The Daily Shot: 12-Dec-22
• The United States
• The United Kingdom
• The Eurozone
• Europe
• Japan
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought
The United States
1. Let’s begin with some updates on inflation.
• The November PPI report surprised to the upside, with the core PPI climbing by 0.4% last month.
On a year-over-year basis, the PPI growth is trending lower.
The “trade services” PPI continues to moderate, signaling lower corporate margins.
• What should we expect from the CPI report this week? Nomura estimates a similar monthly gain to what we saw in October, once again driven by housing.
• Rent inflation is expected to moderate next year (2 charts).
Source: Vanda Research
Source: Alpine Macro
• Here is the price ratio of core goods to core services CPI.
Source: BofA Global Research
• Inflation typically peaks during recessions and decelerates afterward, lagging the GDP.
Source: Alpine Macro
• Short-term inflation expectations eased this month, …
… as gasoline prices decline. A gallon of unleaded is now cheaper than it was 12 months ago.
• The market expects inflation to ease rapidly, with longer-term inflation expectations remaining at manageable levels (2 charts).
Source: Nordea Markets
Source: Deutsche Bank Research
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2. Consumer sentiment benefitted from lower gasoline prices this month, with the U. Michigan index topping forecasts.
• The Penta-CivicScience Economic Sentiment Index also showed an improvement.
Source: @CivicScience Read full article
• Households expect a relatively robust increase in nominal income (higher wage expectations) …
… as they take advantage of tight labor markets.
Source: Oxford Economics
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3. The market expects substantial Fed rate cuts over the 12-month period starting next July. Too much enthusiasm, perhaps?
Source: @business, @ctorresreporter, @mccormickliz Read full article
Here is what happened in previous recessions.
Source: @MacroAlf
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4. BofA expects a recession next year as demand crumbles.
Source: BofA Global Research
It’s worth noting that households spent only about a third of their pandemic-era excess savings.
Source: BCA Research
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The United Kingdom
1. Electricity prices surged last week as temperatures plunge.
Source: The Independent Read full article
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2. Home prices continue to ease.
3. The market is pricing in a 50 bps BoE rate hike this week and another one in February.
Source: @ANZ_Research
4. Ambulance response times in England have risen substantially.
Source: @opinion Read full article
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The Eurozone
1. Speculative accounts continue to bet on further gains in the euro.
2. The market sees a 50 bps ECB rate hike this week.
Source: @ANZ_Research
3. Which German manufacturing sectors are most affected by the energy crisis?
Source: @financialtimes Read full article
Separately, mortgage lending has declined sharply in Germany.
Source: @BarkowConsult Read full article
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4. Nuclear power generation bounced from the lows in France but remains well below the typical levels for this time of the year.
Source: @ANZ_Research
Source: @Gavekal
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Europe
1. Norway’s inflation appears to have finally peaked.
2. This chart shows R&D spending across the EU.
Source: Eurostat Read full article
3. Here is the EU’s trade in green energy products.
Source: Eurostat Read full article
4. The map below shows battery plants across Europe.
Source: @financialtimes Read full article
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Japan
1. The BoJ is sticking with its yield control policy (distorting the yield curve).
Source: Reuters Read full article
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2. The PPI surprised to the upside.
3. The yen has deviated far from fair value.
Source: BCA Research
4. Japan’s longer-term rate expectations have decoupled from the US.
Source: Goldman Sachs
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China
1. Beijing has pulled back on COVID testing, resulting in lower reported cases.
Source: @financialtimes Read full article
Vaccinations have picked up.
Source: TS Lombard
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2. Households remain cautious.
Source: BofA Global Research
3. China’s shrinking labor force will increasingly become a drag on GDP growth in the decades ahead.
Source: Goldman Sachs
4. China’s ranking in the Global Innovation Index significantly improved over the past decade.
Source: Fitch Ratings
Policy initiatives such as tax deductions have incentivized research and development spending.
Source: Fitch Ratings
Corporate research and development spending has outpaced GDP growth in recent years.
Source: Fitch Ratings
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Emerging Markets
1. Brazil’s inflation continues to moderate.
2. This chart shows EM growth in local- and hard-currency debt outstanding.
Source: @WSJ Read full article
3. EM portfolio flows jumped last month.
Source: IIF
4. Next, we have some performance data from last week.
• Currencies:
• Bond yields:
• Equity ETFs:
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Cryptocurrency
1. Bitcoin is struggling to hold above $17k.
2. Here is a look at the crypto market cap versus the S&P 500’s.
Source: Oxford Economics
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Commodities
1. Speculators started to cover their net short gold positions.
Source: @ANZ_Research
2. Gold miners have experienced rising production costs, …
Source: PGM Global
… with profit margins rolling over.
Source: PGM Global
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3. Here is last week’s performance across key commodity markets.
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Energy
1. The front end of the Brent curve remains in contango.
2. Trend followers are shorting crude oil.
Source: @WSJ Read full article
3. Will US crude oil production hit a record high next year?
Source: @jeffsparshott, @WSJ
4. Here is a look at growth in electricity capacity, including projections.
Source: BofA Global Research
And this map shows the cheapest source of new electricity generation capacity.
Source: @BloombergNEF, @TheTerminal, Bloomberg Finance L.P. Read full article
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Equities
1. The market expects a volatile week. Here is the S&P 500 vol term structure (now vs. a week ago).
Source: @TheTerminal, Bloomberg Finance L.P.
The CPI release days saw sharp market swings in recent months.
Source: @markets, @JessicaMenton, @lena_popina, @Matt_Turnerr Read full article
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2. Last week’s stock/bond divergence is signaling recession concerns.
Source: Vanda Research
3. The Russell 2000 small-cap index/S&P 500 price ratio is back below its 200-day moving average.
Source: Aazan Habib, Paradigm Capital
4. Dividend stocks typically outperform during inflationary periods.
Source: Newton Investment Management Read full article
High dividend yield stocks are trading at a discount versus low dividend yield stocks.
Source: Newton Investment Management Read full article
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5. Fund flows showed no signs of capitulation in this year’s selloff.
Source: BofA Global Research
6. Retail investors have pulled back on stock purchases in recent weeks.
Source: Vanda Research
• Retail fund flows have turned sharply negative.
Source: Goldman Sachs; @carlquintanilla
• Retail investor positioning …
Source: TD Ameritrade
… and sentiment remain depressed.
Source: Deutsche Bank Research
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7. Stocks shunned by mutual funds have been outperforming.
8. Finally, we have last week’s performance data.
• Sectors:
• Equity factors:
• Thematic ETFs:
• Largest US tech firms:
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Credit
1. Leveraged finance issuance picked up in November. This chart also shows the year-to-date use of proceeds.
Source: Deutsche Bank Research
2. Next, we have leveraged loan downgrades and upgrades.
Source: @lcdnews Read full article
3. Investors are underweight in IG credit.
Source: BofA Global Research
4. Here is last week’s performance by asset class.
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Rates
1. Speculative bets against Treasury futures are hitting extreme levels.
Source: Deutsche Bank Research
2. The 10-year Treasury yield is closely correlated with the yield on the eighth eurodollar contract. Alpine Macro expects lower yields as the market has fully discounted the tightening cycle.
Source: Alpine Macro
3. FHLB notes have become an attractive alternative to T-bills.
Source: PGM Global
4. Longer-dated swap spreads have been inversely correlated to Treasury yields.
Source: Goldman Sachs
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Global Developments
1. DM central banks are moving rates into restrictive territory.
Source: Scotiabank Economics
2. 2023 could be the first year of the 21st century without a major election in any G7 country.
Source: Deutsche Bank Research
3. Here are the top destinations for foreign direct investment.
Source: IMF Read full article
4. Global potential GDP expansion will continue to soften as population growth slows.
Source: Goldman Sachs
5. Next, we have some performance data from last week.
• Bond yields:
• Trade-weighted currency indices:
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Food for Thought
1. Stolen packages:
Source: ValuePenguin Read full article
2. Stress during the holiday season:
Source: @CivicScience
3. Toyota Prius sales:
Source: @chartrdaily
4. Top wealth shares in the United States:
Source: @gabriel_zucman
6. US debt scenarios:
Source: Committee for a Responsible Federal Budget
6. Share of US 25-34-year-olds living with parents vs. living alone:
Source: Calculated Risk
7. “Do not call” complaints:
Source: @semafor Read full article
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