Single-family permits are down over 30% vs. 2021

The Daily Shot: 21-Dec-22
Administrative Update
The United States
Canada
The Eurozone
Europe
Japan
Asia – Pacific
Emerging Markets
Energy
Equities
Rates
Global Developments
Food for Thought



 

Administrative Update

As a reminder, The Daily Shot will not be published next week (the week of December 26th).


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The United States

1. Housing starts held up well last month, but building permits declined more than expected.
 

 
Source: Reuters   Read full article  
 
The weakness was in single-family housing, with permits dipping below 2016 levels, …
 

 
… down over 30% vs. November of 2021.
 

 
Multifamily starts remained very strong in November, but permits softened.
 

 
The year-over-year decline in homebuilder sentiment has not been this severe in decades.
 
Source: Arcano Economics  
 
Housing affordability hit a new low recently, …
 
Source: Piper Sandler¬†  
 
… but mortgage rates, including jumbo loans, are off the highs.
 

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2. The consensus GDP growth forecast for 2023 (full year) hit 0.3%, while forecasts for the core PCE inflation were upgraded again (stagflation).
 

 
The 2023 GDP growth forecast distribution is relatively wide.
 

 
The Conference Board’s Leading Economic Indicators Index (LEI) is around typical recessionary levels.
 
Source: Barclays Research  
 
In the past, recession predictions underestimated the severity of the downturn.
 
Source: Desjardins  

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3. Card spending has been weakening relative to last year’s levels.
 
Source: @WSJ   Read full article  
 
4. Next, we have some updates on the labor market.
 
Hours worked remain below the pre-COVID trend.
 
Source: Arcano Economics  
 
More states see increases in unemployment claims.
 
Source: Tier1 Alpha  
 
Should we expect improvements in labor productivity amid elevated wage growth?
 
Source: KKR Global Institute  

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5. The market-implied terminal rate (maximum fed funds rate in this cycle) remains below 5%.
 


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Canada

1. Economists continue to boost their forecasts for next year’s inflation.
 

 
2. Retail sales rebounded in October.
 

 
3. Tight financial conditions point to a GDP contraction next year.
 
Source: The Real Economy Blog   Read full article  
 
4. This chart shows the BoC’s balance sheet composition over time.
 
Source: The Real Economy Blog   Read full article  


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The Eurozone

1. How much additional tightening should we expect from the ECB?
 
Source: BofA Global Research  
 
Here are the latest economic forecasts from the ECB.
 
Source: BCA Research  
 
Inflation (September and December forecasts):
 
Source: ECB   Read full article  
 
Labor market:
 
Source: Gavekal Research  
 
GDP growth:
 
Source: ECB   Read full article  
 
Barclays Research is skeptical about the ECB’s GDP forecast (3rd panel below).
 
Source: Barclays Research  

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2. Italy’s bond spread to Germany widened after the ECB’s emphasis on quantitative tightening.
 

 
3. Consumer confidence is off the lows.
 

 
4. Germany’s PPI report came in below forecasts.
 

 
Here is the PPI excluding energy (blue).
 
Source: Arcano Economics  


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Europe

1. The Swiss central bank has been rapidly reducing its balance sheet by cutting FX reserves.
 

 
Source: @acemaxx, @csresearch  
 
Separately, export volumes declined sharply in November.
 

 
But nominal sales of watches hit a record high.
 

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2. Poland’s industrial production remains robust despite dismal PMI data.
 

 
Source: ING  
 
Poland’s core inflation continues to climb.
 

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3. European natural gas futures dipped below €100/MWh.
 

 
Gas consumption remains well below averages for this time of the year.
 
Source: Eurostat   Read full article  


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Japan

1. The one-day yen surge was the biggest since 1998 after the BoJ widened the trading band for the 10yr JGB.
 

 
USD/JPY is now at support.
 

 
USD/JPY volatility hit a multi-year high.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Here is the USD/JPY risk reversal (increased bets on further gains in the yen).
 

 
Treasuries are not attractive when hedged into yen, which is a headwind for USD/JPY.
 
Source: Simon White, Bloomberg Markets Live Blog  

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2. This chart shows the BoJ’s holdings of JGBs.
 
Source: Wells Fargo Securities  
 
3. Here is the consensus forecast for Japan’s CPI.
 
Source: Wells Fargo Securities  


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Asia – Pacific

1. South Korea’s exports remain robust.
 

 
But the trade deficit widened this month.
 

 
The sell-off in South Korean stocks could stabilize, given the elevated equity risk premium.
 
Source: Alpine Macro  

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2. Taiwan’s export orders are tumbling.
 

 
3. As we saw previously, New Zealand’s consumer confidence is hitting new lows. Here is an indicator from ANZ.
 

 
Source: @tracywwithers, @business   Read full article  
 
Credit card spending came off the highs but remains strong.
 

 
The trade deficit hit a multi-year high for this time of the year.
 


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Emerging Markets

1. Mexican retail sales strengthened again last month.
 

 
2. Brazil’s wage growth has accelerated.
 
Source: BCA Research  
 
3. India-related M&A fees have exceeded China’s.
 
Source: @financialtimes   Read full article  
 
4. Russian companies are getting loans from China.
 
Source: @acemaxx, @JPMorganAM  


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Energy

1. Despite higher prices, US energy companies are returning cash to shareholders rather than boosting CapEx.
 
Source: @EIAgov  
 
Source: @EIAgov  
 
Energy firms are also deleveraging.
 
Source: @EIAgov  
 
Investment in production continues to lag pre-COVID levels (2 charts).
 
Source: @EIAgov  
 
Source: Goldman Sachs  

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2. Hedge funds continue to reduce their positions in oil futures.
 
Source: @JKempEnergy, Reuters   Read full article  
 
Bulls have been retreating.
 
Source: @JKempEnergy, Reuters   Read full article  

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3. Russian oil prices are holding below $60/bbl.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
4. Despite the frigid weather in parts of the US, natural gas futures are well below $6/MMBtu.
 


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Equities

1. No Santa rally this year.
 

 
2. Mega-cap firms have underperformed sharply in recent months.
 

 
That’s why the Nasdaq 100 equal-weight index has been outpacing the capitalization-weighted index.
 
h/t Heather Burke  

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3. The meme bubble continues to deflate.
 

 
By the way, here is the ARK Innovation ETF overlaid on top of the Nasdaq Composite during the dot-com bubble/crash.
 
Source: @TheTerminal, Bloomberg Finance L.P., h/t Tier1 Alpha  

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4. Recently, rising real yields have been a headwind for stocks with high multiples.
 
Source: Tradeweb  
 
5. Companies with higher international sales have been outperforming as the dollar softens.
 

 
6. The consensus 2023 S&P 500 earnings forecast is down 5% over the past three months. Many analysts expect the trend to continue.
 

 
7. The depth of recessions is not massively correlated to the scale of S&P 500 declines.
 
Source: Deutsche Bank Research  
 
8. Sector return dispersion is among historic highs. According to Barclays, this tends to peak just before the onset of a recession.
 
Source: Barclays Research  
 
9. How do stocks perform after recessions?
 
Source: BlackRock Investment Institute  


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Rates

1. Rates vol is trading at the largest premium to equity vol since 2005, surpassing financial crisis highs.
 
Source: Barclays Research  
 
2. Higher Treasury yields ahead?
 
Source: @TheTerminal, h/t @marketnewsgirl  
 
3. Have market-based inflation expectations found support?
 
Source: @TheTerminal, Bloomberg Finance L.P.  


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Global Developments

1. The amount of negative-yielding debt declined further as some short-term JGBs swung into positive territory.
 

 
Source: @Schuldensuehner  

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2. Here is the evolution of household leverage in advanced economies.
 
Source: Wells Fargo Securities  
 
3. This chart shows labor compensation as a share of GDP.
 
Source: Oxford Economics  


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Food for Thought

1. Time spent alone:
 
Source: @financialtimes   Read full article  
 
2. Time spent caring for children:
 
Source: USAFacts  
 
3. Reasons for wanting a new job:
 
Source: @indeed, @Glassdoor  
 
4. Views on financial support for Ukraine:
 
Source: Deutsche Bank Research  
 
5. COVID deaths by vaccination status:
 
Source: KFF   Read full article  
 
6. Marijuana smoking rates:
 
Source: Gallup   Read full article  
 
7. The role of climate change:
 
Source: Pew Research Center   Read full article  
 
8. Reasons for Christmas celebrations:
 
Source: @YouGovAmerica   Read full article  
 
9. Americans’ top five Christmas movies:
 
Source: @YouGovAmerica   Read full article  
 
10. Holiday binge-watching preferences:
 
Source: @CivicScience   Read full article  

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