The Daily Shot: 15-Dec-22
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Europe
• Japan
• Asia – Pacific
• China
• Emerging Markets
• Commodities
• Energy
• Equities
• Global Developments
• Food for Thought
The United States
1. The Fed raised rates by 50 bps, as expected, but Chair Powell struck a hawkish tone.
The FOMC now sees the terminal rate above 5% (dot plot below). The market, however, is well below that level. That’s surprising because Powell was quite clear about the Fed’s commitment to keep raising rates.
Source: @TheTerminal, Bloomberg Finance L.P.
This chart shows the evolution of the dot plot for 2023 and 2024.
Source: @TheTerminal, Bloomberg Finance L.P.
• The FOMC downgraded its projections for economic growth while boosting forecasts for unemployment and inflation. Are the unemployment forecasts too optimistic?
• According to Powell, the Fed still has plenty of tightening to do. The central bank is concerned about this scenario, …
Source: MUFG Securities
… especially with financial conditions easing in recent weeks.
2. The market reaction was muted.
• Equities:
• Treasury yields:
• The dollar:
• Futures are still pricing a much higher probability of a 25 bps rate hike in February than a 50 bps increase.
• Historically, there is a five-month lag between the peak CPI and the last Fed hike.
Source: Simon White, Bloomberg Markets Live Blog
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3. Next, we have some additional updates on inflation.
• Alternative measures of core inflation:
– Trimmed-mean CPI:
– Median CPI:
– Sticky CPI:
• The CPI diffusion index (share of components above 4%):
Source: @TheTerminal, Bloomberg Finance L.P.
• Food inflation (3-month change):
Source: @TheTerminal, Bloomberg Finance L.P.
• CPI component weights vs. the inflation rate for each component:
Source: Arcano Economics
• The import price index:
• Year-over-year inflation scenarios based on different monthly rate assumptions:
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
• Consumer inflation expectations:
Source: Arcano Economics
• The inflation swap curve (market-based inflation expectations):
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4. Now, let’s take a look at some updates on the housing market.
• Mortgage applications are running at 2014 levels.
Here is the rate lock count.
Source: AEI Housing Center
• Consumers now expect home price declines next year.
• The AEI Housing Center expects a 10-15% decline from the June peak.
Source: AEI Housing Center
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5. Below is the number of consecutive days of the 10yr/3m yield curve inversion.
Source: @bespokeinvest Read full article
Here is a look at historical time periods between yield curve inversions and recessions.
Source: Deutsche Bank Research
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6. The Earnest Analytics Spend Index points to weak retail sales in November.
Source: Earnest
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Canada
1. Manufacturing sales improved in October.
2. According to the BoC, “when inflation expectations are anchored, inflation can fall without a large rise in unemployment.”
Source: BIS Read full article
3. Desjardins is forecasting three quarters of GDP contraction next year.
Source: Desjardins
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The United Kingdom
1. The CPI report was softer than expected.
• This chart shows the contributions to the headline CPI.
Source: @TheTerminal, Bloomberg Finance L.P.
• Has inflation peaked? Here is the core CPI.
• Retail prices are still up 14% year-over-year.
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2. The 2-year yield has been moving lower.
3. The official index of home price appreciation showed an increase in October.
But that’s unlikely to last.
Source: Pantheon Macroeconomics
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The Eurozone
1. Industrial production declined in October.
Source: @financialtimes Read full article
Energy-sensitive sectors have been under pressure.
Source: Pantheon Macroeconomics
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2. Financial conditions remain tight.
Tight credit conditions will be a drag on economic growth.
Source: Longview Economics
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3. Core inflation is expected to remain elevated for some time.
Source: Deutsche Bank Research
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Europe
1. Sweden’s “core” inflation hit 8%, but that was below forecasts.
2. Switzerland’s producer and import inflation is moderating.
3. Poland’s exports hit a record high.
4. Europe’s semiconductor industry is lagging behind its global peers.
Source: @financialtimes Read full article
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Japan
1. The trade gap narrowed less than expected last month.
2. Foreigners bought a lot of Japanese stocks in recent days.
3. The Tankan survey points to softer employment conditions.
Source: Pantheon Macroeconomics
4. Warm weather reduced Japan’s power demand last month.
Source: @JoachimMoxon
5. Japan’s deleveraging cycle was far worse than other developed nations.
Source: BCA Research
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Asia – Pacific
1. South Korea’s export price inflation is moderating.
Separately, South Korea’s unemployment rate remains low.
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2. New Zealand’s Q3 GDP topped expectations, but this robust growth is not expected to last.
3. Next, we have some updates on Australia.
• The nation as a jobs machine. The labor market performance has been remarkable.
Source: @Swatisays, @markets Read full article
– Job gains (well above forecasts):
– The unemployment rate:
– Labor force participation:
– The employment-to-population ratio:
Source: @ANZ_Research
• Bond yields jumped in response to the jobs report.
• Inflation expectations are easing.
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China
1. Lockdowns took a toll on economic activity last month.
• Industrial production:
• Retail sales:
Source: Capital Economics
2. The property market remains a drag on growth.
• Fixed investment:
Source: Capital Economics
Property investment is now well below 2020 levels.
• Residential sales have deteriorated.
• November was the 15th month of consecutive declines in new home prices.
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3. COVID is spreading fast.
Source: John Liu, @yujingliu_, @business Read full article
Households are increasingly concerned about COVID.
Source: Morning Consult Read full article
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Emerging Markets
1. India’s wholesale price index surprised to the downside.
Separately, Indian equities have significantly outperformed the EM benchmark and appear overvalued.
Source: Alpine Macro
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2. Vietnamese equities are trading at their lowest valuation levels in recent years, roughly on par with EM and frontier benchmarks.
Source: Alpine Macro
3. South Africa’s core inflation is pausing at 5%.
Retail sales edged higher in October.
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4. Brazil’s economic activity is still on the pre-COVID trend.
5. Argentina’s capacity utilization took a hit in October.
6. EM sentiment is starting to improve, according to Alpine Macro, which could signal a turnaround in equities.
Source: Alpine Macro
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Commodities
1. Global copper inventories continue to trend lower.
h/t Sungwoo Park
2. Fund managers view gold as undervalued.
Source: BofA Global Research
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Energy
1. US oil inventories improved last week.
• Days of supply:
• Barrels:
2. Refinery runs declined sharply.
3. US gasoline demand remains soft.
• Gasoline inventories are rising.
• Days of supply:
• Barrels:
Source: @EIAgov
• Gasoline production has been moving lower.
4. Distillates inventories are back at 2017 levels.
Distillates production is running well above last year’s levels.
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Equities
1. Stock futures are lower as the market digests the Fed’s hawkish stance.
2. The recession scenario could bring further pain.
Source: Simon White, Bloomberg Markets Live Blog
3. Fund managers’ positioning in stocks vs. bonds is very bearish.
Source: BofA Global Research
4. Short-covering has remained muted in the current rally.
Here are the most shorted tech stocks.
But hedge funds’ preferred short positions have outperformed lately.
Source: @financialtimes Read full article
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5. Dividend growers continue to outperform.
6. Next, we have some sector updates.
• Changes in short interest:
Source: Deutsche Bank Research
• Stock indices outside of the US tilt toward value.
Source: Evercore ISI Research
• Pricing power by sector:
Source: BCA Research
• Secular rotation from tech and healthcare to energy and financials:
Source: BofA Global Research
• Are airlines facing a drop in demand?
Further reading
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7. The front end of the vol curve remains elevated after the FOMC day.
Source: @TheTerminal, Bloomberg Finance L.P.
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Global Developments
1. Currency markets’ implied volatility is dropping quickly, even as rates vol remains elevated.
Source: @themarketear
2. This chart shows year-to-date returns by asset class.
Source: Oxford Economics
3. Central banks’ massive tightening is yet to fully make its way through the global economy.
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
4. Will central banks cut rates next year? Here are the survey results from Deutsche Bank.
Source: Deutsche Bank Research
5. The decline in oil prices could result in lower global inflation.
Source: @ANZ_Research
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Food for Thought
1. US office visits:
Source: Placer.ai
Office vacancy rates:
Source: @OpenAxisHQ
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2. US lone shooter incidents:
Source: Statista
3. Year-over-year changes in the number of Americans giving to charities:
Source: @WSJ Read full article
4. US internet-connected video devices:
Source: S&P Global Market Intelligence
5. Biggest sources of electricity production in the US and Canada, by state/province:
Source: Energy Minute Read full article
6. The US labor force by educational attainment:
Source: @WSJ Read full article
7. Domestic or imported beer?
Source: Statista
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