The Daily Shot: 01-Nov-22
• The United States
• The United Kingdom
• The Eurozone
• Europe
• Japan
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought
The United States
1. Regional manufacturing indicators paint a grim picture of factory activity at the national level.
• The MNI Chicago PMI:
• The ISM Milwaukee PMI:
• The Dallas Fed’s manufacturing index:
Texas-area manufacturers are increasingly gloomy about future activity.
But price pressures have been easing.
• By the way, factories and mines have been running near maximum capacity amid economic weakness, especially in housing.
Source: FHN Financial
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2. Goldman’s latest forecast has the Fed hiking rates by 75 bps this week, followed by 50 bps in December and two 25 bps hikes in February and March. Forecasts are now converging at the terminal rate of 5% (some groups, such as Deutsche Bank, made this call much earlier).
Source: Goldman Sachs; @MikeZaccardi
The market agrees.
This rate-hiking campaign has been unusually aggressive.
Source: LPL Research
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3. Key leading indicators are prompting forecasters to call for rapid deceleration in inflation.
Source: Goldman Sachs; @MikeZaccardi
But the Fed will likely want to see evidence of the inflection point and not rely on forecasts (which have been persistently wrong).
– MUFG Securities:
Source: MUFG Securities
– Alpine Macro:
Source: Alpine Macro
– The GDP price index also points to inflation peaking.
Source: LPL Research
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4. There has been a clear break in the Phillips Curve because of supply shocks, according to Morgan Stanley.
Source: Morgan Stanley Research
5. Tight financial conditions point to job losses ahead.
Source: TS Lombard
Tech firms have been curtailing hiring in recent months.
Source: @axios Read full article
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6. CEOs’ economic expectations have deteriorated.
Source: Goldman Sachs
7. The debt ceiling could be hit as early as February. Will the US repeat the 2011 impasse that resulted in a downgrade? As we saw in the UK, the markets these days have limited tolerance for fiscal uncertainty.
Source: BofA Global Research
Source: CNN Business Read full article
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The United Kingdom
1. How will the markets respond to the BoE’s announcement?
Source: ING
• Terminal rate expectations are moderating.
Source: Capital Economics
• A dovish BoE poses a downside risk for the pound.
Source: Deutsche Bank Research
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2. Consumer credit is moderating.
• But mortgage approvals are still robust.
• Savings picked up in September.
Source: Pantheon Macroeconomics
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The Eurozone
1. Inflation refuses to peak (3 charts), …
Source: Pantheon Macroeconomics
… despite signals from the PMI reports.
Source: Pantheon Macroeconomics
Forecasters are calling for inflation peaking shortly and declining rapidly from there …
• JP Morgan:
Source: JP Morgan Research; III Capital Management
• Nordea:
Source: Nordea Markets
… as energy inflation slows.
Source: BCA Research
Here is what we see in the ECB’s survey of forecasters (2 charts).
Source: ECB Read full article
Source: ECB Read full article
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2. Italian GDP surprised to the upside.
But this is unlikely to be repeated in Q4.
Source: Pantheon Macroeconomics
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3. Next, we have some data on retail sales.
• Spain (stable):
• Germany (an uptick in September):
• France (an increase in goods consumption):
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4. EUR/USD is now at support at the 50-day moving average.
Source: barchart.com
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Europe
1. Poland’s CPI is nearing 18%.
Below is Poland’s food CPI.
Source: ING
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2. Here is the energy-related cost of living increase across Europe.
Source: IMF Read full article
3. Next, we have some data on enterprises engaged in trade.
• Types of trade:
Source: Eurostat Read full article
• Value of trade:
Source: Eurostat Read full article
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Japan
1. Consumer confidence worsened in October.
2. The yen looks cheap.
Source: BCA Research
Here is the history of yen interventions.
Source: Goldman Sachs; III Capital Management
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3. Japan’s CPI is one of the lowest in the world.
Source: Morgan Stanley Research
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Asia – Pacific
1. South Korea’s manufacturing activity continues to contract.
Source: S&P Global PMI
The trade gap was wider than expected.
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2. Taiwan’s manufacturing contraction is accelerating.
Source: S&P Global PMI
3. New Zealand’s building approvals remain robust.
4. Next, we have some updates on Australia.
• The RBA hiked by 25 bps, as expected.
• Home prices continue to fall.
• Consumer confidence has been deteriorating, …
Source: @ANZ_Research
… as inflation expectations surge.
Source: @ANZ_Research
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China
1. The S&P Global Manufacturing PMI was stronger than expected, but factory activity is still contracting …
… amid persistent lockdowns.
Source: Morgan Stanley Research
The PBoC pledges to keep supporting economic growth.
Source: Reuters Read full article
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2. The shakeout in leveraged developers’ debt markets continues.
Source: Forbes Read full article
Source: @markets Read full article
And there is no quick turnaround in the housing market ahead.
Source: Barclays Research
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3. Beijing is expected to keep “massaging” economic growth figures.
Source: Pantheon Macroeconomics
4. Hong Kong’s GDP was a shocker, …
… with the biggest miss on record (due to deteriorating trade).
Source: @DavidInglesTV
Hong Kong’s government budget has blown out.
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Emerging Markets
1. Let’s begin with Asian October PMI reports which have been mixed.
• India (strong growth):
Source: World Economics
• Thailand (a downshift):
Source: S&P Global PMI
• Malaysia (contracting):
Source: S&P Global PMI
• Indonesia (holding up):
Source: S&P Global PMI
• Vietnam (stalling):
Source: S&P Global PMI
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2. India’s industrial output remains robust.
But trade has been a drag on growth.
Source: @ANZ_Research
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3. Ukrainian FX reserves took a hit since the war started.
Source: IIF
4. South Africa’s credit expansion has accelerated.
The trade surplus was higher than expected.
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5. Mexican economic growth in Q3 topped forecasts as the GDP approaches pre-COVID levels.
Credit growth has been strengthening.
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6. Next, we have some updates on Brazil.
• Election results:
Source: @bbgvisualdata Read full article
• The debt-to-GDP ratio (higher than expected):
• Rate cuts ahead?
Source: Gavekal Research
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7. There is plenty of room for further downside earnings revisions across EM corporates.
Source: BCA Research
• The trailing PE is now below the forward PE.
Source: @markets, @SriniSivabalan, @farahesque Read full article
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8. Finally, we have some performance charts for the month of October.
• Currencies:
• Bond yields:
• Equity ETFs:
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Cryptocurrency
1. Bitcoin is attempting to break above its short-term range.
Source: Glassnode Read full article
2. Ether has outperformed massively in October, …
… but is now testing resistance.
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3. Some models estimate bitcoin’s “fair value” price at $16,500.
Source: Glassnode Read full article
4. Realized losses among bitcoin holders are picking up, although not as extreme compared to prior bear markets.
Source: Glassnode Read full article
5. Crypto investment products saw minor inflows last week, driven by long Bitcoin-focused funds. Investors have pulled money from short-Bitcoin funds for two consecutive weeks following September’s sell-off.
Source: James Butterfill, CoinShares Read full article
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Commodities
1. Investors reduced their exposure to commodities this year …
Source: Numera Analytics
… as the strong dollar weighed on commodity prices.
Source: Numera Analytics
2. Numera Analytics sees downside risks for commodities the next year.
Source: Numera Analytics
3. This chart shows the performance across key commodity markets in October.
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Energy
1. OPEC boosted its long-term oil demand forecast.
Source: Reuters Read full article
2. European natural gas prices continue to fall (down some 65% from the peak).
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Equities
1. The Dow was up 14% in October.
2. There is plenty of room for further downside earnings revisions.
Source: BCA Research
And we are not talking about small revisions here.
Source: Deutsche Bank Research
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3. The breadth of margin beats has been at the bottom of its historical range.
Source: Deutsche Bank Research
A steep compression in margins is underway.
Source: Pantheon Macroeconomics
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4. This chart shows the inflation-adjusted S&P 500 relative to its long-term trend (in standard deviations).
Source: BCA Research
5. Next, we have the updated performance attribution for the S&P 500 and the S&P 600 (small caps) through the end of October.
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6. Finally, we have some performance data for October.
• Sectors:
• Thematic ETFs:
• Largest US tech firms:
• Equity factors, followed by some key trends:
– Momentum:
– Small caps:
– Equal-weight S&P 500 (outperformance driven by weakness in tech mega-caps):
– Dividend aristocrats:
– Further outperformance for value vs. growth ahead?
Source: Alpine Macro
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Credit
Here is last month’s performance across credit asset classes.
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Rates
1. Unlike in previous months, higher Treasury yields in October were driven by inflation expectations.
2. The 5-year/5-year forward Treasury yield has closely tracked the FOMC’s longer-run expectation for the Fed funds rate.
Source: BCA Research
3. Financial conditions have tightened alongside a rise in bond volatility, which typically occurs around recessions.
Source: MRB Partners
4. FOMC guidance has a significant effect on the structural trend in the 10-year Treasury yield.
Source: BCA Research
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Global Developments
1. This chart shows return projections across asset classes, according to Pictet.
Source: Pictet Wealth Management
2. Next, we have some performance data for October.
• Trade-weighted currency indices:
• Sovereign bond yields:
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Food for Thought
1. Excess savings by income quartile:
Source: Oxford Economics
2. Polio cases:
Source: Statista
3. What contributed to challenges in dealing with COVID in the US?
Source: Pew Research Center Read full article
4. Ratings of public health officials:
Source: Pew Research Center Read full article
5. Global carbon emissions:
Source: Nature Read full article
6. Democratic campaign contributions vs. predictions:
Source: The Economist Read full article
7. Twitter’s center of gravity shifting to the right:
Source: The Economist Read full article
8. Social media as a news source:
Source: Statista
9. Annoying coworker habits:
Source: LLC.ORG Read full article
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