The debt ceiling battle looms

The Daily Shot: 09-Nov-22
The United States
The Eurozone
Europe
Japan
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. As of 3:30 AM EST, the betting markets indicate that Republicans have flipped the House (as expected).
 
Source: Election Betting Odds  
 
But Democrats seem to have held the Senate.
 
Source: Election Betting Odds  
 
Source: @PredictIt  
 
The debt ceiling battle looms (see comment below from Oxford Economics). And this time, the bond market may not be as forgiving as in the past. The UK gave us a taste of that recently.
 
Source: Oxford Economics  

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2. The NFIB small business sentiment index declined last month.
 

 
The indicator of hiring plans is back inside the pre-COVID range.
 

 
Companies are still struggling to fill job openings.
 

 
The compensation index remains elevated, …
 

 
… while the compensation plans index surged, raising concerns about persistent inflationary pressures.
 

 
The share of companies that plan to raise prices increased in October.
 

 
The CapEx plans index remains below pre-COVID levels.
 

 
Inventories are no longer tight.
 
Source: Wells Fargo Securities  
 
So far, businesses are not complaining about poor sales.
 

 
Companies expect tighter credit conditions ahead.
 

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2. Supply pressures continue to ease.
 
Container import volume (2 charts):
 
Source: FreightWaves  
 
Source: @FreightAlley, @dailychartbook  
 
Port delays:
 
Source: FreightWaves  
 
Truckload freight rates:
 
Source: FreightWaves SONAR  

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3. Next, we have a couple of updates on the labor market.
 
The LinkedIn hiring index:
 
Source: LinkedIn’s Economic Graph  
 
Labor force participation among older Americans:
 
Source: BlackRock Investment Institute  

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4. Rising costs put a strain on discretionary demand.
 
Source: BofA Global Research; @MichaelAArouet  


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The Eurozone

1. The Bund curve has inverted.
 

 
2. Euro-area retail sales improved in September.
 

 
But consumer financial expectations point to deterioration ahead.
 
Source: Numera Analytics  

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3. The French trade deficit hit a new record.
 

 
4. Germany’s electricity prices have declined massively from the peak but remain elevated.
 

 
5. How dependent are German companies on China?
 
Source: @adam_tooze   Read full article  
 
6. Durable goods purchase intentions are falling in Finland.
 
Source: Danske Bank  
 
Finland’s home prices are now flat year-over-year.
 

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7. The ECB is hiking rates into stagflation.
 
Source: Capital Economics  


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Europe

1. The Swiss central bank continues to tighten liquidity.
 

 
2. Norway’s economic growth outlook has weakened.
 
Source: Danske Bank  
 
3. Sweden’s housing market is in trouble.
 
Source: @SusanneSpectr  
 
Tight financial conditions point to downside risks for Sweden’s economy.
 
Source: Nordea Markets  

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4. Here is the distribution of energy consumption for space heating.
 
Source: BCA Research  


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Japan

1. Loan growth is accelerating.
 

 
2. Here is Japan’s trade balance.
 


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China

1. The CPI declined more than expected last month.
 

 
But the core CPI held steady.
 

 
Pork inflation is accelerating again.
 

 
But it was more than offset by other items.
 
Fresh vegetables (a very volatile index):
 

 
Housing:
 

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2. The PPI is in negative territory.
 

 
3. COVID cases continue to climb.
 
Source: Our World in Data  
 
Source: Reuters   Read full article  


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Emerging Markets

1. Chile’s inflation is moderating.
 

 
2. Brazil’s inflation also continues to ease.
 

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3. India’s equity markets keep outperforming China’s stocks.
 
Source: S&P Dow Jones Indices  
 
4. EM Asia stocks are trading at attractive valuations versus developed markets.
 
Source: Numera Analytics  
 
EM Asia stocks outperform Middle Eastern stocks when oil prices decline – a potential diversification benefit for EM portfolios.
 
Source: Numera Analytics  

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5. Investors continue to exit EM bond funds.
 
Source: Deutsche Bank Research  
 
This chart shows BoA private clients’ ETF flows.
 
Source: BofA Global Research  


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Cryptocurrency

1. Binance agreed to buy rival exchange FTX. Concerns about liquidity issues at FTX sent crypto markets into a panic.
 
Source: CoinDesk   Read full article  
 
Source: @cz_binance  
 
CZ “pulled a Musk” on FTX.
 

 
The FTX token crashed.
 
Source: CoinDesk  
 
FTX experienced large withdrawals on Tuesday, mainly from Jump Trading and Alameda Research (owned by the CEO of FTX).
 
Source: CoinDesk   Read full article  
 
FTX led all exchanges in stablecoin outflows on Tuesday as traders quickly liquidated their parked “crypto cash.”
 
Source: CoinDesk   Read full article  

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2. There were significant spikes in long BTC liquidations on Tuesday as the crypto’s price fell below $19K.
 
Source: Coinglass  
 
Bitcoin remains vulnerable despite short-term relief rallies.
 

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3. Bitcoin’s correlation with equities has broken down.
 
Source: @danny_kirsch  
 
Bitcoin has also diverged from gold.
 
Source: @themarketear  

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4. Bitcoin’s implied volatility jumped.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
5. Ether is rapidly giving up its outperformance.
 


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Commodities

Gold sentiment is at extreme lows.
 
Source: Longview Economics  
 
A breakout for gold?
 
Source: barchart.com  


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Energy

1. European natural gas is in deep contango amid ample supplies.
 
Source: The Economist   Read full article  
 
2. Europe is dominating global LNG demand.
 
Source: @business, @SStapczynski, @a_shiryaevskaya, @FaseehMangi   Read full article  
 
3. US natural gas exports are expected to hit a record high next year.
 
Source: @EIAgov  


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Equities

1. Companies haven’t been particularly concerned about the US midterm elections.
 
Source: @FactSet   Read full article  
 
A midterm election bump ahead?
 
Source: @isabelletanlee, @StrategasRP, @johnauthers   Read full article  
 
The S&P 500 typically trades higher 12 months after midterm elections.
 
Source: Deutsche Bank Research  

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2. Companies with international sales have been outperforming, …
 

 
… as the US dollar rally sputters.
 

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3. S&P 500 Q3 earnings surprises have been below the long-term average of 5%. Cyclical sectors have seen the weakest results so far.
 
Source: Danske Bank  
 
But sales surprises have been robust. This divergence points to margin pressures.
 
Source: BofA Global Research  
 
Elevated inventories also signal weaker margins ahead (“PPI trade services”).
 
Source: Pantheon Macroeconomics  

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4. The 2023 revisions have been relatively steep, and there is more to go.
 
Source: Goldman Sachs; @markets   Read full article  
 
5. S&P 500 call option volume remains elevated.
 
Source: @WSJ   Read full article  
 
6. Retail stocks are testing support relative to staples.
 
Source: Aazan Habib, Paradigm Capital  
 
And industrial stocks are improving relative to staples, indicating short-term risk-on conditions.
 
Source: Aazan Habib, Paradigm Capital  

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7. Forward earnings for semiconductor stocks have not yet troughed.
 
Source: MRB Partners  
 
8. Here is the dot-com analog. A lost decade ahead?
 
Source: @AndreasSteno  


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Credit

1. AAA CLO debt is cheap relative to corporate bonds.
 
Source: BofA Global Research  
 
2. Subprime auto ABS spreads have blown out as delinquencies climb.
 
Source: @markets, @ScottJourno, @ArroyoNieto   Read full article  


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Rates

1. While the Treasury curve is becoming more inverted in the short end, it has been steepening at the long end.
 

 
2. Japan has been a seller of Treasuries.
 
Source: @jessefelder, @WSJ   Read full article  


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Global Developments

1. Will the dollar decouple from short-term rates?
 
Source: Evercore ISI Research  
 
2. The US dollar strength and surging energy prices created a divergence in global terms of trade.
 
Source: TS Lombard  
 
3. High interest rates play a role in decreasing the amount of cash in circulation.
 
Source: Deutsche Bank Research  


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Food for Thought

1. Early votes:
 
Source: Statista  
 
2. US political spending by outside groups:
 
Source: @financialtimes   Read full article  
 
3. Americans’ foreign policy concerns:
 
Source: Visual Capitalist   Read full article  
 
4. Going above and beyond at work:
 
Source: @_constantjo, @business   Read full article  
 
5. Labor force participation rates in the US:
 
Source: Morgan Stanley Research  
 
6. Which states are interested in Metaverse investing?
 
Source: Softtik Technologies   Read full article  
 
7. Using electric toothbrushes:
 
Source: @CivicScience  

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