Over 80% of the Treasury curve is now inverted

The Daily Shot: 30-Nov-22
The United States
Canada
The United Kingdom
The Eurozone
Europe
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Energy
Equities
Alternatives
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. The Conference Board’s consumer sentiment index declined this month.
 

 
The gap versus the U. Michigan indicator remains near record levels, …
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
… with the labor market strength supporting the Conference Board’s index.
 
Source: Mizuho Securities USA  
 
The labor differential (“jobs plentiful” – “jobs hard to get”) is holding up – an indication that further Fed tightening may be required to balance the labor market.
 

 
More households expect lower incomes ahead.
 

 
The spread between the expectations and current conditions indicators is starting to rise, which usually signals a recession.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
However, the yield curve has not started steepening.
 
Source: Quill Intelligence  

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2. Here are some updates on the housing market.
 
Home prices declined again in September (which we knew from other indicators).
 

 
Here is the 3-month change in home prices.
 
Source: @NewsLambert  
 
And there is more to go (2 charts).
 

 
Source: Numera Analytics (@NumeraAnalytics)  
 
Prices are falling despite low inventories (see comment from Bill McBride below).
 
Source: Calculated Risk  
 
New home sales held up in October.
 

 
Source: FOX Business   Read full article  
 
Inventories of new homes remain elevated.
 

 
Construction activity will decline after the backlog dwindles.
 
Source: Chart and data provided by Macrobond  
 
Own or rent?
 
Source: @WSJ   Read full article  
 
One million dollar mortgages in high-cost areas will now qualify for backing by Fannie Mae and Freddie Mac.
 
Source: @WSJ   Read full article  

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3. Next, we have some updates on wage pressures.
 
Wage growth is yet to peak, according to Goldman.
 
Source: Goldman Sachs  
 
Here is the Evercore ISI index of wage pressures.
 
Source: Evercore ISI Research  
 
YipitData estimates show a further slowdown in wage growth in the first half of the month. The deceleration remains very gradual.
 
Source: YipitData  

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4. The current fed funds rate is mildly restrictive, according to market pricing.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
The market is still pricing rate cuts in the second half of next year.
 

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5. Over 80% of the Treasury curve is now inverted.
 
Source: Chart and data provided by Macrobond  
 


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Canada

1. The Q3 GDP growth topped expectations.
 

 
But domestic demand declined.
 
Source: Scotiabank Economics  

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2. Private debt levels are very high.
 
Source: @MacroAlf  


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The United Kingdom

1. Consumer credit growth is holding up.
 

 
But mortgage approvals dipped below pre-COVID levels.
 

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2. Households are increasingly paying down their mortgages amid higher rates.
 
Source: Pantheon Macroeconomics  
 
3. Retail inflation remains punishingly high.
 

 
Source: BRC   Read full article  

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4. The Lloyds business sentiment index continues to sink.
 

 
5. This chart shows energy-efficiency scores in the UK.
 
Source: The Economist   Read full article  
 
6. Finally, we have government job approval ratings.
 
Source: Ipsos   Read full article  


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The Eurozone

1. Germany’s inflation edged lower this month.
 

 
Spain’s CPI is falling rapidly.
 

 
Here is Spain’s PPI.
 
Source: Arcano Economics  
 
Italy’s PPI is also declining.
 

 
Inflation slowed a bit at the Eurozone level, but the core CPI is holding at 5%.
 

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2. Economic confidence ticked higher due to a modest improvement in consumer sentiment.
 

 
Here are the euro-area business confidence indicators.
 

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3. Eurozone bank non-performing loans (NPLs) are still far from the recessionary zone. However, Deutsche Bank expects NPLs to rise next year as financial conditions tighten.
 
Source: Deutsche Bank Research  
 
4. France is relying more on natural gas and coal to offset weak output from nuclear reactors.
 
Source: @JavierBlas  
 
5. The Eurosystem balance sheet has plenty of room to shrink amid high inflation expectations.
 
Source: Deutsche Bank Research  


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Europe

1. Let’s begin with Sweden
 
The economy continued to grow in Q3.
 

 
But Sweden’s economic outlook darkened in Q4.
 
Business and consumer sentiment:
 

 
Retail sales (record year-over-year decline):
 

 
The trade deficit remains elevated.
 

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2. Norway’s retail sales are approaching the pre-COVID trend.
 

 
3. The Swiss central bank continues to remove liquidity from the market.
 

 
4. Europe is facing a challenging winter.
 
Source: The Economist   Read full article  


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Asia – Pacific

1. Japan’s industrial production declined in October.
 

 
2. South Korea’s industrial production is tanking.
 

 
3. Singapore is facing a sharp drop in liquidity.
 

 
4. F/X reserves have decreased sharply across Asia.
 
Source: @Brad_Setser   Read full article  
 
5. New Zealand’s building permits declined by almost 11% in October.
 

 
6. Next, we have some updates on Australia.
 
The monthly CPI (which is an incomplete inflation index) seems to be peaking.
 

 
Private-sector credit growth has been propped up by business lending.
 

 
Is consumer confidence finally stabilizing (at very low levels)?
 
Source: @ANZ_Research  
 
Building approvals were soft in October.
 


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China

1. The official PMI report showed shrinking business activity this month.
 
Manufacturing:
 

 

 
Non-manufacturing:
 

 
Service-sector companies seem to be rapidly shedding jobs (which is adding to China’s social unrest).
 

 
Source: @WSJ   Read full article  

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2. New COVID cases continue to hit record highs.
 
Source: Our World in Data  
 
The Gavekal lockdown intensity index keeps rising.
 
Source: Gavekal Research  
 
Mobility continues to deteriorate.
 
Source: Gavekal Research  
 
Older citizens need booster shots.
 
Source: TS Lombard  

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3. Stocks and the renminbi are rebounding.
 

 

 
Bond yields continue to climb.
 

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4. China will be facing disinflationary pressures.
 
Source: BCA Research  
 
5. The market share of ASEAN countries in China’s imports has risen since 2018.
 
Source: Fitch Ratings  
 
6. Hong Kong’s exports are trending lower.
 


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Emerging Markets

1. Brazil’s job creation is falling behind last year’s levels.
 

 
2. Mexico’s unemployment rate remains near pre-COVID lows.
 

 
3. Chiles’s unemployment rate has been grinding higher.
 

 
4. South Africa’s unemployment rate is coming off the peak.
 

 
5. EM central banks are close to ending their tightening cycle …
 
Source: Barclays Research  
 
… and could soon reverse course.
 
Source: MRB Partners  


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Cryptocurrency

1. Crypto app adoption is highest in Turkey, Singapore, the US, and the UK. (2 charts)
 
Source: BIS  
 
Source: BIS  
 
More than 40% of crypto app users are young men, according to download data.
 
Source: BIS  
 
Most retail investors downloaded crypto apps when prices were higher than $20K.
 
Source: BIS  

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2. Bitcoin holdings are highly concentrated.
 
Source: Deutsche Bank Research  
 
3. Bitcoin’s correlation with stocks has fallen after the FTX implosion but has since picked up.
 
Source: Deutsche Bank Research  
 

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4. Wrapped Bitcoin (used on the Ethereum blockchain) is trading at a discount to BTC amid convertibility concerns.
 
Source: @business, @MuyaoShen   Read full article  


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Energy

1. The front end of the Brent curve is in contango, signaling softer demand.
 

 
2. This chart shows the EU’s crude oil imports, excluding Russia.
 
Source: Oxford Institute for Energy Studies  
 
Europe is still heavily dependent on diesel imports from Russia.
 
Source: @markets, @JWittels   Read full article  
 
European natural gas prices are rising again.
 

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3. Global energy investment requirements will grow sharply over the next few years, according to Goldman.
 
Source: Goldman Sachs  
 
4. This chart shows US utility-scale energy storage capacity.
 
Source: S&P Global Market Intelligence  


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Equities

1. The Nasdaq 100 continues to widen its underperformance, now lagging the S&P 500 by more than 15% over the past 12 months.
 

 
The Dow is outperforming (nearly flat vs. 12 months ago).
 

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2. The drawdown on the S&P 500’s four largest stocks is still severe.
 
Source: @bespokeinvest   Read full article  
 
 
3. Analysts keep downgrading the S&P 500 earnings estimates for 2023, …
 

 
… which are now back to the historical trend for this time of the year.
 
Source: BofA Global Research  
 
Here are the quarterly projections.
 
Source: Yardeni Research  

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4. Will the S&P 500 fade from resistance as the dollar tests support?
 

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5. The 2008 analog appears to be intact.
 
Source: @WillieDelwiche  
 
6. Structural bear markets (caused by financial bubbles) are deeper and last longer than cyclical bear markets (caused by rising rates or profit contractions).
 
Source: Lykeion   Read full article  
 
7. This has been the worst Fed hiking cycle for equities.
 
Source: Deutsche Bank Research  
 
8. Will the Fed’s quantitative tightening pull stock prices lower?
 
Source: @jessefelder, Morgan Stanley Research, @markets, @luwangnyc   Read full article  
 
9. The put/call ratio’s 50-day moving average is at multi-year highs.
 


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Alternatives

1. Here is a look at public PE firms’ fund performance in Q3.
 
Source: PitchBook  
 
2. Tech M&A valuations have declined massively from the 2021 peak.
 
Source: Quill Intelligence  
 
The top decile of late-stage startups by valuation have seen their price plummet in Q3.
 
Source: PitchBook  

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3. This chart shows VC decarbonization deals and valuations.
 
Source: PitchBook  


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Credit

1. The market is doubting whether Credit Suisse will survive.
 
Source: Reuters   Read full article  
 
CS credit default swap spread:
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
CoCo price:
 

 
Share price (collapsing):
 

 
Asset outflows:
 
Source: @Mhalftermeyer, @myriamBalez, @StevenArons, @business, @TheTerminal, Bloomberg Finance L.P.   Read full article  

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2. Banks’ risk-based capital ratio remains near median levels since the financial crisis.
 
Source: Federal Reserve   Read full article  
 
The ratio of banks’ common equity to tangible equity has decreased this year.
 
Source: Federal Reserve   Read full article  

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3. Bigger US banks have been more cautious.
 
Source: BCA Research  
 
4. Banks are trying to unload $42 billion of hung debt (which they already marked down sharply).
 
Source: @markets, @jillrshah, @claireruckin   Read full article  
 
5. Downgrades continue to signal wider high-yield spreads.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
6. The largest IG debt ETF (LQD) saw substantial outflows this week.
 
Source: @kgreifeld  


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Rates

1. The aggregate global yield curve has inverted.
 
Source: @markets, @GarfieldR1966   Read full article  
 
2. Hedge funds have been boosting their bets against Treasuries.
 


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Global Developments

1. Corporate price pressures have been moderating, …
 
Source: @financialtimes   Read full article  
 
… as supply bottlenecks ease.
 
Source: Oxford Economics  

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2. Growth indicators are pointing to an economic downturn ahead.
 
Source: BofA Global Research  
 
3. Charter pricing for container ships continues to moderate.
 
Source: Arcano Economics  
 
4. The asset management industry entered this year in a strong position.
 
Source: McKinsey & Company   Read full article  
 
Industry costs have been increasing, especially as a broader range of products requires skilled employees.
 
Source: McKinsey & Company   Read full article  
 
Portfolio-level solutions continue to gain traction.
 
Source: McKinsey & Company   Read full article  


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Food for Thought

1. Investment in space companies:
 
Source: Statista  
 
2. STEM jobs in the US:
 
Source: U.S. Census Bureau   Read full article  
 
3. Public-sector employees’ compensation growth:
 
Source: @jessefelder, @conorsen   Read full article  
 
4. The federal minimum wage:
 
Source: @EconomicPolicy  
 
5. People barred from voting due to a felony conviction:
 
Source: Statista  
 
6. Views on the legalization of same-sex marriage:
 
Source: Pew Research Center   Read full article  
 
7. Living in the “end times”:
 
Source: @conradhackett, Pew Research Center   Read full article  

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