Home prices are falling – but not my house

The Daily Shot: 15-Nov-22
The United States
Canada
The United Kingdom
The Eurozone
Europe
Japan
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Alternatives
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. Let’s begin with the housing market.
 
Residential investment will remain depressed next year, according to a forecast from Morgan Stanley.
 
Source: Morgan Stanley Research  
 
Declining mortgage demand points to more weakness in residential construction.
 
Source: @IanRHarnett  
 
The U. Michigan consumer survey report shows further deterioration in buying conditions for homes.
 

 
Selling conditions are also declining.
 

 
Consumers expect home prices to be lower a year from now.
 

 
At the same time, homeowners keep inflating the perceived “market value” of their own houses.
 

 
What are the drivers of changes in housing affordability?
 
Source: @AtlantaFed   Read full article  
 
Consumers don’t see themselves moving to a new home.
 
Source: @wealth, @jordan_yadoo   Read full article  
 
Views of online listings increasingly come from outside the metropolitan area where the house is located.
 
Source: realtor.com  

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2. Freight rate inflation continues to ease …
 
Source: Cass Information Systems  
 
… as demand softens.
 
Source: Cass Information Systems  
 
Here is the Evercore ISI trucking company sales index.
 
Source: Evercore ISI Research  

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3. Morgan Stanley sees very soft growth next year but not a recession.
 
Source: Morgan Stanley Research  
 
4. High-frequency indicators continue to signal a weak retail sales print in October. The YipitData indicator points to softer demand among higher-income households.
 
Source: YipitData  
 
Below is the Evercore ISI retailers sales index.
 
Source: Evercore ISI Research  


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Canada

1. Consumer confidence appears to have finally stabilized.
 

 
2. Strong population growth (driven by immigration) will allow Canada’s economy to outperform over the long run.
 
Source: BIS   Read full article  


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The United Kingdom

1. Economists are rushing to downgrade their forecasts for next year’s private domestic demand. Both consumer spending and business investment are now expected to contract next year.
 

 
2. Business sentiment has been softening.
 
Source: @SPGlobalPMI, @AccentureUK  
 
3. Paris overtook London as Europe’s most valuable stock market.
 
Source: @markets, @marketsjoe   Read full article  
 
4. Cash usage in the UK has been declining faster than in other advanced economies.
 
Source: @wealth, @tetley_liza   Read full article  


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The Eurozone

1. Economists keep raising their forecasts for the euro-area inflation next year.
 
The Eurozone:
 

 
Italy:
 

 
France:
 

 
Germany:
 

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2. How bad will Germany’s recession get in 2023? Here is the consensus forecast for the full year.
 

 
Below are some additional updates on Germany.
 
Mortgage contracts:
 
Source: Commerzbank Research  
 
Dependence on imports from China:
 
Source: @AndreasSteno  
 
Corporate insolvencies since 1997:
 
Source: BIS   Read full article  

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3. Euro-area industrial production was strong in September, but PMI indicators point to downside risks ahead.
 

 
Energy-intensive sectors are struggling.
 
Source: Pantheon Macroeconomics  

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4. Market-based inflation expectations are converging with those in the US.
 
Source: Arcano Economics  
 
5. EUR/USD is at the 200-day moving average.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
But Danske Bank expects the euro to resume its decline.
 
Source: Danske Bank  


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Europe

1. Poland’s exports hit a record high.
 

 
Danske Bank expects the Polish zloty to weaken further vs. the euro.
 

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2. Next, we have projections for economic growth, budget deficit, and inflation.
 
Source: @ecfin   Read full article  
 
3. The map below shows the percentage of adults with a university degree.
 
Source: @milos_agathon  
 
Here is the tertiary educational attainment (university/college and vocational training).
 
Source: Eurostat   Read full article  


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Japan

1. The economy unexpectedly contracted last quarter, …
 

 
… as net exports tumbled (due to weak yen and soaring energy prices).
 

 
Consumer spending remains below pre-COVID levels.
 

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2. Japan has been a key player in global bond markets.
 
Source: @Brad_Setser  


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China

1. Industrial production was roughly in line with expectations last month.
 

 
But retail sales unexpectedly declined on a year-over-year basis.
 

 
Property investment kept deteriorating in October.
 

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2. The COVID situation has been worsening.
 
Source: Gavekal Research  
 
3. China will be exporting disinflation.
 
Source: @fwred  
 
4. The Hong Kong dollar has been climbing in recent days as foreign capital returns.
 


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Emerging Markets

1. India’s CPI edged lower last month but was above expectations.
 

 
Wholesale price inflation continues to moderate.
 

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2. Brazil’s economic activity is holding near the pre-COVID trend.
 

 
3. The gap between USD/ARS and the “unofficial” exchange rate in Argentina keeps widening.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
4. Outflows from EM debt funds have been relentless (2 charts).
 
Source: BofA Global Research  
 
Source: @TheTerminal, Bloomberg Finance L.P., h/t Deutsche Bank Research  


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Cryptocurrency

1. Binance CEO announced a bailout fund for crypto projects, stabilizing markets.
 
Source: Barron’s   Read full article  
 
2. Binance dominates spot crypto trading (2 charts).
 
Source: Morgan Stanley Research  
 
Source: Statista  

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3. Crypto investment funds saw the largest inflows in 14 weeks in both long and short products. Solana-focused funds saw outflows.
 
Source: CoinShares   Read full article  
 
Crypto funds in the US and Brazil accounted for most inflows last week, while Switzerland-based funds saw outflows.
 
Source: CoinShares   Read full article  

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4. So far, only 30% of the top 50 coins outperformed bitcoin this year, reflecting the broader risk-off environment.
 
Source: Blockchain Center  
 
5. Crypto futures liquidity has been deteriorating.
 
Source: @ThanefieldCap  
 
6. This chart shows the valuation trajectory of FTX.
 
Source: @carlquintanilla, @DougKass  


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Commodities

1. Silver broke above the 200-day moving average.
 

 
2. US lumber futures have been falling due to the housing market weakness.
 

 
3. Coffee futures are tumbling.
 

 
Source: @WSJ   Read full article  

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4. US soybean exports unexpectedly slowed.
 
Source: @kannbwx  
 
5. Memory chip prices are under pressure.
 
Source: Oxford Economics  
 
6. The decline in commodity prices is overdone, although weaker economic data could limit further upside from here.
 
Source: MRB Partners  


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Energy

1. Freeport is delaying the restart of its LNG exports, …
 
Source: @markets, @SStapczynski, @a_shiryaevskaya   Read full article  
 
… sending European gas prices higher.
 

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2. Brent crude is holding support at the 200-day moving average.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
3. This chart shows US electricity generation by source.
 
Source: @EIAgov  


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Equities

1. The breadth of earnings beats declined sharply below historical averages in all regions except Europe.
 
Source: Deutsche Bank Research  
 
The median earnings beat in Europe is well above average (mainly because of energy), and significantly below average in emerging markets and Japan.
 
Source: Deutsche Bank Research  

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2. Many analysts expect an earnings recession ahead, …
 
Source: Morgan Stanley Research  
 
… posing downside risks to the market. Here is a forecast from Morgan Stanley.
 
Source: Morgan Stanley Research  
 
Large forward earnings declines rarely happen outside economic recessions.
 
Source: @WSJ   Read full article  
 
Which sectors are most vulnerable to earnings revisions?
 
Source: Citi Private Bank  

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3. Growth stocks remain vulnerable amid elevated real yields.
 
Source: Alpine Macro  
 
4. Tech mega-caps still represent an outsize portion of the S&P 500.
 
Source: Goldman Sachs; @MichaelAArouet  
 
5. The market is capped in the near-term based on both fundamentals and technicals, according to Truist.
 
Source: Truist Advisory Services  
 
6. CTAs took a hit in recent days as the momentum factor stumbled.
 
Source: @markets, @luwangnyc, @denitsa_tsekova   Read full article  
 
7. Short ETF positions have been forced out (based on data from GS prime brokerage clients).
 
Source: Goldman Sachs  
 
8. It took the market a while to recover after the 1970s inflation surge.
 
Source: BofA Global Research; @MikeZaccardi  


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Alternatives

Let’s take a look at some trends in venture capital markets.
 
VC activity slowed in October relative to previous years.
 
Source: S&P Global Market Intelligence  
 
Dry powder is at record levels.
 
Source: @chartrdaily  
 
Global venture capital fund performance is more in line with historical trends following extreme levels last year.
 
Source: PitchBook  
 
Late-stage venture capital valuations are rapidly falling, while seed and early-stage valuations continue to surge, according to PitchBook. Investors are moving earlier in the venture lifecycle.
 
Source: PitchBook  
 
Deal activity and valuations in artificial intelligence and machine learning semiconductor industries are down this year.
 
Source: PitchBook  
 
Automotive sector investment has been robust for PE and VC funds.
 
Source: S&P Global Market Intelligence  


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Credit

1. Here is a look at ‘hung’ buyout deals this year (when lenders keep debt rather than sell at a loss).
 
Source: @WSJ   Read full article  
 
2. The HY spread dispersion has blown out in credit default swaps. What does it mean for equity vol?
 
Source: BNP Paribas; III Capital Management  
 
3. Banks continue to reduce their holdings of mortgage bonds.
 


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Rates

1. The decline in the 10-year real Treasury yield last week was the second-largest since the financial crisis and behind only the initial COVID-19 move in March 2020.
 
Source: Deutsche Bank Research  
 
2. The 10-year Treasury yield could find support around 3.5%.
 

 
3. It will be a while before the Fed sends remittances to the US Treasury.
 


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Global Developments

1. The dollar index (DXY) is nearing its 200-day moving average.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
This has been the sharpest drawdown in DXY since 2020.
 
Source: Koyfin  

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2. Here is the core inflation forecast for the US, UK, Eurozone, and Japan from Barclays Research.
 
Source: Barclays Research  
 
3. Finally, we have the IMF’s economic activity heat map.
 
Source: IMF   Read full article  


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Food for Thought

1. Immigrants from Venezuela:
 
Source: Statista  
 
2. Population-adjusted battle deaths:
 
Source: The Economist   Read full article  
 
3. Key terms in CPC Party Congress speeches:
 
Source: BCA Research  
 
4. Ukraine’s counterattacks:
 
Source: @bpolitics   Read full article  
 
5. Midterms voter turnout in the US:
 
Source: Bruce Mehlman  
 
6. House seats lost by the party holding the White House:
 
Source: Bruce Mehlman  
 
7. Smartphones providing earthquake alerts:
 
Source: @axios   Read full article  
 
8. Films with the biggest opening weekends in 2022:
 
Source: @axios   Read full article  

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