Retail sales were stronger than headlines suggest

The Daily Shot: 17-Oct-22
The United States
Canada
The United Kingdom
Europe
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. Nominal retail sales were flat last month.
 

 
Source: CNBC   Read full article  
 
However, excluding autos and gasoline, retail sales continued to grow. The second panel shows the control group (“core”) sales.
 

 
In real terms, retail sales were also higher in September. Despite depressed sentiment and high inflation, consumers are spending.
 

 

 
Bain expects growth in holiday spending to moderate but remain positive this year.
 
Source: Bain & Company¬†  

——————–

 
2. The U. Michigan consumer sentiment index edged higher this month, boosted by the current conditions indicator. Expectations dipped.
 

 
Declining stock prices are taking a toll.
 

 
There is more nervousness about the job market over the next five years.
 

 
But buying conditions for durables improved.
 

 
A separate report (Penta-CS) showed softening consumer sentiment this month.
 
Source: @CS_Penta, @Pentagrp, @CivicScience  

——————–

 
3. Next, we have some updates on inflation.
 
Inflation expectations moved higher with gasoline prices this month.
 

 
Economists keep boosting their inflation forecasts for 2023.
 

 
Import prices continue to ease due to the US dollar strength and disinflationary trends in China.
 

 
And there is more price moderation ahead.
 
Source: BCA Research  
 
Here is the Oxford Economics supply chain stress tracker.
 
Source: Oxford Economics  
 
Container freight rates continue to fall.
 

 
Retail inventories remain elevated.
 

 
Inflation has been broad, similar to the 1970s.
 
Source: SOM Macro Strategies  
 
Core services price gains caught up with core goods inflation.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
High service prices are starting to weigh on services consumption.
 
Source: SOM Macro Strategies  
 
Here is the CPI price index vs. the Fed’s 2% target.
 
Source: Mizuho Securities USA  
 
Alternative core inflation measures showed broad price pressures persisting last month.
 
Median CPI:
 

 
Trimmed-mean CPI:
 

 
Sticky CPI:
 

 
The NY Fed’s UIG index appears to have peaked.
 

 
Are companies losing pricing power?
 
Source: ING  
 
Finally, we have some forecasts showing that inflation will slow next year, but the core CPI (particularly services) is yet to peak.
 
Deutsche Bank:
 
Source: Deutsche Bank Research  
 
Barclays:
 
Source: Barclays Research  
 
Wells Fargo:
 
Source: Wells Fargo Securities  

——————–

 
4. The terminal rate is nearing 5%.
 

 

 
A policy mistake?
 
Source: @WSJ   Read full article  

——————–

 
5. Next, we have some updates on economic growth.
 
The GDPNow Q3 growth estimate is near 3% (annualized).
 
Source: @AtlantaFed   Read full article  
 
Economists continue to downgrade next year’s GDP growth (2 charts), …
 

 
Source: @WSJ   Read full article  
 
… as financial conditions tighten.
 
Source: Evercore ISI Research  
 
Recession probability is rising.
 
Source: @WSJ   Read full article  
 
{*) The stock market has been signaling recession.
 
The recent sell-off within consumer discretionary sub-industry groups is consistent with previous recession periods.
 
Source: SentimenTrader  
 
The S&P 500 deviation from its 200-day moving average also suggests weakness in economic activity.
 
Source: Deutsche Bank Research  

——————–

 
6. Airlines continue to see strong demand.
 
Source: Evercore ISI Research  
 
Source: Bloomberg   Read full article  


Back to Index

 

Canada

1. Manufacturing sales slumped in August.
 

 
2. Existing home sales are down for seven months in a row.
 

 
The housing market is struggling (the red line shows home price appreciation).
 
Source: Scotiabank Economics  

——————–

 
3. The 30yr bond yield hit the highest level in over a decade.
 

 
The loonie continues to move lower vs. USD.
 


Back to Index

 

The United Kingdom

1. The government’s actions appear to be increasingly desperate.
 
Source: Reuters   Read full article  
 
Source: The Economist   Read full article  

——————–

 
2. The drawdown in long-term gilts has been spectacular.
 

 
3. The price-to-income ratio suggests that the UK housing market is overpriced, …
 
Source: Longview Economics  
 
… while mortgage rates are climbing. This chart shows a forecast from Longview Economics.
 
Source: Longview Economics  
 
Home prices are likely to come under pressure in the months ahead.
 
Source: Longview Economics  

——————–

 
4. Inflation is yet to peak.
 
Source: Capital Economics  
 
5. The BoE has a long way to go in hiking rates to meet market expectations.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
Is the market too hawkish? Here is a forecast from Barclays.
 
Source: Barclays Research  


Back to Index

 

Europe

1. The trade deficit is hitting unprecedented levels.
 

 
2. Germany’s 10yr inflation-linked bond yield is in positive territory for the first time since 2013.
 

 
3. How much fiscal support are the largest economies getting?
 
Source: Barclays Research  
 
4. This chart shows debt-to-GDP ratios for Western Europe’s largest economies.
 
Source: TS Lombard  
 
5. The Czech current account deficit has blown out.
 

 
6. There is some good news on the energy front. Natural gas prices continue to ease as demand softens and storage fills up.
 


Back to Index

 

Asia – Pacific

1. The yen continues to weaken vs. the dollar, with USD/JPY now testing the uptrend resistance.
 

 
2. This doesn’t look good …
 

 
3. Asian currencies remain under pressure.
 

 
Here is the Taiwan dollar.
 


Back to Index

 

China

1. The Shanghai Composite is testing long-term support.
 
Source: Evercore ISI Research  
 
The selloff in Hong Kong continues. Is it overdone?
 

 
Hong Kong stocks haven’t been this cheap in over a decade.
 

 
Stock market weakness is unusual going into the Party Congress
 
Source: @markets   Read full article  

——————–

 
2. COVID cases have picked up in Shanghai.
 
Source: @financialtimes   Read full article  
 
3. Is the renminbi oversold?
 
Source: BCA Research  
 
4. More monetary policy easing ahead? Here is a forecast from Evercore ISI.
 
Source: Evercore ISI Research  
 
5. China’s economy is heavily reliant on investment.
 
Source: Reuters   Read full article  
 
Source: Reuters   Read full article  

——————–

 
6. Hong Kong’s population is declining.
 
Source: @Gavekal  


Back to Index

 

Emerging Markets

1. India’s trade deficit eased last month.
 

 
Wholesale inflation was lower than expected.
 

——————–

 
2. The Egyptian pound is under pressure, which will exacerbate inflation.
 

 
3. Hungary’s 5-year yield is above 12% for the first time since the financial crisis.
 

 
4. The Vietnamese dong continues to weaken vs. USD.
 

 
5. Colombia’s economic activity remains robust.
 

 
Nonetheless, the Colombian peso keeps sinking.
 

——————–

 
6. Next, we have some performance data from last week.
 
Currencies:
 

 
Bond yields:
 

 
Equity ETFs:
 


Back to Index

 

Cryptocurrency

1. The ETH/BTC price ratio is hovering around long-term resistance, similar to what occurred in 2018.
 

 
2. So far, BTC has declined less than other top cryptos this month.
 
Source: FinViz  
 
Bitcoin continues to test downtrend resistance.
 

——————–

 
3. Only 37% of the top 50 altcoins have outperformed bitcoin over the past month, which reflects a lower appetite for risk among crypto traders.
 
Source: Blockchain Center  
 
4. Tether, a major stablecoin, has fully reduced its commercial paper investments to zero. Treasury bills now make up a majority of Tether’s reserves.
 
Source: Tether   Read full article  
 
5. Bitcoin’s price swings are now below the Dow Jones realized volatility.
 

 
6. Texas bitcoin mining could put pressure on the ERCOT grid.
 
Source: Bloomberg   Read full article  


Back to Index

 

Commodities

Here is last week’s performance across key commodity markets.
 


Back to Index

 

Equities

1. Options volume has been surging this year, …
 

 
… with put buying massively outpacing calls in recent weeks.
 
Source: SentimenTrader  
 
At the same time, volumes in bullish options strategies continue to soften.
 
Source: Deutsche Bank Research  

——————–

 
2. Positioning remains very bearish, …
 
Source: Simon White, Bloomberg Markets Live Blog  
 
… with CTAs’ systematic strategies boosting bets against the market.
 
Source: Deutsche Bank Research  
 
CTAs are short stocks and bonds.
 
Source: Simon White, Bloomberg Markets Live Blog  

——————–

 
3. Retail investors are also quite bearish. The extreme negative sentiment suggests that we could see a market bounce.
 
TD Ameritrade’s Investor Movement Index:
 
Source: TD Ameritrade  
 
Retail single-stock flows:
 
Source: JP Morgan Research; @themarketear  

——————–

 
4. Equity allocations have room to shrink.
 
Source: Piper Sandler¬†  
 
6. We’ve had many weeks that ended with 1%+ down days.
 
Source: @bespokeinvest  
 
7. Nasdaq has been below its 200-day moving average for a while now.
 
Source: @LizAnnSonders  
 
8. Has the tech outperformance cycle ended?
 
Source: BofA Global Research  
 
9. The S&P 500 forward P/E ratio is holding just above 15x.
 
Source: @FactSet   Read full article  
 
10. Next, we have some performance updates from last week.
 
Sectors:
 

 
Bank earnings were mostly better than expected, …
 

 
… amid rising net interest income.
 
Source: Reuters   Read full article  
 
Equity factors:
 

 
Thematic ETFs:
 

 
By the way, ARK Innovation is near multi-year lows.
 

 
Largest US tech firms:
 


Back to Index

 

Credit

1. The default rate that is priced into the US junk bond index increased to 7.5% in September, which points to much wider spreads.
 
Source: BCA Research  
 
2. Leveraged loan outflows continue.
 
Source: BofA Global Research  
 
3. Here is last week’s performance by asset class.
 


Back to Index

 

Rates

1. The market is nervous about US dollar funding availability at the end of the year.
 
FRA-OIS spread:
 

 
EUR/USD basis swap:
 

 
SNB’s draw on the Fed’s swap facility:
 

 
Source: Reuters   Read full article  
 
By the way, part of the reason for Swiss banks demanding dollars could be due to arbitrage opportunities.

——————–

 
2. This chart shows the directionality of the 2s/10s Treasury yield slope in terms of its correlation with the short rate. The more the Fed moves into restrictive territory, the more the long-end will price in economic consequences of tighter policy, according to Deutsche Bank.
 
Source: Deutsche Bank Research  
 
3. Treasury liquidity conditions are tight, which typically leads to near-term market dislocations. Will concerns about financial stability cause the Fed to reverse QT despite the strong labor market?
 
Source: BCA Research  
 
4. We’ve had 11 consecutive weeks of increases in the 10yr yield.
 
Source: JP Morgan Research; @MikeZaccardi  


Back to Index

 

Global Developments

1. Recession probability continues to climb.
 
Source: Oxford Economics  
 
2. Risk appetite is extremely low.
 
Source: SentimenTrader  
 
3. Secondhand luxury watch prices continue to sink.
 
Source: WatchEnthusiasts  
 
4. Next, we have last week’s performance data.
 
Trade-weighted currency indices:
 

 
Bond yields:
 


——————–

Back to Index

 

Food for Thought

1. The cost to sequence a full human genome:
 
Source: @chartrdaily  
 
2. Union membership and income inequality:
 
Source: @EconomicPolicy  
 
3. Religion in Germany:
 
Source: @xruiztru  
 
4. Spending on prisons:
 
Source: USAFacts   Read full article  
 
5. Hurricanes in the Atlantic:
 
Source: @chartrdaily  
 
6. MBA program applicants:
 
Source: @WSJ   Read full article  
 
7. Iron-air battery:
 
Source: @WSJ   Read full article  

——————–


Back to Index