The Atlanta Fed’s model signals nearly 4% growth in Q4

The Daily Shot: 04-Jan-23
The United States
Canada
The United Kingdom
The Eurozone
Europe
Japan
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. Construction spending unexpectedly increased in November, …
 

 
… boosted by private non-residential expenditures.
 
Source: Chart and data provided by Macrobond  
 
Public construction spending has also been robust.
 

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2. The updated S&P Global US Manufacturing PMI indicates ongoing weakness in the nation’s factory activity.
 

 
Other indicators also signal a soft ISM PMI reading today.
 
Source: J.P. Morgan Asset Management  

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3. Real consumer spending on services keeps climbing.
 
Source: Chart and data provided by Macrobond  
 
But excess savings continue to dwindle, pointing to softer consumption ahead.
 
Source: J.P. Morgan Asset Management   Read full article  
 
4. The Atlanta Fed’s GDPNow model estimate for Q4 growth is back near 4% (annualized).
 
Source: @AtlantaFed   Read full article  
 
Inventory growth, robust consumer spending on goods and services, and business investment have been driving growth.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
5. However, tighter monetary policy will take a toll on the economy over the next few quarters.
 
Source: BlackRock Investment Institute  
 
According to a proxy funds rate indicator from the San Francisco Fed, the US central bank’s policy is more restrictive than the target rate suggests.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
This chart shows the historical relationship between the fed funds rate and the sum of the employment-to-population ratio and inflation.
 
Source: Piper Sandler   
 
When will we see the first rate cut?
 
Source: @tatianadariee, @markets   Read full article  

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6. Next, we have some updates on the labor market.
 
More tech job cuts ahead?
 
Source: Chart and data provided by Macrobond  
 
Sectors with the biggest COVID-shock employment losses (relative to trend) are registering the highest job gains.
 
Source: Deutsche Bank Research  
 
Small business wage growth remains elevated.
 
Source: Paychex, IHS Markit   Read full article  


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Canada

1. Manufacturing sector activity is soft, but it’s not crashing.
 
Source: S&P Global PMI  
 
2. Consumer confidence is gradually climbing out of its deep inflation-driven hole.
 


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The United Kingdom

1. UK factories are facing significant headwinds, …
 
Source: S&P Global PMI  
 
… and are shedding jobs.
 

 
Here is the PMI employment index for both manufacturing and services.
 
Source: Pantheon Macroeconomics  

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2. Economists had to massively downgrade their estimates of UK labor force participation.
 
Source: Oxford Economics  


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The Eurozone

1. Let’s begin with Germany.
 
The headline consumer inflation declined more than expected in December, driven by energy subsidies.
 

 
The core CPI, however, continues to grow. Here is a comment from Commerzbank.

German inflation fell sharply from 10.0% to 8.6%, mainly because the government took over the monthly payments for gas for many citizens in December. Excluding energy and food, however, inflation has risen further from 5.0% to an estimated 5.1%. Germans will continue to suffer from high inflation for a long time due to the ECB’s slow approach, even if the gas and electricity price breaks should depress inflation this year.

Source: Commerzbank Research  
 
Pantheon Macroeconomics expects the core inflation to remain stubbornly high.
 
Source: Pantheon Macroeconomics  
 
Import prices tumbled in November.
 

 
Unemployment remains low.
 

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2. Euro-area inflation dispersion is still near record levels.
 
Source: Chart and data provided by Macrobond  
 
3. A global economic recovery could bode well for EUR/USD.
 
Source: BCA Research  
 
Despite a weak start of the year for the euro, the currency has entered a golden cross.
 

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4. The ECB (Eurosystem) assets are declining rapidly.
 
Source: Yardeni Research  


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Europe

1. The Danish central bank has been selling the krone to counter the currency’s persistent strength.
 
Source: Nordea Markets  
 
2. The Euro Stoxx 50 Index is holding support above its 40-week moving average, although there is strong resistance ahead.
 

 
3. European small-cap stocks are inexpensive relative to US small caps.
 
Source: BCA Research  


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Japan

1. JGB yields are climbing,
 

 

 
Foreigners dumped a record amount of JGBs (¥4.9 trillion) as the BoJ widened the 10-year trading range.
 

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2. Stocks are under pressure as the yen strengthens.
 


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China

1. Stocks are surging in Hong Kong.
 

 
2. Beijing may need to boost fiscal stimulus to support growth in Q1.
 
Source: China Beige Book  
 
More PBoC RRR cuts ahead?
 
Source: Yardeni Research  
 
The overall monetary easing has been relatively tepid thus far.
 

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3. Population projections have been revised sharply lower.
 
Source: J.P. Morgan Asset Management  


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Emerging Markets

1. Let’s begin with Chile.
 
Economic activity (rolling over?):
 

 
Manufacturing output (following the 2016 path):
 

 
Copper production (a sharp decline in November):
 

 
Business confidence (crashing):
 

 
Retail sales (deteriorating):
 

 
Unemployment (high for this time of the year):
 

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2. The Brazilian real is under pressure amid increased fiscal concerns.
 

 
3. Colombia’s factory activity is back in growth mode.
 

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4. Similar to the manufacturing PMI, India’s service sector growth has accelerated.
 
Source: S&P Global PMI  
 
5. Factory activity in the Philippines remains strong.
 

 
6. Turkey’s inflation has finally peaked.
 

 
7. This chart shows equity valuations in select countries.
 
Source: Alpine Macro  


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Cryptocurrency

1. The MENA region has seen significant growth in crypto transaction volumes over the past year. (2 charts)
 
Source: CoinShares   Read full article  
 
Source: CoinShares   Read full article  

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2. Only 22% of the top 50 coins have outperformed bitcoin over the past month, indicating risk-off conditions.
 
Source: Blockchain Center  
 
3. 2022 was the first year that bitcoin closed below a cycle high (consecutive weekly closes below its 200-week moving average).
 
Source: @Delphi_Digital  
 
4. Lido Finance has the highest total value locked among decentralized finance (DeFi) protocols.
 
Source: @Delphi_Digital  


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Commodities

1. Bloomberg’s broad commodity index is at support.
 
Source: @TheTerminal, Bloomberg Finance L.P., h/t David Finnerty  
 
2. US lumber futures continue to decline as the housing market downturn persists.
 


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Energy

1. Brent crude hit resistance at the 50-day moving average.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Source: Reuters   Read full article  

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2. US LNG exports continue to climb.
 
Source: @SStapczynski, @markets   Read full article  
 
3. European natural gas prices keep falling …
 

 
… amid elevated inventories …
 

 
… and warmer weather.
 
Source: Chart and data provided by Macrobond  


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Equities

1. The Dow remains resilient relative to other US indices. As the index is closely followed by retail investors, some are surprised by their portfolios’ poor performance.
 

 
2. Dividend growers continue to widen their outperformance.
 

 
3. The S&P equal-weight index has been outperforming due to lower exposure to mega-caps and higher exposure to value.
 

 
Source: S&P Dow Jones Indices  
 
And value stocks outperformed sharply in 2022.
 
Source: @WSJ   Read full article  

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4. Hedge funds’ top short positions have outperformed.
 

 
5. Microcaps have done well relative to small caps in recent days.
 

 
6. This chart shows large-cap returns globally in 2022.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
Performance dispersion by sector and country reached multi-year highs last year.
 
Source: S&P Dow Jones Indices  

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7. Tech outflows were severe in 2022.
 
Source: @WSJ   Read full article  
 
8. The S&P 500 remains above its 200-week moving average, although upside momentum has weakened over the past few months.
 

 
9. VIX is holding support above 20, continuing a series of higher lows since 2018. A decisive break above 25 could occur alongside a pullback in equities.
 

 
10 The Nasdaq 100 VIX-equivalent (VXN) has diverged from VIX as mega-cap stocks struggle.
 
Source: @TheTerminal, Bloomberg Finance L.P.  


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Credit

1. Similar to equities, US corporate bonds typically perform well when Treasury returns are negative. Both experienced bigger declines in 2022.
 
Source: Deutsche Bank Research  
 
2. Banks are sitting on substantial unrealized losses.
 
Source: J.P. Morgan Asset Management  


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Rates

1. A lower path of the 5-year Treasury yield could signal a steepening of the 10s/30s curve.
 
Source: Deutsche Bank Research  
 
2. Here are the contributions to the expected change in the 30-year Treasury yield, according to Deutsche Bank.
 
Source: Deutsche Bank Research  
 
3. There was a massive increase in private foreign purchases of US bonds last year.
 
Source: Yardeni Research  
 
4. Have Treasury yields peaked (2 charts)?
 
Source: Piper Sandler   
 
Source: Piper Sandler   


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Global Developments

1. Are market projections for rapidly easing inflation too optimistic?
 
Source: J.P. Morgan Asset Management  
 
2. Global manufacturing activity deteriorated further in December.
 
Source: S&P Global PMI  
 
3. The Variant Perception’s leading indicator continues to signal a substantial downturn in growth across advanced economies.
 
Source: Variant Perception  
 
4. Semiconductor supply shortages continue to ease as demand slows.
 
Source: S&P Global PMI  


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Food for Thought

1. Statutory minimum wage as a share of the median wage:
 
Source: OECD   Read full article  
 
2. States with minimum wage increases in 2023:
 
Source: CNBC   Read full article  
 
3. US low-wage workers earning more than their state’s minimum wage:
 
Source: @WSJ   Read full article  
 
4. Reshoring and foreign direct investment jobs (2 charts):
 
Source: Reshoring Initiative  
 
Source: BofA Global Research  

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5. Innovation cycles:
 
Source: Visual Capitalist   Read full article  
 
6. Using photo-editing apps:
 
Source: Statista  
 
7. Largest sources of electricity generation:
 
Source: @EIAgov  
 
8. Polar bear population:
 
Source: @FactSet   Read full article  

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