Posted on by The Daily Shot Editor: Lev Borodovsky

Inflation expectations drop sharply

The Daily Shot: 09-Aug-22
• The United States
• The Eurozone
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought

 

The United States

1. Let’s begin with some updates on inflation.
 
• Lower gasoline prices and, to a lesser extent, food prices sent inflation expectations sharply lower. While this is an important consideration for the Fed, it’s unlikely to deter the central bank from continuing with its tightening policy.
 
Source: Federal Reserve Bank of New York  
 
Source: Reuters   Read full article  
 
– This chart shows consumer expectations for commodity price changes (note the gasoline and food components).
 
Source: Federal Reserve Bank of New York  
 
– Gasoline and food prices are still very elevated but have come off the highs (2 charts).
 

 

 
• Fidelity expects inflation to moderate over the next 12 months, although commodity prices remain a wildcard.
 
Source: Fidelity Investments   Read full article  
 
• The ISM PMI data indicate that inflation will slow in the months ahead.
 
Source: Piper Sandler   
 
• Withheld federal income and employment tax growth also point to slower inflation going forward.
 
Source: @TeddyVallee  
 
• Vehicle prices have been the main driver of the core goods CPI.
 
Source: Morgan Stanley Research  
 
Real-time measurements from YipitData suggest that new car inflation is moderating.
 
Source: YipitData  
 
• Airline fares have eased.
 
Source: Nomura Securities  
 
• The US dollar strength has been putting downward pressure on import prices, which should slow consumer goods inflation.
 
Source: Nomura Securities  
 
• Shelter inflation is yet to peak.
 
Source: Morgan Stanley Research  
 
• The PPI – CPI spread hit a record high in June.
 

 
• Forecasts call for a small monthly increase in the headline CPI in July, with the core inflation remaining elevated, driven by shelter costs. The consensus estimates are 0.2% for the headline and 0.5% for the core CPI (month over month).
 
– Wells Fargo (headline CPI):
 
Source: Wells Fargo Securities  
 
– Morgan Stanley (headline and core CPI):
 
Source: Morgan Stanley Research  
 
– Nomura (core CPI):
 
Source: Nomura Securities  

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2. Truck freight demand is off the highs but remains elevated, according to a survey from Evercore ISI.
 
Source: Evercore ISI Research  
 
3. Next, we have some updates on the housing market.
 
• New listings are slowing.
 
Source: Redfin  
 
• More sellers have been dropping prices.
 
Source: Redfin  
 
• It’s taking longer to sell homes.
 
Source: Redfin  
 
• Despite affordability issues, demand for housing remains robust.
 
Source: Redfin  

——————–

 
CORRECTION:
 
In yesterday’s US section, the description for this chart should be:

The market expects nearly 90 bps of rate cuts between next April and April of 2024.

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The Eurozone

1. The Sentix investor confidence index showed a slight improvement this month.
 

 
2. Germany’s depressed consumer sentiment points to weak spending ahead.
 
Source: @PatrickKrizan  
 
3. Construction output and confidence are sharply lower.
 
Source: Pantheon Macroeconomics  

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Asia – Pacific

1. Japan’s Economy Watchers index tumbled last month.
 

 
Source: @ynohara1, @business   Read full article  

——————–

 
2. Australia’s business sentiment held up well last month, …
 

 
… but consumer sentiment is approaching the COVID-shock lows.
 

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China

1. The dollar-denominated high-yield index continues to hit multi-year lows as leveraged developer stress persists.
 

 
2. Some leading indicators suggest a growth recovery is near.
 
Source: Alpine Macro  
 
For example, car sales and construction activity are picking up. (2 charts)
 
Source: Alpine Macro  
 
Source: Alpine Macro  
 
Still, employment and household income remain weak.
 
Source: Gavekal Research  
 
Household consumption continues to lag its pre-pandemic trend.
 
Source: Gavekal Research  

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Emerging Markets

1. Let’s begin with Chile.
 
• Inflation continues to surge.
 

 
• Exports (value) declined as copper prices deteriorated.
 

 
• F/X reserves are moving toward pre-COVID levels.
 

——————–

 
2. The Philippine economy unexpectedly contracted last quarter.
 

 
Source: Reuters   Read full article  
 
The trade deficit hit a record.
 

——————–

 
3. How far are EM central banks from completing their policy tightening?
 
Source: Morgan Stanley Research  
 
Source: Capital Economics  

——————–

 
4. EM inflation appears to be peaking.
 
Source: TS Lombard  

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Cryptocurrency

1. The Reddit crowd is back, giving cryptos a boost.
 

 
2. Bitcoin remains in an intermediate-term downtrend with resistance between $25K and $30K.
 
Source: @StocktonKatie  
 
3. This chart shows the improvement in momentum of several altcoins (risk-on) relative to bitcoin over the past 12 weeks. That suggests the crypto relief rally could have staying power.
 
Source: @StocktonKatie  
 
4. Ether’s (ETH) options open interest has surpassed bitcoin’s for the first time.
 
Source: @glassnode  
 
5. Realized losses have significantly increased among bitcoin holders over the past few months.
 
Source: @glassnode  
 
6. Crypto investment products registered six consecutive weeks of inflows.
 
Source: CoinShares   Read full article  
 
Source: EPFR Global Navigator  
 
Both long and short-bitcoin funds saw outflows last week, while Ethereum-focused funds saw inflows.
 
Source: CoinShares   Read full article  
 
By the way, the upcoming Ethereum Merge, scheduled for September, has been a major factor behind the recent ETH rally.
 
Source: CoinDesk   Read full article  

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Commodities

1. ETF gold holdings have been falling.
 
Source: @StuartLWallace, @davidfickling   Read full article  
 
2. US farmland prices have been rallying with agricultural commodities.
 
Source: @chigrl   Read full article  

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Energy

1. Crack spreads continue to tighten.
 

 
2. Open interest in front Brent futures has been shrinking.
 
Source: Goldman Sachs  
 
3. Is the global oil market in surplus?
 
Source: Longview Economics  
 
4. US energy CapEx is yet to recover from the COVID shock.
 
Source: @WSJ   Read full article  

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Equities

1. Analysts continue to downgrade their forecasts for the 2023 S&P 500 earnings.
 

 
Margin projections are also moving lower.
 
Source: Evercore ISI Research  

——————–

 
2. Next, we have some data on market response to earnings surprises. For now, there is a lot of forgiveness going on.
 
Source: @FactSet  
 
3. Global stocks are rising from extreme oversold levels.
 
Source: MRB Partners  
 
4. Small caps have been outperforming in recent days …
 

 
… and are now in overbought territory.
 

 
Positioning in small caps has been very bearish.
 
h/t @pav_chartbook  

——————–

 
5. The Reddit crowd is back.
 

 
Stocks with high options volumes have been outperforming.
 

——————–

 
6. Companies that focus on share buybacks have been lagging.
 

 
7. Semiconductor shares took a hit on NVIDIA.
 

 
Source: @WSJ   Read full article  
 
Semiconductor profits are expected to decline sharply.
 
Source: @technology   Read full article  

——————–

 
8. Biotech stocks have been surging on M&A activity.
 

 
9. Value typically underperforms low-vol during manufacturing contractions.
 
Source: Fidelity Investment   Read full article  
 
Quality and minimum volatility factors typically outperform in late-cycle and recession phases.
 
Source: Fidelity Investment   Read full article  

——————–

 
10. Stocks are gaining momentum relative to Treasuries and commodities.
 
Source: Aazan Habib, Paradigm Capital  
 
11. Are stocks following the 1970s pattern?
 
Source: Evercore ISI Research  
 
12. Will VIX hold support?
 

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Credit

1. Lower-rated ABS spreads have risen substantially this year.
 
Source: @WSJ   Read full article  
 
2. Next, we have some data on speculative-grade debt issuance and maturities.
 
Source: S&P Global Ratings  
 
3. Fitch expects private credit to contract this year because of tighter monetary policy.
 
Source: Fitch Ratings  

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Rates

The Treasury curve continues to flatten/invert.
 
• 10-year – 2-year spread:
 

 
• 30-year – 3-month spread:
 

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Global Developments

1. Here is a look at recession risks in select economies.
 
Source: Goldman Sachs; @MikeZaccardi  
 
2. Next, we have the key supply bottleneck indicators from Morgan Stanley.
 
Source: Morgan Stanley Research  
 
3. This chart shows business investment as a share of GDP over time.
 
Source: Capital Economics  

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Food for Thought

1. Global wheat production:
 
Source: Visual Capitalist   Read full article  
 
2. US startup surge in majority black areas:
 
Source: Bloomberg   Read full article  
 
3. What are consumers saving for this year?
 
Source: @magnify_money   Read full article  
 
4. Where people make friends:
 
Source: The New York Times   Read full article  
 
5. Voter enthusiasm in the US:
 
Source: The Economist   Read full article  
 
6. What are the betting markets telling us about the 2024 Republican presidential nomination?
 

 
7. The China-Africa trade:
 
Source: Statista  
 
8. Shark attacks by species:
 
Source: @WSJ   Read full article  

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