The Daily Shot: 25-Oct-22
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Rates
• Global Developments
• Food for Thought
The United States
1. The S&P Global (Markit) PMI report showed US business activity holding in contraction territory this month.
Source: Bloomberg Read full article
• The manufacturing PMI dipped below 50, …
… with demand weakness worsening.
– A separate indicator, the ISM Manufacturing orders index, points to further downside risks in demand from the US dollar strength.
Source: Piper Sandler
– Factories’ future output index declined sharply.
– Manufacturing backlogs are fading.
– Price gains continue to moderate.
• Services activity continues to contract.
– Service-sector hiring is over.
– Service-sector price gains accelerated slightly this month.
• The composite PMI surprised to the downside.
Source: S&P Global PMI
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2. Next, let’s take a look at housing rental markets.
• The Apartment market tightness diffusion index vs. sales:
Source: BCA Research
• Hours of work needed to afford rent:
Source: Bloomberg Read full article
• The Evercore ISI apartment traffic (now below 2020 levels):
Source: Evercore ISI Research
• Redfin rent inflation:
Source: Redfin
• Apartment List rent inflation (MoM):
Source: Bloomberg Read full article
• Single-family housing rent inflation:
Source: CoreLogic
• Leading indicators of rent/shelter inflation (3 charts):
Source: Pantheon Macroeconomics
Source: Piper Sandler
Source: Alpine Macro
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3. The number of US jobs should be higher to keep up with economic growth.
Source: Morgan Stanley Research
4. Households’ real excess savings remain elevated.
Source: Wells Fargo Securities
5. Online search activity for “late on credit card” has risen recently.
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Canada
1. Consumer confidence continues to deteriorate.
2. Housing affordability is expected to worsen next year before starting to improve.
Source: Oxford Economics
3. Export volumes have weakened as the US ISM manufacturing new orders index entered contraction territory.
Source: PGM Global
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The United Kingdom
1. Gilts are firmer as Rishi Sunak becomes the next prime minister.
2. The PMI report suggests that the UK is in recession.
• Manufacturing PMI (well below forecasts):
• Services PMI:
Source: S&P Global PMI
• Composite PMI:
Source: S&P Global PMI
Price pressures are off the highs but remain elevated.
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3. Goldman downgraded its 2023 GDP forecast, predicting a deeper downturn.
Source: Goldman Sachs
This chart is from Morgan Stanley.
Source: Morgan Stanley Research
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4. QT is about to start.
Source: Morgan Stanley Research
5. The UK terminal rate is converging with the US.
Source: TS Lombard
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The Eurozone
1. The euro area is probably in recession. Let’s run through the PMI report (PMI < 50 means contraction).
• Manufacturing PMI:
– France:
– Germany (orders are collapsing):
– The Eruozone:
Source: S&P Global PMI
• Services PMI:
– France (still growing):
– Germany:
• Composite PMI:
– France:
Source: S&P Global PMI
– Germany:
Source: S&P Global PMI
Prices pressures are still holding near extreme levels.
• Here is the composite PMI vs. GDP.
Source: Capital Economics
• The money supply (M1) shows further downside for business activity.
Source: Pantheon Macroeconomics
• The recession is here.
Source: Commerzbank Research
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2. The market is pricing in a 75 bps rate hike this week.
Source: @ANZ_Research
• Rate expectations for the year-end have stabilized at around 2%.
• The rate trajectory (and the terminal rate) is off the highs.
• Below is a forecast from Wells Fargo.
Source: Wells Fargo Securities
• Here are some ECB announcement scenarios and potential market reactions from ING.
Source: ING
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3. The Italy-Germany spread has been tightening.
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Asia – Pacific
1. Asian currencies remain under pressure.
Here is the Taiwan dollar.
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2. Taiwan’s unemployment rate (seasonally adjusted) is at multi-year lows.
3. South Korea’s consumer confidence declined this month.
4. Australia’s composite PMI dipped below 50 this month. Manufacturing has been strong, but services activity is now contracting.
Source: S&P Global PMI
Separately, this chart shows cumulative rainfall in Sydney by year.
Source: @Ben_Domensino
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China
1. Foreign and Hong Kong investors dumped Mainland stocks on Monday.
Further reading
• The Hang Seng Index hit its lowest level since the financial crisis.
• US-listed shares were down 14%.
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2. The renminbi continues to tumble.
Below is the year-over-year chart.
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3. Steel prices keep falling …
… as housing demand deteriorates.
Source: Arcano Economics
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4. Developers’ offshore debt prices keep sinking as firms show little willingness to pay their foreign creditors.
• USD HY bond prices:
• Evergrande:
• Country Garden:
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Emerging Markets
1. Brazil’s foreign direct investment surprised to the upside.
2. Mexican inflation continues to climb.
3. Hungary’s policy rate has deviated from regional peers.
Source: Barclays Research
4. The Middle East saw strong IPO activity this year.
Source: @axios
5. Total program lending by the IMF spiked during the onset of the pandemic as many countries requested financial assistance.
Source: Deutsche Bank Research
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Cryptocurrency
1. Bitcoin has been highly anti-correlated to the US dollar recently, …
… and therefore more correlated to gold.
Source: @business, @ossingerj Read full article
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2. Bitcoin realized volatility is approaching the summer of 2020 lows.
Source: @TheTerminal, Bloomberg Finance L.P.
The implied volatility has diverged from equity vol.
Source: @TheTerminal, Bloomberg Finance L.P.
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3. The Crypto Fear & Greed Index has been stuck in “extreme fear” territory over the past month.
Source: Alternative.me
4. Ether’s implied volatility has collapsed.
Source: The Block
5. Bitcoin and Ether’s put/call ratios have stabilized over the past few months.
Source: The Block
6. Crypto funds in Sweden and Canada continued to see outflows last week.
Source: James Butterfill, CoinShares Read full article
Crypto investment products saw minor outflows last week, driven by short-Bitcoin funds and long Ethereum funds.
Source: James Butterfill, CoinShares Read full article
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Commodities
1. Iron ore prices are falling as China’s housing demand weakens.
2. Softs are under pressure.
• Cotton:
• Coffee:
• Coffee speculative positions weekly changes:
h/t @dmarino4
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Energy
1. European natural gas prices continue to fall as demand destruction boosts inventories.
2. OPEC+ is pumping close to capacity.
Source: Alpine Macro
3. Short interest in energy stocks has been rising.
Source: S&P Global Market Intelligence
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Equities
1. Cyclical sectors continue to underprerdorm.
2. Stock market up sessions have been strong recently.
Source: @markets, @lena_popina Read full article
3. Investor positioning remains bearish.
Source: Deutsche Bank Research
4. Market breadth is improving from oversold levels.
Source: Aazan Habib, Paradigm Capital
5. Real rates point to further underperformance in growth stocks.
Source: Alpine Macro
6. High profitability stocks continue to outperform.
Source: Aazan Habib, Paradigm Capital
7. The US dollar strength is taking a toll on corporate sales.
Source: BofA Global Research
8. Earnings momentum has been negative for all S&P 500 sectors except energy. However, it appears that negative earnings revisions for financials have bottomed out.
Source: Deutsche Bank Research
9. Institutional investors see more downside risk for equities, according to a survey by Scotiabank, …
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
… prompting increased exposure to bonds versus equities …
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
… and quality over momentum.
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
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10. S&P 500 put options continue to get cheaper relative to calls.
• Skew index:
• CS Fear Barometer (the put price in a zero-cost collar):
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Rates
1. The FRA-OIS spread points to concerns about year-end US dollar funding availability.
2. Treasury yields fall the most when the economy experiences a “classic” recession.
Source: Numera Analytics
Numera Analytics expects the 10-year Treasury yield to fall modestly 12 months out as stagflation risks dominate.
Source: Numera Analytics
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3. Foreigners’ relative holdings of Treasuries have been trending lower.
Source: Evercore ISI Research
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Global Developments
1. The October PMIs in most DM economies look recessionary (PMI below 50).
Source: Capital Economics
Forward-looking indicators have deteriorated sharply.
Source: Capital Economics
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2. Resetting rates on mortgages will be painful for homeowners in many countries.
Source: Goldman Sachs; III Capital Management
3. This chart shows some overextended rallies since the 1960s.
Source: Alpine Macro
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Food for Thought
1. PC shipments (year-over-year):
Source: @chartrdaily
2. Berkshire Hathaway’s holdings:
Source: Visual Capitalist Read full article
3. Views on using monitoring software to track remote workers:
Source: @CivicScience
4. Concerns about gun violence at schools:
Source: @CivicScience
5. Deforestation in Brazil:
Source: Nature Read full article
6. Interest in a sober lifestyle:
Source: @CivicScience Read full article
7. Horses vs cars:
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