Posted on by The Daily Shot Editor: Lev Borodovsky

The market is finally coming to terms with no Fed rate cuts in 2023

The Daily Shot: 28-Feb-23
• The United States
• The Eurozone
• Europe
• Japan
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Equities
• Rates
• Food for Thought

 

The United States

1. The headline durable goods orders index declined sharply in January, …
 

 
… as Boeing’s orders decreased from a spike of 250 aircraft in December to 55 in January.
 

 
• But durable goods orders excluding transportation topped expectations. Capital goods orders, an indicator of business investment, were also robust.
 

 
Source: Reuters   Read full article  
 
• However, adjusted for inflation, capital goods orders were roughly flat last month.
 

 
• The ISM Manufacturing PMI orders index points to weakness ahead for durable goods orders.
 
Source: Pantheon Macroeconomics  

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2. The Dallas Fed’s manufacturing index weakened this month as demand slumped.
 

 
• Factories reduced their workforce.
 

 
• More firms reported rising input costs.
 

 
• Outlook deteriorated.
 

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3. Next, we have some updates on the housing market.
 
• January new home sales topped expectations.
 

 
– But rising mortgage rates, …
 

 
… and falling mortgage applications signal more pain ahead for new home sales.
 
Source: Pantheon Macroeconomics  
 
– Next, we have new homes sold by stage of construction (seasonally adjusted).
 
Source: Chart and data provided by Macrobond  
 
– Inventories of new homes are elevated when measured in months of supply.
 

 
This chart shows new home inventories by stage of construction.
 
Source: Calculated Risk  
 
– The median new home price is now down on a year-over-year basis.
 
Source: Wells Fargo Securities  
 
Here is the distribution of prices over time.
 
Source: Calculated Risk  
 
• Pending home sales were higher than expected last month, but this strength is not expected to last as mortgage rates climb, …
 

 

 
Source: CNBC   Read full article  
 
… and loan applications slump.
 
Source: Pantheon Macroeconomics  
 
• The decline in home sales has been unusually rapid in the current rate hiking cycle.
 
Source: Morgan Stanley Research  

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4. The Citi Economic Surprise Index continues to climb.
 

 
5. Container shipping costs are still drifting lower.
 

 
Here is Goldman’s bottleneck index.
 
Source: Goldman Sachs; @AyeshaTariq, h/t @dailychartbook  
 
With inventories on the rise, warehouse costs have been surging.
 
Source: CNBC   Read full article  

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6. The market is finally coming to terms with no Fed rate cuts in 2023. Here is market pricing for the fed funds rate change in the second half of this year.
 

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The Eurozone

1. Industrial and services confidence indicators weakened this month, coming in below expectations.
 

 

 
The overall economic confidence index, which includes consumer sentiment, was flat.
 

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2. The US and euro-area economic surprise indices continue to converge.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
3. The 10-year Bund yield hit the highest level since 2011.
 

 
4. Italy’s consumer confidence continues to rebound.
 

 
5. Euro-area monetary conditions are deteriorating rapidly, with the M1 money supply now down on a year-over-year basis.
 

 
That doesn’t bode well for economic growth.
 
Source: Pantheon Macroeconomics  
 
• Loan growth is slowing.
 

 

 
Business loan demand has tumbled.
 
Source: Longview Economics  

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Europe

1. Sweden’s retail sales are down sharply on a year-over-year basis.
 

 

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2. Norway’s retail sales edged higher in January.
 

 
3. Switzerland’s central bank continues to remove liquidity from the financial system.
 

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Japan

1. The 10-year JGB yield is holding at the BoJ’s cap.
 

 
The BoJ has been helping banks finance JGB purchases.
 
Source: Simon White, Bloomberg Markets Live Blog  

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2. Industrial production declined last month.
 

 
3. Retail sales were stronger than expected.
 

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Asia – Pacific

1. FX reserves have been rebounding across Asia.
 
Source: The Economist   Read full article  
 
2. Australia’s credit growth continues to slow.
 

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China

1. Mobility indicators have surged.
 
Source: @Marcomadness2  
 
2. The divergence between corporate and household credit demand has been remarkable.
 
Source: Goldman Sachs; III Capital Management  
 
3. China’s and the overall EM forward earnings estimates have diverged.
 
Source: Barclays Research  
 
4. A sustained equity rally in China requires credit expansion.
 
Source: Gavekal Research  
 
5. In January, Hong Kong’s exports were down nearly 40% on a year-over-year basis.
 

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Emerging Markets

1. Brazil’s loan delinquencies/defaults continue to climb.
 

 
2. Mexico’s exports were surprisingly strong in January.
 

 
The Mexican peso has been surging …
 

 
… despite soft manufacturing orders in the US.
 
Source: BCA Research  

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3. Turkey’s trade deficit hit a new record last month.
 

 
4. Vietnam’s economy shows strength.
 
Source: Reuters   Read full article  
 
• CPI (lower than expected):
 

 
• Retail sales:
 

 
• Exports:
 

 

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Cryptocurrency

1. Bitcoin’s trading volume accelerated over the past month.
 
Source: @KaikoData  
 
2. Bitcoin’s correlation with the Nasdaq 100 index is decreasing. The relationship is now more in-line with mid-2021 when BTC fluctuated in a tight range.
 
Source: @StocktonKatie  
 
3. Crypto funds saw minor outflows last week.
 
Source: CoinShares   Read full article  
 
Investors continued to exit long-bitcoin funds and add to short-bitcoin funds.
 
Source: CoinShares   Read full article  

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4. Ethereum gas prices are starting to tick higher, possibly reflecting an increase in network activity. The relationship with ETH’s token price can vary.
 
Source: Glassnode   Read full article  
 
5. Robinhood received an investigative subpoena from the SEC related to its crypto listings and custody.
 
Source: @antoniabmassa, @crypto   Read full article  

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Commodities

1. The cobalt bubble has popped.
 

 
Source: The Economist   Read full article  

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2. US wheat prices are under pressure amid favorable US weather conditions and well-supplied international markets.
 

 
Source: Reuters   Read full article  

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Equities

1. For now, the S&P 500 is holding support at the 200-day moving average.
 

 
We could see substantial selling if the index closes below support.
 
Source: @luwangnyc, @markets   Read full article  

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2. The market’s upside is capped by valuation.
 
Source: Truist Advisory Services  
 
3. Growth stocks’ correlation to inflation-linked Treasuries (TIPS) is holding at multi-year highs (inverse correlation to real yields).
 

 
4. Share buybacks have been a tailwind for stocks (2 charts).
 
Source: Deutsche Bank Research  
 
Source: @WSJ   Read full article  
 
Companies known for buying back their shares have been outperforming.
 

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5. Either US manufacturing activity rebounds or stocks underperform bonds going forward.
 
Source: Alpine Macro  
 
6. Infrastructure spending (ongoing and planned) has been boosting shares of construction and engineering firms.
 

 
7. The S&P 500 rallied through the 1926-1927 recession, which preceded a top ahead of the Great Depression.
 
Source: Variant Perception  
 
There were two other times the S&P 500 bottomed before the start of a US recession, according to Variant Perception. (2 charts)
 
Source: Variant Perception  
 
Source: Variant Perception  

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Rates

1. The T-bill curve suggests a possible X-date in August.
 
Source: Morgan Stanley Research  
 
Morgan Stanley expects T-bill issuance to turn negative in late-February/early-March as the Treasury runs against extraordinary measures. The remaining T-bill supply could be backloaded toward the second half of this year.
 
Source: Morgan Stanley Research  

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2. Seasonals suggest the 10-year Treasury yield could stabilize before a summertime drop.
 
Source: Deutsche Bank Research  

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Food for Thought

1. US soybean yields before and after the GMO era:
 
Source: @kannbwx  
 
2. Sports betting demographics:
 
Source: SuperBettingSites  
 
• Sports betting revenues:
 
Source: Statista  

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3. Tesla vehicle price premiums:
 
Source: @tsrandall, @business   Read full article  
 
4. Is it important to be rich?
 
Source: @technology   Read full article  
 
5. Projected US fertility rates:
 
Source: CBO   Read full article  
 
6. China exporting semiconductors to Russia:
 
Source: @WSJ   Read full article  
 
7. Ukrainian territory held by Russia:
 
Source: Brookings   Read full article  
 
8. Far-right protests by issue:
 
Source: The Economist   Read full article  
 
9. How accurate is AI in answering medical questions?
 
Source: Ground Truths   Read full article  
 
10. ACA enrollment:
 
Source: @WSJ   Read full article  
 
11. Opioid overdose deaths due to fentanyl:
 
Source: USAFacts  
 
12. Preferences for spicy food:
 
Source: @loverofgeography  
 

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