Posted on by The Daily Shot Editor: Lev Borodovsky

US trade gap with China lowest since early 2020

The Daily Shot: 06-Jan-23
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Japan
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Rates
• Food for Thought

 

The United States

1. We continue to see persistent strength in the US labor market despite the most aggressive monetary policy tightening in years. The ADP report topped expectations.
 

 
Source: ADP Research Institute  
 
Even gains in construction employment were robust.
 

 
Some of the tech and other high-profile layoffs are showing up in “large company” employment data.
 

 
But smaller firms are picking up the slack (2 charts).
 
Source: ADP Research Institute  
 
Source: Piper Sandler   

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2. Initial jobless claims were exceptionally low for this time of the year (2 charts).
 

 

 
Continuing claims are moving closer to pre-COVID levels but are still very low.
 

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3. Strong employment data sent the dollar higher, …
 

 
… while stocks tumbled.
 

 
The terminal rate (the highest market-expected fed funds rate in this cycle) is back above 5%.
 

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4. What is the market’s expectation for the December payrolls report? Here is the distribution of forecasts assembled by Bloomberg (median = 202k).
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
And this estimate is from Oxford Economics.
 
Source: Oxford Economics  
 
Economists don’t see significant increases in unemployment going forward.
 
Source: TS Lombard  

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5. Next, we have some updates on the housing market.
 
• Mortgage applications are down 48% on a year-over-year basis.
 

 
Here is the rate lock count.
 
Source: AEI Housing Center  
 
• Below is a forecast for home price appreciation from CoreLogic (barely dipping into negative territory on a year-over-year basis).
 
Source: CoreLogic  
 
• This chart shows home price appreciation by price tier.
 
Source: AEI Housing Center  

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6. The trade deficit narrowed sharply in November as imports slowed.
 

 

 
The trade gap with China hit its lowest level since early 2020.
 

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7. As we saw yesterday, financial conditions have been easing, frustrating the Fed. Here is the financial conditions index from Morgan Stanley.
 
Source: Morgan Stanley Research  
 
8. Activity at US service firms has been weakening, according to the S&P Global PMI report.
 
Source: S&P Global PMI  
 
Financials continue to struggle. This chart shows the PMI by sector.
 
Source: S&P Global PMI  

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9. A recession is likely to occur around the second half of the year, according to an investor survey by Deutsche Bank.
 
Source: Deutsche Bank Research  

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Canada

1. Auto shipments remain soft.
 
Source: Economics and Strategy Group, National Bank of Canada  
 
2. Agricultural exports surged last year.
 
Source: Economics and Strategy Group, National Bank of Canada  
 
But total non-energy exports are probably heading lower.
 
Source: Capital Economics  

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3. The market expects more BoC rate hikes ahead.
 

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The United Kingdom

1. The pound is testing support at the 50-day moving average.
 

 
2. The PMI data point to a slower producer price inflation ahead.
 
Source: Pantheon Macroeconomics  

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The Eurozone

1. Italy’s CPI appears to have peaked.
 

 
• Here are the CPI trends for Spain, France, and Germany.
 
Source: Nordea Markets  
 
• Below are the consensus CPI forecasts for the Eurozone and the US.
 
Source: Nordea Markets  
 
• The euro-area PPI has been moving lower as energy costs ease.
 

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2. Germany’s imports have been falling with energy prices, …
 

 
… boosting the trade surplus.
 

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3. Sovereign bond supply will surge this year as the ECB steps back (2 charts).
 
Source: Gavekal Research  
 
Source: Nordea Markets  

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Japan

1. Consumer confidence bounced from recent lows in December.
 

 
2. Real wages have fallen sharply in 2022.
 

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China

1. The S&P Global PMI indicator shows persistent weakness in China’s services sector.
 

 
But businesses are upbeat about the future as lockdowns end.
 

 
By the way, the service sector accounts for a growing share of total employment.
 
Source: Global X ETFs   Read full article  

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2. Consumer confidence remains depressed.
 

 
3. The Consumer Discretionary sector has seen the largest increase in 6-month forward earnings.
 
Source: MRB Partners  
 
This chart shows Chinese sector valuations versus broader EM.
 
Source: TS Lombard  

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4. Hong Kong’s retail sales were soft in November.
 

 
5. Vehicle exports have been booming.
 
Source: Gavekal Research  

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Emerging Markets

1. Brazil’s industrial production has been holding up well.
 

 
2. Mexico’s consumer confidence improved again last month.
 

 
3. Colombia’s core CPI keeps rising.
 

 
4. South Africa’s business activity has been slowing.
 
Source: S&P Global PMI  
 
5. Turkish stocks were hit with profit-taking after reaching record highs.
 

 
6. The Philippine unemployment rate is at multi-year lows.
 

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Cryptocurrency

1. Cryptos had a good week, with Litecoin (LTC) outperforming other large tokens.
 
Source: FinViz  
 
2. 2022 was a tough year for public crypto companies.
 
Source: @ArcaneResearch  
 
3. Bitcoin’s current drawdown resembles previous bear market cycles.
 
Source: @ArcaneResearch  
 
4. The total stablecoin market cap relative to bitcoin’s market cap accelerated in 2022.
 
Source: @ArcaneResearch  
 
5. NFT trading volumes collapsed in 2022.
 
Source: @ArcaneResearch  
 
6. Genesis, an institutional crypto lender, is considering filing for bankruptcy.
 
Source: @WSJ   Read full article  

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Commodities

1. Will China’s reopening boost commodity prices?
 
Source: Danske Bank  
 
2. Caterpillar’s stock has diverged from the copper futures price.
 
Source: Aazan Habib, Paradigm Capital  
 
3. Elevated real rates pose downside risks for gold.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
• Gold appears to be another pivot point toward the end of the Fed rate hike cycle. (2 charts)
 
Source: @ANZ_Research  
 
Source: @ANZ_Research  
 
• Gold typically performs well during and after recessions.
 
Source: @ANZ_Research  
 
• Gold and silver miners have been rallying.
 
Source: @TaviCosta  

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Energy

1. The pre-Christmas winter storm wreaked havoc on the US energy sector.
 
Source: Reuters   Read full article  
 
• Gasoline demand:
 

 
• Refinery inputs:
 

 
• Refinery utilization:
 

 
• Gasoline and distillates inventories:
 

 
Measured in days of supply, crude oil inventories climbed above last year’s level (2nd panel below).
 

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2. Warm weather continues to pressure US natural gas futures.
 
Source: NOAA  
 

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Equities

1. Insider sentiment has been deteriorating.
 
Source: @WSJ   Read full article  
 
2. Decision time is coming up for the Nasdaq 100.
 

 
4. Mornings have been tough on stocks.
 
Source: Chris Murphy, Susquehanna International Group  
 
5. Investor pessimism has been persistent.
 
Source: @bespokeinvest   Read full article  
 
6. Retail flows have been weakening.
 
Source: Vanda Research  
 
This chart shows investor purchases of tech stocks and Tesla.
 
Source: Vanda Research  

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7. Stock correlations tend to drop going into earnings season.
 
Source: Chris Murphy, Susquehanna International Group  
 
8. VIX is up, but the rest of the vol curve has moved lower.
 
h/t Chris Murphy, Susquehanna International Group  
 
9. What returns should we expect over the next 5 and 10 years, given the current S&P 500 valuation (PE ~16.6x)?
 
Source: Industrial Alliance Investment Management  
 
10. Unable to consummate acquisitions, many SPAC managers were forced to liquidate.
 
Source: @WSJ   Read full article  

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Rates

1. The Fed’s quantitative tightening has picked up momentum. But the MBS portfolio unwind has been slow due to collapsed mortgage refi activity.
 

 
2. Market projections for short-term rates ten years out have risen sharply in this cycle. The market expects advanced economies to “face a persistently higher neutral level of interest rates in this decade than during the pre-pandemic period,” according to Oxford Economics. That means persistently higher central bank policy rates.
 
Source: Oxford Economics  
 
3. 2022 saw the largest increase in the 10-year Treasury yield since 1788. Historically, yields decline after a large annual rise.
 
Source: Deutsche Bank Research  
 
4. The era of negative yields is over.
 
Source: Deutsche Bank Research  

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Food for Thought

1. US job openings rate by region:
 
Source: @WSJ   Read full article  
 
2. Not at work due to childcare issues:
 
Source: @keds_economist  
 
• Not working due to retirement:
 
Source: Industrial Alliance Investment Management  

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3. Share of wealth held by the top 1%:
 
Source: Statista  
 
4. The next Speaker of the House, according to the betting markets:
 
Source: @PredictIt  
 
5. Appointments of district and appellate court judges:
 
Source: FiveThirtyEight   Read full article  
 
6. Public trust in government:
 
Source: Alpine Macro  
 
7. Most frequent store prices:
 
Source: @WSJ   Read full article  

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Have a great weekend!

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