Investors now see monetary policy as too restrictive

The Daily Shot: 18-Jan-23
The United States
Canada
The United Kingdom
The Eurozone
Japan
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. The first manufacturing report of the month was a disaster. The NY Fed’s regional factory activity index dipped to the 2008 lows.
 

 
Source: MarketWatch   Read full article  
 
This is bad news for manufacturing at the national level (ISM).
 
Source: @AndreasSteno  
 
By the way, softer manufacturing activity in China also doesn’t bode well for the ISM index.
 
Source: Pantheon Macroeconomics  
 
Demand deteriorated.
 

 
Hiring slowed as factories cut workers’ hours.
 

 
Price pressures continue to ease.
 

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2. Next, we have some updates on the labor market and wages.
 
Construction jobs will take a hit this year.
 
Source: Morgan Stanley Research  
 
How much will the unemployment rate climb in 2023?
 
This chart shows MarketDesk’s unemployment indicator.
 
Source: MarketDesk Research  
 
And here is a forecast from Wells Fargo.
 
Source: Wells Fargo Securities  
 
Layoffs are on the rise but still below pre-COVID levels.
 
Source: Goldman Sachs; @tracyalloway  
 
Below is Bloomberg’s count of corporate transcripts mentioning “job cuts” (by sector).
 
Source: @M_McDonough  
 
Wage growth has peaked but remains elevated, according to the Atlanta Fed’s wage tracker.
 
Source: Federal Reserve Bank of Atlanta  
 
With fewer small businesses complaining about finding workers, wage growth should moderate further.
 
Source: Capital Economics  
 
Pay growth is slowing faster among low-wage workers.
 
Source: @indeed_labs  
 
The wage growth gap between job stayers and job switchers still signals an imbalance in the labor market (companies willing to pay a significant premium to attract workers).
 
Source: Federal Reserve Bank of Atlanta  

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3. The market is betting that the Fed will blink before reaching 5% on the fed funds rate.
 

 
Investors now see monetary policy as too restrictive.
 
Source: BofA Global Research  
 
This chart shows the divergence between the Fed’s dot plot and the market.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Financial conditions continue to ease, frustrating Fed officials.
 


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Canada

1. Inflation continues to moderate.
 

 
Source: Reuters   Read full article  
 
But core inflation remains stubbornly high.
 
Trimmed-mean:
 

 
Median:
 

 
Excluding food and energy:
 

 
The rise in rent inflation has been severe.
 

 
Here are a couple of other CPI components.
 
Personal care CPI:
 

 
Alcohol:
 

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2. Housing starts slowed in December.
 

 
3. Home prices will stabilize later this year.
 
Source: Capital Economics  


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The United Kingdom

1. Payroll gains in December were smaller than expected.
 

 
Wages continue to surge.
 
Source: Reuters   Read full article  
 

 
The unemployment rate remains low.
 

 
Just like in the US, job openings have peaked but remain well above pre-COVID levels.
 

 
Online job ads have been falling.
 

 
Layoffs are edging up but are still quite low.
 
Source: ING  
 
Inactivity remains elevated.
 
Source: ING  

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2. UK business investment has been lagging behind global peers.
 
Source: ING  


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The Eurozone

1. Germany’s economic sentiment is rebounding rapidly (2nd panel).
 

 
Source: Reuters   Read full article  
 
2. Germany’s real estate finance sentiment has deteriorated.
 
Source: ZEW  
 
But European real estate shares have been outperforming.
 
Source: S&P Dow Jones Indices  
 
This chart shows the divergence between home prices and rents in the EU.
 
Source: Eurostat   Read full article  

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3. France and Spain are less reliant on natural gas than Germany and Italy.
 
Source: Goldman Sachs  
 
4. Here is Goldman’s wage growth tracker.
 
Source: Goldman Sachs  
 
5. Euro-area corporate earnings have been resilient over the past year.
 
Source: MRB Partners  
 
Investors are turning bullish on Eurozone stocks.
 
Source: BofA Global Research  

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6. Credit standards have been tightening.
 
Source: PGM Global  


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Japan

1. The BoJ is not budging on yield control.
 
Source: Reuters   Read full article  
 
Here is the market reaction.
 
The 10yr JGB:
 

 
Dollar-yen (chart shows USD gaining against the yen):
 

 
Stocks:
 

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2. Is long yen a crowded trade now?
 
Source: BofA Global Research  
 
3. Machinery orders unexpectedly declined on a year-over-year basis.
 

 
Source: Reuters   Read full article  


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Asia – Pacific

1. Taiwan’s GDP surprised to the downside(an unexpected year-over-year decline).
 

 
2. Singapore’s exports tumbled over 20% last year.
 

 
Source: @economics   Read full article  

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3. New Zealand’s home sales remain depressed.
 


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China

1. Mobility indicators are rebounding.
 
Traffic congestion:
 
Source: Fitch Ratings  
 
Subway passenger numbers:
 
Source: Torsten Slok,¬†Apollo  

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2. China’s population declined for the first time in decades.
 
Source: Reuters   Read full article  
 
China’s birth rate hit a record low.
 
Source: @financialtimes   Read full article  
 
Here is a comparison to India.
 
Source: @WSJ   Read full article  
 
And this chart compares China’s birth rates to other economies.
 
Source: Reuters   Read full article  
 
Deaths are outnumbering births.
 
Source: @jessefelder, @bpolitics   Read full article  
 
Urbanisation has been slowing.
 
Source: Nordea Markets  
 
Next, we have China’s and India’s population pyramids.
 
Source: Reuters   Read full article  


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Emerging Markets

1. Russia’s current account is coming off the highs.
 

 
2. Turkey’s home sales remain elevated.
 

 
3. South Africa’s mining output continues to deteriorate.
 

 
Source: Reuters   Read full article  

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4. Commodity-sensitive countries appear overbought relative to broader EM equities.
 
Source: Alpine Macro  
 
The same is true for India and Taiwan.
 
Source: Alpine Macro  

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5. Many EM equity markets appear relatively inexpensive.
 
Source: TS Lombard  


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Cryptocurrency

1. Bitcoin blasted past $21k.
 

 

 
Have investors been too bearish on bitcoin?
 
Source: BofA Global Research  

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2. Bitcoin appears significantly undervalued based on its market value to realized value (MVRV).
 
Source: LookIntoBitcoin  
 
3. Crypto funds saw minor inflows last week, led by long bitcoin and ether products.
 
Source: CoinShares   Read full article  
 
Canadian-based crypto funds led inflows last week.
 
Source: CoinShares   Read full article  

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4. Asset tokenization is expected to accelerate.
 
Source: @FactSet   Read full article  


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Commodities

The rally in gold has been too fast relative to the dollar’s decline.
 
Source: @Ole_S_Hansen  


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Equities

1. Financials dragged the Dow lower on Tuesday.
 

 
Industrials also underperformed.
 

 
2. Regional banks are lagging behind the broad banking index.
 

 
3. Global investors are underweight US shares (2 charts), …
 
Source: BofA Global Research  
 
Source: BofA Global Research  
 
… as US stocks continue to lag.
 

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4. The S&P 500 is going to make another run at the downtrend resistance.
 

 
5. Equal-weighted indices continue to outperform (2 charts), …
 

 

 
… as mega-caps lag.
 

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6. Which factors are having a negative impact on earnings?
 
Source: @FactSet   Read full article  
 
7. Historically, a trough in the ISM survey has occurred around market bottoms.
 
Source: J.P. Morgan Asset Management  
 
8. Options with less than 24 hours to expiration now dominate the market.
 
Source: @parrmenidies  


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Credit

High-yield bonds have been rallying with stocks.
 
Source: BCA Research  


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Rates

1. The Treasury curve continues to move deeper into inversion territory.
 

 
Here is the 10-year/3-month spread.
 

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2. Long-dated inflation expectations are now roughly in line with the Fed’s target.
 
Source: Gavekal Research  
 
This chart shows the change in breakevens’ (inflation expectations) term structure over the past six months).
 
Source: Alpine Macro  

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3. Treasuries remain unattractive for Japanese investors.
 

 
4. Stabilization in the US terminal rate expectations resulted in rates volatility peaking (MOVE).
 
Source: Deutsche Bank Research  


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Global Developments

1. Global risk assets rebounded after a peak in rates vol (MOVE) in October 2022.
 
Source: Deutsche Bank Research  
 
2. Next, we have some home price indices and valuations.
 
Source: BCA Research  
 
Which housing markets are most vulnerable? This scatterplot shows household leverage vs. the share of adjustable-rate mortgages.
 
Source: BCA Research  

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3. The COVID-era recovery in global trade has been slower than after previous recessions.
 
Source: World Bank   Read full article  


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Food for Thought

1. Best and worst-performing hard commodities in 2022:
 
Source: Visual Capitalist, h/t Walter   Read full article  
 
2. Global oil production:
 
Source: Visual Capitalist   Read full article  
 
3. Davos attendees:
 
Source: @semafor   Read full article  
 
4. Share of foreign companies staying in Russia:
 
Source: @acemaxx, @FT   Read full article  
 
5. Water usage in clothing manufacturing:
 
Source: @genuine_impact  
 
6. The cost of computer processing power and data storage:
 
Source: OECD   Read full article  
 
7. “Quiet quitter” worker satisfaction factors:
 
Source: LendingTree   Read full article  
 
8. Human composting:
 
Source: The New York Times   Read full article  

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