The Daily Shot: 21-Feb-23
• The United States
• The United Kingdom
• The Eurozone
• Europe
• Japan
• Asia-Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought
The United States
1. The Conference Board’s leading index declined again last month.
• Here are the drivers of the index in January.
Source: Wells Fargo Securities
• The leading index continues to signal a mild recession ahead, …
Source: Oxford Economics
… which is consistent with the February Philly Fed’s regional manufacturing outlook indicator.
Source: Longview Economics
• Deutsche Bank’s model shows a 90% chance of recession over the next 12 months.
Source: Deutsche Bank Research
• However, fewer firms are mentioning “recession” on earnings calls.
Source: Goldman Sachs; @SamRo
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2. The World Economics SMI report shows US business activity returning to growth this month.
Source: World Economics
3. Next, we have some updates on inflation.
• Import prices (excluding petroleum) unexpectedly climbed in January.
• Based on the CPI and PPI reports, Nomura estimates a jump in the core PCE inflation in January.
Source: Nomura Securities
• The recent surge in healthcare wage growth signals higher inflation in the sector.
Source: Nomura Securities
• This chart shows US wage growth by wage quartile.
Source: Arcano Economics
• Back to the old Phillips Curve?
Source: Alpine Macro
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4. The market-implied terminal rate is up some 40 basis points this month. It’s surprising to see the stock market barely responding to this repricing in rate hike expectations.
• The 2-year Treasury yield is nearing last year’s peak.
• Deutsche Bank expects an even higher terminal rate than the market.
Source: Deutsche Bank Research
• The market is now more in line with the 2023 dot-plot, but there is a disagreement between the market and FOMC projections on rate cuts next year.
Source: BCA Research
• Here is why the Fed is less likely to cut rates, even amid soft economic activity.
Source: BCA Research
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5. Participation rates in key US economic data surveys have been falling.
Source: @readep, @BW Read full article
6. Used cars are taking longer to sell.
Source: @earnestinsights
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The United Kingdom
1. Home price appreciation continues to slow.
2. Retail sales edged up last month.
3. Tighter consumer credit conditions ahead?
Source: Pantheon Macroeconomics
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The Eurozone
1. Consumer confidence continues to rebound.
Source: RTT News Read full article
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2. Construction output tumbled in December.
3. Barclays upgraded their 2023 GDP forecast for the euro area.
Source: Barclays Research
4. Will wage growth slow down later this year?
Source: Pantheon Macroeconomics
5. Much of the euro’s recent strength has been due to the dollar’s weakness.
Source: Simon White, Bloomberg Markets Live Blog
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Europe
1. Sweden’s underlying inflation print was a shocker.
Source: @nicrolander, @economics Read full article
• Price gains were driven by services.
Source: Nordea Markets
• The 2-year yield is above 3% for the first time since 2008.
Here is the yield curve.
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2. Poland’s January industrial production was disappointing.
But wage growth topped expectations.
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3. This map shows the regional GDP per capita in the EU.
Source: Eurostat Read full article
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Japan
1. Manufacturing and services activity (PMI) indicators have diverged.
Source: S&P Global PMI
2. Bloomberg’s survey shows economists boosting their core CPI forecasts for 2023.
3. Japan-focused funds are seeing some outflows.
Source: EPFR
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Asia-Pacific
1. South Korea’s consumer confidence remains in the doldrums.
2. Taiwan’s January export orders topped expectations.
Source: Reuters Read full article
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3. S&P Global’s PMI report showed improvement in Australia’s business activity this month.
• Manufacturing (modest growth):
• Services (slower contraction):
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China
1. Foreign direct investment was very strong in January.
2. There is a lot of local government debt maturing this year.
Source: TS Lombard
3. The World Economics SMI report shows a rebound in business activity this month.
Source: World Economics
4. Road congestion surged as the country reopened.
Source: Barclays Research
5. Macau visitor arrivals are finally recovering.
6. China’s CSI 300 stock market benchmark is at support.
Source: @SashaAndo, @markets Read full article
Hong Kong stocks are rolling over.
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Emerging Markets
1. Macrobond’s India GDP nowcast model points to a growth slowdown.
Source: @MacrobondF
2. Turkey’s consumer confidence is rebounding sharply (similar to the Eurozone).
3. Below are some performance updates since February 10th.
• Currencies:
• Bond yields:
• Equity ETFs:
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Cryptocurrency
1. Bitcoin is holding resistance at 25k.
2. Last week, crypto funds saw the largest outflows since December 2022.
Source: CoinShares Read full article
Long-bitcoin funds accounted for most outflows last week, while investors rotated to short-bitcoin funds.
Source: CoinShares Read full article
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3. Short-term bitcoin holders are not heavy sellers to exchanges just yet (possibly keeping tokens in storage/wallets). In contrast, offloading tokens for sale on exchanges could signal capitulation.
Source: Glassnode Read full article
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Commodities
1. Iron ore continues to surge on China reopening.
2. Technicals suggest gold is overbought, especially as bullish sentiment appears stretched. (2 charts)
Source: Longview Economics
Source: Longview Economics
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3. Fertilizer prices are down massively from the 2022 peak.
4. Finally, we have last week’s performance across key commodity markets.
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Energy
1. Growth in US drilling activity has stalled.
2. CTAs have been increasingly bearish on oil.
Source: Deutsche Bank Research
3. EU distillates inventories are tight.
Source: @FactSet Read full article
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Equities
1. Is the decoupling of stocks and bonds sustainable?
2. There is a lot of uncertainty about the stock market trajectory this year.
Source: @HendersonRowe; h/t @TopdownCharts
3. A rising unemployment rate off the lows typically signals the final leg of risk-asset drawdowns in recessions, according to Variant Perception.
Source: Variant Perception
4. Profit margins have been at historic highs in the pandemic era.
Source: @katiadmi, @business Read full article
5. CTAs have been boosting their equity exposure.
Source: Deutsche Bank Research
6. The latest market rally occurred with strong breadth and underlying volume. Previous advances signaled further gains in the months ahead, according to SentimenTrader.
Source: @sentimentrader
7. Bullish sentiment appears stretched.
Source: @StocktonKatie
8. VIX is holding support above 18.50 (and broke above its 40-week moving average).
9. There has been quite a bit of interest in VIX call options (used as a hedge against market declines).
Source: @WSJ Read full article
10. Mid-cap stocks have been outperforming small and large-cap stocks.
Source: @jaykaeppel
11. Next, we have some performance data from last week.
• Sectors:
• Equity factors:
• Macro basket pairs’ relative performance:
• Thematic ETFs:
• Largest US tech stocks:
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Credit
1. CCC-rated bonds have been leading the rally in credit.
Source: Citi Private Bank
2. Global high-yield bond spreads are too tight.
Source: Oxford Economics
3. Leveraged loan funds continue to see outflows. Inflation-linked Treasury funds are also losing capital.
Source: Deutsche Bank Research
4. Divergence episodes between BDCs and HY bonds generally don’t last long.
5. This chart shows last week’s performance by asset class.
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Rates
1. As #3 in the credit section (above) shows, inflation-linked Treasury (TIPS) funds continue to see substantial outflows.
2. Retail money market fund balances have been surging as yields improve, creating competition for banks.
3. Eurodollar 23/24 spreads point to widespread expectations of Fed rate cuts next year.
Source: PGM Global
4. Variant Perception’s “Fed easing” probability indicator is rising, although not quite signaling a reversal in yields.
Source: Variant Perception
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Global Developments
1. Will improving global liquidity pressure the US dollar?
Source: Oxford Economics
• Bloomberg’s US dollar index is at resistance.
Source: @SriniSivabalan, @markets Read full article
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2. Global air traffic is at multi-year highs for this time of the year.
Source: Torsten Slok, Apollo
3. Will a breakout in sovereign bond yields trigger another risk-off phase?
Source: MRB Partners
4. Next, we have some performance data since February 10th.
• Bond yields:
• Trade-weighted currency indices:
• Large-cap equity indices:
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Food for Thought
1. Orange production in the US:
Source: @WSJ Read full article
2. Credit card delinquency rates by age:
Source: Federal Reserve Bank of New York
3. Payments by banked vs. unbanked consumers:
Source: @AtlantaFed Read full article
4. The shift in US drivers’ demographics:
Source: @byHeatherLong, @andrewvandam Read full article
5. US adult population growth by age:
Source: @AtlantaFed Read full article
6. Prescription medications:
Source: @CivicScience
7. Best-selling albums of all times:
Source: @genuine_impact
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