Business investment faces substantial headwinds

The Daily Shot: 09-Feb-23
The United States
The United Kingdom
Europe
Japan
Australia
China
Emerging Markets
Energy
Equities
Credit
Food for Thought



 

The United States

1. Let’s begin with the housing market.
 
Mortgage applications are running just above 2014/2015 levels.
 

 
Banks are not tightening lending standards for mortgages.
 
Source: Oxford Economics  
 
Home prices continued to decline in December.
 
Black Knight home price index (5% YoY):
 
Source: Black Knight  
 
Freddie Mac home price index (4.1% YoY):
 
Source: Calculated Risk  
 
CoreLogic expects home prices to decline only slightly on a year-over-year basis this summer before rebounding to finish the year at 3%.
 
Source: CoreLogic  
 
This chart shows the drivers of housing affordability (from the Atlanta Fed).
 
Source: @AtlantaFed   Read full article  
 
Active listings were up sharply in January relative to 2022. But housing inventories are still low relative to recent years.
 
Source: realtor.com  
 
The median listing price was up in January relative to 2022.
 
Source: realtor.com  
 
How many sellers received multiple offers?
 
Source: @EricFinnigan; h/t @dailychartbook  
 
Inventories of construction materials are piling up. This chart shows the wholesale inventories-to-sales ratio.
 

 
Housing will be a drag on growth for some time, according to Goldman.
 
Source: Goldman Sachs  

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2. Business investment faces substantial headwinds.
 
Capital goods orders vs. the ISM Manufacturing PMI new orders index:
 
Source: Variant Perception  
 
Business equipment investing vs. lending standards:
 
Source: Capital Economics  

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3. The Grant Thornton CFO survey shows an improvement in sentiment as inflation moderates.
 
Source: Grant Thornton   Read full article  
 
CFOs are more confident about controlling costs.
 
Source: Grant Thornton   Read full article  

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4. The Chicago Fed’s financial conditions index shows further easing.
 

 
5. The Treasury curve inversion remains extreme.
 

 
6. Wholesale prices suggest that used-car inflation is about to rebound.
 
Source: Deutsche Bank Research  


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The United Kingdom

1. The housing market continues to struggle.
 

 
Source: Reuters   Read full article  

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2. This chart shows the share of ER patients waiting less than four hours.
 
Source: @WSJ   Read full article  


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Europe

1. Sweden’s economic activity has been softening. While services output is still robust, …
 

 
… industrial production and consumer spending have been under pressure.
 

 

 
However, industrial orders surged in December.
 

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2. Denmark’s trade surplus widened sharply at the end of the year.
 

 
3. EU electricity demand has been soft relative to previous years (2 charts).
 
Source: @EmberClimate   Read full article  
 
Source: @JKempEnergy  

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4. Some cities are much warmer than their rural surroundings.
 
Source: @CeliaBergin, @business   Read full article  
 
5. Euro-area small caps are testing long-term support versus large-caps. Lower inflation could aid outperformance.
 
Source: BCA Research  


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Japan

1. The Economy Watchers expectations index shows improving sentiment.
 

 
2. The labor market is very tight for full-time workers, boosting wage growth.
 
Source: Gavekal Research  
 
3. The broad money supply growth continues to slow.
 

 
4. The trade gap was wider than expected in December.
 


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Australia

1. After this week’s RBA rate hike (and hawkish comments), …
 

 
… the market expects further rate increases over the next few months.
 

 
The market sees the RBA taking the cash rate above 4% at the July meeting.
 

 
Here is a forecast from Wells Fargo.
 
Source: Wells Fargo Securities  
 
And this chart shows a forecast from ING for the cash target rate and inflation.
 
Source: ING  

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2. Bond yields have been rising.
 

 
3. Here is a look at Australia’s exports by destination.
 
Source: Wells Fargo Securities  


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China

1. Every province missed its GDP target in 2022.
 
Source: @OpenAxisHQ  
 
2. Tourists from the mainland are starting to return to Hong Kong.
 
Source: Alpine Macro  


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Emerging Markets

1. Let’s begin with Russia. Please note that the figures below are reported by the Russian government.
 
The budget deficit widened sharply in January.
 

 
Source: @WSJ   Read full article   Further reading  
 
The government’s oil and gas revenue is down 46% on a year-over-year basis.
 

 
Here are several other economic trends.
 
The unemployment rate:
 

 
Real wages (through November):
 

 
Retail sales:
 

 
Cargo shipments:
 

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2. More downside risk for Indian stocks?
 
Source: Alpine Macro  
 
The earnings yield is too low relative to the RBI rate.
 
Source: Alpine Macro  

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3. Argentina’s economic activity is slowing.
 

 
4. Brazil’s vehicle production remains soft.
 

 
5. Chile’s CPI topped expectations.
 

 
6. This chart from Oxford Economics shows sovereign bond spreads vs. ratings.
 
Source: Oxford Economics  
 
7. The rise in China’s money supply versus developed markets could benefit EM equities.
 
Source: Numera Analytics (@NumeraAnalytics)  


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Energy

1. US oil production hit the highest level since the COVID crash.
 

 
2. US oil inventories continue to climb.
 

 
However, when measured in days of supply, oil inventories declined over the past couple of weeks, …
 

 
… as demand improves.
 

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3. Gasoline inventories remain low for this time of the year.
 

 
Distillates inventories are rebounding.
 

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4. The US Rocky Mountain region faces tight gasoline supplies after the Commerce City oil refinery shutdown.
 
Source: @EIAgov   Read full article  
 
5. How much would the SPR refill impact global oil inventories?
 
Source: Longview Economics  
 
6. From the FT:

Tankers in Iran’s “ghost fleet” have switched to carrying Russian oil since western curbs on Moscow intensified in December, as the Kremlin turned to sanctions-busting techniques pioneered by Tehran.

Source: @financialtimes   Read full article  
 
7. Natural gas prices continue to sink in Europe, …
 

 
… and the US.
 


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Equities

1. The aggregate S&P 500 Q4 earnings missed estimates for the first time since the GFC.
 
Source: Deutsche Bank Research  
 
But the S&P 500 median earnings beat by an average amount.
 
Source: Deutsche Bank Research  
 
The aggregate tech sector missed estimates massively, driven by mega-cap companies.
 
Source: Deutsche Bank Research  

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2. This chart shows forward earnings revisions on earnings days.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
3. Fund flows show some exuberance. From Variant Perception:

… key tactical indicators suggest the short squeeze has likely fully played out. S&P cumulative flows are back to high conviction sell levels that we saw in April and August 2022.

Source: Variant Perception  
 
4. Short-dated options volume is holding at record levels.
 
Source: Goldman Sachs; Simon White, Bloomberg Markets Live Blog  
 
5. The revenue-weighted small-cap index has been outperforming.
 

 
6. Dividend growers are trailing the S&P 500.
 

 
7. Companies with less focus on ESG have outperformed over the past month.
 

 
8. This chart contrasts the cumulative annualized difference between a 60/40 and 90/10 split portfolio from April 2020 through March 2022. Fixed income was a drag, especially on a risk-adjusted basis. (2 charts)
 
Source: FHN Financial  
 
Source: FHN Financial  


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Credit

1. Let’s start with global bond issuance and a forecast for 2023 (from S&P Global Ratings).
 
Source: S&P Global Ratings  
 
2. The global speculative-grade default rate is expected to surpass its long-term average this year.
 
Source: Moody’s Investors Service  
 
Moody’s increased its negative global industry/sector outlooks during Q4 2022 as credit conditions deteriorated.
 
Source: Moody’s Investors Service  
 
Here is a breakdown by industry.
 
Source: Moody’s Investors Service  

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3. Investment-grade bond ETFs saw large inflows in January, alongside intermediate and long-duration government bonds.
 
Source: State Street Global Advisors   Read full article  


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Food for Thought

1. US labor share of income:
 
Source: BCA Research  
 
2. The end of Facebook addiction? A shift to TikTok?
 
Source: @CivicScience  
 
3. Religious makeup of the US Congress:
 
Source: Pew Research Center   Read full article  
 
4. Methane emissions by source (see definition of enteric methane):
 
Source: S&P Global Market Intelligence  
 
5. US Southwest land border encounters:
 
Source: Statista  
 
6. Are you planning to move?
 
Source: Apartment List   Read full article  
 
7. Consumer searches for pink products:
 
Source: Jenny Hu, @OpenAxisHQ  

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