What caused the COVID-era inflation spike?

The Daily Shot: 22-Nov-22
The United States
The Eurozone
Europe
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Energy
Equities
Rates
Global Developments
Food for Thought


US imports are expected to decline next year


 

The United States

1. Let’s begin with some updates on inflation.
 
Disinflation ahead?
 
Source: Alpine Macro  
 
Private measures of rent inflation have been falling faster than the official index (2 charts).
 
Source: @jasonfurman  
 
Source: realtor.com  
 
Surveys point to some moderation in wage inflation.
 
Source: BCA Research  
 
Import prices declined less than expected in October.
 

 
These charts show CPI components by inflation rate for the US and the Eurozone.
 
Source: IIF  
 
What caused the COVID-era inflation spike? Hint: it wasn’t the Fed’s QE.
 
Source: @jessefelder, @BW, @foxjust   Read full article  
 
Here is a more recent example of the above.
 
Source: KCRA3   Read full article  
 
Consumer spending by state:
Source: YipitData  
 
The spike in margins, driven by surging demand (above) and strained supply chains, resulted in the CPI outpacing labor costs.
 
Source: Pantheon Macroeconomics  

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2. Excess cash levels have been moderating.
 
Source: Morgan Stanley Research  
 
Households are expected to keep drawing on excess savings next year.
 
Source: Goldman Sachs  

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3. Fund managers increasingly expect a recession.
 
Source: BofA Global Research  
 
Forecasters are calling for a mild recession next year.
 
Source: Deutsche Bank Research  

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4. Imports are expected to decline in 2023 as demand weakens.
 

 
5. The World Economics SMI index shows slower growth in US business activity this month. Price pressures persist.
 
Source: World Economics  


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The Eurozone

1. Household holiday spending plans have declined.
 
Source: ECB  
 
2. Underlying inflation remains elevated, although PCCI (measures persistence) has been declining since May.
 
Source: ECB  
 
3. Long-term inflation expectations have been grinding higher.
 
Source: BIS   Read full article  
 
4. Capital Economics expects the US-Germany rate spreads to tighten next year.
 
Source: Capital Economics  


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Europe

1. Energy dependence will keep European real disposable income in the red next year.
 
Source: Goldman Sachs  
 
2. Next, we have some updates on Sweden.
 
The unemployment rate topped expectations.
 

 
Home prices are down 10% from a year ago, the largest decline in years.
 

 
Source: @wealth, @nicrolander   Read full article  
 
The housing price decline has exceeded Riksbank’s forecasts.
 
Source: ING  
 
Housing supplies are elevated.
 
Source: Nordea Markets  
 
More pain ahead in the housing sector?
 
Source: Nordea Markets  
 
Despite the housing market slump, more rate hikes are coming.
 
Source: ING  

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3. The Norwegian krone should be stronger versus the euro.
 
Source: Oxford Economics  
 
Norway’s economy continues to grow.
 

 
Economists have been boosting their forecasts for Norway’s inflation next year.
 

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4. The Swiss central bank continues to reduce liquidity.
 

 
5. European assets bounced relative to the US, partly because of the weaker dollar.
 
Source: MRB Partners  


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Asia – Pacific

1. Taiwan’s export orders fell well below last year’s levels.
 

 
2. A weak yen should be a tailwind for Japan’s stocks.
 
Source: Alpine Macro  
 
3. South Korea’s consumer confidence declined this month.
 

 
Growth in household credit has slowed sharply.
 

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4. New Zealand’s trade deficit has blown out, …
 

 
… as imports hit a record high.
 


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China

1. Economists have been downgrading projections for China’s 2023 GDP growth.
 

 
Here is Goldman’s forecast over the next decade.
 
Source: Goldman Sachs  

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2. Beijing wants banks to boost lending to property firms.
 
Source: Alpine Macro  
 
Source: Reuters   Read full article  

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3. Local governments increasingly rely on non-tax revenue.
 
Source: @opinion, @shuli_ren   Read full article  
 
4. The World Economics SMI report shows business activity stabilizing this month as business confidence improves.
 
Source: World Economics  


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Emerging Markets

1. The market is pricing sharp rate cuts ahead for Chile as recession looms.
 
Source: @business, @Sebaboyd, @ValentinaKaryme   Read full article  
 
2 India’s SMI indicator is in growth territory as business confidence jumps.
 
Source: World Economics  
 
3. This chart shows the evolution of 2023 GDP growth forecasts from Oxford Economics.
 
Source: Oxford Economics  


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Cryptocurrency

1. Crypto market pain persists, …
 

 
… with bitcoin holding below $16k.
 

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2. The total crypto market cap has fallen to around $800 billion from its peak of $2.9 trillion last year.
 
Source: Morgan Stanley Research  
 
3. Here is a list of crypto exchange tokens, which are treated as a representation of the company’s value.
 
Source: Morgan Stanley Research  
 
4. Genesis Trading, a major crypto broker-dealer, warned that it may file for bankruptcy.
Source: Decrypt   Read full article  
 
The company’s lending has fallen significantly this year.
 
Source: Morgan Stanley Research  

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5. Investors piled into short-Bitcoin investment products last week.
 
Source: CoinShares   Read full article  
 
6. Ark funds have been buying up Coinbase as well as other crypto-focused companies.
 
Source: @business, @Matt_Turnerr   Read full article  


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Energy

1. The decline in Brent backwardation (curve flattening) has been rapid.
 
Source: @HFI_Research  
 
2. US energy companies have been boosting CapEx.
 
Source: Capital Economics  
 
3. OPEC has been taking production down, as promised.
 
Source: Goldman Sachs  
 
4. This chart illustrates China’s rising control over global solar capacity manufacturing.
 
Source: @WSJ   Read full article  
 
5. Energy stocks are not yet overbought relative to the S&P 500.
 
Source: @mark_ungewitter  


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Equities

1. US stocks continue to trade at a premium to other advanced economies.
 
Source: @WSJ   Read full article  
 
2. Will the pace of earnings downgrades ease as economic surprises turn positive?
 
Source: Deutsche Bank Research  
 
3. MRB Partners expects lower real returns for stocks.
 
Source: MRB Partners  
 
4. The number of corporate spinoffs jumped this year.
 
Source: @FactSet   Read full article  
 
5. Sustainable funds saw outflows in October.
 
Source: Morningstar  
 
6. The S&P 500 buyback yield is back near 2%.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
7. Implied and realized volatility indicators have diverged.
 
Source: Deutsche Bank Research  
 
8. Next, we have some sector updates.
 
Tech and consume discretionary shares underperformed on Monday.
 

 

 
Healthcare outperformed.
 

 
Here is fund managers’ positioning in healthcare vs. the consumer sector (2 charts).
 
Source: BofA Global Research  
 
Source: BofA Global Research  

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Industrials have been outperforming.
 


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Rates

1. Mortgage bonds have been outperforming Treasuries in recent days, …
 

 
… as convexity turns positive.
 
Source: MarketDesk Research  

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2. The average bid-ask spreads for Treasury notes remain moderately wide, although well below the pandemic peak in 2020.
 
Source: Federal Reserve   Read full article  
 
3. Fund managers see lower yields and a steeper curve ahead.
 
Source: BofA Global Research  
 
4. Speculative accounts remain very short rate futures.
 
Source: Deutsche Bank Research  


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Global Developments

1. The increase in bond yields has been concentrated in the real component as inflation expectations have remained broadly stable.
 
Source: BCA Research  
 
2. The manufacturing PMI signals a global earnings recession.
 
Source: BofA Global Research  
 
4. Here is JP Morgan’s Q4 growth forecast for the three largest economies.
 
Source: JP Morgan Research; @carlquintanilla  
 
5. Fund managers increasingly view the US dollar as overvalued, …
 
Source: BofA Global Research  
 
… boosting their bets against the greenback.
 
Source: @markets, @Ruth_Liew10   Read full article  


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Food for Thought

1. Office occupancy rates by day of the week:
 
Source: @axios   Read full article  
 
2. Paying over $1k per month for a new car:
 
Source: Edmunds  
 
3. Land used for mining:
 
Source: @BBGVisualData, @opinion, @davidfickling   Read full article  
 
4. Green project debt financing:
 
Source: @WSJ   Read full article  
 
5. Preferred news networks:
 
Source: CableTV   Read full article  
 
6. State tax on recreational marijuana:
 
Source: @TaxFoundation  
 
7. Search volume for plant-based milk alternatives:
 
Source: @chartrdaily  

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