The Daily Shot: 24-Oct-22
• China
• Japan
• The Eurozone
• The United Kingdom
• Canada
• The United States
• Emerging Markets
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought
China
1. President Xi Jinping has secured a third term with an inner circle of allies.
Source: @WSJ Read full article
The markets are nervous about his new grip on power.
Source: Bloomberg Read full article
• Stocks are down sharply.
Here are the tech and property indices in Hong Kong.
By the way, many of China’s stocks are below book value.
Source: Citi Private Bank
• The renminbi continues to hit multi-year lows.
• The average yield on China’s dollar-denominated high-yield debt is nearing 30% as leveraged property developers struggle.
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2. There was plenty of time to massage the data as Beijing delayed the GDP release … and voilà – the Q3 growth surprised to the upside as the Party Congress comes to a close.
By the way, Beijing has been persistently degrading the transparency of its economic data releases (2 charts).
Source: @financialtimes Read full article
Source: @financialtimes Read full article
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3. The gains in industrial production were strong last month.
• Retail sales were a bit softer than expected.
• Real estate investment is now running in line with 2020 levels (year-to-date).
• Property sales dipped to 2018 levels.
• The Unemployment rate edged higher.
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4. New home prices keep falling.
5. The trade surplus continues to expand.
Exports are running above last year’s levels.
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Japan
1. Japan intervened in the currency markets again after dollar-yen crossed 150.
Source: @financialtimes Read full article
Was there another intervention this morning?
Traders are short the yen, which, in theory, should help interventions.
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2. The BoJ continues to buy the 10yr JGB.
Source: Reuters Read full article
But rising inflation could test the central bank’s resolve.
Source: Reuters Read full article
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3. The PMI report suggests that Japan’s business activity is growing.
Source: S&P Global PMI
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The Eurozone
1. The 10yr Bund yield is approaching 2.5%.
2. Euro-area consumer confidence edged higher this month (from record lows).
3. Political uncertainty is still weighing on the euro.
Source: Pantheon Macroeconomics
4. This chart shows the debt-to-GDP ratios in select economies.
Source: Arcano Economics
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The United Kingdom
1. Rishi Sunak is likely the next PM.
Source: Reuters Read full article
Here is the betting market.
Source: @smarkets, @sbk
Online search activity for Sunak jumped.
Source: Google Trends
Gilts surged on the news.
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2. UK real retail sales deteriorated further last month, dipping below pre-COVID levels.
3. Government borrowing jumped in September.
Even after the tax cut reversals, the budget deficit is expected to remain elevated.
Source: @financialtimes Read full article
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Canada
1. The Canadian dollar is still undervalued based on purchasing power parity.
Source: PGM Global
However, relative yield differentials support a higher dollar versus the loonie.
Source: PGM Global
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2. Retail sales were stronger than expected in August.
4. Markets expect Canada to have a lower terminal rate than the US.
Source: PGM Global
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The United States
1. Fed officials are starting to discuss slowing their rate hikes.
Source: Reuters Read full article
Source: Reuters Read full article
• Yields declined, and the Treasury curve steepened in response.
• The terminal rate came off the 5% level.
• Equities surged.
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2. The federal budget deteriorated last month, mostly due to additional outlays for the student loan forgiveness program.
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3. Next, we have some updates on inflation.
• The Fed’s index of inflation expectations (see “further reading” below):
Further reading
• BofA’s CPI forecast:
Source: BofA Global Research
• The CPI vs. small business price plans:
Source: Chart and data provided by Macrobond
• Commodity markets and food & energy inflation:
Source: Stifel
• Container imports:
Source: Reuters Read full article
– Container freight costs:
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4. Services wage growth has been outpacing other sectors.
Source: Cresset Capital
5. The Evercore ISI company survey has been trending lower but remains above pre-COVID levels (2nd panel is a longer time series of the same index).
Source: Evercore ISI Research
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Emerging Markets
1. Economists have been downgrading their 2023 CPI forecasts for Brazil.
2. On the other hand, Chile’s CPI forecasts continue to surge, …
… while GDP estimates for the full year are tumbling. Stagflation is coming.
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3. Mexico’s August retail sales surprised to the downside.
4. Accessibility to financial services has improved over the past decade.
Source: Allianz Research
5. Next, we have some performance data from last week.
• Currencies:
• Bond yields:
• Equity ETFs:
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Commodities
1. Bloomberg’s commodity index is at support.
Source: @TheTerminal, Bloomberg Finance L.P.
2. Cotton futures failed to break above long-term resistance. The front-month contract is back around average price levels.
3. Litimum prices have resumed their climb.
Source: @PredictIt
4. Here is last week’s performance across key commodity markets.
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Energy
1. US fracking activity started increasing again in recent weeks.
2. The NYMEX Natural Gas front-month futures contract failed to break above long-term resistance. Stronger support is seen around the 40-month moving average.
3. Global LNG prices have been climbing.
Source: @WSJ Read full article
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Equities
1. The S&P 500 is holding support at the 200-day moving average.
2. The Reddit crowd isn’t jumping into this market bounce.
3. Bullish options activity has been low, …
Source: Deutsche Bank Research
… but there has been a great deal of demand for index call options as underinvested institutions feel some FOMO (concerns about missing the rebound).
Source: @jessefelder Read full article
We can see a bit of FOMO among investment managers.
Source: NAAIM
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4. Positive earnings surprises are running above 70% amid depressed expectations.
• 2023 earnings projections are still too high. Market fundamentals remain weak.
Source: Evercore ISI Research
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5. Stocks have been highly anti-correlated to the US dollar recently.
6. Financial-sector flows appear to have bottomed.
Source: Deutsche Bank Research
7. Stocks tend to do well in the third year following the US midterm elections. (2 charts)
Source: Denise Chisholm; Fidelity Investments
Source: Denise Chisholm; Fidelity Investments
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8. Value has been outperforming growth.
The momentum factor has been outperforming the broader market.
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9. Finally, we have some performance data from last week.
• Sectors:
• Equity factors:
• Thematic ETFs:
• Largest US tech firms:
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Credit
1. The CLO market has been struggling after the biggest AAA tranche buyer exited, and UK pension funds became forced sellers.
Source: Bloomberg Law Read full article
Spreads continue to widen.
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2. Companies are raising capital for distressed purchases.
Source: Bloomberg Law Read full article
3. US investment-grade spreads have seen peaks of about 165 basis points multiple times over the past decade.
Source: Deutsche Bank Research
4. Merrill Lynch’s private clients have been dumping IG debt.
Source: BofA Global Research
5. Financials’ spreads are wide relative to the overall IG market.
Source: Deutsche Bank Research
6. Finally, we have last week’s performance across credit asset classes.
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Rates
1. The drawdown in long-term Treasuries continues to deepen.
MBS debt has also been under pressure, pushing up mortgage rates.
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2. The Fed’s balance sheet decline remains driven mostly by Treasury debt.
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Global Developments
1. This chart shows the asset structure of households by region.
Source: Allianz Research
2. Next, we have the US, UK, and EMU CPI projections from Barclays Research.
Source: Barclays Research
3. The secondhand luxury watch bubble continues to deflate.
Source: WatchEnthusiasts
4. Finally, we have some performance data from last week.
• DM currency indices:
• DM yields:
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Food for Thought
1. Office foot traffic:
Source: Placer.ai
2. Office vacancies in major cities:
Source: @bbgvisualdata Read full article
3. Food inflation relative to the overall inflation:
Source: The Economist Read full article
4. The shrinking middle class:
Source: OECD Read full article
5. Xi Jinping’s rise to power:
Source: Bloomberg Read full article
6. Putin’s approval ratings:
Source: Arcano Economics
7. Distribution of mammals on Earth:
Source: Our World In Data
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