The Daily Shot: 01-Dec-22
• The United States
• The United Kingdom
• The Eurozone
• Asia – Pacific
• China
• Emerging Markets
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought
The United States
1. Markets interpreted Chair Powell’s comments as being on the dovish side.
Source: CNBC Read full article
• Treasury yields tumbled.
• The decline in Treasury inflation-protected bond yields (real yields) was particularly sharp.
• Inflation expectations jumped.
• The terminal rate dipped below 5%. Here is the market-expected fed funds rate trajectory.
• Stocks surged.
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2. Stocks and bonds also got a boost from a softer-than-expected November ADP private payrolls report. Hiring appears to be slowing rapidly.
Source: CNBC Read full article
Job growth has been held up by demand from leisure and hospitality firms.
But other areas are showing some weakness.
• Professional and business services
• Manufacturing:
The Midwest region has been shedding jobs for five months in a row, according to ADP.
The ADP report also showed some moderation in wage growth.
Here is Morgan Stanley’s estimate for the official payrolls report on Friday.
• Payrolls:
Source: Morgan Stanley Research
• The unemployment rate:
Source: Morgan Stanley Research
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3. Job openings declined in October.
But the labor market imbalance remains acute: 1.7 job openings for every unemployed American.
Here are some trends from the job openings report.
– Hotels, restaurants, and bars:
– Professional and business services:
– Manufacturing:
– Local government:
• This chart shows job openings by firm size.
Source: Chart and data provided by Macrobond
• The quits rate is moderating as the Great Resignation slows.
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4. Layoffs are increasingly dominated by the tech industry.
Source: @LizAnnSonders, @ChallengerGray, @DataArbor
Tech recruiters are posting fewer jobs.
Source: @WSJ Read full article
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5. Chicago-area manufacturing activity is plunging, …
Source: MarketWatch Read full article
… signaling a significant slowdown at the national level.
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6. Pending home sales are down almost 37% from a year ago.
Mortgage applications remain soft.
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7. The Q3 GDP growth has been adjusted higher from the first report.
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8. The Fed’s Beige Book showed a more cloudy outlook for the economy. Here is the Beige Book sentiment index.
Source: @pearkes
There is less concern about supply stress.
Source: Oxford Economics
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The United Kingdom
1. Business investment in the UK has been soft relative to other economies.
Source: @financialtimes Read full article
2. It will take three years for the economy to get back to pre-COVID levels after the current downturn, according to Deutsche Bank.
Source: Deutsche Bank Research
3. Natural gas prices are rising again.
4. Hospital treatment delays continue to worsen.
Source: @financialtimes Read full article
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The Eurozone
1. As we saw yesterday, the headline euro-area CPI ticked lower in November. Here are some additional updates on inflation.
• France (not budging yet):
• Italy (a minuscule decline):
• The Netherlands (a large drop):
Here is the contribution of energy to the headline CPI forecast (from Goldman).
Source: Goldman Sachs
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2. French consumer spending on goods has been deteriorating.
3. Dutch retail sales have been holding up.
4. Spain’s tourism is back to pre-COVID levels.
Source: Arcano Economics
5. Sweden’s PMI data is signaling more manufacturing weakness in the Eurozone.
Source: Longview Economics
6. The Eurozone is heavily exposed to China’s economy.
Source: BCA Research
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Asia – Pacific
1. South Korea’s factory activity declined at a slower pace in November.
Source: S&P Global PMI
The trade deficit remains near record.
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2. Taiwan’s factory activity is shrinking rapidly.
Source: S&P Global PMI
3. New Zealand’s home price declines are accelerating.
4. The Aussie dollar is rebounding as risk appetite improves globally.
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China
1. S&P Global’s manufacturing index showed a less severe contraction than what we saw in the official PMI report.
Factory employment appears to be shrinking.
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2. The renminbi is making another rebound attempt.
3. Greater China’s direct investment in the US has faced new restrictions amid political tensions.
Source: Fitch Ratings
US overseas direct investment into greater China has slowed but is on track to partially recover this year. There are also signs of disinvestment from Hong Kong.
Source: Fitch Ratings
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Emerging Markets
1. ASEAN manufacturing growth is stalling. Here are some PMI trends.
• ASEAN:
Source: S&P Global PMI
• Indonesia:
Source: S&P Global PMI
• Malaysia (faster contraction):
Source: S&P Global PMI
• The Philippines (still growing):
Source: S&P Global PMI
• Thailand:
Source: S&P Global PMI
• Vietnam (contracting):
Source: S&P Global PMI
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2. Here are some updates on India.
• Industrial output is slowing.
• The PMI report shows robust growth in manufacturing activity.
Source: S&P Global PMI
• The Q3 GDP growth was roughly in line with expectations.
Here is the breakdown by sector.
Source: ING
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3. There is political trouble in South Africa.
Source: @financialtimes Read full article
The rand declined.
Separately, South Africa’s trade balance unexpectedly swung into deficit in October.
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4. Next, we have some updates on Russia.
• The PMI report shows robust factory activity.
Source: S&P Global PMI
• Here are some trends reported by the government.
– The unemployment rate:
– Wages:
– Retail sales:
– Cargo shipments:
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5. Brazil’s unemployment continues to decline.
Here is Brazil’s debt-to-GDP ratio.
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6. Finally, we have some performance data for November.
• Currencies:
• Bond yields:
• Equity ETFs:
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Commodities
1. Industrial commodities are waking up amid hopes for China’s reopening.
• Iron ore:
• Aluminum:
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2. This chart shows gold bar and coin investments globally.
Source: Best Brokers Read full article
3. Next, we have November performance data across key commodity markets.
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Energy
1. US oil inventories are back at multi-year lows (and this does not include SPR).
– Days of supply:
– Barrels:
Source: @EIAgov
– “Excess” inventories:
Source: Princeton Energy Advisors
• Robust crude exports are one reason for the drawdown in US oil stocks.
This chart shows US net imports.
Source: Princeton Energy Advisors
• Elevated refinery utilization has also been pulling oil inventories lower.
• Crude prices bounced from recent lows.
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2. US gasoline inventories are rebounding …
– Barrels:
Source: @EIAgov
– Days of supply:
… amid relatively soft demand.
3. Distillates inventories also appear to be recovering.
– Barrels:
Source: @EIAgov
– Days of supply:
Jet fuel inventories are still at multi-year lows.
Source: @EIAgov
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4. US propane inventories are near five-year highs, which should help with heating bills in some rural areas.
Source: @EIAgov
5. This chart shows OPEC crude oil production cut scenarios from Longview Economics.
Source: Longview Economics
How will these cuts impact the market balance next year?
Source: Longview Economics
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6. Who are the biggest LNG exporters?
Source: Statista
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Equities
1. Stocks surged in response to Chair Powell’s comments. Too much enthusiasm?
Growth stocks got a boost from a sharp decline in real yields.
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2. The S&P 500 closed above the 200-day moving average and is now at the downtrend resistance.
The S&P 500 is holding long-term support with improving breadth and momentum.
Source: Aazan Habib, Paradigm Capital
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3. The Fear & Greed index is nearing “extreme greed” territory.
Source: CNN Business
4. Most-shorted stocks are not participating in the latest rally.
5. The Reddit crowd isn’t chasing meme stocks these days.
6. Profit margins have room to fall, especially if there is a recession.
Further reading
7. The S&P 500’s valuation has compressed as the pace of monetary easing slowed.
Source: Longview Economics
Tech valuations have normalized. A pullback in interest rates could benefit tech, although Citi expects a challenging earnings backdrop to offset a modest re-rating toward higher multiples next year.
Source: Citi Private Bank
Unprofitable tech stocks have been crushed over the past year as investors favored quality leaders.
Source: Citi Private Bank
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8. Hedge funds are very underweight tech.
Source: Goldman Sachs; @carlquintanilla
9. The UBS directional risk model is signaling a drawdown ahead for stocks.
Source: UBS Research; @SamRo, h/t @dailychartbook
10. Next, we have the quarter-to-date performance attribution.
• S&P 500 (up 14% this quarter):
• S&P 600 (small caps):
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11. Finally, let’s take a look at the November performance metrics.
• Sectors:
• Equity factors:
• Thematic ETFs:
• Largest US tech firms:
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Credit
1. Here is the US nominal and real corporate credit growth.
Source: SOM Macro Strategies
2. Next, let’s take a look at potential fallen angels.
• By sector:
Source: S&P Global Ratings
• Over time:
Source: S&P Global Ratings
And here are potential rising stars by sector:
Source: S&P Global Ratings
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3. Finally, here is the performance by asset class in November.
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Rates
1. The market expects much sharper rate cuts from the Fed than the ECB after reaching the terminal rate.
Source: Nordea Markets
2. The implied volatility gap between rates and equities remains elevated.
Source: @themarketear
3. The Taylor Rule suggests the Fed needs to raise rates substantially higher to bring inflation down to 2%.
Source: SOM Macro Strategies
4. So far, the current Fed rate hike cycle is the fifth largest in magnitude and the fifth shortest in duration.
Source: Deutsche Bank Research
5. Alpine Macro expects markets to front-run a Fed pivot, triggering a reversal in yields. Is this the end of “monetary overkill?”
Source: Alpine Macro
6. Finally, we have some attribution data for Treasury yield changes.
• November:
• Year-to-date:
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Global Developments
1. Here is a look at inflation rates around the world.
Source: Alpine Macro
2. Global productivity has been declining.
Source: The Economist Read full article
3. Next, we have some performance data for the month of November.
• Bond yields:
• Currencies:
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Food for Thought
1. Employees represented by US rail unions:
Source: Morgan Stanley Research
2. Labor force participation among Americans in their early 20s:
Source: @WSJ Read full article
3. Enrollment in teacher preparation programs:
Source: USAFacts
4. Growth in nursing jobs:
Source: USAFacts
5. Youth sports participation:
Source: @axios Read full article
6. STDs among older men in England:
Source: Statista
7. Bacon consumption in Europe:
Source: @financialtimes, h/t Walter Read full article
• Largest importers and exporters of bacon:
Source: @OpenAxisHQ Further reading
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