stocks outperformed on Friday.
 

 
By some measures, mega-cap valuations are attractive. This chart shows the ratio of enterprise value to forward earnings (EBITDA) for three of the largest firms.
 
Source: @acemaxx, @GoldmanSachs  
 
• The momentum factor got whipsawed again as energy shares sold off.
 

 
• Small caps underperformed last week.
 

 
• Technical indicators suggest that high-dividend shares are oversold.
 

 
• Here is last week’s performance across equity factors.
 

——————–

 
2. The 60/40 portfolio is having the worst quarter in years.
 
Source: @worrachate, @mccormickliz, @markets   Read full article  
 
This bear market has been more severe than previous cycles thus far.
 
Source: Goldman Sachs; @SamRo  

——————–

 
3. The S&P 500 is approaching initial support at its 200-week moving average.
 
Source: Aazan Habib; Paradigm Capital   
 
4. Volatility remains elevated.
 
• Number of 1%+ moves in the S&P 500:
 
Source: SPDR Americas Research, @mattbartolini  
 
• QQQ and SPY implied vol:
 
Source: MarketDesk Research  
 
5. The buy-write strategy on the S&P 500 has been outperforming. Selling calls in the high-vol environment has been lucrative (more information here).
 

 
6. Below are the most shorted sectors.
 
Source: S&P Dow Jones Indices  
 
7. The US dollar strength can help offset inflationary pressures, but it’s becoming a headwind for corporate earnings.
 
Source: TS Lombard  
 
8. Watch the ISM manufacturing PMI for signs of deterioration in corporate earnings.
 
Source: Trahan Macro Research  
 
9. Next, we have some additional performance data from last week.
 
• Sectors:
 

 
• Thematic ETFs:
 

 
• The largest US tech firms:
 

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Credit

1. Higher interest rates and an economic growth shock could challenge more indebted sovereigns.
 
Source: ECB  
 
2. This chart shows last week’s returns by asset class.
 

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Global Developments

1. It’s been a rough quarter for global stocks and bonds.
 
Source: @markets   Read full article  
 
2. Key metrics point to some moderation in supply-chain-driven price pressures.
 
Source: Moody’s Investors Service  
 
3. Next, we have some performance data from last week.
 
• DM currencies:
 

 
• DM bond yields:
 

——————–

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Food for Thought

1. Economies ranked by projected GDP:
 
Source: Visual Capitalist   Read full article  
 
2. Share of wealth ownership by wealth group:
 
Source: USAFacts  
 
3. Books banned in schools and libraries:
 
Source: Statista  
 
4. US consumer sentiment by political affiliation (the U. Michigan survey):
 
Source: ING  
 
5. Imprisoned Hong Kong opposition leaders:
 
Source: HKDC   Read full article  
 
6. Countries with the highest life expectancy:
 
Source: OpenAxis  
 
7. Number of enslaved people in the US (1790-1870):
 
Source: @_isabellamb  

——————–

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Posted on

US manufacturing activity is probably in contraction mode

The Daily Shot: 17-Jun-22
• The United States
• Canada
• The United Kingdom
• Europe
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Global Developments
• Food for Thought

 

The United States

1. The Philly Fed’s manufacturing index showed a similar trend to the NY Fed’s report.
 
• The headline index slumped.
 

 
• Demand is rapidly shrinking. The index of expected new orders dipped below the worst levels of the financial crisis.
 

 
• Hiring remains strong, but manufacturers do not expect the trend to last.
 

 
• Supply chain issues are melting away with falling demand.
 
– Unfilled orders:
 

 
– Supplier delivery times:
 

 
• But cost pressures persist. Upstream suppliers haven’t gotten the memo yet – the party is ending.
 

 
• Manufacturing activity at the national level is probably in contraction mode.
 
Source: @OrenKlachkin  

——————–

 
2. Google search frequency for “recession” surged in recent weeks, …
 
Source: Jack Ablin, Cresset Wealth Advisors  
 
… as financial conditions tighten further.
 

 
According to Wells Fargo, the US will enter a recession in Q2 of next year.
 
Source: Wells Fargo Securities  

——————–

 
3. Initial jobless claims remain below pre-COVID levels (multi-year lows for this time of the year).
 

 

 
But it’s only a matter of time before unemployment applications start picking up, as labor demand slows.
 
Source: TS Lombard  
 
Wells Fargo sees the unemployment rate hitting 5% by the end of next year.
 
Source: Wells Fargo Securities  

——————–

 
3. The Evercore ISI trucking company sales survey is drifting lower but remains elevated.
 
Source: Evercore ISI Research  
 
4. Next, we have some updates on the housing market.
 
• Housing starts slumped in May.
 

 
– Building permits got a boost from multi-family housing, which has been very strong (3rd panel).
 

 
– The NAHB survey points to further weakness in residential construction ahead.
 
Source: Pantheon Macroeconomics  
 
Here is the Evercore ISI Homebuilders Sales Survey.
 
Source: Evercore ISI Research  
 
• New home inventories point to housing price declines ahead.
 
Source: Piper Sandler   
 
• Home equity withdrawals accelerated last year.
 
Source: @WSJ   Read full article  

——————–

 
5. The federal budget continues to surprise to the upside.
 

 
6. Teachers are not in a hurry to return to work, …
 

 
Source: @axios   Read full article  
 
…which explains a substantial portion of the government job recovery deficit.
 
Source: @MarcGoldwein, @BudgetHawks, @katekgen  

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Canada

1. A 75 bps rate hike is expected in July.
 

 
2. Financial institutions are well-capitalized.
 
Source: Oxford Economics  
 
Liquidity among financial institutions is historically high.
 
Source: Oxford Economics  

——————–

 
3. Home sales slowed sharply in more expensive areas.
 
Source: Scotiabank Economics  

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The United Kingdom

1. The BoE delivered a 25 bps rate hike, as expected.
 

 
2. Inflation will remain well above 6% until the end of Q1-2023, according to Fitch Ratings.
 
Source: Fitch Ratings  
 
3. Real wage growth hit the lowest level in decades.
 
Source: Chart and data provided by Macrobond  
 
4. This chart shows the drivers of labor inactivity.
 
Source: ING  

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Europe

1. Excess savings in the Eurozone continue to grow (but are eroded by surging inflation).
 
Source: Longview Economics  
 
2. Switzerland’s central bank unexpectedly hiked rates for the first time in 15 years. The Swiss franc surged by most since 2015 (chart shows the euro declining against the franc).
 

 
Source: Reuters   Read full article  

——————–

 
3. The Czech PPI is nearing 30%.
 

 
The Czech 10yr yield hit the highest level in two decades.
 

Back to Index

 

Asia – Pacific

1. The BoJ is sticking with its yield control policy, which is becoming a headache for the central bank. Can you tell which point on the curve the BoJ is trying to pin down? The market wants to take yields higher as inflation rises, and this policy looks increasingly shaky.
 

 

——————–

 
2. We got a cautious rate hike from Taiwan’s central bank.
 

 
Source: Nikkei Asia   Read full article  

——————–

 
3. Asia ex. China continues to register equity outflows.
 
Source: @ANZ_Research  

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China

1. Supplier delivery times are starting to ease.
 
Source: Longview Economics  
 
2. Households are deleveraging (2 charts).
 
Source: BCA Research  
 
Source: TS Lombard  

——————–

 
3. Real activity has deviated far below trend, unlike the US and Eurozone.
 
Source: Numera Analytics  
 
4. Lockdowns have resulted in a fiscal shock.
 
Source: Gavekal Research  
 
Local governments have been borrowing heavily, boosting system-wide credit balances.
 
Source: BCA Research  

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Emerging Markets

1. The Hungarian central bank delivered a surprise (50 bps) rate hike.
 

 
2. Turkish consumers will resume moving their deposits out of lira.
 
Source: Capital Economics  
 
Source: Alpine Macro  

——————–

 
3. Economic data, including exports, have been weaker than expected across EM nations.
 
Source: PGM Global  
 
The terms of trade shock from higher energy prices have been more severe for China, South Korea, and India. Indonesia, however, has benefitted from higher exports of oil, gas, and cooking oils.
 
Source: PGM Global  

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Cryptocurrency

1. The $20k support is holding for now.
 

 
2. It’s been a tough week for cryptos.
 
Source: FinViz  
 
3. Bitcoin’s market value relative to its realized value (MVRV) is not at an extreme low, which means BTC is not “deeply undervalued.”
 
Source: Glassnode   Read full article  
 
4. Small bitcoin holders have been accumulating during the recent sell-off, although balance growth has been waning.
 
Source: Glassnode   Read full article  
 
This chart shows small BTC holders have been accumulating since the November price peak of around $69K, accounting for 48% of new coin issuance over the same period. They most likely face unrealized losses at this point.
 
Source: Glassnode   Read full article  

——————–

 
5. Retail investors have been providing liquidity to institutions dumping crypto-linked stocks and ETFs.
 
Source: Vanda Research  

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Commodities

1. Iron ore is tumbling as China’s COVID disruptions linger.
 

 
2. The VanEck Junior Gold Miners ETF (GDXJ) is holding short-term support.
 
Source: Aazan Habib; Paradigm Capital  
 
3. Demand for commodities is starting to wane.
 
Source: Numera Analytics  

Back to Index

 

Energy

1. US natural gas futures slumped this week due to the Freeport LNG outage which sharply reduced US LNG exports.
 

 
2. Forecasters have been boosting oil demand projections. There doesn’t seem to be much concern about recession risks, which have risen substantially in the US and the EU.
 
Source: Reuters   Read full article  
 
Source: Oxford Institute for Energy Studies  

——————–

 
3. The US is expected to remain a net-energy exporter (2 charts).
 
Source: @EIAgov  
 
Source: @EIAgov  

——————–

 
4. Fund managers expect oil to outperform other asset classes.
 
Source: BofA Global Research  
 
5. This chart shows US utility-scale energy storage additions.
 
Source: S&P Global Market Intelligence  
 
Many storage projects increasingly face challenges.
 
Source: Reuters   Read full article  

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Equities

1. It’s been a rough month for stocks so far, …
 

 
… as the market rout deepens.
 

 
Historically, stocks performed well after entering a bear market.
 
Source: LPL Research  

——————–

 
2. Only 2% of S&P 500 members are above their 50-day moving average. Time for a “relief” bounce?
 

 
3. The current P/E drawdown is in line with the COVID selloff.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
• S&P 500 forward P/E ratio:
 

 
• S&P 600 (small caps) forward P/E (lowest since the financial crisis):
 

 
• The Nasdaq 100:
 

 
• Global shares ex. US forward P/E:
 

——————–

 
4. The Philly Fed’s manufacturing report (see the US section) points to severe deterioration in corporate earnings ahead.
 
Source: @MikaelSarwe  
 
5. Small caps are entering a seasonally unfavorable period.
 
Source: SentimenTrader  
 
6. Next, we have some updates on retail investor trends.
 
• Retail investors’ drawdown is almost 35%.
 
Source: Vanda Research  
 
• Retail investors were “buying the dip” at the end of the day after the CPI shock (June 13th and 14th). But that hasn’t been enough to offset massive institutional selling.
 
Source: Vanda Research  
 
• The meme bubble has deflated.
 

 
Source: TS Lombard  
 
But new meme stocks are still popping up.
 

 
Source: TheStreet   Read full article  

——————–

 
7. The rise in real rates remains a headwind for growth stocks.
 
Source: TS Lombard  
 
8. Next, we have some sector updates.
 
• Fund managers’ positioning:
 
Source: BofA Global Research  
 
• Fund flows:
 
Source: Deutsche Bank Research  
 
• Changes in earnings estimates:
 
Source: Deutsche Bank Research  
 
• The risk/return profile:
 
Source: Mizuho Securities USA  
 
• After taking a beating in recent weeks, bank share performance is basically flat over the past four years (and that includes dividends).
 

 
According to Bankrate, “the national average interest rate for savings accounts is 0.07%.” At the same time, the one-year T-Bill yield is near 3%. A bank would have to work really hard not to mint money on NIM in this environment.
 

 
• Airline shares have been getting smoked.
 

 
And yet, the Evercore ISI airline sales survey hit the highest level in a decade.
 
Source: Evercore ISI Research  

Back to Index

 

Global Developments

1. Corporate margins remain elevated. Analysts expect them to move much lower going forward.
 
Source: TS Lombard  
 
2. Fund managers increasingly expect stagflation.
 
Source: BofA Global Research  
 
3. This chart shows the 2022 GDP growth forecast revisions since March (from Fitch Ratings).
 
Source: Fitch Ratings  
 
And here are the changes in CPI forecasts.
 
Source: Fitch Ratings  

——————–

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Food for Thought

1. Office foot traffic relative to 2019:
 
Source: Placer.ai  
 
2. Share of workers earning less than two-thirds of median earnings:
 
Source: @BW   Read full article  
 
3. Number of unicorns by industry:
 
Source: TradingPedia  
 
4. US LGBT educational attainment:
 
Source: Wells Fargo Securities  
 
5. The global fertility rate over time:
 
Source: Visual Capitalist   Read full article  
 
6. New Mexico fires:
 
Source: The New York Times   Read full article  
 
7. The Russian Empire of 1914:
 
Source: Statista  
 
8. The composition of global airline fleets:
 
Source: Visual Capitalist   Read full article  

——————–

 
Have a great weekend!

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