The Daily Shot: 16-Dec-22
• The Eurozone
• The United Kingdom
• Europe
• The United States
• Japan
• Asia – Pacific
• China
• Emerging Markets
• Energy
• Equities
• Rates
• Food for Thought
The Eurozone
1. The ECB hiked rates by 50 bps and struck a hawkish tone.
Source: CNBC Read full article
The hawks on the Governing Council wanted to go with 75 bps, but a compromise was struck to deliver hawkish guidance on rates and quantitative tightening.
Source: @WeberAlexander, @jrandow, @business Read full article
The market now sees the terminal rate above 3%. Here is the pricing for May.
Below is Wells Fargo’s forecast.
Source: Wells Fargo Securities
2. The euro surged on the ECB announcement but then retreated amid global risk-off sentiment.
Short-term bond yields jumped, …
… and the Bund curve inverted further, signaling recession.
Italian yields spiked as the ECB focuses on balance sheet reduction.
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3. Germany’s wholesale prices are moderating.
4. French business confidence is holding up relatively well.
However, the December PMI report showed further contraction in business activity.
Source: S&P Global PMI
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5. Germany’s business activity declined at a slower pace this month, according to the flash PMI report. More on this next week.
Source: S&P Global PMI
6. Car sales improved in November but remain below 2020 levels.
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The United Kingdom
1. The BoE delivered a dovish 50 bps hike.
Source: ING Read full article
The MPC vote was more dovish than expected. According to Dan Hanson of Bloomberg Economics, “The vote split was 1-6-0-2 with Catherine Mann preferring a 75-bps hike. Swati Dhingra and Silvana Tenreyro favored no increase.” Here is the MPC’s voting history from Pantheon Macroeconomics.
Source: Pantheon Macroeconomics
Below is Wells Fargo’s forecast for the BoE rate.
Source: Wells Fargo Securities
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2. The pound tumbled (2 charts).
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3. UK consumer confidence bounced from the lows this month.
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Europe
1. Three other European central banks raised rates on Thursday.
• Norway:
Source: Reuters Read full article
• Denmark:
Source: Nordea Markets
Source: Reuters Read full article
• Switzerland:
Source: Tradingeconomics.com
Source: Reuters Read full article
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2. Sweden’s unemployment rate remains very low.
3. Next, we have some data on corruption concerns in the EU.
Source: Statista
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The United States
1. Retail sales declined last month.
Vehicle sales dropped sharply.
However, when adjusting for inflation, retail sales held steady or improved.
• Total sales:
• “Core” retail sales:
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2. Industrial production and manufacturing output also declined in November.
These charts show the manufacturing production level and capacity utilization.
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3. Slower retail sales and industrial production signal softer economic growth.
Source: @WSJ Read full article
The Q4 GDPNow model estimate declined to 2.8% (annualized). Forecasters see growth at around 1%.
Source: @AtlantaFed Read full article
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4. Regional manufacturing reports from the NY Fed and the Philly Fed show soft factory activity in December.
• Philly Fed:
– Orders and shipments:
– Employment and workers’ hours:
– Price indicators:
The index of expected orders bounced from the lows this month.
• NY Fed:
– Employee hours:
– Price indices:
The index of expected business conditions showed an improvement (from extreme lows).
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5. The job market remains tight, with unemployment claims hitting multi-year lows for this time of the year. Initial claims were well below pre-COVID levels last week.
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6. Goldman sees the Fed hiking another 75 bps next year.
Source: Goldman Sachs; @MikeZaccardi
The market is now pricing about 130 bps of rate cuts in the second half of next year and the first half of 2024.
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Japan
1. Manufacturing contraction worsened in December.
But service firms’ activity continues to expand.
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2. Land prices have started to rise.
Source: BCA Research
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Asia – Pacific
1. Taiwan’s central bank hiked rates again.
Source: ING Read full article
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2. Singapore’s exports slowed in November.
3. Australia’s business activity softened further.
• Manufacturing:
• Services:
Australian household spending shows more caution.
Source: @ANZ_Research
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China
1. The spreading pandemic is pressuring mobility.
Source: Capital Economics
2. The housing market continues to struggle.
Source: @PkZweifel
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Emerging Markets
1. Banxico followed the Fed with a 50 bps rate hike.
2. Argentina’s inflation breached 90% last month.
3. Brazil’s market-based inflation expectations are rising, even as inflation eases.
Source: Reuters Read full article
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4. Colombia’s economic activity is losing momentum.
5. Economists downgraded India’s FY 2023 GDP, but the nation’s growth is expected to outpace most other countries.
India’s trade gap eased in November.
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6. The Philippine central bank hiked rates on Thursday.
Source: @SiegfridAlegado, @iamditaslopez, @dreocalonzo, @business Read full article
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7. There is more EM policy tightening in 2023, according to Goldman.
Source: @acemaxx, @GoldmanSachs
Which central banks are behind the curve? Here are the rankings from Oxford Economics.
Source: Oxford Economics
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Energy
1. US gross crude oil exports remain near record levels.
2. Tanker rates are still elevated.
Source: @EIAgov Read full article
3. US natural gas in storage is holding at the 5-year average. But there will be a sharp drawdown amid frigid weather over the next few days.
Source: @EIAgov
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Equities
1. Stocks tumbled on Thursday in response to the hawkish Fed. The S&P 500 is at the low end of its recent trading range.
2. $4 trillion worth of options contracts expire today.
Source: Goldman Sachs, @luwangnyc, @markets Read full article
3. Investment managers have been increasing their exposure to stocks.
Source: NAAIM
4. This chart shows the ETF market share over time.
Source: @EricBalchunas
5. Next, we have some sector performance data (over the past five business days).
• Banks:
• Housing:
• REITs:
• Retail:
• Consumer Discretionary:
• Communication Services:
• Semiconductors:
• Utilities:
• Energy:
• Metals & Mining:
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6. Finally, we have some equity factor performance charts.
• Small caps:
• Small-cap growth vs. value (value is underperforming):
• Low-vol:
• High vs. low operating leverage:
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Rates
1. The 10-year Treasury note’s term premium is correlated with changes in the Fed’s balance sheet.
Source: Longview Economics
The term premium and TED spreads have also been somewhat correlated.
Source: Longview Economics
Higher bond volatility points to a higher term premium.
Source: Longview Economics
2. But Treasury implied vol declined this week.
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Food for Thought
1. US labor force participation gap:
Source: S&P Global Ratings
2. Relative contributions to frontier technologies:
Source: CEP Read full article
3. Popularity of APIs in financial services:
Source: @FactSet Read full article
4. Average US car loan size:
5. Alcohol-related death rates in Europe:
Source: @conradhackett Read full article
6. The global warming trend:
Source: Statista
7. Views on marijuana legalization:
Source: Pew Research Center Read full article
8. Happy Hanukkah!
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Have a great weekend!
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