The Daily Shot: 04-Nov-22
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Europe
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought
The United States
1. Service sector growth has been slowing but remains sturdy for now. Here is the ISM Services PMI.
Source: Mizuho Securities USA
• Hiring has slowed in recent months.
• Price gains increased in October for the first time since the April peak, suggesting that cost pressures persist.
A similar index from S&P Global also suggests that service firms are still struggling with inflation.
Source: S&P Global PMI
The gap between manufacturing and service price pressures is widening.
Source: Wells Fargo Securities
At the consumer level, it will take much longer to tame inflation in services than in goods.
Source: Oxford Economics
——————–
2. US factory orders showed small gains in September, driven by aircraft purchases.
But manufacturing has lost momentum outside of transportation.
Source: Reuters Read full article
——————–
3. Unit labor costs grew at a slower rate last quarter.
• Rising labor costs could put further pressure on corporate margins.
Source: BCA Research
• Productivity showed modest growth but is still down significantly on a year-over-year basis.
——————–
4. Next, we have some updates on the labor market.
• Jobless claims hit another multi-year low for this time of the year and are firmly below pre-COVID levels. The labor market strength continues to top expectations.
• Layoffs have been inching higher but remain low relative to historical levels.
• Morgan Stanley expects to see 180k jobs created last month. The consensus estimate is 195k.
Source: Morgan Stanley Research
The bank expects the unemployment rate to tick up to 3.6% (in line with consensus).
Source: Morgan Stanley Research
• Labor force participation is increasingly limited by US aging population.
Source: BlackRock Investment Institute
——————–
5. The GDPNow model has the Q4 GDP growth at 3.6% (annualized), …
… boosted by robust consumer spending (PCE).
Source: @TheTerminal, Bloomberg Finance L.P.
——————–
6. The terminal rate (peak fed funds rate) continues to climb as the market expects the Federal Reserve to maintain pressure for longer.
• The peak has now shifted all the way to July of next year.
• Nomura now expects the terminal rate to go even higher.
Source: @carlquintanilla
• For the Fed, it’s all about hammering demand now.
Source: @jasonfurman, @adamshap5, @sffed
• The market is increasingly convinced that the Fed will get inflation under control.
Source: @MacroAlf Read full article
• It took a worsening recession for the Fed to “pivot” in 1974.
Source: BofA Global Research
• The 2-year yield is heading toward 5%.
• The Treasury curve hasn’t been this inverted since 1981.
Back to Index
Canada
1. Building permits tumbled in September.
Source: MarketWatch Read full article
Source: Statistics Canada
——————–
2. Exports boosted Canada’s trade surplus.
Source: Bloomberg Read full article
——————–
3. A budget surplus in five years?
Source: Desjardins
Here is the forecast for Canada’s debt-to-GDP ratio.
Source: Desjardins
Back to Index
The United Kingdom
1. The BoE followed the Fed with a 75 bps rate hike.
• The central bank sees a long recession ahead.
Source: BoE
However, the market’s rate projections used in the forecast above have already been scaled back.
Source: @WSJ Read full article
• The BoE wants to see rate expectations lowered, …
Source: @business, @_Davidgoodman, @PhilAldrick Read full article
… as mortgage rate resetting will devastate many households.
Source: BoE
Pantheon Macroeconomics sees the terminal rate at 4%.
Source: Pantheon Macroeconomics
2. The pound slumped on the BoE’s recession forecasts.
Source: Reuters Read full article
Back to Index
The Eurozone
1. The labor markets remain strong.
• Spain’s unemployment unexpectedly declined last month.
• Unemployment rates remain relatively low.
– Italy:
• Belgium:
• Ireland:
– Greece:
– The Eurozone:
But forecasters now expect the unemployment rate to rise sharply next year.
Source: ECB Read full article
——————–
2. The US and the Eurozone are fighting different types of inflation. Here is the spread between the headline and the core CPI.
Source: Allianz; @MikeZaccardi
3. Is it Europe’s turn to deal with financial stress?
Source: Arcano Economics
Back to Index
Europe
1. Sweden’s service sector is holding up well.
2. Norway’s central bank hiked rates by 25 bps. The market expected 50 bps.
3. Swiss inflation appears to have peaked.
4. Equity outflows have been severe.
Source: BofA Global Research
5. This map illustrates the level of participation in social media across Europe.
Source: Eurostat Read full article
Back to Index
Asia – Pacific
1. Japan’s service sector remains resilient.
2. Australia’s retail sales have been strong. Given the weakness in consumer sentiment, will we see a pullback?
Back to Index
China
1. China’s equity market underperformance vs. the US followed the underperformance in earnings expectations.
Source: Truist Advisory Services
2. Foreigners have been reducing their holdings of China’s domestic bonds.
Source: @financialtimes Read full article
3. More cities have seen declining home prices.
Source: Barclays Research
4. The spike in COVID-19 cases contributed to falling mobility.
Source: MRB Partners
Back to Index
Emerging Markets
1. Let’s begin with LatAm vehicle sales, which have been softening.
• Brazil:
• Mexico:
• Chile:
——————–
2. Brazil’s foreign exchange reserves have deteriorated.
Source: PGM Global
3. Russia’s services activity appears to be weakening.
Source: S&P Global PMI
4. South Africa’s business activity is not growing.
Source: S&P Global PMI
The nation’s electricity production and consumption tumbled in September.
——————–
5. Turkey’s core CPI is above 70%, …
… and the PPI is nearing 160%.
The lira continues to hit record lows vs. USD.
——————–
6. India’s service sector remains sturdy.
Source: S&P Global PMI
7. Inflation in the Philippines continues to surge.
Source: ING
The trade balance showed some improvement in September.
——————–
8. There has been a large dispersion in EM equity returns this year.
Source: PGM Global
Back to Index
Cryptocurrency
1. It’s been a mixed week for cryptos, with litecoin (LTC) outperforming other large tokens.
Source: FinViz
The LTC/BTC ratio held support above its 200-day moving average.
——————–
2. Bitcoin’s drawdown is approaching previous bear-market lows.
Source: @ArcaneResearch
Back to Index
Commodities
1. Iron ore bounced from the lows on China reopening hopes.
2. The LME nickel price is testing long-term support as inventories steadily decline.
Source: Aazan Habib, Paradigm Capital
3. Gold fund outflows have been severe as the Fed keeps tightening.
Source: BofA Global Research
Back to Index
Energy
1. Brent crude is at resistance again.
Source: @TheTerminal, Bloomberg Finance L.P.
2. US crude oil exports to Asia have been rising.
Source: Reuters Read full article
3. US LNG exports are surging (in dollar terms).
Source: @JosephPolitano
4. US natural gas in storage is approaching the 5-year average. A warm winter could send prices tumbling.
5. This chart from BloombergNEF shows ” the year-on-year change in power generation from coal, gas, wind and solar, including projections for 2022 and 2023.”
Source: @NatBullard, @IEA Read full article
Back to Index
Equities
1. Energy stocks continue to outperform the S&P 500.
This chart shows the trajectory of earnings expectations for the S&P 500 with and without the energy sector.
h/t @mikamsika, @Bloomberg
——————–
2. Earnings are increasingly important to performance. Companies with higher earnings revisions have been consistent outperformers since July.
Source: @MichaelKantro
3. Tech stocks continue to widen their underperformance.
• Big tech has peaked relative to small caps.
Source: BofA Global Research
• This chart shows the tech sector’s forward earnings relative to the S&P 500.
Source: Truist Advisory Services
——————–
4. How has the S&P 500 performed around FOMC statements and press conferences?
Source: Nomura Securities; @pattidomm, @carlquintanilla
5. Large drawdowns tend to be followed by positive one-year returns.
Source: @LizAnnSonders
6. Equity fund inflows have been strengthening.
Source: @WSJ Read full article
But cash inflows have been rising this quarter as well.
Source: BofA Global Research
——————–
7. The put/call ratio surged this week.
Source: Yardeni Research
8. Long/short equity hedge funds have been reducing their exposure to the market.
Source: Deutsche Bank Research
9. Will the gap between US and non-US earnings narrow further?
Source: Truist Advisory Services
10. Which styles/equity factors will outperform over the next few weeks? Here is a model-based forecast from CornerCap Institutional.
• Large caps:
Source: CornerCap Institutional
• Small caps:
Source: CornerCap Institutional
Back to Index
Credit
1. Bond yields are at or near their 10-year highs.
Source: Truist Advisory Services
2. A major credit event in the works?
Source: @WSJ Read full article
3. Leveraged loan fund flows have turned positive.
Source: BofA Global Research
Back to Index
Rates
1. Positive real yields (now probably all above r*) indicate restrictive monetary policy.
Source: @MacroAlf Read full article
2. Fixed income volatility is at its highest since 2020 and appears to be peaking.
Source: Aazan Habib, Paradigm Capital
Back to Index
Global Developments
1. Is the global tightening synchronization peaking?
Source: TS Lombard
2. M&A activity has been moderating.
Source: S&P Global Market Intelligence
3. Supply and price pressures are easing (2 charts)
Source: @PkZweifel
Source: S&P Global PMI
——————–
Food for Thought
1. Murdoch’s “remerged” empire:
Source: @chartrdaily
2. UK’s inflation expectations and wars going back to 1688:
Source: @nfergus, Bloomberg Read full article
3. North Korean missile tests:
Source: Statista
4. Where are Russia’s newest soldiers coming from?
Source: The Economist Read full article
5. Sentiment in news headlines over time:
Source: Rozado, Hughes, Halberstadt Read full article
6. Support for teaching about various topics in the classroom:
Source: Brookings Read full article
7. US voting intentions vs. 2018:
Source: Morning Consult
8. Support for various voting laws:
Source: Statista
9. Mini wind turbines for rooftops (no blades):
Source: GNN Read full article
——————–
Have a great weekend!
Back to Index