Posted on by The Daily Shot Editor: Lev Borodovsky

Real household net worth is back on the pre-COVID trend

The Daily Shot: 13-Dec-22
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Japan
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought

 

The United States

1. Credit growth has been robust. But banks appear to be curbing lending amid recession concerns.
 
Source: Oxford Economics  
 
2. When will this recession start? The next chart is from a survey by Deutsche Bank.
 
Source: Deutsche Bank Research  
 
• Nationwide’s economic projections show a GDP decline in 2023 (for the full year), which is well below the FOMC’s projections from September. The FOMC is likely to downgrade its forecast this week.
 
Source: Nationwide  
 
• With the recession looming, the market expects deeper rate cuts after reaching the terminal rate.
 
Source: BlackRock Investment Institute  

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3. Business investment is expected to slow rapidly.
 
Source: Variant Perception  
 
4. The budget deficit is now following last year’s trajectory.
 

 
Interest payments continue to climb.
 
Source: Oxford Economics  

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5. Real household net worth (blue line) is back on the pre-COVID trend.
 

 
6. Declining population growth limits US economic potential.
 
Source: Goldman Sachs  

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Canada

1. The BoC is more likely to surprise the markets than the Fed.
 
Source: Desjardins  
 
2. USD/CAD overnight implied vol surged ahead of the US CPI and FOMC.
 

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The United Kingdom

1. The economy grew in October, …
 

 
… driven by services.
 
Source: ONS   Read full article  
 
• Manufacturing production improved, but it was offset by mining, resulting in flat industrial production.
 

 
• Services output also increased.
 

 
• Construction output continues to show strength.
 

 
• The trade deficit narrowed.
 

 
2. Economists continue to forecasts an ugly 2023 for the UK. Welcome to stagflation.
 

 
3. Last month’s growth in payrolls topped expectations. More on this tomorrow.

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The Eurozone

1. Where is the terminal rate? Below is a forecast from Pantheon Macroeconomics compared to the consensus estimate.
 
Source: Pantheon Macroeconomics  
 
And this chart shows Deutsche Bank’s survey results.
 
Source: Deutsche Bank Research  

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2. Price and demand expectations have diverged (stagflationary signal).
 
Source: Oxford Economics  
 
3. Financial conditions remain depressed.
 
Source: Deutsche Bank Research  
 
4. EUR/USD overnight implied vol jumped ahead of US CPI, the FOMC, and the ECB.
 

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Japan

1. Machine tool orders are rolling over.
 

 
2. The BoJ has consistently upgraded its inflation and growth forecasts since April.
 
Source: BCA Research  

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Asia – Pacific

1. New Zealand’s housing sales are down 36% versus 12 months ago, …
 

 
… as home prices tumble.
 
Source: @ANZ_Research  

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2. Next, we have some updates on Australia.
 
• Consumer confidence (bottomed?):
 

 
• Households’ spending intentions:
 

 
• Business confidence (worsening):
 

 
• Exports (downside risk):
 
Source: Alpine Macro  

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China

1. Loan growth was weaker than expected, …
 

 
… as households remain cautious (2 charts).
 
Source: Pantheon Macroeconomics  
 
Source: TS Lombard  
 
• Total credit growth was also below forecasts.
 

 
Source: TS Lombard  
 
• The broad money supply growth accelerated.
 

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2. USD-denominated high-yield bonds are rebounding as Beijing promises more support.
 

 
3. Hong Kong stocks rose further as the city lifted COVID-19 curbs on arrivals.
 
Source: South China Morning Post   Read full article  
 
The Hang Seng Index returned above support, albeit still below its long-term uptrend.
 

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Emerging Markets

1. India’s inflation surprised to the downside.
 

 
Industrial production weakened in October.
 

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2. Philippine exports hit a record high.
 

 
3. Mexico’s manufacturing output has been holding up.
 

 
4. EM reserves declined in recent months.
 
Source: IIF  
 
5. Which economies are most vulnerable to US dollar strength?
 
Source: Oxford Economics  

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Cryptocurrency

1. FTX’s founder was arrested Sunday night in the Bahamas.
 
Source: @WSJ   Read full article  
 
2. Bitcoin’s market cap relative to the total crypto market cap (dominance ratio) is approaching its 200-day moving average. A break above resistance could signal risk-off conditions.
 

 
3. Bitcoin, ether, and tether still dominate the total crypto market cap.
 
Source: Oxford Economics  
 
4. The crypto Fear & Greed Index has shifted between “extreme fear” and “fear” over the past few months.
 
Source: Alternative.me  
 
5. Several altcoins have lost momentum relative to bitcoin, with widespread technical breakdowns. The chart below plots weekly relative strength and momentum across altcoins versus bitcoin.
 
Source: @StocktonKatie  
 
6. The FTX-induced crash in SOL (Solana’s token) has been remarkable – with no signs of recovery. There are now concerns about the Solana network stability.
 

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Energy

Oil ETFs are seeing inflows (3 charts).
 

 
Source: @alexlongley1, @markets   Read full article  
 

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Equities

1. The bottom-up S&P 500 price target for the end of 2013 is about 13% above current levels.
 

 
Here is the track record of these forecasts.
 
Source: @FactSet   Read full article  
 
And this chart shows bottom-up price targets by sector.
 
Source: @FactSet   Read full article  

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2. Market sentiment remains cautious.
 
• Single-stock call volume:
 
Source: Deutsche Bank Research  
 
• Premiums paid for puts vs. calls:
 
Source: @sentimentrader  
 
• The put/call ratio 50-day moving average (highest since the GFC):
 

 
• Goldman’s sentiment indicator:
 
Source: Goldman Sachs; @WallStJesus  
 
However, BofA’s fund manager survey shows cash levels peaking …
 
Source: BofA Global Research  
 
… and risk appetite starting to recover.
 
Source: BofA Global Research  

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3. Are growth stocks oversold?
 
Source: BCA Research  
 
4. There isn’t much interest in shorting SPY.
 
Source: JP Morgan Research; @themarketear  
 
5. Here is the S&P 500 performance in Fed tightening cycles.
 
Source: Tier1 Alpha  
 
6. This chart shows non-financial equity issuance trends since 1998.
 
Source: Yardeni Research  
 
7. Equity market volatility has been more extreme over the past three years.
 
Source: BCA Research  
 
8. VIX fell into a death cross.
 
Source: @JessicaMenton, @markets   Read full article  
 

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Credit

1. US bank-held business loans are back on the pre-COVID trend.
 
Source: Arcano Economics  
 
But banks are tightening lending standards.
 
Source: Longview Economics  

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2. What are the drivers of recent rating downgrades?
 
Source: S&P Global Ratings  
 
3. When do spreads peak in a recession?
 
Source: Capital Economics  

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Rates

1. The 10-year/3-month Treasury yield curve tends to trough between zero and -100 basis points in the lead-up to recessions.
 
Source: BCA Research  
 
2. Fund managers are now overweight bonds.
 
Source: BofA Global Research  
 
Source: BofA Global Research  

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3. The iShares TIPS Bond ETF (TIP) is starting to underperform the iShares 7-10 year Treasury Bond ETF (IEF). A breakdown in the TIP/IEF price ratio could point to a falling inflation environment.
 
Source: Aazan Habib, Paradigm Capital  
 
4. SOFR has climbed above the Fed’s RRP rate.
 
Source: Morgan Stanley Research  
 
5. LIBOR bond issuance stopped at the end of 2021. Overnight risk-free or nearly risk-free rates (RFRs such as SOFR) have replaced LIBOR.
 
Source: BIS   Read full article  

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Global Developments

1. Below are some projections for central bank balance sheets from OECD.
 
Source: OECD   Read full article  
 
2. This has been the most coordinated global hiking cycle in history. Will we see rate cuts soon?
 
Source: Deutsche Bank Research  
 
3. The decline in bond yields has occurred amid narrower credit spreads.
 
Source: MRB Partners  
 
4. Real wages are down this year as inflation takes a toll.
 
Source: ILO   Read full article  

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Food for Thought

1. US household size over time:
 
Source: Calculated Risk  
 
2. The cost of student loan payment pause:
 
Source: Committee for a Responsible Federal Budget  
 
3. Applying for student loan forgiveness:
 
Source: Morning Consult   Read full article  
 
4. Major military exercises:
 
Source: Reuters   Read full article  
 
5. US daily COVID hospitalizations by age:
 
Source: The New York Times   Read full article  
 
6. Climate-related litigation:
 
Source: Barclays Research  
 
7. Blog posts on Twitter? No thanks …
 
Source: @chartrdaily  
 
8. Internal containment fusion reaction:
 
Source: @financialtimes   Read full article  

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