The Daily Shot: 09-Sep-22
• The United States
• The United Kingdom
• The Eurozone
• Japan
• China
• Emerging Markets
• Cryptocurrency
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought
The United States
1. Let’s begin with the labor market.
• Initial jobless claims dipped below their pre-pandemic levels again.
But continuing claims unexpectedly increased.
• Falling job vacancies point to higher unemployment ahead.
Source: BCA Research
• The recent moderation in employment growth (year-over-year) has been steeper without the seasonal adjustments. Is the job market softer than the nonfarm payrolls report suggests?
Source: Mizuho Securities USA
• Small businesses are reporting more hiring freezes.
Source: Alignable
• Here is wage growth by wage category.
Source: Arcano Partners
• Job hopping has never been this lucrative.
Source: @AtlantaFed
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2. Fed officials are not backing off their hawkish stance.
Source: CNBC Read full article
• A 75 bps rate hike this month is now nearly a certainty.
• What happens after that? According to Goldman, it’s 50 bps in November and 25 bps in December.
Source: Goldman Sachs; @WallStJesus
• Here is the Fed’s current rate trajectory compared to previous tightening cycles, according to EY-Parthenon.
Source: @GregDaco, @EY_US
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3. Consumer credit is nearing its pre-COVID trend.
• Credit card debt continues to climb.
• Non-revolving debt (auto loans and student debt) has been rising faster than the pre-pandemic trend.
• Growth in government-held student loans has been slowing.
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4. Goods spending remains well above services relative to pre-pandemic levels.
Source: @WSJ Read full article
5. The current fiscal drag is expected to weaken next year.
Source: BCA Research
6. The Atlanta Fed’s GDPNow model has the Q3 GDP growth at 1.4% (roughly in line with sell-side economists).
Source: @AtlantaFed Read full article
Recession risks remain elevated.
Source: Deutsche Bank Research
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7. The GS Twitter Sentiment Index suggests that consumer sentiment is improving amid lower gasoline prices.
Source: Goldman Sachs; @WallStJesus
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The United Kingdom
1. Here is what inflation may look like after the household energy bill cap.
• Pantheon Macroeconomics:
Source: Pantheon Macroeconomics
• Capital Economics:
Source: Capital Economics
Government borrowing will rise substantially.
Source: Capital Economics
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2. UK corporate and government debt has experienced an unprecedented drawdown.
Source: @Marcomadness2, @tomkeene, @lisaabramowicz1, @FerroTV
3. The UK is more reliant on gas versus regional peers, but the nation has very little storage.
Source: Deutsche Bank Research
This is why the UK has been re-exporting gas in record amounts.
Source: Deutsche Bank Research
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The Eurozone
1. The ECB delivered an unprecedented 75 bps rate hike, …
… as inflation surges (2 charts).
Source: @TheTerminal, Bloomberg Finance L.P.
Source: @TheTerminal, Bloomberg Finance L.P.
• The central bank boosted its CPI forecast – again.
Source: ECB
Source: Nordea Markets
• The forecast for next year’s GDP growth was moved sharply lower.
Source: @ecb, @Lagarde
The ECB’s latest GDP projection is not too different from the consensus estimate.
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2. There are more rate hikes to come. The market now sees the ECB rate hitting 1.78% by the end of the year.
• Below is the expected rate trajectory.
And here is a forecast from Wells Fargo.
Source: Wells Fargo Securities
• The 2-year Bund yield rose to the highest level since 2011.
• The Bund curve flattened.
• The US – Germany 2-year yield spread moved lower.
• The euro declined initially but then rebounded.
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3. Outside of Germany, bond yields are headed higher, according to Capital Economics.
Source: Capital Economics
4. Shares of financials are not benefiting from higher rates.
Source: @mikamsika, @TheTerminal, Bloomberg Finance L.P.
5. Economic sentiment indicators are in recession territory.
Source: Longview Economics
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Japan
1. The yen’s decline paused, …
… as officials threatened to take action to stabilize the currency.
Source: Kyodo News Read full article
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2. The Economy Watchers Expectations index surprised to the upside. The indicator has been volatile in the COVID era.
3. Japan is heavily dependent on food imports.
Source: @financialtimes Read full article
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China
1. The renminbi finally stabilized as the dollar rally paused.
The China-US 10-year yield differential is at its lowest level in 13 years, which could add further pressure on the yuan.
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2. Inflation surprised to the downside.
The core CPI continues to trend lower.
3. Gains in producer prices were also well below forecasts amid softer commodity prices. This trend is good news for central banks around the world (China is exporting disinflation).
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4. Foreign direct investment growth in non-financial sectors has slowed over the past few months.
Source: Fitch Ratings
5. US businesses are less upbeat about China over the next five years.
Source: @WSJ Read full article
6. China is rapidly shifting to EVs.
Source: @colinmckerrache, @business Read full article
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Emerging Markets
1. Inflation in EM Asia has been much lower than what we see globally.
Source: Numera Analytics
2. Indonesia’s economy has been outperforming.
Source: @ANZ_Research
Indonesia’s exports to China have slowed because of weaker construction demand.
Source: @ANZ_Research
3. The absence of Chinese tourists could stall economic recoveries, particularly in Thailand, Vietnam, and Singapore.
Source: @ANZ_Research
4. Malaysia’s central bank hiked rates again (still below pre-COVID levels).
5. The Philippine trade deficit hit a record.
6. Next, we have some data on middle-class growth in emerging markets.
Source: J.P. Morgan Asset Management
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Cryptocurrency
1. Cryptos are surging, with bitcoin back above 20k, as the dollar rally stalls.
2. Bitcoin remains a “hot money” asset.
Source: @themarketear
3. Bitcoin (BTC) and Litecoin (LTC) underperformed other top cryptos over the past week.
Source: FinViz
4. Ether (ETH) options open interest has surged over the past month, driven by excitement over “The Merge.”
Source: @glassnode
5. Less than one-third of respondents to a Deutsche Bank public survey have a good or deep understanding of NFTs.
Source: Deutsche Bank Research
NFTs have seen a significant slowdown in activity.
Source: Deutsche Bank Research
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Energy
1. US oil inventories jumped last week.
2. Gasoline inventories are now elevated when measured in days of supply.
3. Refinery inputs remain soft for this time of the year.
4. US Natural gas exports continue to grow.
Source: @EIAgov
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Equities
1. Sentiment remains depressed.
• CTA positioning:
Source: Nomura; @themarketear
• Investment managers:
Source: NAAIM; @pav_chartbook
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2. Analysts see an earnings recession ahead.
– Alpine Macro:
Source: Alpine Macro
– Morgan Stanley:
Source: Morgan Stanley, MarketWatch Read full article
• Earnings downgrades continue (2 charts).
Source: Morgan Stanley Research; III Capital Management
Source: @WSJ Read full article
• How much do earnings decline during recessions?
Source: Citi Private Bank
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3. Given the current valuations and inflation levels, a 20% market drop in the months ahead is a possibility, according to Guggenheim Partners.
Source: @ScottMinerd
4. Companies that benefit from higher rates, such as financials, have been outperforming recently.
Source: @MikeZaccardi
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5. The current US market outperformance cycle (vs. the rest of the world) is nearing 15 years in length.
Source: J.P. Morgan Asset Management
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Credit
1. High-yield markets face some headwinds, according to VP Research.
Source: Variant Perception
2. Leveraged loan fund outflows have been severe in recent months.
Source: @WSJ Read full article
3. This chart shows fixed-income yields vs. the 10-year average.
Source: Truist Advisory Services
And this scatterplot shows asset-class yields vs. their correlation to the S&P 500.
Source: J.P. Morgan Asset Management
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Rates
1. The Fed’s quantitative tightening will pick up momentum this month.
2. There has been a surge in demand for “safe” dollars via the Fed’s overnight reverse repurchase facility. This could lead to an even larger liquidity withdrawal from the system than the Fed’s QT alone, according to Deutsche Bank.
Source: Deutsche Bank Research
3. Slower economic growth points to lower Treasury yields ahead.
Source: @RaoulGMI
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Global Developments
1. The dollar is extremely overvalued, similar to 1985.
Source: BCA Research
2. G-7 currencies are now as volatile as EM currencies (based on implied vol).
3. Global business activity is in contraction.
Source: @SPGlobalPMI
Key manufacturing hubs register deteriorating activity.
Source: S&P Global PMI
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Food for Thought
1. Used vehicle prices vs. 12 months ago:
Source: Manheim Read full article
2. India’s sex ratio over time:
Source: Pew Research Center Read full article
3. Population projections for select countries:
Source: @jburnmurdoch
4. Ukrainian exports:
Source: @financialtimes Read full article
5. Drivers of US lagging life expectancy:
Source: @financialtimes Read full article
6. Going independent:
Source: Gallup Read full article
7. The queen’s corgis:
Source: BBC Read full article
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Have a great weekend!
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