Month: June 2022

Posted on

The FOMC now expects higher collateral damage in its battle against inflation

The Daily Shot: 16-Jun-22
• The United States
• Canada
• The Eurozone
• Europe
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Global Developments
• Food for Thought

 

The United States

1. The Fed delivered its first 75 bps rate hike in decades (as markets expected). The original plan was to raise rates by 50 bps, but the situation changed after the May CPI report on Friday.
 

 
The FOMC removed this sentence from its statement.

With appropriate firming in the stance of monetary policy, the committee expects inflation to return to its 2% objective, and for the labor market to remain strong.

Fighting inflation has become a much less certain enterprise, and it may require a more severe blow to the labor market to achieve this goal.
 
Source: @GregDaco  
 
• The latest dot-plot is more in line with the markets.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Here is the evolution of the dot-plot over time.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
• The FOMC downgraded its GDP projections and boosted the forecasts for unemployment. The collateral damage from this inflation battle is now expected to be more severe, narrowing the path to a “soft landing.”
 

 
2. The markets reacted with a relief rally, which might be short-lived.
 
– Equities:
 

 
– Treasury yields:
 

 
• Another 75 bps rate hike in July is still very likely.
 

 
• The terminal rate expectations are back below 4%.
 

——————–

 
3. Last month’s retail sales surprised to the downside.
 

 
• Car sales declined by 3.5%.
 

 
• Here is the headline retail sales index. The second panel shows the same index deflated by the CPI.
 

 
• The Atlanta Fed’s GDPNow model forecast for Q2 growth dropped to zero in response to the weak retail sales report.
 
Source: @AtlantaFed   Read full article  

——————–

 
4. The first regional manufacturing report of the month (from the NY Fed) showed business activity staying soft.
 

 
• Expectations for new orders are near the COVID-era lows.
 

 
• However, hiring accelerated.
 

 
• Supply chain stress is rapidly easing as demand slows.
 
– Unfilled orders:
 

 
– Delivery times:
 

 
• But there are no signs yet of price pressures easing.
 

——————–

 
5. The recent US dollar strength helped to slow import price inflation in May.
 

 
6. Next, we have some updates on the housing market.
 
• The 30yr mortgage rate is now firmly above 6%.
 

 
And housing affordability is near the lowest level in 15 years.
 
Source: Piper Sandler   
 
• Mortgage applications are well below last year’s levels, but they are not collapsing.
 

 
• The U. Michigan buying conditions for homes continue to hit new lows.
 

 
Consumers expect home price appreciation to dip to 2% over the next 12 months.
 

 
• Piper Sandler expects housing prices to decline next year.
 
Source: Piper Sandler   
 
• Homebuilder sentiment continues to deteriorate.
 

Back to Index

 

Canada

1. Manufacturing sales continue to climb, driven by both prices and volume.
 

 
2. Housing starts surprised to the upside.
 

 
3. The COVID-era spike in mortgage debt has been massive.
 
Source: Industrial Alliance Investment Management  
 
But consumer insolvencies have been relatively low.
 
Source: Industrial Alliance Investment Management  

Back to Index

 

The Eurozone

1. The trade deficit was much wider than expected, hitting a new record. This trend is driven by surging energy costs and a bigger deficit with China.
 

 
2. Sentiment indicators point to deteriorating business activity ahead.
 
Source: Pantheon Macroeconomics  
 
3. Industrial production edged higher in April, but manufacturing output kept declining.
 

 
Here is the reason for the above divergence.
 

 
Despite all the headwinds, Italian and Spanish industrial output has been resilient.
 
Source: Fitch Ratings  

Back to Index

 

Europe

1. Sweden’s job vacancies have been surging.
 
Source: Nordea Markets  
 
2. Upstream price gains in Switzerland reached a multi-decade high.
 

 
3. EU car registrations were a bit firmer in May.
 

Back to Index

 

Asia – Pacific

1. The BoJ’s yield targeting program is becoming expensive to defend as yields rise.
 
Source: Deutsche Bank Research  
 
2. Economists expect Taiwan’s CPI to hit 3% for the full year.
 

 
3. New Zealand’s GDP unexpectedly contracted in Q1.
 

 
4. Next, we have some updates on Australia.
 
• The employment report topped expectations.
 

 
– The total employment trend outperforms most other economies.
 

 
– The unemployment rate was a touch higher than expected, but …
 

 
… the labor force participation rate hit a new high (also outperforming most economies).
 

 
• Consumer inflation expectations surged this month.
 

Back to Index

 

China

1. New home prices are down vs. a year ago.
 

 
Demographic trends will be a headwind for housing demand.
 
Source: BCA Research  

——————–

 
2. The post-lockdown recovery has started.
 
Source: Gavekal Research  
 
Total retail sales remain depressed, but car sales are rebounding.
 
Source: @PkZweifel  

——————–

 
3. Relatively high unemployment will force the PBoC to remain accommodative.
 
Source: @ANZ_Research  
 
4. Interest rate differentials point to a weaker Chinese yuan vs. the dollar.
 
Source: PGM Global  
 
5. Chinese stocks are rising from low valuation levels, although the earnings outlook is uncertain.
 
Source: MRB Partners  
 
6. Hong Kong’s economy has been rebounding.
 
Source: Alpine Macro  
 
And there is plenty of room for recovery.
 
Source: Alpine Macro  

Back to Index

 

Emerging Markets

1. India’s current account has been deteriorating.
 
Source: Gavekal Research  
 
The trade deficit hit a new record in May, …
 

 
… as imports surge (boosted by elevated energy prices).
 

——————–

 
2. Here are some updates on Russia.
 
• Russian banking sector sanctions have been significant.
 
Source: IIF  
 
– Structural liquidity has recovered from a deficit in Russia’s banking system.
 
Source: IIF  
 
– The central bank’s emergency measures are now withdrawn.
 
Source: IIF  
 
• Energy revenue is up vs. a year ago.
 
Source: Statista  
 
• Emigration from Russia has risen over the last decade.
 
Source: IIF  

——————–

 
3. Turkey’s exports continue to face headwinds.
 
Source: Alpine Macro  
 
4. South Africa’s retail sales are holding up well.
 

 
5. Brazil’s central bank delivered a 50 bps rate hike. There is at least one more coming (perhaps several).
 

Back to Index

 

Cryptocurrency

1. Bitcoin held support at $20k, …
 

 
… and ether’s crash was stopped at $1,000. Cryptos could face further headwinds as central banks remove accommodation.
 

——————–

 
2. Bitcoin decoupled from stocks this week.
 

 
3. Here are the public companies with the highest bitcoin holdings on their balance sheets.
 
Source: Statista  

Back to Index

 

Commodities

1. China’s share of global lithium demand is expected to rise, which should boost production.
 
Source: Fitch Solutions Macro Research  
 
2. Have agricultural commodity prices peaked? Here is a forecast from Capital Economics.
 
Source: Capital Economics  
 
3. Fund managers now see long commodities/oil as the most crowded trade.
 
Source: BofA Global Research  

Back to Index

 

Energy

1. Russia is taking advantage of the US LNG outage by tightening natural gas supplies to Europe. Prices surged.
 
Source: @markets   Read full article  
 

——————–

 
2. US crude oil production finally reached 12 million barrels/day last week (still 1 million bbl/d below the pre-COVID peak).
 

 
3. US crude oil and distillates inventories showed some improvement, but gasoline stocks continue to plummet.
 

 
US refinery inputs remain well below pre-COVID levels.
 

——————–

 
4. This chart shows the EIA’s projections for US shale gas output.
 
Source: @EIAgov  

Back to Index

 

Equities

1. After a “relief” bounce on Wednesday, the stock market rout has resumed. It’s hard to see a catalyst to stabilize the market at this point.
 

 
2. Selling pressure on Monday was historically severe, …
 
Source: SentimenTrader  
 
… exacerbated by hedge fund selling.
 
Source: @jessefelder; Goldman Sachs; @luwangnyc, @MelKarsh   Read full article  

——————–

 
3. Investor sentiment remains near multi-year lows.
 

 
4. The median S&P 500 drawdown in a recession is 24%.
 
Source: Goldman Sachs  
 
5. Almost all tech stocks are in a bear market, which typically precedes a period of positive returns, according to SentimenTrader.
 
Source: SentimenTrader  
 
6. The VIX (implied vol) term structure has been relatively flat in the latest selloff.
 
Source: Chris Murphy, Susquehanna International Group  
 
7. Next, we have equity fund flows by region.
 
Source: Deutsche Bank Research  

Back to Index

 

Global Developments

1. Will we see a pullback in the dollar?
 
Source: MRB Partners  
 
2. Fund managers are increasingly gloomy about global growth.
 
Source: BofA Global Research  
 
3. Here is a heat map of food inflation in select economies.
 
Source: Capital Economics  

——————–

Back to Index

 

Food for Thought

1. Improvements in US air quality:
 
Source: EPA   Read full article  
 
2. Annual hours worked, by country:
 
Source: @WSJ   Read full article  
 
3. Global meat consumption:
 
Source: Bloomberg   Read full article  
 
4. Change in US household net worth, by wealth level:
 
Source: Bloomberg   Read full article  
 
5. Projections vs. actual births in the US:
 
Source: Quill Intelligence  
 
6. Distribution of species across different environments:
 
Source: Statista  

——————–

Back to Index

Posted on

Fastest 5-day increase in the 2-year Treasury yield since the mid-1980s

The Daily Shot: 15-Jun-22
• The United States
• The United Kingdom
• The Eurozone
• Europe
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought

 

The United States

1. The NFIB small business confidence index edged lower in May.
 

 
Business outlook is consistent with a deep economic slump.
 
– Sales expectations:
 

 
– Uncertainty:
 

 
– General business conditions (record low):
 

 
Faced with a recession (as trends above suggest), companies should, in theory, curtail hiring. Instead, hiring plans picked up in May. Perhaps the situation is not as dire as sentiment suggests.
 

 
Firms are still finding it challenging to fill job openings.
 

 
The compensation plans index is off the highs but still elevated.
 

 
And companies believe they still have pricing power.
 

——————–

 
2. The PPI report showed persistent cost pressures.
 

 
• Core PPI (monthly changes):
 

 
• Core PPI ex. trade services (business markups):
 

 
• Core goods PPI (goods prices still surging):
 

——————–

 
3. Treasury yields continued to soar on Tuesday. The market fully expects a 75 bps Fed hike today (and more to come).
 
• The 10yr Treasury yield:
 

 
• The 12-month T-bill yield (above 3%):
 

 
The five-day increase in the 2-year Treasury yield was the highest since the mid-1980s.
 

 
Here are the 2-year yield changes in previous hiking cycles.
 
Source: @WSJ   Read full article  

——————–

 
4. What could make the Fed pause hiking rates?
 
Source: BofA Global Research  
 
5. Reserve balances have declined sharply on a year-over-year basis even before the Fed launched quantitative tightening. Deteriorating liquidity does not bode well for risk assets such as stocks.
 

 
6. Freight inflation appears to have peaked.
 
Source: Cass Information Systems  

Back to Index

 

The United Kingdom

1. May payrolls growth topped expectations.
 

 
The unemployment rate edged higher.
 

 
But so did job vacancies.
 

——————–

 
2. Economists now expect the year-over-year 2022 CPI to hit 8%.
 

 
3. The market expects the BoE to take rates above 2.8% by the end of the year.
 

Back to Index

 

The Eurozone

1. The ECB got spooked by this chart, which is signaling “fragmentation.”
 

 
And then we got this news, …
 
Source: Reuters   Read full article  
 
… sending the spread sharply lower.
 

——————–

 
2. Germany’s ZEW expectations index edged higher but remains depressed.
 
Source: MarketWatch   Read full article  
 

Back to Index

 

Europe

1. Sweden’s CPI surprised to the upside.
 

 
2. Who is interested in joining the EMU?
 
Source: @ecfin   Read full article  

Back to Index

 

Asia – Pacific

1. Japan’s machinery orders were robust in April.
 

 
2. South Korea’s unemployment rate ticked higher.
 

 
But so did the labor force participation rate.
 
Source: ING  

——————–

 
3. New Zealand’s home sales deteriorated further last month, …
 

 
… and home price appreciation is slowing quickly.
 
Source: @ANZ_Research  

——————–

 
4. Next, we have some updates on Australia.
 
• Consumer sentiment is plunging.
 
– Westpac:
 

 
– ANZ/Roy Morgan:
 
Source: @ANZ_Research  
 
• The Westpac/MI consumer survey shows declining sentiment toward housing and a preference for savings via bank deposits or paying down debt.
 
Source: @ShaneOliverAMP  
 
• The minimum wage will increase by 5.2% next month.
 
Source: @ANZ_Research  

Back to Index

 

China

1. Economic activity was stronger than expected in May.
 
• Industrial production:
 

 
• Retail sales (still well below last year’s levels):
 

 

 
• The unemployment rate:
 

——————–

 
2. Residential property sales are roughly at the level they were in 2020.
 

 
3. The stock market continues to rebound. Foreign investors are trying to escape the wrath of global central banks by hiding out in China.
 

 
4. Mobility has improved.
 
Source: TS Lombard  
 
5. China’s RMBS market has grown substantially.
 
Source: Fitch Ratings  

Back to Index

 

Emerging Markets

1. India’s wholesale price inflation surprised to the upside.
 

 
Indian stocks look vulnerable.
 
Source: Gavekal Research  

——————–

 
2. South Africa’s business confidence is falling.
 

 
3. Argentina’s inflation exceeded 60% in May.
 

 
4. Brazil’s service-sector output is holding up well.
 

 
5. Here are some EM economies with large twin deficits.
 
Source: Fitch Ratings  

Back to Index

 

Cryptocurrency

1. Bitcoin now trades barely above the average purchase price of all bitcoin in circulation.
 
Source: Bloomberg   Read full article  
 
2. The bitcoin Fear & Greed index dipped deeper into “extreme fear” territory.
 
Source: Alternative.me  
 
3. Bitcoin’s implied volatility spiked during the recent sell-off, albeit still below last month’s peak.
 
Source: @CoinbaseInsto  
 
• Put option premium is rising relative to similar call options, reflecting heightened fear among BTC option traders.
 
Source: @CoinbaseInsto  
 
• The bitcoin put/call ratio remains elevated.
 
Source: @CoinbaseInsto  

——————–

 
4. The stablecoin market shrank over the past few months, mainly due to the collapse of TerraUSD (UST).
 
Source: Fitch Ratings  

Back to Index

 

Energy

1. US refinery capacity is well below pre-pandemic levels, sending crack spreads sharply higher.
 
Source: @EIAgov  
 
2. The surge in US jet fuel prices has been due to high oil costs and refinery challenges rather than increased demand.
 
Source: @WSJ   Read full article  
 
3. European natural gas in storage is moving in the right direction.
 
Source: BCA Research  
 
4. Who owns the crude oil tankers departing Russia? (update)
 
Source: @RobinBrooksIIF, @JonathanPingle  

Back to Index

 

Equities

1. The S&P 500 is down 10% over the past five trading days.
 

 
2. The massive surge in real yields has been a significant headwind for risk assets, especially growth stocks.
 

 
Here are the 60-day rolling changes in the 5-year TIPS yield.
 

——————–

 
3. Analysts continue to estimate earnings growth of about 10% this year and next for S&P 500 companies.
 
Source: Deutsche Bank Research  
 
The market doesn’t think so.
 
Source: Deutsche Bank Research  
 
And neither do fund managers.
 
Source: BofA Global Research  
 
Will the upcoming downgrades in earnings forecasts catch up with the market?
 
Source: Deutsche Bank Research  

——————–

 
4. Less than 5% of S&P 500 members are above their 50-day moving average (2nd panel).
 

 
Here is what happened in the past when we hit these levels. Is it different this time?
 
Source: Truist Advisory Services  

——————–

 
5. How long do bear markets last?
 
Source: Simon White, Bloomberg Markets Live Blog  
 
Where are we relative to previous bear markets? The trajectory depends on whether we get a recession.
 
Source: Simon White, Bloomberg Markets Live Blog  

——————–

 
6. Fund managers remain very underweight equities. Could we get a bounce after the Fed’s jumbo hike?
 
Source: BofA Global Research  
 
7. The PPI report continues to signal a pullback in corporate margins.
 

 
8. Some positive news in the sea of red?
 
Source: Bloomberg   Read full article  
 

Back to Index

 

Credit

1. Corporate bond prices have taken a beating, according to Bloomberg indices.
 

 
But the HYG ETF discount to NAV suggests that bonds are not getting marked down quickly enough.
 

——————–

 
2. Here is the total US investment-grade index, which includes Treasuries, corporates, MBS, ABS, etc.
 

 
3. The pandemic default cycle in high-yield (first chart) and B-rated credit (second chart) versus the four main ones of the last 30 years.
 
Source: Deutsche Bank Research  
 
Source: Deutsche Bank Research  

——————–

 
4. A weaker economic growth outlook and growing margin pressures could lead to an increase in expected credit default rates in Europe.
 
Source: ECB  

Back to Index

 

Rates

1. Treasury-market implied vol keeps surging.
 

 
2. Bloomberg’s indicator of Treasury market liquidity shows deterioration (higher = worse liquidity). The index is based on individual securities’ deviations from the fitted yield curve.
 
Source: BofA Global Research  

Back to Index

 

Global Developments

1. The dollar has been a hedge for stocks and bonds.
 
Source: Deutsche Bank Research  
 
2. Professional investors’ risk appetite remains near the lowest levels since the Global Financial Crisis.
 
Source: BofA Global Research  
 
3. This chart shows unemployment rates for select economies
 
Source: OECD   Read full article  

——————–

Back to Index

 

Food for Thought

1. The decoupling of agricultural land use and food production:
 
Source: @OurWorldInData   Read full article  
 
2. Countries with the highest oil reserves:
 
Source: @OpenAxisHQ  
 
3. This chart shows the percent change in each state’s population over the past two years.
 
Source: Quill Intelligence  
 
4. Hurricanes that caused $10 bn or more in damage:
 
Source: US Census   Read full article  
 
5. Violent deaths involving a firearm per 100k people:
 
Source: Statista  
 
6. Recovery in the US employment-to-population ratio by age:
 
Source: @bencasselman   Read full article  
 
7. The hottest day of the year:
 
Source: @erindataviz  

Back to Index

Posted on

The market now expects the Fed to take rates above 4%

The Daily Shot: 14-Jun-22
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Europe
• Japan
• Australia
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Equities
• Credit
• Rates
• Food for Thought

 

The United States

1. The Treasury curve inverted as short-term yields continued to soar on Monday.
 

 
The market has massively repriced Fed rate hike probabilities amid concerns that inflation expectations are becoming unanchored. The probability of a 75 bps rate increase this week is suddenly almost a certainty, and the odds are high that we are going to see a jumbo hike in July as well.
 

 
Source: @WSJ   Read full article  
 
• The Fed is expected to push its policy rate above 3.6% by the end of the year, …
 

 
… taking it up above 4% next year.
 

 
• The 2-year Treasury yield saw the largest increase in a long time, …
 

 
… while the one-year T-bill yield is approaching 3%.
 

 
Here is the yield curve.
 

 
• Real yields continue to surge, which is a headwind for growth stocks.
 

——————–

 
2. While financial conditions have tightened markedly, there is room to tighten further, according to Goldman’s index.
 

 
3. In the past cycles, US rate hikes were not very effective in curbing inflation (chart below). The situation is even more challenging in this cycle, with the US central bank having little control over supply issues, agricultural commodity disruptions, and global energy prices. The Fed can, however, put pressure on the labor market to curtail demand.
 
Source: MarketDesk Research  
 
4. Mortgage rates are surging.
 

 
The Mortgage News Daily mortgage rate estimate is now above 6%.
 
Source: Mortgage News Daily  

——————–

 
5. The inflation swaps market says that the CPI will peak above 9% in September.
 
Source: JP Morgan Research; @tracyalloway  
 
6. Here are some additional updates on the CPI report.
 
• Alternative core inflation measures:
 
– Median CPI (the second panel shows month-over-month changes):
 

 
– Trimmed-mean CPI:
 

 
• The CPI index (price level) vs. the 2% target:
 
Source: Mizuho Securities USA  
 
• The “consumer stress” components of the CPI:
 
Source: @LizAnnSonders  
 
• Services CPI with and without shelter:
 
Source: Longview Economics  
 
• Rent CPI by city size:
 
Source: Pantheon Macroeconomics  
 
• The US CPI relative to the rest of the world:
 
Source: Deutsche Bank Research  

——————–

 
7. The trade-weighted US dollar index hit a multi-year high. This trend should help curb import price gains.
 

 
8. The global rate hike cycle points to an economic contraction in the US. Most forecasters don’t see a recession this year, but the situation looks more uncertain in 2023.
 
Source: Chart and data provided by Macrobond  
 
9. Next, we have some updates from the U. Michigan consumer sentiment report.
 
• Current financial situation:
 

 
• Expected business conditions:
 

 
• Confidence in “comfortable retirement”:
 

 
• Buying conditions:
 

 
By the way, we’ve had deteriorating sentiment for some time, but that hasn’t translated into a meaningful pullback in spending.
 
Source: Pantheon Macroeconomics  

Back to Index

 

Canada

1. Consumer confidence continues to weaken.
 

 
2. Crude oil prices suggest that the loonie could go higher.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

Back to Index

 

The United Kingdom

1. The GDP contracted for the second month in a row in April.
 

 
Business activity softened across the board.
 
• Services:
 

 
• Construction:
 

 
• Manufacturing:
 

 
The trade deficit narrowed.
 

 
2. Inflation expectations continue to climb.
 

Back to Index

 

The Eurozone

1. Yields surged further on Monday, especially at the shorter end of the curve.
 

 

 
Here are the yield changes in standard deviations.
 
Source: @fwred  
 
2. The ECB is now expected to hike rates above 1.6% by the end of this year, …
 

 
… reaching the terminal rate of 2.3% in 2023.
 

Back to Index

 

Europe

1. Sweden’s unemployment rate dipped below 3%.
 

 
2. Here is Poland’s 10yr bond yield.
 

 
3. The gap between bond yields and bank shares’ relative performance continues to widen.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
4. Was admitting Hungary to the EU a mistake?
 
Source: @YouGov   Read full article  

Back to Index

 

Japan

1. The BoJ bought more government bonds on Monday to defend its yield curve control target. Deutsche Bank expects additional purchases.
 

 
Source: @WSJ   Read full article  
 
Source: Deutsche Bank Research  
 
The BoJ may stick to a more dovish policy relative to the US and Europe, according to Danske Bank.
 
Source: Danske Bank  

——————–

 
2. Dollar-yen is testing a long-term resistance.
 

Back to Index

 

Australia

1. The 2yr yield is above 3%.
 

 
Stocks are sharply lower.
 

——————–

 
2. Business confidence eased again in May.
 

 
3. Stronger wage growth ahead?
 
Source: @ANZ_Research  

Back to Index

 

China

1. China’s large-cap stocks have been outperforming the S&P 500 in dollar terms.
 

 
2. Property transactions remain depressed.
 
Source: BofA Global Research; @SofiaHCBBG  
 
3. Here are the funding sources for China’s infrastructure projects.
 
Source: BCA Research  
 
4. China’s exporters will have a tough time boosting sales as global demand softens.
 
Source: Alpine Macro  

Back to Index

 

Emerging Markets

1. LatAm currencies took a hit on Monday.
 

 
2. Brazilian exports are holding up well.
 

 
3. Indian CPI eased in May, due in part to government efforts to curtail food and fuel prices.
 

 
4. Vietnam’s domestic car sales have been very strong.
 

 
5. Turkey’s industrial production held flat in April.
 

 
• Retail sales continue to climb.
 

 
• The lira remains under pressure.
 

Back to Index

 

Cryptocurrency

1. Bitcoin held support at $20k.
 

 
Bitcoin is down some 50% year-to-date, while ether is down over 65%.
 

——————–

 
2. The bitcoin dominance ratio, or BTC’s market cap relative to the total crypto market cap dipped on Monday. That means bitcoin experienced greater selling pressure than altcoins during the latest sell-off, which is unusual during a risk-off episode.
 
Still, the dominance ratio remains in breakout mode since early May.
 

 
3. There was a significant spike in long BTC liquidations on Sunday.
 
Source: Coinglass  
 
4. Crypto funds saw $102 million in outflows last week, driven by Bitcoin and Ethereum-focused products.
 
Source: CoinShares   Read full article  
 
Source: CoinShares   Read full article  

Back to Index

 

Commodities

1. Industrial metals remain under pressure.
 

 
2. The US dollar’s strength poses a risk for commodities.
 
Source: Alpine Macro  

Back to Index

 

Equities

1. The COVID-era bull market is officially over.
 

 
2. The S&P 500 is approaching oversold levels.
 

 
3. US shares have been underperforming the rest of the world recently.
 

 
4. Is 15x the next stop for the S&P 500 P/E ratio. That’s down some 4.5% from here.
 

 
5. Share buyback activity is expected to slow.
 
Source: Morgan Stanley Research; @WallStJesus  
 
6. Corporate cash levels have declined sharply over the past couple of quarters.
 
Source: Barclays Research  
 
7. Will we see an earnings recession as the Fed continues to hike?
 
Source: Alpine Macro  
 
Leading indicators suggest that it’s a possibility.
 
Source: Alpine Macro  
 
And we can get an earnings recession outside of an economic recession.
 
Source: BCA Research  

——————–

 
8. Next, we have some sector updates. Everything was for sale on Monday.
 
• Housing:
 

 
• REITs:
 

 
• Healthcare:
 

 
• Consumer Staples:
 

 
• Consumer Discretionary:
 

 
• Transportation:
 

 
• Metals & Mining:
 

 
• Tech and Semiconductors:
 

 

 
• Communication Services:
 

——————–

 
9. Finally, we have some equity factor trends.
 
• High-dividend:
 

 
• Momentum:
 

 
• Growth and Value:
 

Back to Index

 

Credit

1. Credit continues to sink.
 
• HY CDX spread:
 

 
• High-yield and investment-grade bonds:
 

 
• Leveraged loans and BDCs:
 

——————–

 
2. This chart shows fund flows for corporate credit in the US and Europe:
 
Source: Deutsche Bank Research  
 
3. There has been remarkable stability in ‘B-‘ rated credit in recent years, driven by lower downgrades and default rates (2 charts).
 
Source: S&P Global Ratings  
 
Source: S&P Global Ratings  
 
4. Nearly all new issue first-lien leveraged loans in the US have been covenant-lite.
 
Source: S&P Global Ratings  

Back to Index

 

Rates

1. Rate vol surged after the CPI shock.
 

 
2. US state and local governments hold a sizeable amount of Treasury securities.
 
Source: Deutsche Bank Research  
 
3. The Fed’s balance sheet could decline by 2.5 trillion by 2024.
 
Source: LPL Research  

——————–

Back to Index

 

Food for Thought

1. Large companies with the biggest losses as a share of revenue:
 
Source: Statista  
 
2. Cybersecurity funding in Israel:
 
Source: Global X ETFs   Read full article  
 
3. Targets of cyber attacks:
 
Source: Global X ETFs   Read full article  
 
4. US immigrants and native-born workers by industry:
 
Source: CBS News   Read full article  
 
5. Soot emissions per ship type:
 
Source: Statista  
 
6. What is the key reason behind the COVID-era inflation surge?
 
Source: FiveThirtyEight   Read full article  
 
7. The LGBT population share by state:
 
Source: Wells Fargo Securities  
 
8. It’s Flag Day. Here is the typical US flag of each period as well as alternate patterns and special flags.
 

——————–


Back to Index

Posted on

Are longer-term inflation expectations becoming unanchored?

The Daily Shot: 13-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. The CPI report surprised to the upside again. The headline CPI index re-accelerated to hit a multi-decade high. While goods inflation is easing (due to bloated inventories), food, energy, and core services CPI sped up last month.
 
Source: ING  
 
• It was the largest upside CPI surprise in almost a year.
 
Source: FHN Financial  
 
• Here are the monthly CPI changes.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
• Food prices continue to surge.
 
Source: FHN Financial  
 
• As we mentioned last week, housing-related inflation poses a key upside risk for the core CPI (3 charts).
 
Source: Nomura Securities  
 

 
Source: @WhiteHouseCEA, h/t @SamRo   Read full article  
 
Rent CPI is yet to peak.
 
Source: Nomura Securities  
 
• Below are some key components of the core CPI.
 
Source: Andrew Husby, Bloomberg Economics   Read full article  
 
This chart shows the price levels (not changes).
 
Source: Mizuho Securities USA  
 
• CPI breadth remains elevated.
 
Source: Scotiabank Economics  
 
• Durable goods are in deflation as retailers try to move inventory.
 
Source: Nomura Securities  
 
We will have more data on the CPI report tomorrow.

——————–

 
2. As expected, markets reacted violently to the CPI surprise.
 
– Equities:
 

 
– Credit:
 

 
– The US dollar:
 

 
– Copper:
 

 
– Gold (up sharply despite a stronger US dollar):
 

 
– The 5yr TIPS yield (real rates):
 

 
• The 2yr Treasury yield hit the highest level since 2007.
 

 
The Treasury curve is flirting with inversion as recession risks rise.
 

 

 
• 75 bps rate hikes are back on the table.
 

 
While the odds of a 75 bps rate hike this month are relatively low, some economists now expect such an outcome. Here is a quote from Barclays. However, the market-based probability of a jumbo hike next month is close to 50% now.
 
Source: Barclays Research  
 
• The Fed is now expected to take rates well above 3.5%, …
 

 
… with most of the increases coming this year (frontloading).
 

 
Market expectations are now well above the FOMC’s dot-plot.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

——————–

 
4. Real wages continue to deteriorate.
 

 
5. The U. Michigan consumer sentiment index hit the lowest level on record this month, …
 

 
Source: MarketWatch   Read full article  
 
… as the average gasoline price exceeds $5.0.
 

 
6. Inflation expectations remain elevated.
 

 
The biggest problem for the Fed may not even be the CPI surprise (above). Instead, it could be the chart below. Are longer-term inflation expectations becoming unanchored?
 

Back to Index

 

Canada

The labor market remains robust, with full-time employment surging (2nd panel).
 

 
• The unemployment rate is at multi-decade lows.
 

 
• The participation rate held steady last month.
 

 
• Wage growth strengthened.
 
Source: Scotiabank Economics  

Back to Index

 

The Eurozone

1. Italian and Spanish bond spreads continue to widen, raising concerns about fragmentation.
 

 
Here is the Greek 5yr yield.
 

——————–

 
2. The euro is weaker again as global risk aversion and a hawkish Fed boost the US dollar.
 

 
EUR/USD has decoupled from interest rate differentials.
 
Source: Deutsche Bank Research  

——————–

 
3. Outside of Germany, April’s industrial production reports for April are not terrible.
 
• Italy:
 

 
• The Netherlands:
 

——————–

 
4. According to Pantheon Macroeconomics, the GDP will contract this quarter due to inventory adjustments. But growth ex. inventories is expected to be positive.
 
Source: Pantheon Macroeconomics  
 
5. Supply chain disruptions and higher input prices have delayed the recovery from the pandemic.
 
Source: ECB  

Back to Index

 

Europe

Inflation is surprising to the upside across Europe.
 
• Norway:
 

 
• The Czech Republic:
 

Back to Index

 

China

1. Credit growth rebounded in May, topping expectations.
 
• Bank loans:
 

 
• Total financing:
 

——————–

 
2. Labor share has been gaining ground.
 
Source: BCA Research  
 
3. This chart shows China’s electricity generation by source.
 
Source: @EIAgov  

Back to Index

 

Emerging Markets

1. India’s industrial production was very strong in April.
 

 
2. Russia’s central bank cut rates again.
 

 
3. Brazil’s retail sales continue to climb.
 

 
Separately, is the central bank done hiking rates?
 
Source: Scotiabank Economics  

——————–

 
4. Mexican manufacturing output increased again in April.
 

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

 
• Currencies:
 

Back to Index

 

Cryptocurrency

1. Cryptos plunged with stocks, as bitcoin dips below $25k.
 

 
Ether is widening its underperformance.
 

——————–

 
2. Ether (ETH) has fallen below its average realized price (based on the cost-basis of holders, recorded on blockchain). A majority of market participants are at a loss during the current cycle, especially ETH 2.0 deposits.
 
Source: @glassnode  
 
3. There has been a significant breakdown in the ETH/BTC price ratio, similar to what occurred in the 2018 bear market.
 
Source: Dantes Outlook  
 
4. This chart shows more of bitcoin’s hashrate moving offline, which typically signals stress in miner incomes.
 
Source: @glassnode  

Back to Index

 

Commodities

1. Bloomberg’s broad industrial metals index broke below the uptrend channel as the dollar movies higher and US yields surge.
 

 
2. US farm businesses are not happy as input costs soar.
 
Source: Purdue University-CME Group Ag Economy Barometer  
 
3. Here is last week’s performance across major commodity markets.
 

Back to Index

 

Energy

1. The US rig count is grinding higher but remains below pre-COVID levels.
 

 
Canadian rigs have picked up momentum.
 

——————–

 
2. US LNG exports slowed as the Freeport LNG terminal shuts.
 

 
3. US crude oil production is expected to peak in the next few years.
 
Source: @EIAgov  
 
4. Renewables’ share of global electricity production is expected to keep growing.
 
Source: @EIAgov  

Back to Index

 

Equities

1. It was a rough week for equities as the US CPI surprised to the upside again.
 

 
Futures took another leg down this morning.
 

 
2. At this point, it’s hard to see a catalyst to keep the S&P 500 from entering bear-market territory.
 

 
Stock futures are already there.
 

——————–

 
3. The S&P 500 has more room to fall to align with growth in fundamentals.
 
Source: Jack Ablin, Cresset Wealth Advisors  
 
4. The S&P 500 forward P/E is nearing 16x as traders lose confidence in earnings forecasts (amind concerns about falling margins).
 

 
Here are the forward P/E ratios for the Nasdaq 100 …
 

… and the Russell 2000 (2 charts).
 

 
Source: BofA Global Research  

——————–

 
5. Small-cap value stocks saw stronger outperformance vs. growth than large-cap value shares.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
6. The S&P 500 dividend yield remains well below the pre-COVID range, even as Treasury yields surge.
 

 
7. The U Michigan survey tells us that US consumers are increasingly bearish, but their equity holdings remain elevated.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
8. The put/call ratio is at the highest level since the COVID crash.
 

 
9. Finally, we have some performance data from last week.
 
• Sectors:
 

 
• Equity factors:
 

 
• Thematic ETFs:
 

 
• Large US tech firms:
 

Back to Index

 

Credit

1. High-yield credit default swap spreads continue to widen as inflation surges.
 

 
2. Corporate loan growth has picked up momentum.
 

 
The total US loan balance is back above the pre-COVID trend, boosted by credit card debt.
 

——————–

 
3. Here is last week’s performance by asset class.
 

Back to Index

 

Rates

1. The 2-year Treasury – OIS spread continues to move deeper into negative territory amid robust demand (and limited supply) of short-term paper. Risk-averse investors are clamoring for cash-equivalent products.
 

 
2. Who owns Treasury securities?
 
Source: Truist Advisory Services  

Back to Index

 

Global Developments

1. The dollar appears to be overvalued, similar to what occurred in 1985 and 2001 when the USD’s path decoupled from rate differentials.
 
Source: Deutsche Bank Research  
 
There has been an inverse correlation between the 60/40 equity/bond portfolio and the dollar this year. Is the greenback serving as a stagflation hedge?
 
Source: Deutsche Bank Research  

——————–

 
2. Danske Bank expects a continued slowdown in global manufacturing conditions.
 
Source: Danske Bank  
 
3. Next, we have some performance data from last week.
 
• Trade-weighted currency indices:
 

 
• Sovereign yields:
 

——————–

Back to Index

 

Food for Thought

1. Declining mobility in the US:
 
Source: @emilymbadger   Read full article  
 
2. US trading partners:
 
Source: Visual Capitalist   Read full article  
 
3. US office lease transactions:
 
Source: @Mayhem4Markets  
 
4. The impact of influencers:
 
Source: Statista  
 
5. Meta’s 1st-quarter results visualized:
 
Source: @chartrdaily  
 
6. Causes of death in US children and adolescents over time:
 
Source: The New England Journal of Medicine   Read full article  
 
7. Mexican restaurants per capita:
 
Source: @erindataviz  

——————–

Back to Index

Posted on

Eurozone fragmentation concerns are back as QE ends

The Daily Shot: 10-Jun-22
• The Eurozone
• Europe
• The United States
• Japan
• China
• Emerging Markets
• Commodities
• Energy
• Equities
• Food for Thought

 

The Eurozone

1. The ECB struck a hawkish tone, confirming the start of its first rate-hiking cycle since 2011.
 
Source: Reuters   Read full article  
 
The July rate increase is now expected to be 25 bps (a more cautious start).
 

 
But the central bank will ramp up its tightening to 50 bps in September.
 

 
The market now expects the ECB to deliver nearly 150 bps worth of hikes by the end of the year.
 

 
– Bond yields jumped, …
 

 
… and the curve flattened at the longer end.
 

 
– This year’s surge in yields has been massive by historical standards.
 
Source: @johnauthers, @opinion   Read full article  
 
• Market expectations for the ECB’s terminal rate are around 2% (2 charts).
 
Source: Nordea Markets  
 
Source: IIF  
 
• Historically, the market’s expectations for the ECB rate hikes have been too hawkish.
 
Source: Deutsche Bank Research  

——————–

 
2. The ECB significantly increased its inflation forecasts – again.
 
Source: @fwred  
 
Source: Nordea Markets  

——————–

 
3. The market is increasingly becoming concerned about “fragmentation.” As the ECB halts QE, the Eurozone “periphery” debt financing costs will climb further, …
 
Source: IIF  
 
… making it challenging for the central bank to implement its policy uniformly across the single-currency bloc.
 
Source: Reuters   Read full article  
 
Source: ShareCast   Read full article  
 
• Italian and Spanish spreads to Germany widened further.
 

 
Here is Italy’s CDS spread.
 

 
• Fragmentation concerns sent the euro sharply lower despite the ECB’s hawkish stance.
 

 
Wider periphery spreads could weigh on the euro going forward, bringing back painful memories of the Eurozone debt crisis.
 
Source: Capital Economics  

Back to Index

 

Europe

1. Sweden’s economic activity remained robust in April as service sector output hit new highs.
 

 
2. Poland’s central bank delivered another 75 bps hike this week. Is the hiking cycle about to end?
 

 
Source: Reuters   Read full article  
 
The 2yr yield is approaching 7%.
 

Back to Index

 

The United States

1. Initial jobless claims remain near multi-year lows.
 

 
The media has been focused on “rising” unemployment claims …
 
Source: @WSJ   Read full article  
 
.. but for now, it’s mostly a seasonal adjustment effect. As we mentioned earlier, performing seasonal adjustments on weekly data is challenging and can be very noisy around US holidays. We had a holiday last week. Zooming in on the above chart, does this look like a big increase in jobless claims?
 

 
Having said that, we should expect slower hiring going forward as companies turn to cost-cutting.

——————–

 
2. Economists continue to boost their forecasts for the 2022 inflation rate.
 

 
• According to Bloomberg Economics, …

calls that US inflation has peaked may be premature. Surging energy and food prices means high risk that inflation surpasses March’s 8.5% sometime this summer.

Source: @lisaabramowicz1, @economics  
 
• Food delivery price data point to further gains in the “food at home” CPI.
 
Source: YipitData  

——————–

 
3. The 2yr Treasury yield hit the highest level since 2018 ahead of today’s CPI report.
 

 
4. The Oxford Economics supply chain stress tracker is starting to move in the right direction.
 
Source: Oxford Economics  
 
5. Mentions of “recession” in the Fed’s Beige Book surged in the latest report.
 
Source: @EconguyRosie  

Back to Index

 

Japan

1. Machine tool orders have been holding up well.
 

 
2. The PPI appears to have peaked.
 

 
3. Dollar-yen has been highly correlated with the US-Japan yield differential.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

Back to Index

 

China

1. Inflation remains relatively benign.
 

 
The core CPI is holding below 1%.
 

 
Here is rent CPI.
 

——————–

 
2. The PPI has peaked.
 

 

——————–

 
3. Mainland stocks continue to rebound, …
 

 
… driven by foreign inflows.
 

——————–

 
4. This chart shows the changes in April retail sales by sector.
 
Source: @financialtimes   Read full article  
 
5. Food is 20% of households’ budgets.
 
Source: BCA Research  

Back to Index

 

Emerging Markets

1. Turkey’s sovereign CDS spread is nearing the 2008 peak.
 

 
2. South Africa’s industrial production deteriorated in April.
 
– Manufacturing (reflecting the KZN floods):
 

 
– Mining:
 

 
Here is South Africa’s gold output.
 

 
• South Africa’s Q1 current account surplus surprised to the upside.
 

——————–

 
3. Brazil’s inflation is peaking.
 

 
4. Mexican inflation hit a multi-year high, but CPI increases appear to be slowing.
 

 
5. Substantial sovereign defaults ahead?
 
Source: Wells Fargo Securities  

Back to Index

 

Commodities

1. US soybean futures are hitting new highs amid robust foreign demand.
 
Source: @kannbwx  
 
2. Lumber prices continue to fall, partially due to soft demand from the US housing sector.
 

 
3. Energy has been leading commodity markets.
 
Source: TS Lombard  

Back to Index

 

Energy

1. Crack spreads continue to climb.
 

 
2. US natural gas prices are expected to stay elevated until next year.
 
Source: EIA   Read full article  
 
3. This chart shows Europe’s natural gas demand in the industrial sector.
 
Source: Oxford Institute for Energy Studies  
 
4. Here is US electricity generation by source.
 
Source: @NatBullard; EIA   Read full article  

Back to Index

 

Equities

1. Further valuation pullbacks are likely if inflation continues to surprise to the upside.
 
Source: TS Lombard  
 
And stock investors continue to bet on high inflation. Stocks that benefit from rising prices (Citi “inflation long” basket) have been outperforming.
 

——————–

 
2. Elevated household equity allocations don’t bode well for long-term performance.
 
Source: @WillieDelwiche   Read full article  
 
3. “Long-duration” stocks (such as growth companies) are vulnerable to rising rates.
 
Source: Trahan Macro Research  
 
4. Retail investors have been moving back into single stocks (out of ETFs).
 
Source: Vanda Research  
 
5. SPY (S&P 500 ETF) skew hit the lowest level since 2019.
 

 
6. Next, we have some equity factor performance charts over the past five days.
 
• Small caps:
 

 
• Value vs. growth:
 

 
• Dividend:
 

——————–

 
7. The equal-weight S&P 500 index has been outperforming (in part due to higher energy-sector weight).
 

 
Below is the sector breakdown for the S&P 500 vs. the equal-weight index.
 
Source: S&P Dow Jones Indices  

——————–

 
8. Finally, here are some sector updates.
 
• Banks:
 

 
• Housing:
 

 
• Healthcare:
 

 
• Tech:
 

 
• Metals & Mining:
 

 
• Energy:
 

 
By the way, retail investors have been loading up on energy.
 
Source: Vanda Research  

——————–

Back to Index

 

Food for Thought

1. Expected changes in the level of influence wielded by labor unions:
 
Source: @YouGovAmerica   Read full article  
 
2. Support for same-sex marriage:
 
Source: Gallup   Read full article  
 
3. Homicide rates by method:
 
Source: Institute for Health Metrics and Evaluation  
 
4. Gasoline prices vs. Joe Biden’s approval rating:
 
Source: @TheStalwart  
 
5. US COVID-related deaths:
 
Source: The New York Times   Read full article  
 
6. Top destinations of waste from the EU:
 
Source: Eurostat   Read full article  
 
7. The distribution of student loan balances:
 
Source: Wells Fargo Securities  
 
8. The most common nut crop, by county:
 
Source: @erindataviz  

——————–

 
Have a great weekend!

Back to Index

Posted on

Tappable home equity hit $11 trillion or $207k per mortgage holder

The Daily Shot: 09-Jun-22
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Energy
• Equities
• Food for Thought

 

The United States

1. Let’s begin with the housing market.
 
• Mortgage applications dipped to 2013 levels over the Memorial Day week.
 

 
Here is MBA’s seasonally-adjusted data. Their adjustment tends to be noisy, especially around US holidays.
 

 
• This has been the fastest decline in housing affordability in decades.
 
Source: @axios   Read full article  
 
• CoreLogic expects home price appreciation to cool but hold in positive territory.
 
Source: CoreLogic  
 
• The total tappable home equity hit $11 trillion or $207k per mortgage holder. There is a lot of housing wealth in the US.
 
Source: Black Knight  
 
• Housing investment is expected to deteriorate.
 
Source: Gavekal Research  
 
• What percentage of apartment renters are moving out to buy a home?
 
Source: Evercore ISI Research  

——————–

 
2. US commercial property sales are now down relative to last year.
 
Source: @WSJ   Read full article  
 
And property prices are cooling as well.
 

——————–

 
3. Growth in the broad money supply has been slowing.
 
Source: Gavekal Research  
 
4. Market expectations for the fed funds rate by the end of the year are nearing 3%. Some analysts expect the US central bank to keep delivering 50 bps hikes at every meeting until there is visible progress on inflation.
 

 
5. Wider federal budget deficits are expected next year and beyond.
 
Source: Deutsche Bank Research  

Back to Index

 

Canada

1. Economists keep boosting their forecasts for Canada’s inflation in 2022.
 

 
2. Canadian labor markets continue to outperform the US.
 
• Employment:
 
Source: Industrial Alliance Investment Management  
 
• Labor force participation:
 
Source: Industrial Alliance Investment Management  

Back to Index

 

The United Kingdom

1. The RICS house price balance was lower than expected in May. But the housing market remains robust for now.
 

 
2. Construction activity continues to expand.
 

 
3. The BoE has been consistently surprised by surging inflation.
 
Source: @tomjs, @jackhleslie   Read full article  
 
UK inflation is expected to outpace other advanced economies (and China) in 2022 and 2023.
 
Source: Scotiabank Economics  

Back to Index

 

The Eurozone

1. The euro-area economy has been holding up relatively well despite the headwinds.
 
Source: Pantheon Macroeconomics  
 
2. Italian retail sales have been strong.
 

 
3. The French trade gap narrowed a bit in April but remained near record levels.
 

 
4. How did different ECB presidents perform in meeting inflation targets?
 
Source: Truist Advisory Services  

Back to Index

 

Asia – Pacific

1. Who holds JGBs?
 
Source: @WSJ   Read full article  
 
Separately, the yen-denominated oil price hit a record high, which is pressuring Japan’s trade balance.
 

——————–

 
2. Taiwan’s exports were softer than expected in May. The trade surplus declined.
 

 
3. South Korea’s GDP per capita has been outpacing peers across Asia-Pacific.
 
Source: World Economics  

Back to Index

 

China

1. Exports rebounded in May, …
 

 
Source: Bloomberg   Read full article  
 
… boosting China’s trade surplus.
 

 
Here are the cumulative trends.
 

 

 
But sales to the US will likely slow amid ample inventories and slowing demand.
 
Source: BCA Research  

——————–

 
2. China will be exporting disinflation.
 
Source: Pantheon Macroeconomics  
 
3. All PMI indicators continue to show deterioration in China’s labor market.
 
Source: Pantheon Macroeconomics  
 
4. Beijing faces fiscal headwinds.
 
Source: Alpine Macro  

Back to Index

 

Emerging Markets

1. Chile’s CPI continues to surge.
 

 
2. India’s GDP growth is expected to outpace other large economies.
 
Source: Scotiabank Economics  
 
3. The Turkish lira sell-off has been brutal, with USD/TRY breaching 17.0
 

 
Turkey’s dollar-denominated debt yields are hitting multi-year highs.
 

——————–

 
4. Hungary’s CPI is approaching 11%.
 

 
5. Real rates are negative in most EM economies.
 
Source: Danske Bank  
 
6. EM currencies have been more resilient again the dollar than DM currencies.
 
Source: Alpine Macro  

Back to Index

 

Cryptocurrency

1. In-the-money bitcoin addresses (see definition below) hit the lowest level since March 2020.
 
Source: Bloomberg   Read full article  
 
2. Crypto VC activity is expected to slow this year.
 
Source: Morgan Stanley Research  
 
3. Which countries have the most NFT users?
 
Source: Statista  

Back to Index

 

Energy

1. US oil inventories edged higher, but gasoline stocks continue to shrink.
 

 
US gasoline demand has been firming despite record prices.
 

 
Refinery runs are rebounding.
 

——————–

 
2. Russia is not hurting for energy clients.
 
Source: Reuters   Read full article  
 
3. Replacing Russian natural gas will be challenging for Europe.
 
Source: TS Lombard  
 
4. Europe is now dependent on US LNG deliveries.
 
Source: @EIAgov  
 
Here is what happens when there is a disruption.
 
• US LNG plant to shut for 3 weeks:
 
Source: Reuters   Read full article  
 
• UK natural gas price:
 

 
• US natural gas price:
 

Back to Index

 

Equities

1. The S&P 500 is stuck in a range as investors await the CPI report.
 

 
2. The S&P 500 price-to-sales ratio is still above the dot-com peak. But investors often ignore this valuation metric. Part of the reason is that margins have been very strong, resulting in a much lower price-to-earnings ratio (more “reasonable” valuations).
 
Source: Mizuho Securities USA  
 
Indeed, analysts expect margins to hit record highs this year. What happens if these projections are wrong, given the current economic headwinds?
 
Source: BofA Global Research  

——————–

 
3. Forward earnings estimates are off their peak (except energy) but still up year-to-date in most sectors.
 
.
 
4. Defensive sectors have been under pressure (nowhere to hide).
 
• Utilities:
 

 
• REITs:
 

 
• Consumer Staples:
 

 
Source: CNBC   Read full article  
 
Here are some other sector updates.
 
• Retail (some M&A action):
 

 
• Communication Services:
 

 
• Transportation:
 

 
• Semiconductors:
 

 
Source: Barron’s   Read full article  
 
• Biotechs held support at the 2020 lows. Should we expect a rebound?
 
Source: @NautilusCap  
 
By the way, US biotechs’ correlation with China’s tech shares has been remarkable. Both markets appear to be driven by the same group of investors.
 
Source: Yan Wang, Alpine Macro  

——————–

 
5. This chart shows US PMIs (business activity) by sector.
 
Source: S&P Global PMI  
 
6. Companies with strong balance sheets have been outperforming in recent days.
 

——————–

Back to Index

 

Food for Thought

1. Change in US retail inventories since January 2020:
 
Source: @WSJ   Read full article  
 
2. Big 4 accounting firms’ global revenues:
 
Source: @chartrdaily  
 
3. Industrial robot orders:
 
Source: @WSJ   Read full article  
 
4. Imports from Russia by country:
 
Source: @RobinBrooksIIF  
 
5. NATO troop levels in 1990 and 2021:
 
Source: Statista  
 
6. Data on school shootings:
 
Source: USAFacts   Read full article  
 
7. Wildlife making a comeback in Europe:
 
Source: @OurWorldInData   Read full article  

——————–

Back to Index

Posted on

Core CPI could surprise to the upside as housing-related costs surge

The Daily Shot: 08-Jun-22
• The United States
• Canada
• The Eurozone
• Japan
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Energy
• Equities
• Credit
• Global Developments
• Food for Thought

 

The United States

1. US consumer credit growth topped forecasts again.
 

 
• Revolving credit balances (credit cards) are now above the pre-COVID peak.
 

 
Credit card usage is up sharply, but relative to debit cards, borrowing is not materially different from pre-pandemic levels.
 
Source: BofA Global Research; @SamRo  
 
• Non-revolving credit is outpacing the pre-COVID trend (mostly due to automobile debt).
 

 
• Growth in student debt continues to slow.
 

 
By the way, government-owned student debt in forbearance has now exceeded $1 trillion.
 
Source: @WSJ   Read full article  
 
• Household balance sheets remain relatively healthy.
 
Source: Wells Fargo Securities  
 
And household cash levels are holding above pre-pandemic levels.
 
Source: @SamRo, BofA   Read full article  

——————–

 
2. The trade deficit shrunk in April (2 charts), which should boost the current quarter’s GDP growth.
 

 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Source: Reuters   Read full article  
 
The US has increased exports of energy and agricultural commodities.
 
Source: @kannbwx  
 
Source: @bespokeinvest   Read full article  

——————–

 
3. Goldman’s Q2 GDP growth tracker moved up to 3%.
 
Source: Goldman Sachs; @MikeZaccardi  
 
But the Atlanta Fed’s GDP tracker is holding below 1%.
 
Source: @AtlantaFed   Read full article  
 
By the way, here are Morgan Stanley’s recession probabilities.
 
Source: Morgan Stanley Research  

——————–

 
4. Retail gasoline prices continue to surge, …
 

 
… depressing consumer confidence.
 
Source: Piper Sandler   

——————–

 
5. Next, we have some updates on inflation.
 
• The consensus estimate for the May core CPI increase is 0.5%. The markets could react violently if we get an upward surprise, especially if calls for more aggressive Fed rate hikes get louder.
 

 
– ANZ expects 0.6% in May.
 
Source: @ANZ_Research  
 
– And Nomura sees an acceleration in the core CPI to 0.7% …
 
Source: Nomura Securities  
 
… as housing-related inflation surges.
 
Source: Nomura Securities  
 
Housing is expected to be a key driver of US core inflation in the months ahead.
 
Source: Nordea Markets  
 
• The Citi inflation surprise index has been moderating.
 

 
• Semiconductor prices, shipping costs, and even fertilizer prices appear to be peaking.
 
Source: @GregDaco, @markets   Read full article  
 
Contributions to the core PCE inflation from supply-constrained items (year-over-year) should become a drag on inflation by the end of 2022.
 
Source: Goldman Sachs; @MikeZaccardi  
 
• Why is the US CPI substantially higher than the OECD average?
 
Source: Federal Reserve Bank of San Francisco   Read full article  
 
Massive US fiscal support helps explain the above divergence.
 
Source: Federal Reserve Bank of San Francisco   Read full article  
 
• This chart shows the distribution of inflation components by price gains.
 
Source: @ANZ_Research  
 
• Market-based inflation expectations have diverged from crude oil.
 
Source: JP Morgan Research; @WallStJesus  
 
• Longer-term consumer inflation expectations are holding steady for now.
 
Source: NY Fed; h/t @ANZ_Research  

——————–

 
6. Retailers are struggling with bloated inventories.
 
Source: @WSJ   Read full article  
 
Source: @WSJ   Read full article  
 

 
But retailers still feel they have substantial pricing power, according to a survey from Evercore ISI.
 
Source: Evercore ISI Research  

Back to Index

 

Canada

1. The trade surplus was lower than expected in April.
 

 
2. Business activity remains robust, according to the Ivey PMI report.
 

 
3. Investment as a share of GDP has been slowing.
 
Source: @RichardDias_CFA  

Back to Index

 

The Eurozone

1. Investor confidence edged higher this month.
 

 
Source: RTT News   Read full article  

——————–

 
2. The PMI orders-to-inventories ratio points to headwinds for factory activity.
 
Source: S&P Global PMI  
 
Markets are also signaling an economic slump in the Eurozone.
 
Source: Danske Bank  

——————–

 
3. Germany’s factory orders continued to decline in April.
 

 
Capital goods orders have been particularly soft.
 

 
Industrial production edged higher.
 

 
Automobile manufacturing shows signs of improvement, …
 
Source: @OliverRakau  
 
… as semiconductor shortages ease.
 
Source: @OliverRakau  
 
• Construction activity continues to weaken.
 

 
• Germany is boosting the minimum wage to €12.
 
Source: @bbgequality   Read full article  

——————–

 
4. Spain’s industrial production is back above pre-COVID levels.
 

 
5. Investment rather than consumption drove Italy’s GDP gains in Q4 and Q1.
 
Source: Pantheon Macroeconomics  
 
6. The Eurozone terms of trade have decoupled from the US due to European dependence on energy imports.
 
Source: Capital Economics  

Back to Index

 

Japan

1. The trade gap was narrower than expected.
 

 
2. The Economy Watchers Survey shows increasing optimism.
 

 
3. The yen continues to weaken, with USD/JPY nearing the peak reached two decades ago. Analysts don’t expect an MoF intervention in the currency markets at this point.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

Back to Index

 

Asia – Pacific

1. Taiwan’s consumer inflation continues to grind higher, …
 

 
… as wholesale inflation approaches 17%. Another rate hike is coming.
 

——————–

 
2. South Korea’s economic growth remains robust.
 

 
3. The markets expect the RBA’s policy rate to reach 3.79% in 12 months, …
 
Source: Wells Fargo Securities  
 
… as inflation gains momentum.
 
Source: ING  
 
Australian consumer confidence continues to deteriorate due to cost-of-living concerns.
 
Source: @ANZ_Research, @arindam_chky, @DavidPlank12  

Back to Index

 

China

1. Hong Kong-based and foreign investors are returning to mainland equity markets.
 

 
2. Offshore debt defaults have been massive this year.
 
Source: @business   Read full article  
 
Here is one more.
 
Source: Fitch Ratings   Read full article  
 

——————–

 
3. Cement produces are not happy.
 
Source: BofA Global Research  
 
4. Local government’s key source of revenue has been disrupted.
 
Source: BCA Research  
 
Local government bond issuance has picked up this year to fund infrastructure investments.
 
Source: CreditSights  

——————–

 
5. Steel production and consumption are recovering because of new infrastructure projects, albeit below pre-pandemic levels (2 charts).
 
Source: CreditSights  
 
Source: CreditSights  

——————–

 
6. The Port of Shanghai is nearly back to normal.
 
Source: VesselsValue  

Back to Index

 

Emerging Markets

1. India’s central bank hiked rates to address inflationary pressures.
 

 
Source: The Economic Times   Read full article  

——————–

 
2. The Turkish lira continues to sink, with USD/TRY nearing 17.0.
 

 
Sovereign CDS spreads are hitting multi-year highs.
 

——————–

 
3. South Africa’s Q1 growth surprised to the upside, with the GDP now above pre-COVID levels.
 

 
4. Brazil’s vehicle production is accelerating.
 

 
Vehicle sales are back to last year’s levels.
 

——————–

 
5. Chile’s central bank delivered another aggressive rate hike.
 

 
• Wages continue to surge.
 

 
• Chile’s exports keep climbing.
 

 
But the trade surplus was lower than expected last month.
 

Back to Index

 

Cryptocurrency

1. Bitcoin’s realized price, or the average cost basis of all BTC in supply, is at $23,600. That could be a key support level.
 
Source: Glassnode   Read full article  
 
2. Almost all bitcoin investors during this market cycle are holding unrealized losses, according to blockchain data compiled by Glassnode.
 
Source: @glassnode  
 
3. May was the first month when total bitcoin spot trading volume was higher on FTX than Coinbase.
 
Source: @coinmetrics  
 
4. Binance has maintained its strong lead on the market as the largest exchange by volume.
 
Source: @coinmetrics  
 
Binance has served as a conduit for laundering billions in illicit funds, according to a Reuters investigation.
 
Source: Reuters   Read full article  

——————–

 
5. Citadel is planning to make markets for various cryptos.
 
Source: Reuters   Read full article  

Back to Index

 

Energy

1. Global oil inventories continue to surprise to the downside.
 
Source: Goldman Sachs; @OpenSquareCap  
 
2. The recovery in US drilling activity has been slow.
 
Source: Fitch Solutions Macro Research  
 
3. Europe could boost investment in nuclear energy to cut its dependence on Russian natural gas.
 
Source: @financialtimes   Read full article  
 
4. Here is a map showing European LNG terminals.
 
Source: The Economist   Read full article  

Back to Index

 

Equities

1. $3.2 trillion of equity options expire next week, which could boost volatility.
 
Source: Goldman Sachs; @MichaelGoodwell  
 
2. Small caps have been outperforming in recent days.
 

 
3. Share buybacks remain robust.
 
Source: Evercore ISI Research  
 
4. Bear markets since 1950 have typically troughed around this point, although there is wide variability.
 
Source: SentimenTrader  
 
5. According to the FT, “around 16% of US stocks are held by index trackers and ETFs vs. 14% by actively managed funds.”
 
Source: @financialtimes   Read full article  
 
6. Fund fees continue to shrink.
 
Source: @LizAnnSonders, @biancoresearch  
 
7. Insider selling of tech stocks has steadily declined over the past year.
 
Source: SentimenTrader  
 
8. Pension underfunding could reach fresh heights if stock valuations “normalize.”
 
Source: Quill Intelligence  

Back to Index

 

Credit

1. In the next few years, high-yield defaults could hit the highest level since the financial crisis, according to Deutsche Bank.
 
Source: Deutsche Bank Research  
 
2. The recovery in leveraged loan credit quality has a long way to go.
 
Source: S&P Global Ratings  
 
3. This chart shows factor betas of select fixed-income ETFs to global stocks and US bonds.
 
Source: FactorResearch   Read full article  

Back to Index

 

Global Developments

1. The dollar appears richly valued by historical standards.
 
Source: Gavekal Research  
 
Still, the dollar could see additional “flight to safety” buying if the US falls into a recession.
 
Source: Gavekal Research  

——————–

 
2. Since early this year, there has been a rotation from corporate to sovereign bond funds, as well as from growth to value equity funds.
 
Source: ECB  
 
3. It’s been a challenging 12 months for sovereign bonds.
 
Source: S&P Dow Jones Indices  
 
4. Global supply bottlenecks have been easing.
 
Source: S&P Global PMI  
 
5. Large M&A deal activity has been strong this quarter.
 
Source: S&P Global Market Intelligence  

——————–

Back to Index

 

Food for Thought

1. Coping with high food prices:
 
Source: CNBC   Read full article  
 
2. Spending on gasoline as a share of total card spending:
 
Source: @SamRo, BofA   Read full article  
 
3. The biggest US employers:
 
Source: @chartrdaily   Read full article  
 
4. US federal government’s interest payments as a percent of GDP:
 
Source: Wells Fargo Securities  
 
5. Academic majors of unicorn founders:
 
Source: OpenAxis  
 
6. Central bankers mentioning “inequality” in their speeches (AE = advanced economies, EME = emerging market economies):
 
Source: BIS   Read full article  
 
7. US-China tariff rates:
 
Source: SOM Macro Strategies  
 
8. Gun ownership and homicide rates:
 
Source: The New York Times  
 
9. The impact of materials costs on EV prices relative to ICE (internal combustion) vehicles:
 
Source: Wells Fargo Securities; @reillybrennan  
 
10. Rail track gauge (the distance between the two rails) across Europe:
 
Source: @WSJ   Read full article  

——————–

Back to Index

Posted on

Bond yields are surging again

The Daily Shot: 07-Jun-22
• Equities
• Credit
• Rates
• Commodities
• Energy
• Cryptocurrency
• Emerging Markets
• China
• Asia – Pacific
• The Eurozone
• The United Kingdom
• Canada
• The United States
• Food for Thought

 

Equities

1. Sentiment has shifted to “risk-off” this morning after global bond yields jumped. The RBA’s outsize hike added to concerns about rising rates (see the Asia-Pacific section). The 10-year Treasury yield is back above 3%.
 

 
2. Which sectors are most sensitive to interest rates?
 
Source: Simon White, Bloomberg Markets Live Blog  
 
3. Alpine Macro’s “froth” index is still elevated.
 
Source: Alpine Macro  
 
And so are US households’ equity allocations.
 
Source: Deutsche Bank Research  

——————–

 
4. Investors dumped cash-equivalent ETFs last week as some move back into risk assets.
 
Source: @daniburgz  
 
5. So far, the recent sell-off in the S&P 500 is on par with prior recession years.
 
Source: Numera Analytics  
 
6. Are earnings estimates too optimistic?
 
Source: Yardeni Research  
 
According to Alpine Macro’s model, earnings growth could grind to a halt.
 
Source: Alpine Macro  

——————–

 
7. Next, we have some valuation-related trends.
 
• This chart shows current valuations compared to long-term averages.
 
Source: Truist Advisory Services  
 
• Valuations for software-as-a-service (SaaS) companies have returned to pre-pandemic levels.
 
Source: Wellington Management   Read full article  
 
• Value/growth valuation ratio is nearing its long-term average.
 
Source: Truist Advisory Services  

——————–

 
8. US small caps are seeing early signs of improving relative strength as valuations appear attractive on a relative basis (see chart).
 
Source: Aazan Habib; Paradigm Capital  
 
9. Global companies with substantial exposure to China sales have outperformed in recent days, …
 

 
… even as their sales in China have deteriorated recently. The market expects demand in China to rebound (see the China section).
 
Source: Evercore ISI Research  

——————–

 
10. Here is an illustration of how stimulus checks pumped up the market in 2020.
 
Source: The Economist   Read full article  

Back to Index

 

Credit

1. The US high-yield debt maturity wall has been pushed out significantly.
 
Source: @markets   Read full article  
 
2. The performance of US high-yield versus investment-grade bonds suggests few default fears, while the outperformance of defensive stocks suggests slower economic growth ahead.
 
Source: Gavekal Research  
 
By the way, other bond market indicators show little recession risks, for now.
 
Source: Gavekal Research  

——————–

 
3. Increasing bank charge-off provisions …
 
Source: Jack Ablin, Cresset Wealth Advisors  
 
… point to rising risks for credit.
 
Source: Simon White, Bloomberg Markets Live Blog  

Back to Index

 

Rates

1. US yields climbed across the curve in recent days, with the belly of the curve seeing the largest increases.
 

 
2. The 5-year TIPS yield (real rates) is once again testing resistance at zero. Stocks with high multiples are particularly vulnerable to higher real rates.
 

 
3. The Fed’s reverse repo program balances are near record highs due to tremendous demand for cash-equivalent products (such as money market funds).
 

Back to Index

 

Commodities

1. Bloomberg’s broad commodity index hit a new high.
 

 
2. Lumber has been bucking the trend amid concerns about the US housing market.
 

Back to Index

 

Energy

1. US natural gas futures hit the highest level since 2008 as the US prepares for a heatwave.
 

 
Source: NOAA  

——————–

 
2. US crude oil inventories continue to shrink.
 
Source: Princeton Energy Advisors  
 
3. Below are the top suppliers and buyers of crude oil.
 
Source: @WSJ   Read full article  
 
And here are the destinations of Russian oil exports.
 
Source: S&P Dow Jones Indices  

——————–

 
4. Investment in oil and gas supply has declined even as demand from China is expected to grow substantially (2 charts).
 
Source: IEA; h/t SOM Macro Strategies  
 
Source: IEA; h/t SOM Macro Strategies  

Back to Index

 

Cryptocurrency

1. Bitcoin hasn’t been able to sustain moves above $30k.
 

 
2. There was a slight uptick in short liquidations after BTC rose above $30K. Still, long liquidations have been more severe, reflecting an unwind of bullish positions on each successive price drop.
 
Source: Coinglass   Read full article  
 
3. Bitcoin’s implied volatility continues to fade, for now.
 
Source: Skew   Read full article  
 
4. The most active BTC strike price is at $30K, where puts outnumber calls.
 
Source: Skew   Read full article  
 
5. Crypto investment products saw inflows totaling $100 million last week.
 
Source: CoinShares   Read full article  
 
Source: CoinShares   Read full article  

Back to Index

 

Emerging Markets

1. Let’s begin with Mexico.
 
• Business investment continues to recover.
 

 
• Vehicle exports are holding near last year’s levels.
 

 
• Job creation has been soft relative to last year.
 

——————–

 
2. Brazil’s formal job creation was well above last year’s levels in April.
 

 
3. The value of Russia’s sovereign wealth fund has rebounded to pre-war levels as “petro-cash” flows in.
 

 
Russia’s vehicle sales have collapsed.
 

——————–

 
4. EM trade surpluses have been moderating.
 
Source: TS Lombard  

Back to Index

 

China

1. The Shanghai lockdown has been a massive economic shock.
 
Source: Gavekal Research  
 
But the virus appears to be under control.
 
Source: @GregDaco, Bloomberg   Read full article  
 
Here is the story count for “Shanghai reopening.”
 
Source: Evercore ISI Research  

——————–

 
2. The supply chain recovery is taking longer than in 2020.
 
Source: Gavekal Research  
 
3. The authorities have been shifting from tougher regulation to more stimulus as the economy slumps.
 
Source: Piper Sandler   
 
4. The renminbi has weakened substantially in trade-weighted terms.
 
Source: Capital Economics  
 
Capital Economics expects further renminbi weakness, partly driven by interest rate differentials.
 
Source: Capital Economics  

——————–

 
5. Most of the recent foreign outflows from Chinese equities occurred in March, following the onset of the Russia/Ukraine war. Were investors concerned about Western sanctions?
 
Source: Capital Economics  

Back to Index

 

Asia – Pacific

1. The RBA delivered a 50 bps rate hike, spooking the markets.
 

 
Source: Bloomberg   Read full article  
 
• The Aussie dollar and bond yields jumped.
 

 

——————–

 
2. The yen hit a two-decade low against the dollar.
 

 
Source: Bloomberg   Read full article  

Back to Index

 

The Eurozone

1. The market now expects the ECB to lift rates by 1.26% this year.
 

 
2. Recession risks in the Eurozone are real.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
But equity valuations have not fully priced in a recession, pointing to downside risks for stocks.
 
Source: Gavekal Research  

——————–

 
3. German households are cutting spending.
 
Source: BCA Research  

Back to Index

 

The United Kingdom

1. Gilt yields are surging.
 

 
2. Car registrations remain soft.
 

 
3. New fiscal support should boost growth in the second half of the year, according to Pantheon Macroeconomics.
 
Source: Pantheon Macroeconomics  
 
Could it also boost inflation?
 
Source: Bloomberg   Read full article  

Back to Index

 

Canada

1. Bond yields keep climbing.
 

 
2. Three more 50 bps rate hikes ahead? Here is a forecast from Wells Fargo.
 
Source: Wells Fargo Securities  
 
3. Consumer confidence is now well below pre-COVID levels.
 

Back to Index

 

The United States

1. Let’s begin with the housing market.
 
• Housing demand continues to ease.
 
Source: Redfin  
 
• Google search activity for “homes for sale” has been slowing.
 

 
• Real estate showings across North America are well below last year’s levels.
 
Source: ShowingTime  
 
• Homebuilder sales are eroding quickly, according to a survey from Evercore ISI.
 
Source: Evercore ISI Research  
 
• A higher percentage of sellers have been dropping prices.
 
Source: @mikesimonsen, @AltosResearch  
 
• Have mortgage rates peaked?
 
Source: BCA Research  
 
• Apartment traffic is softer than last year’s levels.
 
Source: Evercore ISI Research  

——————–

 
2. Economic growth is expected to slow substantially.
 
Source: Numera Analytics  
 
Will we see a recession?
 
Source: Alpine Macro  

——————–

 
3. The recent surge in income tax receipts surprised economists.
 
Source: @WSJ   Read full article  
 
This chart shows state and local governments’ tax receipts and interest payments.
 
Source: PGM Global  

——————–

 
4. US semiconductor (real) imports have been surging.
 
Source: Piper Sandler   
 
5. Mobility indicators continue to show improvements.
 
Source: Pantheon Macroeconomics  

——————–

Back to Index

 

Food for Thought

1. Seeking remote work:
 
Source: Bloomberg   Read full article  
 
2. Average weekly hours worked (globally):
 
Source: ILO   Read full article  
 
3. Prevalence of videoconferencing:
 
Source: Pew Research Center   Read full article  
 
4. Types of internet crime:
 
Source: Statista  
 
5. Support for nuclear energy in the US:
 
Source: Gallup   Read full article  
 
6. Views on gun control over time:
 
Source: The Economist   Read full article  
 
7. NYPD crime stats (2021 and 2022):
 
Source: OpenAxis  
 
8. US legal immigration:
 
Source: @GregDaco, @pewresearch   Read full article  
 
9. Brain imaging:
 
Source: Slava Bobrov   Read full article  

——————–

Back to Index

Posted on

Wage growth is starting to ease

The Daily Shot: 06-Jun-22
• The United States
• The United Kingdom
• The Eurozone
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Global Developments
• Food for Thought

 

The United States

1. The jobs market held up better than expected in May, …
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
… with total employment nearing the pre-COVID peak.
 

 
• Here is the labor market recovery by industry wage tier.
 
Source: Mizuho Securities USA  
 
• The retail sector registered some job losses.
 
Source: @WSJ   Read full article  
 
• The unemployment rate was unchanged, …
 

 
… but underemployment ticked up.
 

 
• Prime-age labor force participation continues to rebound, which should ease wage pressures (as more Americans return to work).
 
Source: Chart and data provided by Macrobond  
 
The labor force participation rate among African Americans surged in May, approaching its pre-COVID peak.
 

 
As a result, the unemployment rate ticked higher (1st panel below). The second panel shows the spread between the unemployment rate among African Americans and the total rate.
 

 
• One area of concern in the jobs report was an uptick in part-time employment for “economic reasons.”
 

 
• Wage growth appears to be slowing (helped by stronger labor force participation), …
 

 
…. a trend which is likely to continue.
 
Source: Capital Economics  
 
• Nonsupervisory workers’ wages keep outperforming.
 

 
• Overall, the labor market looks stronger than it was prior to the pandemic.
 
Source: @AtlantaFed  
 
But hiring is likely to slow in the months ahead amid increased focus on cost-cutting.
 
Source: Quill Intelligence  

——————–

 
2. The market increasingly expects a 50 bps rate hike in September. The “pause” talk has died down for now.
 

 
3. The pandemic-era surge in service-sector growth is over. The ISM service PMI is well inside its pre-COVID range.
 

 
Source: Mizuho Securities USA  
 
Here is the business activity index.
 

 
Supply pressures are easing.
 
• Supplier delivery times:
 

 
• Backlog of orders:
 

 
A separate service-sector PMI report from S&P Global showed accelerating input costs (likely driven by energy prices).
 

——————–

 
4. Retail gasoline prices are headed higher, which will keep pressuring consumer sentiment.
 
Source: Capital Economics  
 
5. Equity futures traders are betting on deterioration in economic activity (and earnings).
 
Source: Deutsche Bank Research  
 
• The hit to household wealth could become a drag on consumption.
 
Source: Citi Private Bank  
 
• Danske Bank expects a recession in the US next year, …
 
Source: Danske Bank  
 
… as inflation takes a toll on spending.
 
Source: Danske Bank  

Back to Index

 

The United Kingdom

1. Weak consumer confidence doesn’t bode well for household spending.
 
Source: Pantheon Macroeconomics  
 
2. The pound could decline further against the euro.
 
Source: BCA Research  
 
3. Concerns about immigration have eased.
 
Source: @financialtimes   Read full article  

Back to Index

 

The Eurozone

1. Euro-area retail sales dipped below the trendline in April.
 

 
2. Germany’s trade balance remains depressed, due in part to energy costs and weak demand from China.
 

 
But exports are surging.
 

——————–

 
3. Significant fiscal support has partially alleviated the impact of higher energy prices.
 
Source: Deutsche Bank Research  
 
4. The gap between consumer and business confidence hit a record high this year.
 
Source: Chart and data provided by Macrobond  
 
5. Foreign ownership of euro-area sovereign bonds has declined substantially.
 
Source: IIF  

Back to Index

 

Asia – Pacific

1. South Korea’s inflation has been broad, with the core CPI rising well above the BoK’s target.
 
Source: @ANZ_Research  
 
2. Australian inflation is accelerating.
 

Back to Index

 

China

1. Service sector activity continues to contract.
 

 
The labor market is under pressure.
 

——————–

 
2. The stock market is rebounding as foreign investors return.
 

 
3. Offshore debt defaults accelerated this year, …
 
Source: Fitch Ratings  
 
… amid increased balance sheet stress.
 
Source: Alpine Macro  
 
Profitability has been deteriorating. Here is the percentage of money-losing companies.
 
Source: Alpine Macro  

——————–

 
4. Hong Kong’s business activity grew at the fastest pace in over a decade in May.
 
Source: S&P Global PMI  

Back to Index

 

Emerging Markets

1. The Turkish lira keeps weakening, exacerbating (hyper)inflationary pressures.
 

 
The core CPI hit 56%.
 

 
And the PPI is above 130%.
 

——————–

 
2. LatAm inflation has been soaring.
 
Source: Scotiabank Economics  
 
3. EM bond funds continue to see outflows.
 
Source: Deutsche Bank Research  
 
4. Here is last week’s performance data.
 
• Currencies:
 

 
• Equity ETFs:
 

Back to Index

 

Cryptocurrency

1. This chart shows significant drawdown events in cryptos and stocks.
 
Source: @QCPCapital  
 
2. For the most part, the bitcoin community is seen as inclusive, but less so for people in India, according to a survey by Block.
 
Source: Block   Read full article  
 
This chart shows the level of crypto knowledge by gender and region, according to a survey by Block.
 
Source: Block   Read full article  

——————–

 
3. Crypto ETF flows are rebounding.
 

 
4. Miners sold bitcoin in May as the crypto markets slumped.
 
Source: Bloomberg   Read full article  

Back to Index

 

Commodities

1. The slowdown of China’s economic activity (chart shows deviation from trend) points to lower demand for commodities.
 
Source: Numera Analytics  
 
2. This chart compares the average returns of select commodities with above/below potential China GDP growth over the past 27 years.
 
Source: Numera Analytics  
 
3. Here is last week’s performance across key commodity markets.
 

Back to Index

 

Energy

1. Brent crude is back above $120/bbl as Saudi Arabia boosts prices for Asian buyers.
 

 
Source: Reuters   Read full article  
 
Numera expects the Brent oil price to trend lower over the next 12 months, although at a slower pace than predicted by markets.
 
Source: Numera Analytics  

——————–

 
2. Analysts have been downgrading their forecasts for Russian oil output. Oil markets could get very tight.
 
Source: Princeton Energy Advisors  
 
3. Crack spreads are soaring.
 

 
US gasoline futures are hitting record highs.
 

——————–

 
4. US net crude oil imports are at multi-year lows for this time of the year.
 
Source: Princeton Energy Advisors  
 
5. European coal prices remain elevated.
 
  Further reading  

Back to Index

 

Equities

1. The S&P 500 held resistance near 4,200.
 

 
2. How much of a rebound should we expect in a relief rally?
 
Source: Longview Economics  
 
3. What were the drivers of this year’s selloff.
 
Source: UBS Research; @SamRo  
 
4. Deteriorating CEO confidence points to downside risks for earnings growth.
 
Source: @IanRHarnett  
 
5. Market sentiment remains depressed.
 
Source: Longview Economics  
 
• CTAs’ equity allocations:
 
Source: Deutsche Bank Research  
 
• Net bullish option volumes:
 
Source: Deutsche Bank Research  

——————–

 
6. Stock correlation increased substantially this year.
 
Source: Bloomberg   Read full article  
 
7. The bubble in post-IPO stocks has deflated as retail investors retreated.
 
Source: @topdowncharts  
 
8. Next, we have some performance data from last week.
 
• Sectors:
 

 
– Healthcare:
 

 
– Financials:
 

 
– Consumer Discretionary:
 

 
• Here are a couple of ETF flow trends.
 
– Healthcare:
 

 
– Real estate:
 

 
• Equity factors:
 

 
• Thematic ETFs:
 

 
• The largest US tech companies:
 

Back to Index

 

Credit

1. US high-yield ETF flows have been rebounding.
 

 
And investment-grade ETFs continue to see strong inflows.
 

——————–

 
2. Here is last week’s performance by asset class.
 

Back to Index

 

Global Developments

1. Advanced economies have experienced a substantial tightening in financial conditions.
 
Source: Moody’s Investors Service  
 
2. More room for global stocks and bonds to rebound?
 
Source: MRB Partners  
 
3. The average policy rate is set to rise by 240 basis points in under two years, which is more aggressive than the average of the past five tightening cycles, according to Capital Economics.
 
Source: Capital Economics  
 
The net asset acquisitions of major central banks could switch to net disposals as soon as August.
 
Source: Capital Economics  

——————–

 
4. Finally, we have last week’s performance data.
 
• Trade-weighted currency indices:
 

 
• Sovereign bond yields:
 

——————–

Back to Index

 

Food for Thought

1. Construction spending by sector during the COVID era:
 
Source: @WSJ   Read full article  
 
2. Global income distribution over 200 years:
 
Source: Visual Capitalist   Read full article  
 
3. US exports of goods by state:
 
Source: Visual Capitalist   Read full article  
 
4. Skipping medical treatment because of cost:
 
Source: Federal Reserve Board  
 
5. US COVID deaths by occupation in 2020:
 
Source: @blprnt, The New York Times   Read full article  
 
6. Key causes of death among young people in the US:
 
Source: The Economist   Read full article  
 
7. Share of the top 100 global tech firms’ market capitalization:
 
Source: ECOSCOPE   Read full article  
 
8. Digital video preferences by genre:
 

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Posted on

The number of news articles mentioning “hiring freeze” jumped in May

The Daily Shot: 03-Jun-22
• The United States
• Canada
• The Eurozone
• Europe
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought

 

The United States

1. Let’s begin with the labor market.
 
• Unemployment applications remain exceptionally low.
 

 
• However, the ADP report showed slower job gains in May, well below forecasts.
 
Source: ADP Research Institute  
 
• According to ADP, small businesses have been shedding jobs in recent months.
 

 
• The number of news articles mentioning “hiring freeze” jumped in May.
 

 
• Morgan Stanley is estimating that the payrolls report will show a gain of 350k jobs in May, …
 
Source: Morgan Stanley Research  
 
… with the unemployment rate dropping to 3.5%.
 
Source: Morgan Stanley Research  

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2. On average, economic data continues to surprise to the downside.
 

 
• In particular, housing market data has been very soft.
 
Source: BCA Research  
 
• The Atlanta Fed’s GDPNow estimate has declined to 1.3% growth (annualized) for Q2.
 
Source: @AtlantaFed  

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3. The recent decline in CEO confidence does not bode well for capital spending.
 
Source: Gavekal Research  
 
4. The bottom quantile of US households now has less excess savings than in 2019. Note that the top two quantiles represent over 61% of US consumption.
 
Source: Morgan Stanley Research; @carlquintanilla  
 
5. This chart shows the federal government’s interest expense under different aggregate interest rate scenarios.
 
Source: Yardeni Research  

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Canada

1. The markets now expect the BoC to take rates well above 3% by the end of the year.
 

 
• Morgan Stanley sees two 75 bps rate hikes.
 
Source: Morgan Stanley Research  
 
• The 2yr yield keeps climbing.
 

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2. Household purchasing power continues to deteriorate, with recovery not expected to start until next year.
 
Source: Scotiabank Economics  
 
3. Housing inventories are very tight, keeping price appreciation near record levels. How quickly will the BoC’s tightening cool the housing market?
 
Source: Numera Analytics  
 
4. Sensible immigration policies helped boost Canada’s prime-age population, which will be a tailwind for GDP growth.
 
Source: @RichardDias_CFA  

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The Eurozone

1. Shorter-term Bund yields have been surging as the market prices in a more hawkish ECB.
 

 
2. Inflation expectations are on the rise.
 
Source: Danske Bank  
 
3. Germany’s economy is expected to underperform this year.
 
Source: @jrandow, @bpolitics   Read full article  
 
4. The ECB has been financing much of Italy’s bond issuance.
 
Source: IIF  
 
5. What is the relationship between supply strains (delivery times) and input prices?
 
Source: ECB   Read full article  

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Europe

1. Swiss inflation surprised to the upside. A strong Swiss franc has been keeping the CPI well below the levels we see in the Eurozone.
 

 
The 2yr Swiss yield hit the highest level since 2011.
 

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2. Denmark’s short-term yields are surging as well.
 

 
3. The Czech government budget deficit exceeded 2020 levels.
 

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Asia – Pacific

1. South Korea’s inflation topped expectations.
 

 
Source: Reuters   Read full article  
 
Separately, South Korea’s business investment has been contracting in recent months.
 
Source: ING  

——————–

 
2. Singapore’s business activity surged in May.
 
Source: S&P Global PMI  
 
3. Australia’s housing finance is starting to cool.
 

 
But business lending is accelerating.
 

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China

1. The renminbi resumed its rebound as investors return to China.
 

 
2. Corporate earnings outlook has been weak.
 
Source: Alpine Macro  
 
But depressed sentiment on Chinese equities could be a tailwind for the market.
 
Source: BCA Research  
 
Valuations look attractive.
 
Source: BCA Research  

——————–

 
3. Lockdowns are easing.
 
Source: Gavekal Research  
 
Here are the waiting times for vessels at the Port of Shanghai.
 
Source: VesselsValue  

——————–

 
4. China’s total financing is now below the broad money supply growth.
 
Source: Chart and data provided by Macrobond  
 
5. The unemployment rate among young people has risen substantially.
 
Source: @WSJ   Read full article  

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Emerging Markets

1. Brazil’s economy continued to expand in Q1, although growth was slower than expected. Economists see a tough road ahead for the rest of 2022.
 

 
2. Mexican consumer confidence has been resilient.
 

 
3. Next, we have some vehicle sales data through May.
 
• Brazil:
 

 
• Mexico:
 

 
• Chile:
 

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4. Ukraine’s central bank has returned to the business of monetary policy, hiking rates to 25%.
 

 
5. EM central banks will begin cutting rates next year, according to Capital Economics.
 
Source: Capital Economics  

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Cryptocurrency

1. Most major cryptos stabilized over the past week.
 
Source: FinViz  
 
2. There has been a dip in the number of active addresses and entities on the Bitcoin blockchain, similar to what occurred during the 2018 bear market.
 
Source: Glassnode   Read full article  
 
3. Bitcoin miners have distributed less of their BTC holdings over the past few weeks.
 
Source: Glassnode   Read full article  
 
4. Could we see a rise in M&A among crypto miners?
 
Source: CoinDesk   Read full article  
 
Here is a comparison of fundamental metrics across publicly listed mining companies.
 
Source: @ArcaneResearch  

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5. It would be challenging for Russia to use crypto for circumventing sanctions.
 
Source: @IIF   Read full article  
 
6. The number of cryptocurrencies has exploded.
 
Source: Statista  
 
7. Crypto industry political donations surged over the past few quarters.
 
Source: @allyversprille, @bill_allison, @bpolitics   Read full article  

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Commodities

1. Copper soared on Thursday amid improving demand expectations for China.
 

 

——————–

 
2. Soybean crush has been tumbling as gains in soybeans outpace soybean oil and soybean meal.
 
h/t Tom  

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Energy

1. The OPEC+ output “boost” is not very meaningful, because production has been persistently running below quotas.
 
Source: Reuters   Read full article  
 
2. US oil inventories surprised to the downside (2 charts).
 

 

 
Refined product inventories are also very tight.
 
• Distillates:
 

 
• Gasoline:
 

 
US refinery runs declined last week.
 

——————–

 
3. Euro area countries have been filling up their gas storage for the upcoming winter, but export cuts from Russia could cause significant setbacks.
 
Source: BCA Research  
 
4. European petroleum tanker rates surged this year.
 
Source: EIA   Read full article  
 
5. Who owns crude tankers moving Russian oil?
 
Source: @RobinBrooksIIF, @JonathanPingle  
 
6. Fitch expects Asia spot LNG prices to fade over the next few years.
 
Source: Fitch Solutions Macro Research  
 
7. Insiders in the energy sector have been selling shares.
 
Source: JP Morgan Research; @MichaelAArouet  

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Equities

1. Stocks jumped on Thursday, and the S&P 500 now faces resistance at 4,200.
 

 
2. Fund flows ended up in the black for May.
 
Source: JP Morgan Research; @WallStJesus  
 
3. The cyclicals-to-defensives rotation has been massive in recent months.
 
Source: SPDR Americas Research, @mattbartolini  
 
4. This chart shows how stocks performed (on average) each day of the week since 1928.
 
Source: BofA Global Research  
 
5. Are retail investors migrating to more traditional brokerage platforms?
 
Source: Vanda Research  
 
6. Finally, we have returns by sector during the 1970s (when inflation was rampant).
 
Source: Deutsche Bank Research  

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Credit

1. Delays and cancellations in financing plans surged this year amid market uncertainty.
 
Source: Bloomberg Law   Read full article  
 
2. The iShares High Yield ETF (HYG) had its largest one-day rate of change in over two years last week, which typically precedes further gains.
 
Source: @NautilusCap  
 
3. A majority of US investment-grade bonds are trading below par.
 
Source: Quill Intelligence  
 
4. Tighter bank lending standards point to wider credit spreads ahead.
 
Source: Jack Ablin, Cresset Wealth Advisors  

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Rates

1. Treasury yields have room to rise as the Fed’s tightening cycle progresses.
 
Source: Trahan Macro Research  
 
2. Bond ETFs saw substantial inflows in May, …
 
Source: SPDR Americas Research, @mattbartolini  
 
… outpacing equity flows.
 
Source: SPDR Americas Research, @mattbartolini  

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Global Developments

1. This chart shows the percentage of ETFs with inflows in May, compared to historical levels.
 
Source: SPDR Americas Research, @mattbartolini  
 
2. Here is a look at May’s performance across asset classes, expressed in standard deviations.
 
Source: BCA Research  
 
3. The spread between the PMI indices of new orders and inventories has deteriorated, which tends to signal softer manufacturing output going forward.
 
Source: Quill Intelligence  

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Food for Thought

1. US economic recession and expansion lengths:
 
Source: Scotiabank Economics  
 
2. Americans living near their extended family:
 
Source: Pew Research Center   Read full article  
 
3. Exports to Russia:
 
Source: @financialtimes   Read full article  
 
4. Political convictions in Hong Kong:
 
Source: The Economist   Read full article  
 
5. Apple’s revenue growth by segment:
 
Source: Fitch Solutions Macro Research  
 
6. Browser market share over time:
 
Source: Statcounter  
 
• The most popular browser by country:
 
Source: Chart of the Week  

——————–

 
7. Ransomware attacks by sector in the US:
 
Source: Moody’s Investors Service  
 
8. Examples of English spelling weirdness:
 
Source: Reuters   Read full article  

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Have a great weekend!

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