The Daily Shot: 27-Oct-22
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought
The United States
1. Let’s begin with the housing market.
• Mortgage applications are down 42% from a year ago.
This chart shows mortgage rate locks.
Source: AEI Housing Center
• New home sales have been weakening but not crashing.
But mortgage applications point to significant deterioration in sales in the near future.
Source: Pantheon Macroeconomics
– New home inventories remain at multi-year highs, …
… diverging from existing home inventories.
Source: Pantheon Macroeconomics
– The number of units for sale that haven’t been started hit a record high.
– The median price of new homes increased last month.
But rising inventories point to the median price moving lower.
Source: Pantheon Macroeconomics
– Here is the distribution of new home sales by price range.
• The Evercore ISI homebuilder index continues to crater.
Source: Evercore ISI Research
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2. Next, we have some updates on inflation.
• Housing is among the factors driving this divergence between the CPI and the ISM manufacturing prices index.
Source: BCA Research
• Inflation forecasts have been persistently wrong.
Source: Torsten Slok, Apollo Read full article
• Historically, once inflation spikes above 8%, median inflation takes about two years to fall beneath 6% before settling around that level out to five years. That is very different from consensus expectations.
Source: Deutsche Bank Research
• Services inflation is expected to remain elevated for years.
Source: Goldman Sachs; @_____JustMe__
• On average, inflation needs a recession to fall.
Source: Deutsche Bank Research
• Compensation costs have been surging.
Source: Yardeni Research
• Consumer awareness of inflation news is very high, which could keep inflation elevated, …
Source: Oxford Economics
… passing through to wage-setting and price-setting trends.
Source: Oxford Economics
Inflation awareness is similar to the 1970s.
Source: Oxford Economics
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3. The trade gap unexpectedly widened last month.
Imports climbed while exports declined again
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4. The GDPNow model now has the Q3 growth at 3.1% (annualized).
Source: @AtlantaFed Read full article
Here is the breakdown.
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5. Growth in retail inventories has slowed.
6. The broad money supply just had the biggest six-month decline on record, driven by quantitative tightening.
7. There is a lot of talk about the Fed’s “pivot” (especially after the BoC’s dovish hike).
Source: TS Lombard
The terminal rate appears to have peaked just above 5%.
December increasingly looks like 50 bps rather than 75 bps.
8. The 3-month/10-year portion of the Treasury curve finally inverted.
The percentage of the yield curve that is inverted signals a recession ahead.
Source: Chart and data provided by Macrobond
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Canada
1. The BoC surprised with a 50 bps hike. Markets expected 75 bps.
Source: Reuters Read full article
Stocks and bonds jumped.
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2. The BoC revised its inflation forecast lower, …
Source: Scotiabank Economics
… and once again downgraded growth projections.
Source: Scotiabank Economics
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3. A 25 bps hike in December?
Source: @ANZ_Research
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The United Kingdom
1. The pound is testing downtrend resistance.
2. Here is Wells Fargo’s BoE rate forecast.
Source: Wells Fargo Securities
3. Barclays expects higher unemployment rates in the UK versus the US and euro area.
Source: Barclays Research
4. The UK’s labor market imbalance is severe.
Source: Longview Economics
5. Business investment has lagged behind the total fixed investment.
Source: @financialtimes Read full article
6. The healthcare system is backlogged.
Source: Morgan Stanley Research
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The Eurozone
1. EUR/USD broke above parity and the downtrend resistance.
2. French consumer confidence edged higher this month.
3. Credit Standards have tightened for businesses …
Source: ECB
… and mortgages.
Source: ECB
Demand for mortgages is sharply lower.
Source: ECB
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4. This chart shows the components of the euro-area labor force recovery.
Source: Morgan Stanley Research
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Asia – Pacific
1. Dollar-yen is testing short-term uptrend support.
2. South Korea’s GDP growth has slowed, …
… driven by surging imports (due to energy costs) and softer exports (due to weaker demand from China).
Source: ING
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China
1. Industrial profits are now running below last year’s levels.
2. Land sales revenue has been depressed.
Source: Arcano Economics
3. Mortgages make up roughly half of all collateralized loans.
Source: Gavekal Research
4. Outbound tourism remains depressed.
Source: @opinion Read full article
5. Beijing will prop up the economy through credit growth
Source: Arcano Economics
6. Semiconductors are now China’s largest import.
Source: Natixis
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Emerging Markets
1. South Africa is headed for stagflation.
2. Here is Russia’s industrial production index (as reported by the government).
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Cryptocurrency
1. It’s been a good week for cryptos, with ethereum (ETH) outperforming other large tokens.
Source: FinViz
2. Bitcoin broke above its 50-day moving average.
3. Dogecoin (DOGE) soared as much as 20% as Elon Musk’s Twitter deal nears completion.
4. Large public companies have invested in blockchain technology over the past year.
Source: Deutsche Bank Research
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Commodities
1. Iron ore futures continue to sink due to China’s falling demand for steel.
2. Silver futures are attempting to form a short-term bottom.
Source: Aazan Habib, Paradigm Capital
3. Coffee futures are down sharply this month.
4. Large grain companies have posted better-than-expected profits and raised their financial outlooks for the year.
Source: @WSJ Read full article
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Energy
1. US crude oil gross exports hit a record high.
2. US oil inventories increased last week but product inventories remain depressed.
• Propane inventories are up sharply (good news for many rural US households who use it for heating).
• Gasoline demand remains below last year’s levels.
• Refinery runs moved lower again last week.
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3. There are a lot of LNG vessels off the coast of Spain. Some are waiting for prices to move higher.
Source: Reuters Read full article
Source: Bloomberg Read full article
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4. Shares of oil servicing companies surged this week.
h/t Walter
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Equities
1. Tech mega-caps underperformed sharply in recent days.
Source: @bespokeinvest Read full article
Retail investors have been buying tech mega-caps.
Source: Vanda Research
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2. Large drawdowns have not triggered retail investors’ capitulation.
Source: Vanda Research
But Schwab saw a decline in brokerage accounts last month.
Source: Longview Economics
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3. Short-term options activity has exploded, boosting gamma spikes and exacerbating market moves.
Source: @markets, @tracyalloway, h/t @jessefelder Read full article
4. Here is the history of significant market downturns and performance over the following 12 months.
Source: LPL Research
5. The market has been punishing companies for missing both earnings and sales forecasts.
Source: BofA Global Research
6. Profit margins are unlikely to have bottomed last quarter (which is the consensus).
Source: @FactSet Read full article
Source: @FactSet
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7. Shares of airlines have been outperforming …
… amid strong demand.
Source: Evercore ISI Research
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8. Demand for VIX call options has been strong.
Source: Simon White, Bloomberg Markets Live Blog
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Credit
1. US commercial paper outstanding hit the highest level since 2010 as rates surge.
2. The investment-grade index duration has been falling quickly.
Source: BofA Global Research; @MikeZaccardi
3. The number of stressed credits is expected to increase this quarter.
Source: S&P Global Ratings
4. Retail investors have been buying SHYG (short-term high-yield debt ETF).
Source: Vanda Research
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Rates
1. Treasury yields tend to peak before the Fed’s pivot.
Source: Oxford Economics
2. Retail investors have been buying TLT (long-term Treasury debt ETF).
Source: Vanda Research
3. How correlated are DM government bonds to Treasuries?
Source: TS Lombard
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Global Developments
1. The US dollar declined sharply, breaking below the 50-day moving average.
Forecasts calling for the US dollar to weaken have been persistently wrong. Is it different this time?
Source: HSBC; @patrick_saner
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2. The US dollar’s strength is putting pressure on reserves.
Source: Simon White, Bloomberg Markets Live Blog
3. Next, we have Morgan Stanley’s projections for labor force participation rates in the US, UK, and Eurozone.
Source: Morgan Stanley Research
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Food for Thought
1. Women leaders leaving their companies:
Source: McKinsey & Company Read full article
2. The IRS standard deduction over time:
Source: @WSJ Read full article
3. Death penalties:
Source: Statista
4. US drought conditions:
Source: Scotiabank Economics
• Drought in the Great Plains:
Drought increased to cover 70.3% of the North American Great Plains region by the end of September 2022.
Source: @NOAANCEI Read full article
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5. Advertising pullback:
Source: Statista
6. Willingness to splurge this holiday season:
Source: McKinsey & Company
7. Least productive coworkers:
Source: LLC.ORG Read full article
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