Posted on by The Daily Shot Editor: Lev Borodovsky

US inflation curve continues to flatten

The Daily Shot: 20-Dec-22
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Japan
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Global Developments
• Food for Thought

 

The United States

1. Let’s begin with the housing market.
 
• Homebuilder sentiment came close to the COVID-shock lows this month.
 

 
But sales expectations edged higher.
 

 
• US homeowners have relatively low exposure to interest rates.
 
Source: KKR Global Institute  
 
• Housing inventories are still tight.
 
Source: realtor.com  
 
• It takes a bit longer to sell a house than last year, but the number of days on the market depends on local inventories.
 
Source: realtor.com  
 
• Underwater mortgages will be less likely in the current housing downturn.
 
Source: @WSJ   Read full article  
 
• Housing market pain was visible in last month’s retail sales.
 
Source: Wells Fargo Securities  

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2. Next, we have some updates on inflation.
 
• Rent inflation continues to moderate.
 
Source: @axios   Read full article  
 
• Wage growth is slowing.
 
Source: Hiring Lab   Read full article  
 
• This chart shows the NY Fed’s UIG inflation measures.
 
Source: Federal Reserve Bank of New York  
 
• Slower growth in the broad money supply could signal softer inflation ahead.
 
Source: Chart and data provided by Macrobond  
 
• Supply-driven components of inflation will be in negative territory in 2023 (on a year-over-year basis), according to a model from Alpine Macro.
 
Source: Alpine Macro  
 
• Retail gasoline prices are 5% below the levels we saw 12 months ago.
 

 
• Here is the Citi Inflation Surprise Index.
 

 
• The US inflation swap curve (market-based inflation expectations) continues to flatten.
 

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3. What signals will we get from the yield curve as the economy enters a recession?
 
Source: Simon White, Bloomberg Markets Live Blog  
 
4. This chart shows the drivers of slower growth in 2023, according to KKR.
 
Source: KKR Global Institute  
 
5. Funded ratios for private defined benefit pension funds have improved markedly in the pandemic era.
 
Source: JP Morgan Research; III Capital Management  

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Canada

1. Consumer confidence edged higher again last week.
 

 
2. Home prices have been down for five months in a row.
 

 
3. Retail sales kept improving last month, according to Scotiabank.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
4. Producer price inflation is off the highs but remains elevated.
 

 
5. Canada has more fiscal room than other advanced economies.
 
Source: Oxford Economics  
 
6. Finally, we have some data on Canada’s firearm-related violent crime.
 
Source: Statistics Canada   Read full article  

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The United Kingdom

1. The CBI industrial orders report was a bit better than expected.
 

 
Price gains remain elevated.
 

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2. Gilt yields have been rising.
 
Source: Tradeweb   
 
3. Economists continue to downgrade UK’s labor force participation forecasts.
 
Source: ONS   Read full article  
 
4. Flu-related hospitalizations have exceeded COVID.
 
Source: Statista  

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The Eurozone

1. Let’s begin with Germany.
• The Ifo expectations index improved again this month.
 

 
Source: ifo Institute  
 
• Uncertainty remains elevated.
 
Source: Deutsche Bank Research  
 
• The PMI data continues to signal a recession.
 
Source: Pantheon Macroeconomics  
 
Here is a forecast from Deutsche Bank.
 
Source: Deutsche Bank Research  
 
• Germany has a tough time assimilating migrants into the labor force.
 
Source: @WSJ   Read full article  

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2. Bund supply is expected to increase next year.
 
Source: Goldman Sachs  
 
• Last week saw the fourth-largest absolute spread change between 10-year Treasuries and Bunds. Deutsche Bank expects the spread to compress as the Fed is closer to a pivot than the ECB.
 
Source: Deutsche Bank Research  

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3. The euro-area trade deficit narrowed as energy prices fell.
 

 
4. How exposed are euro-area homeowners to higher rates?
 
Source: Wells Fargo Securities  
 
5. Construction output remained elevated in October.
 

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Japan

The BoJ shocked the markets by widening the 10-year JGB yield band to 50 bps from 25 bps. This is a form of monetary tightening.
 
Source: Reuters   Read full article  
 
• The 10yr JGB yield jumped by most in nearly two decades.
 

 
• Here is the yield curve.
 

 
• The yen rallied (chart shows USD falling vs. JPY).
 

 
• Stocks fell in Japan and globally.
 

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Asia – Pacific

1. Australian yields jumped with JGBs.
 

 
2. Australia faces housing shortages (2 charts).
 
Source: Reuters   Read full article  
 
Source: Reuters   Read full article  

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3. New Zealand’s consumer and business confidence has collapsed.
 

 

 
Source: @tracywwithers, @markets   Read full article  

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China

1. China’s exports have been revised lower.
 
Source: Arcano Economics  
 
2. The World Economics SMI report showed an accelerating contraction in China’s business activity this month as confidence slumps.
 
Source: World Economics  
 
3. China lags behind other Asian countries in COVID booster shots.
 
Source: Pictet Wealth Management  

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Emerging Markets

1. ANZ Research expects Asia ex-China growth differentials to rise, led by India and ASEAN countries. (2 charts)
 
Source: @ANZ_Research  
 
Source: @ANZ_Research  
 
Interest rate differentials in most Asian countries are at their narrowest level in more than a decade.
 
Source: @ANZ_Research  

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2. Below are Wells Fargo’s forecasts for EM policy rates.
 
Source: Wells Fargo Securities  
 
3. The ruble hit the lowest level since May.
 

 
4. Argentina’s exports remain at multi-year highs.
 

 
5. EM local debt spreads are narrowing.
 
Source: BlackRock Investment Institute  
 
6. EM equities have underperformed year-to-date.
 
Source: Oxford Economics  

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Cryptocurrency

1. Bitcoin could not sustain the move above $17k.
 

 
But much will depend on the stock market.
 

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2. Crypto funds saw outflows last year, driven by bitcoin products (2 charts).
 
Source: CoinShares   Read full article  
 
Source: CoinShares   Read full article  

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3. The BTC/ETH price ratio is holding long-term support. A breakout could signal risk-off conditions.
 
Source: @StocktonKatie  
 
4. Binance’s net outflows hit around $6 billion last week.
 
Source: Reuters   Read full article  

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Commodities

1. The slowdown in global demand points to weaker commodity prices.
 
Source: MRB Partners  
 
2. What drove commodity outflows this year?
 
Source: Goldman Sachs  
 
According to Goldman, capital is expected to return to commodity funds next year.
 
Source: Goldman Sachs  

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Energy

1. European natural gas prices declined sharply in recent days amid ample supplies.
 

 
2. This infographic shows petroleum products made from a barrel of crude.
 
Source: @EIAgov   Read full article  

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Equities

1. Earnings expectations are not fully pricing in the recession risk.
 
Source: BlackRock Investment Institute  
 
Here is Alpine Macro’s model estimate for S&P 500 earnings per share.
 
Source: Alpine Macro  

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2. There is downside risk to the global stock/bond ratio as economic growth weakens.
 
Source: MRB Partners  
 
3. Value funds saw substantial inflows last week.
 
Source: BofA Global Research  
 
4. Margin debt has declined markedly this year.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
5. Cyclicals continue to lag defensives as the market braces for a recession.
 

 
6. The SPDR Industrial sector ETF (XLI) is outperforming the S&P 500.
 
Source: Aazan Habib, Paradigm Capital  
 
7. Dividend growers are holding on to their outperformance.
 

 
8. Companies with high operating leverage underperformed in recent days.
 

 
9. The S&P 500 has diverged from VIX.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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Credit

1. Are HY bonds attractive?
 
Source: KKR Global Institute  
 
The market for HY bonds is undersupplied.
 
Source: Goldman Sachs; III Capital Management  

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2. Here is a look at distressed hedge fund performance after difficult periods for high-yield bonds.
 
Source: Citi Private Bank  
 
3. Credit spreads have been highly correlated to rate vol.
 
Source: Deutsche Bank Research  
 
4. Someone has been using the Fed’s discount window. Interbank liquidity could be getting tight going into the year end.
 
Source: @tracyalloway   Read full article  

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Global Developments

1. This chart shows year-to-date returns across select asset classes.
 
Source: Alpine Macro  
 
2. Corporate debt and equity capital raising slowed sharply this year.
 
Source: KKR Global Institute  

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Food for Thought

1. Largest copper producers:
 
Source: Visual Capitalist   Read full article  
 
2. Number of months to build a home in the US:
 
Source: @TIME  
 
3. The year of follow-ups at the box office:
 
Source: @chartrdaily  
 
4. Median age of Americans buying a primary residence:
 
Source: @PostGraphics   Read full article  
 
5. Projections for prime-age population:
 
Source: @indeed, @Glassdoor  
 
6. 2024 GOP presidential nomination probabilities in the betting markets:
 
Source: @PredictIt  
 
7. Christmas songs on Spotify:
 
Source: @chartrdaily  

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