The Daily Shot: 06-Jul-22
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Europe
• Japan
• Australia
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought
The United States
1. The trade-weighted US dollar index hit the highest level in nearly two decades, …
… as USD liquidity tightens …
… and markets shift to risk-off sentiment. While a stronger dollar should help ease inflationary pressures (chart shows market-based inflation expectations), …
… it is a headwind for risk assets such as stocks, commodities, and emerging markets. The greenback rally is contributing to tighter US financial conditions.
Source: Jefferies; @WallStJesus
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2. The Treasury curve is inverted, …
… which boosts the risk of recession.
Source: Piper Sandler
Recession probability estimates vary, but most models show a significant increase.
– Piper Sandler:
Source: Piper Sandler
– Bloomberg Economics:
Source: Bloomberg Read full article
• Leading indicators are pointing to a sharp slowdown.
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
• Many households think that we are already in a recession.
Source: Piper Sandler
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3. May factory orders surprised to the upside, but the June ISM PMI report shows that demand has softened since then.
4. Automobile inventories remain tight, keeping prices elevated.
Source: Goldman Sachs; @MikeZaccardi
5. Outside of autos, retail inventories have risen sharply, …
Source: @WSJ Read full article
… as imports surged.
Source: Pantheon Macroeconomics
The Bullwhip Effect has been amplified by massive delivery delays. By the time inventories were rebuilt, consumer demand shifted.
Source: Longview Economics
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Canada
1. The latest BoC survey shows business and consumer inflation expectations climbing (3 charts).
Source: Bloomberg Read full article
Source: Scotiabank Economics
Source: Scotiabank Economics
Source: BCA Research
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2. Labor shortages persist.
Source: Scotiabank Economics
3. Ontario stands out for its share of economic activity tied to housing.
Source: Desjardins
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The United Kingdom
1. The pound dipped below $1.20 amid increased political uncertainty in the UK.
2. New car registrations are now below 2020 levels.
3. The current account deficit reached record levels in Q1 …
Source: Deutsche Bank Research
…with comparatively low yields.
Source: Deutsche Bank Research
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4. Here are the views on Brexit.
Source: @YouGov Read full article
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The Eurozone
1. The euro hit the lowest level in nearly two decades vs. USD.
The euro is approaching parity with the greenback. The next major support is around 0.85.
Source: Aazan Habib; Paradigm Capital
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2. How much freedom does the ECB have to deviate from the capital key guidance to address fragmentation risks?
Source: Pantheon Macroeconomics
For now, markets are confident in the ECBs “de-fragmentation” efforts.
Source: Gavekal Research
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3. Loan growth has been robust, …
… but the money supply expansion continues to surprise to the downside.
The deteriorating liquidity situation could significantly weaken business activity.
Source: Pantheon Macroeconomics
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4. Systemic risks have been pressuring stocks.
Source: Numera Analytics
5. This time around, it’s Germany, not Italy, that needs tighter financial conditions.
Source: BCA Research
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Europe
1. EUR/CHF dipped below long-term support.
2. Poland’s consumer inflation is nearing 16%.
3. Here are the occupations with the largest gains in employment across the EU.
Source: Eurostat Read full article
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Japan
1. Japan is now entangled in natural gas supply risk.
Source: S&P Global Market Intelligence Read full article
The public is more upbeat about nuclear energy.
Source: Fitch Solutions Macro Research
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2. Japan’s sovereign CDS spread has been rising.
3. The divergence between wages and corporate profits has been extreme.
Source: @JamieHalse, @CacheThatCheque, @JCVpartners
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Australia
1. The RBA hiked rates by 50 bps (as expected).
2. Building approvals jumped in May.
3. Rents continue to surge.
Source: Morgan Stanley Research; @Scutty
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China
1. New energy car sales rebounded in May.
Source: @ANZ_Research
2. Corporate sales and margins came under pressure in Q2.
Source: China Beige Book International
Source: China Beige Book International
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3. The Shanghai Composite held resistance at the 200-day moving average.
Source: @TheTerminal, Bloomberg Finance L.P.
4. This chart illustrates China’s changes in power generation by source.
Source: S&P Global Commodity Insights
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Emerging Markets
1. EM currencies are under pressure amid risk-off sentiment.
• The Chilean peso (hit by lower copper prices – 2nd chart):
• The Colombian peso (hurt by the selloff in crude oil):
• The JP Morgan LatAm currency index:
• The Philippine peso:
• The Thai baht:
• The Hungarian forint (vs. EUR):
• The Russian ruble (hit by the drop in crude oil):
• The MSCI EM Currency Index:
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2. Despite the selloff, DM currency markets’ implied volatility has been outpacing EM.
3. The situation in Argentina has become more precarious after Martin Guzman’s resignation.
Source: Reuters Read full article
The black-market peso slumped vs. USD, …
Source: Blue Dollar
… further widening the gap with the official rate.
Source: Wells Fargo Securities
A sharp devaluation in the official rate is coming.
Source: @ioliveradoll Read full article
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4. Turkey’s core consumer inflation is approaching 60%.
And the PPI is nearing 140%.
The trade deficit reached a new record.
Back to Index
Cryptocurrency
1. Bitcoin held support at $19k but is having trouble moving above $20k.
2. Q2 was a rough quarter for bitcoin.
3. Crypto funds saw inflows totaling $64 million last week, driven by short-bitcoin investment products (2 charts).
Source: CoinShares Read full article
Source: CoinShares Read full article
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3. Roughly 48% of all BTC held outside exchanges are at a loss, and 60% of those coins are held by long-term holders, according to blockchain data compiled by Glassnode.
Source: @glassnode
4. Here is the number of active crypto users over time.
Source: @LizAnnSonders, @BankofAmerica
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Commodities
1. Industrial metals keep falling.
• Aluminum:
• The LMEX index:
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2. Agricultural commodity prices remain under pressure.
• Iowa corn and soybean crops look good.
Source: @kannbwx
• Corn:
• Cotton:
• Bloomberg’s agriculture index:
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3. The Bloomberg Commodities Index corrected last month, although it has rarely produced such a positive return during the first half of the year.
Source: @biancoresearch
Back to Index
Energy
1. Crude oil tumbled on Tuesday amid recession concerns.
Source: CNBC Read full article
Energy shares slumped.
Oil vol jumped.
2. Crack spreads are moderating.
3. According to Numera Analytics, Brent is trading at a $30 premium to fair value.
Source: Numera Analytics
Will we see crude oil surpluses in the months ahead?
Source: Longview Economics
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Equities
1. Relative fund flows between defensive and cyclical sectors have been extreme.
Source: SPDR Americas Research, @mattbartolini
2. US housing sales tend to lead earnings expectations.
Source: Numera Analytics
3. Here is a look at previous bear market drawdowns with and without a recession (2 charts).
Source: MRB Partners
Source: TS Lombard
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4. The forward P/E ratio for the equal-weight S&P 500 is around 14x.
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
5. The Fed tends to react to earnings, not multiples (no Fed put from price declines without significant earnings weakness).
Source: Piper Sandler
6. Equity implied volatility (VIX) is low relative to rates (MOVE).
VIX is also low relative to realized volatility. Should we expect significant gains in equity implied vol?
Source: Simon White, Bloomberg Markets Live Blog
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Credit
1. Leveraged loan prices continue to drift lower.
2. Outflows from high-yield bonds have been extreme in the first half of the year.
Source: SPDR Americas Research, @mattbartolini
3. CLO refi/reset activity dwindles as liability costs surge.
Source: Deutsche Bank Research
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Rates
1. Treasury market implied volatility is surging.
2. Treasuries are no longer attractive when hedged into euros or yen.
3. Deutsche Bank estimates that US public pension funds will have to sell $49 billion in fixed income securities this quarter.
Source: Deutsche Bank Research
Back to Index
Global Developments
1. The implied volatility across G7 currencies is rising rapidly as the dollar surges.
2. Automobile sales are forecast to rebound next year.
Source: Scotiabank Economics
3. Road traffic has returned toward pre-pandemic levels, most notably in the Middle East.
Source: @ANZ_Research
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Food for Thought
1. Omicron is mutating quickly.
Source: @EricTopol Read full article
• COVID variant distributions over time:
Source: @trvrb, @marlinfiggins Read full article
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2. Migrant children in detention:
Source: The Marshall Project Read full article
3. Support for stricter gun laws:
Source: Gallup Read full article
4. Album consumption of current vs. catalog music:
Source: Statista
5. US mall visits:
Source: Placer.ai
6. Elements that make up the human body:
Source: Visual Capitalist Read full article
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