Consumer sentiment components signal a recession

The Daily Shot: 26-Oct-22
The United States
Canada
The United Kingdom
The Eurozone
Asia – Pacific
China
Emerging Markets
Commodities
Equities
Alternatives
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. The Conference Board’s consumer confidence index declined this month, coming in below market consensus.
 

 
The trough in the expectations/current conditions differential signals a recession.
 

 
The labor differential continues to moderate (“jobs plentiful” – “jobs hard to get”).
 

 
Interest in purchasing a vehicle increased this month.
 

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2. The Richmond Fed’s manufacturing index deteriorated further, …
 

 
… with expected demand crashing.
 

 
By the way, here is the Richmond Fed’s district.
 

 
CapEx expectations are easing rapidly.
 

 
Order backlogs are disappearing.
 

 
And supply issues are over (amid falling demand).
 

 
Price pressures remain extreme.
 

 
But wage expectations are moderating.
 

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3. Next, we have some updates on the housing market.
 
Home prices declined sharply in August.
 

 
But it will take more pain to correct the housing-wages imbalance.
 

 
Separately, here is the home price index from the AEI Center on Housing Markets and Finance.
 
Source: AEI Center on Housing Markets and Finance  
 
Below are home price declines since the peak by metro area.
 
Source: AEI Center on Housing Markets and Finance  
 
How does the US pandemic-era home price appreciation compare to other advanced economies?
 
Source: The Economist   Read full article  
 
This chart shows housing starts during rate hike cycles.
 
Source: BlackRock Investment Institute  
 
Home sales are headed lower.
 
Source: Wells Fargo Securities  
 
Mortgage payments have been surging.
 
Source: Oxford Economics  
 
The average mortgage size has been moving lower.
 

 
Applications for adjustable-rate mortgages are rising.
 
Source: Wells Fargo Securities  

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4. Softer economic data sent Treasury yields lower.
 

 
The 10-year/3-month portion of the yield curve is flirting with inversion.
 

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5. How high will the unemployment rate get next year? Below is a forecast from Deutsche Bank.
 
Source: Deutsche Bank Research  


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Canada

1. The market expects a 75 bps hike.
 
Source: @ANZ_Research  
 
2. Here is the BoC’s balance sheet over time.
 
Source: Industrial Alliance Investment Management  
 
3. What are the drivers of the USD/CAD exchange rate?
 
Source: Deutsche Bank Research  
 
4. Inflation expectations keep rising.
 
Source: @quinngreg  
 
5. Quebec is in recession.
 
Source: Desjardins  


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The United Kingdom

1. The CBI industrial orders index was better than expected.
 

 
But the outlook continues to deteriorate.
 

 
Price expectations are moderating, …
 

 
Source: Reuters   Read full article  
 
… which points to a lower PPI ahead.
 
Source: Pantheon Macroeconomics  

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2. Credit and debit card usage is slowing faster than in the US.
 
Source: Barclays Research  
 
3. Corporate bankruptcies have been rising.
 
Source: Chart and data provided by Macrobond  
 
4. Stock valuations remain near record lows relative to global peers.
 
Source: @marketsjoe   Read full article  


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The Eurozone

1. Germany’s Ifo index was a bit better than expected this month.
 

 
Here is the index by sector.
 
Source: ifo Institute  
 
Nonetheless, the Ifo Business Climate Index signals a recession.
 
Source: Capital Economics  

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2. EUR/USD is testing the downtrend as well as parity resistance.
 
Source: barchart.com  
 
3. Belgian consumer confidence is tumbling.
 

 
4. Natural gas consumption is now below target.
 
Source: Capital Economics  


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Asia – Pacific

1. Let’s start with Japan’s department store sales.
 

 
2. Singapore’s inflation continues to climb.
 

 
3. New Zealand’s business confidence declined this month.
 

 
4. Australia’s inflation report surprised to the upside.
 

 
Source: The Guardian   Read full article  
 
Below is the monthly CPI index.
 

 
Here is the quarter-over-quarter CPI.
 

 
And these are the core CPI measures.
 

 
The next two charts show the food and housing CPI.
 

 


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China

1. The PBoC has lost control of the renminbi.
 

 
2. This chart shows the equity indices’ 12-month performance.
 
Source: S&P Dow Jones Indices  
 
Options activity on the KraneShares Internet ETF surged.
 
Source: @WSJ   Read full article  
 
3. Lower property values could mean less collateral is available to secure new credit. That could lead to smaller new lending volumes and weaker economic growth, according to Gavekal.
 
Source: Gavekal Research  
 
4. Hong Kong’s exports jumped last month.
 

 
But the trade deficit was larger than expected.
 

 
Separately, the increase in Hong Kong’s CPI was driven by the base effect in public housing.
 


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Emerging Markets

1. Brazil’s CPI continues to moderate (perhaps not as quickly as economists hope to see).
 

 
Brazil’s consumer confidence is holding up.
 

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2. Mexico’s economic activity is back at pre-COVID levels.
 

 
3. Turkey’s capacity utilization remains robust.
 

 
4. EM debt funds continue to see outflows.
 
Source: Deutsche Bank Research  


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Commodities

1. Get ready to pay more for that electric vehicle as lithium prices continue to surge.
 

 
2. Organe juice futures have been soaring due to the hurricane damage in Florida.
 


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Equities

1. Growth stocks outperformed on Tuesday.
 

 
But the situation deteriorated after the close as advertising revenue weakness and the dollar strength take a toll on performance.
 
Alphabet:
 
Source: CNBC   Read full article  
 

 
Microsoft:
 
Source: The New York Times   Read full article  
 

 
Stock futures:
 

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2. The S&P 500 is at the 50-day moving average.
 

 
3. The Conference Board’s consumer survey continues to signal bearish sentiment.
 

 
4. Equity correlations to Treasuries continue to climb.
 

 
5. Stocks have sharply outperformed long-term Treasuries this month.
 

 
6. Analysts continue to downgrade the 2023 earnings estimates.
 

 
We’ve had 21 consecutive weeks with downgrades outpacing upgrades.
 

 
And there is more to go.
 
Source: Evercore ISI Research  

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7. Merrill’s clients jumped into single stocks in recent weeks.
 
Source: BofA Global Research  
 
 
8. Tight financial conditions suggest that equity multiples should be lower, …
 
Source: Stifel  
 
… and dividend yields should be higher.
 

——————–

 
9. The US dollar stabilization should benefit companies with international exposure.
 
Source: Alpine Macro  
 
10. Next, we have some sector performance trends over the past five business days.
 
Banks:
 

 
Consumer staples:
 

 
Healthcare:
 

 
Industrials:
 

 
Transportation:
 

 
Metals & Mining:
 

 
Source: Bloomberg   Read full article  
 
Tech and semiconductors:
 

 


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Alternatives

1. Hedge funds have been seeing some outflows.
 
Source: @WSJ   Read full article  
 
2. But hedge fund liquidations remain relatively modest.
 
Source: Bloomberg   Read full article  
 
3. Floating rates for loans on leveraged buyouts (LBOs) have surged this year, contributing to a slowdown in private-equity-led deal activity. There have been more public-to-private deals and a greater focus on revenue growth to cover higher interest expenses, according to PitchBook.
 
Source: PitchBook  
 
4. Here is a look at annual returns across private market strategies. (View large chart here)
 
Source: PitchBook  


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Credit

1. High-yield issuance has been low this year.
 
Source: @WSJ   Read full article  
 
2. Hedge funds have boosted their HY debt holdings.
 
Source: Bloomberg Law   Read full article  
 
3. Investment-grade bond funds continue to see outflows.
 
Source: Deutsche Bank Research  
 
4. Cumulative year-to-date corporate defaults are now above last year’s level.
 
Source: S&P Global Ratings  


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Rates

1. Treasury market liquidity has been terrible …
 

 
… amid panic selling.
 
Source: Gavekal Research  
 
Have we seen the worst of it?
 
2. Investors’ outlook on Treasuries has been improving.
 


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Global Developments

1. The US dollar index (DXY) is testing support at the 50-day moving average.
 
Source: barchart.com  
 
2. An early start of the hiking cycle in several countries did not result in lower inflation.
 
Source: The Economist   Read full article  


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Food for Thought

1. Doing holiday shopping early (2 charts):
 
Source: @CivicScience  
 
Source: McKinsey & Company  

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2. Plans to apply for credit:
 
Source: @CivicScience   Read full article  
 
3. Price changes since 2020:
 
Source: @chartrdaily  
 
4. College enrollment of Hispanic and Latino Americans:
 
Source: Pew Research Center   Read full article  
 
5. Online search activity related to bullying:
 
Source: Bacher-Hicks, Goodman, Greif Green, Holt   Read full article  
 
6. Response to mobilization in Russia:
 
Source: Statista  
 
7. Belief in aliens:
 
Source: Statista  

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