For fund managers, recession is a done deal

The Daily Shot: 20-Jul-22
The United States
Canada
The United Kingdom
The Eurozone
Europe
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Rates
Food for Thought



 

The United States

1. Once again, let’s start with the housing market.
 
June housing starts were a bit below forecasts.
 

 
The weakness was in single-family construction.
 

 
Building permits held up well last month, …
 

 
… boosted by multifamily demand.
 

 
Below is the permits chart for single-family homes.
 

 
There are a lot of homes under construction.
 
Source: @PPGMacro  
 
Single-family housing rents have been surging.
 
Source: CoreLogic  
 
New housing inventory is piling up in Las Vegas.
 
Source: @AliWolfEcon  

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2. Next, we have some data on economic growth.
 
The GDPNow model from the Atlanta Fed continues to show a contraction in Q2.
 
Source: @AtlantaFed   Read full article  
 
About half of the economists surveyed by The Wall Street Journal expect a recession in the next 12 months.
 
Source: @WSJ   Read full article  
 
For fund managers, it’s a done deal.
 
Source: BofA Global Research  
 
Traders have been positioning for it. Are recession fears overdone?
 
Source: Deutsche Bank Research  
 
The pace of excess savings drawdown within the next year could substantially impact GDP growth.
 
Source: Oxford Economics  
 
The pandemic upended a long period of mild volatility in output and inflation.
 
Source: BlackRock Investment Institute  

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3. CFOs have soured on the economy but remain remarkably upbeat about their company’s business.
 
Source: @jessefelder, @WSJ   Read full article  
 
4. Consumers increasingly see a deterioration in credit availability ahead.
 
Source: NY Fed  
 
5. Excluding vehicles, the retail inventories-to-sales ratio is rebounding.
 

 
General merchandise stores are now sitting on bloated inventories.
 

 
Restaurants are no longer facing shortages.
 
Source: Evercore ISI Research  

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6. Gains in upstream core producer prices are slowing.
 
Source: Yardeni Research  


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Canada

1. The iShares Canadian long-term bond ETF is attempting to break above its six-month downtrend.
 
Source: Aazan Habib; Paradigm Capital  
 
2. Real yields have been pressuring equity valuations.
 
Source: Numera Analytics  
 
3. Housing starts will slow in the months ahead.
 
Source: Numera Analytics  


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The United Kingdom

1. The message from the BoE is a 50 bps rate hike at the next meeting and quantitative tightening ahead.
 
Source: FXStreet   Read full article  
 
Source: Reuters   Read full article  
 
Gilt yields are higher.
 

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2. Demand for labor appears to be slowing (2 charts).
 
Source: Pantheon Macroeconomics  
 
Source: Pantheon Macroeconomics  

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3. Ouch …
 
Source: @RARohde  


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The Eurozone

1. The market is now pricing a 50% chance of a 50 bps ECB rate hike this week.
 

 
2. The euro held support at parity …
 
Source: barchart.com  
 
… as well as its long-term downtrend support.
 
Source: @NautilusCap  
 
The euro implied vol surged ahead of the ECB decision.
 
Source: @donnelly_brent  

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3. Inflation is yet to peak.
 
Source: Pantheon Macroeconomics  
 
Here is the CPI dispersion.
 
Source: Chart and data provided by Macrobond  

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4. French wholesale electricity costs continue to surge.
 

 
5. The joys of being part of the Eurozone:
 
Source: ING, @DanielKral1  


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Europe

1. Supply stress remains elevated.
 
Source: ING  
 
2. Here is Europe’s power/energy mix.
 
Source: @ANZ_Research  
 
3. Wildfires have been extreme this year.
 
Source: The Economist   Read full article  


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Asia – Pacific

1. Dollar-yen is holding the uptrend support.
 

 
2. Home prices in Sydney and Melbourne are falling.
 
Source: Coolabah Capita   Read full article  


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China

1. Beijing continues to struggle in its attempts to contain the property crisis.
 
Source: The Guardian   Read full article  
 
Homebuyers refusing to make loan payments on unfinished housing:
 
Source: @RChoongWilkins, @bpolitics   Read full article  
 
At-risk mortgages:
 
Source: @WSJ   Read full article  
 
Developers’ funding and investment:
 
Source: TS Lombard  
 
Construction:
 
Source: @andrewbatson, @Gavekal  
 
Metallurgical coal prices (showing weaker demand for steel):
 

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2. COVID risks are not going away any time soon.
 
Source: @financialtimes   Read full article  
 
3. Unemployment eased in Hong Kong last month.
 

 
4. There is no rebound in Macau visitors.
 


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Emerging Markets

1. The Indian rupee remains under pressure as USD/INR tests resistance at 80.
 

 
2. The Pakistani rupee continues to sink.
 

 
3. Turkey’s home sales jumped last month, …
 

 
… boosted by buyers from Russia.
 
Source: @uguruzyilmaz, Bloomberg   Read full article  

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4. Nigeria’s central bank unexpectedly hiked rates by 100 bps.
 


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Cryptocurrency

1. Cryptos continue to rebound with stocks.
 

 
2. The total ETH supply in profit (based on the average cost basis among holders) has risen above 50% given the latest price jump.
 
Source: @glassnode  
 
3. However, 50% of all value held by short-term bitcoin holders is still at an unrealized loss.
 
Source: @glassnode  
 
4. There was a spike in total BTC transfer volume at a loss during the LUNA stablecoin collapse.
 
Source: @glassnode  


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Commodities

1. Money managers are trimming their bets on corn futures.
 
Source: @kannbwx  
 
2. Commodities tend to perform worse in the second half of the year.
 
Source: @jaykaeppel  


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Energy

1. WTI futures are testing resistance.
 

 
2. Crude oil is becoming more sensitive to the US dollar.
 
Source: @WSJ   Read full article  
 
3. US jet fuel demand remains below pre-pandemic levels, tracking the recovery in air travel (2 charts).
 
Source: Piper Sandler¬†  
 
Source: Piper Sandler¬†  

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4. Russia’s natural gas production is expected to deteriorate.
 
Source: IEA; @Insider_FX  
 
5. Concerns are growing over Texas power grid’s ability to handle the surging demand.
 
Source: NBC News   Read full article  
 


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Equities

1. The S&P 500 and the Nasdaq 100 rallied above the 50-day moving average …
 

 
Source: @bespokeinvest   Read full article  
 
… amid extreme market pessimism (2 charts).
 
Source: Simon White, Bloomberg Markets Live Blog  
 
Source: Deutsche Bank Research  

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2. Fund managers’ profit sentiment hasn’t been this bad in a long time.
 
Source: BofA Global Research  
 
3. The put/call premium among small options traders has been stretched (very bearish).
 
Source: SentimenTrader  
 
4. The broad market bounce we just had is not a positive sign for near-term performance.
 
Source: Chris Murphy, Susquehanna International Group  
 
5. Another bear-market rally?
 
Source: Michael Kantrowitz, Piper Sandler¬†  
 
6. Here are some potential downside scenarios for the S&P 500, according to MRB Partners.
 
Source: MRB Partners  
 
7. Next, we have some sector performance trends.
 
Banks:
 

 
Tech and semiconductors:
 

 

 
Communication Services:
 

 
Transportation:
 

 
Energy:
 

 
Metals & Mining:
 

 
Consumer Discretionary:
 

 
Retail:
 

 
Consumer Staples:
 

 
Healthcare:
 

 
Utilities:
 

 
Here is fund managers’ positioning going into this rally.
 
Source: BofA Global Research  

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8. Next, let’s take a look at some equity factor trends.
 
Value vs. growth:
 

 
By the way, fund managers are less sure that value will beat growth.
 
Source: BofA Global Research  
 
Small caps:
 

 
High-beta and low-vol:
 

 
High-dividend:
 

 
Quality:
 

 
Momentum (yes, there are more value names in the momentum ETF):
 

 
Inflation-sensitive:
 


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Rates

1. The 10-year – 3-month portion of the Treasury curve is flattening rapidly.
 
Source: Tradeweb  
 
Source: @GunjanJS, @bespokeinvest  
 
Here is the yield curve.
 

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2. Treasury market liquidity has been deteriorating in recent years.
 
Source: JP Morgan Research, h/t III Capital Management  


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Food for Thought

1. Change in new vehicle sales over the past 12 months:
 
Source: @axios   Read full article  
 
2. Who is responsible for flight delays:
 
Source: Bloomberg   Read full article  
 
3. The most abundant mineral resource in each African country:
 
Source: The Economist  
 
4. Concerns about extreme weather:
 
Source: Data for Progress   Read full article  
 
5. Americans’ trust in major institutions:
 
Source: FiveThirtyEight   Read full article  
 
6. Split congressional districts:
 
Source: @axios   Read full article  
 
7. Peering back in time to detect oxygen in a 13.1 billion-year-old galaxy:
 
Source: @DrEOChapman   Further reading  

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