The Daily Shot: 27-Feb-23
• The United States
• The Eurozone
• Europe
• Asia – Pacific
• Emerging Markets
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought
The United States
1. The January PCE inflation measure topped expectations, …
… particularly the core index. US inflation continues to run hot.
Source: CNBC Read full article
• The FOMC is very focused on the non-housing core services PCE inflation (“supercore”), which registered its biggest monthly increase in over a year.
Source: Nomura Securities
• Inflation pressures remain broad.
Source: @TheTerminal, Bloomberg Finance L.P.
• Here are the core and “supercore” PCE indices on a year-over-year basis.
Source: Torsten Slok, Apollo
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2. The implied terminal rate reached 5.4% in response to the upside PCE inflation surprise.
• The market expects at least three more 25 bps hikes.
• Nomura projects the terminal rate to rise even higher, with a 50 bps rate hike in March, followed by two 25 bps increases.
Source: Nomura Securities
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3. Treasury yields jumped, …
… and the curve inverted further after the PCE inflation report (2 charts).
• Real rates and the US dollar climbed as well, both of which tend to pose headwinds for stocks.
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4. Consumer spending was strong in January.
– Automobile purchases jumped.
– Here is real spending by category.
Source: Oxford Economics
5. US real disposable income has been rebounding from recent lows.
This chart shows US real personal income without including government payments.
• Savings as a share of disposable income edged higher.
Households are facing difficulties in saving money because they are allocating a significant portion of their income toward debt related to consumer credit (excluding mortgages).
Source: ING
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6. The GDPNow estimate for the Q1 economic growth climbed in response to the consumer spending report, …
Source: @AtlantaFed
… boosted by spending on services.
Source: @TheTerminal, Bloomberg Finance L.P.
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7. The final U. Michigan sentiment index showed stronger consumer expectations.
Inflation expectations were roughly unchanged from the earlier result.
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8. As with other service-sector surveys, the Kansas City Fed’s index showed an improvement this month.
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The Eurozone
1. Germany’s revised Q4 GDP report was ugly.
Source: @financialtimes Read full article
Consumer spending and business investment slumped.
Source: Pantheon Macroeconomics
Separately, Germany’s consumer sentiment continues to recover from the lows.
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2. French consumer sentiment remains depressed.
3. Euro-area inventories have been rising quickly.
Source: Longview Economics
4. Inflation has been broadening, …
Source: TS Lombard
… with the core CPI running hot.
Source: TS Lombard
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5. Short-term rates keep climbing as the market boosts ECB rate hike expectations.
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Europe
1. Sweden’s sentiment indices appear to have bottomed.
2. Stocks have been climbing despite higher bond yields.
Source: @themarketear
3. This chart shows how some European currencies performed against the euro last week.
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Asia – Pacific
1. Japan’s department store sales were well above last year’s levels in January.
2. Asian currencies have been weakening vs. USD.
Here is the South Korean won.
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Emerging Markets
1. Brazil’s inflation has accelerated again.
Consumer confidence is rolling over.
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2. This chart shows PE/VC-backed investments in Russia.
Source: S&P Global Market Intelligence
3. Which central banks cut rates ahead of the Fed’s pivot in the past?
Source: Oxford Economics
4. Next, we have some performance data from last week.
• Currencies:
• Bond yields:
• Equity ETFs:
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Commodities
1. Gold mining stocks registered a sharp rise in breadth over the past month, signaling overbought conditions.
Source: SentimenTrader
Funds have been boosting their long bets on gold futures.
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2. Copper futures are declining from long-term resistance, coinciding with large levels of selling interest. Support around $3.50 could stabilize the pullback. (2 charts)
Source: Longview Economics
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3. Fitch expects tin prices to decline this year, before gradually recovering over the next few years. Higher supply and weaker consumer electronic spending could be an immediate headwind.
Source: Fitch Solutions Macro Research
4. Palladium prices are now down over 40% vs. 12 months ago.
5. Finally, we have last week’s returns across key commodity markets.
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Energy
1. US drilling activity remains stalled.
2. US natural gas futures are rebounding, …
… boosted by expectations of a cold March.
Source: NOAA
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3. CTAs have been increasingly bearish on crude oil.
Source: Deutsche Bank Research
4. Energy sector free cash flow yield surged to multi-decade highs in recent quarters.
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Equities
1. Deutsche Bank’s positioning index pulled back last week.
Source: Deutsche Bank Research
But CTAs continue to boost their exposure.
Source: Deutsche Bank Research
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2. Narrowing corporate profit margins suggest firms are having difficulties passing through rising labor costs.
Source: Alpine Macro
3. Service companies’ earnings momentum is outpacing goods-producing businesses.
Source: Oxford Economics
The spread between ISM manufacturing and non-manufacturing orders indices signals underperformance ahead for goods-producing companies.
Source: Oxford Economics
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4. S&P 500 high-beta stocks have significantly diverged from economic data …
Source: Piper Sandler
…and outpacing past Fed pivots by a wide margin.
Source: Piper Sandler
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5. Global equity valuations are still relatively high, which typically occurs during the late-cycle phase.
Source: MRB Partners
6. S&P 500 valuations need to adjust lower to keep up with rising real yields.
7. Stocks increasingly look unattractive relative to fixed-income products.
• S&P earnings yield vs. investment-grade bonds:
Source: Morgan Stanley Research
• S&P earnings yield vs. Treasury bills:
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8. Demand for VIX call options remains elevated, signaling persistent concerns about stock market downside risks.
Source: Simon White, Bloomberg Markets Live Blog
9. Defense companies have been outperforming as weapons demand surges.
10. Finally, we have some performance data from last week.
• Sectors:
• Equity factors:
• Macro basket pairs:
• Thematic ETFs:
• Largest US tech firms:
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Credit
1. US investment-grade bond supply has been rising.
Source: FHN Financial
2. Investment-grade spreads are low as a share of yields.
Source: Morgan Stanley Research
3. US and European high-yield fund flows have diverged.
Source: Deutsche Bank Research
4. Here is last week’s performance by asset class.
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Rates
The 10-year yield declined during the 2011 and 2013 debt ceiling negotiations.
Source: Morgan Stanley Research
The 2011 decline accelerated after S&P downgraded the US credit rating.
Source: Morgan Stanley Research
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Global Developments
1. This chart shows total returns of major assets in the last three years since the first COVID-19 sell-off. Returns reflect a massive reflation trade.
Source: Deutsche Bank Research
Here is a look at total returns one year since the start of the Russia/Ukraine war. Bonds sold off as central banks hiked rates to combat rising inflation.
Source: Deutsche Bank Research
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2. The US dollar trade-weighted index is testing resistance at the 200-day moving average.
Source: @TheTerminal, Bloomberg Finance L.P.
3. The improvement in US and euro-area economic growth has weighed on equity and bond prices. Markets are anticipating “higher for longer” interest rates.
Source: MRB Partners
4. Finally, we have some DM performance data from last week.
• Trade-weighted currency indices:
– DM currencies vs. USD:
Source: Capital Economics
• Large-cap equity indices:
• Bond yields:
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Food for Thought
1. Remote work share of postings on Indeed:
Source: @WSJ Read full article
2. Paid days worked from home (holding at 30%):
Source: WFH Research Read full article
3. Teens on social media:
Source: The Economist Read full article
4. Search engine market share:
Source: @genuine_impact
5. Are you addicted to digital devices?
Source: @CivicScience
6. US requests to sponsor Ukrainian refugees, per capita:
Source: @axios Read full article
7. What happens after Americans lose Medicaid coverage?
Source: KFF Read full article
8. Views on Super Bowl ads:
Source: @CivicScience Read full article
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