Posted on by The Daily Shot Editor: Lev Borodovsky

Bond market slump shows no signs of abating

The Daily Shot: 02-Mar-23
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Asia – Pacific
• China
• Emerging Markets
• Commodities
• Energy
• Equities
• Credit
• Global Developments
• Food for Thought

 

The United States

1. The ISM manufacturing index edged higher in February but remained well inside contraction territory.
 

 
– Here are the contributions.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
– The slump in manufacturing production accelerated.
 

 
– The pace of declines in new orders slowed.
 

 
– Factories reduced their workforce.
 

 
– Supplier delivery times continue to shorten.
 

 
– Input prices started rising again last month, which further spooked the bond markets.
 

 
• The ratio of cyclical to defensive equity sectors signals a rebound in factory activity ahead, …
 

 
… and so does the sharp rebound in China’s manufacturing activity (here and two charts below).
 
Source: Pantheon Macroeconomics  
 
Source: ING  
 
– However, South Korea’s weak exports point to downside risks.
 
Source: MUFG Securities  
 
• Separately, the ISM Milwaukee PMI is back in growth territory.
 

——————–

 
2. Rising manufacturing input costs (above) and stubbornly high inflation in Europe sparked further selling in global bond markets.
 
• The 10-year Treasury yield breached 4% again.
 

 
• The 2-year yield is nearing 5%.
 

 
• The 6-month T-bill yield is now firmly above 5%. How much do banks pay on savings accounts?
 

 
• The market-implied terminal rate is nearing 5.5%.
 

 

——————–

 
3. Mortgage applications continue to hit multi-year lows,…
 

 
… as the 30-year mortgage rate nears 7% again.
 
Source: Mortgage News Daily  

——————–

 
4. As in January, last month’s auto sales topped expectations, boosted by fleet sales – which have been offsetting soft retail demand.
 

 
5. Residential construction spending declined again in January, …
 
Source: Chart and data provided by Macrobond  
 
… and is now down on a year-over-year basis.
 

——————–

 
6. The Penta-CS consumer sentiment index declined going into the end of February (confirming the Conference Board’s report).
 
Source: @PentaGRP, @CivicScience  
 
7. Could the X-date come as early as June?
 
Source: Oxford Economics  

Back to Index

 

Canada

1. Factory activity returned to growth in February.
 

 
Price pressures continue to ease.
 

——————–

 
2. The deceleration in Canada’s broad money supply signals softer inflation ahead.
 
Source: BMO; @SBarlow_ROB  

Back to Index

 

The United Kingdom

1. Manufacturing contraction appears to be almost over.
 
Source: S&P Global PMI  
 
2. Mortgage approvals declined again but not as much as expected.
 

 
Source: Reuters   Read full article  
 
Consumer credit strengthened.
 

——————–

 
3. Home prices are now down on a year-over-year basis.
 

 
Source: Reuters   Read full article  

Back to Index

 

The Eurozone

1. Germany’s CPI topped expectations, following upside surprises from France and Spain.
 

 
Source: @WeberAlexander, @economics   Read full article  
 
These CPI reports point to a reacceleration in inflation at the Eurozone level.
 
Source: Pantheon Macroeconomics  
 
Bund yields continue to surge.
 

——————–

 
2. French and German final manufacturing PMIs were worse than the flash report.
 
Source: S&P Global PMI  
 
Source: S&P Global PMI  
 
However, factory activity returned to growth in Spain and Italy.
 
Source: World Economics  
 
Source: S&P Global PMI  

——————–

 
3. Next, we have some updates on Germany.
 
• Import prices continue to ease.
 

 
• Mortgage demand is crashing.
 
Source: Barkow Consulting   Read full article  
 
• Bankruptcies are on the rise.
 
Source: PGM Global  
 
• Government interest expense is increasing for the first time in over a decade.
 
Source: @DanielKral1  
 
• German startup investments have returned to their long-term trend after a record uptick in 2021.
 
Source: Deutsche Bank Research  
 
• The investment cycle in Germany, particularly in machinery and equipment, faces headwinds from weak credit demand and capacity utilization. (2 charts)
 
Source: Deutsche Bank Research  
 
Source: Deutsche Bank Research  

Back to Index

 

Asia – Pacific

1. Japan’s CapEx remained robust in Q4.
 

 
2. South Korea’s manufacturing activity continues to contract.
 
Source: S&P Global PMI  
 
Industrial production tumbled in January.
 

——————–

 
3. Taiwan’s leading index deteriorated further in January.
 

 
4. Australia’s building approvals tumbled at the start of the year.
 

Back to Index

 

China

1. Fiscal activity surged this quarter.
 
Source: China Beige Book  
 
2. Central banks substantially cut their holdings of Chinese bonds.
 
Source: Gavekal Research  
 
3. Infrastructure has replaced real estate as the engine of investment growth.
 
Source: ING  
 
3. This chart shows the contributions to China’s consumer inflation.
 
Source: Arcano Economics  
 
4. Hong Kong’s economy continues to underperform Singapore’s.
 
Source: @chen_long  

Back to Index

 

Emerging Markets

1. Let’s begin with Chile.
 
• Economic activity (trending higher again):
 

 
• Manufacturing output (below last year’s level but better than expected):
 

 
• Copper production (soft):
 

 
• Business confidence (rebounding):
 

 
• Retail sales (well below last year):
 

——————–

 
2. Brazil’s manufacturing contraction is nearly over.
 

 
• The unemployment rate continues to fall.
 

 
• The debt-to-GDP ratio declined in January.
 

——————–

 
3. Mexico’s factory activity is back in growth mode.
 

 
Remittances remain very strong.
 

——————–

 
4. Turkey’s GDP is slowing.
 

 
Source: @berilakman, @economics   Read full article  

——————–

 
5. Pakistan’s CPI continues to soar.
 

 
Source: Reuters   Read full article  

——————–

 
6. Nigeria’s manufacturing activity is crashing.
 
Source: S&P Global PMI  
 
Source: @bpolitics   Read full article  

——————–

 
7. Market pricing of sovereign credit risk is meaningfully higher since 2010 for countries such as Turkey, Argentina, and South Africa.
 
Source: Codera Analytics   Read full article  
 
8. EM equity valuations returned toward their long-term average.
 
Source: TS Lombard  
 
Many EM equity indices are trading at low valuations relative to history.
 
Source: TS Lombard  

Back to Index

 

Commodities

Sugar futures are surging.
 

 
Source: barchart.com   Read full article  

Back to Index

 

Energy

1. US crude oil inventories are back inside the five-year range.
 

 
2. US gross crude oil exports are hitting record highs.
 

 
3. Gasoline inventories have been softening, …
 

 
… as demand improves, …
 
Source: Princeton Energy Advisors  
 
… while refinery runs remain depressed.
 

 
– US gasoline futures have been rallying, which will soon be reflected at the pump.
 

 
4. Distillates inventories, on the other hand, are back inside the 5-year range.
 

——————–

 
5. India and China buy cheap crude oil from Russia, refine it, and sell diesel to Europe.
 
Source: @EIAgov  
 
European diesel inventories are now in good shape.
 
Source: @EIAgov  
 
6. European heating demand remains below the long-term average.
 
Source: @JKempEnergy  

Back to Index

 

Equities

1. The S&P 500 continues to test support at the 200-day moving average. A break below that level could trigger substantial selling pressure.
 

 
2. Rising real yields are inconsistent with current stock valuations. Something has to give.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
3. Is the market too optimistic about corporate sales?
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
4. Speculative stocks continue to underperform as the Reddit crowd retreats (2 charts).
 

 

——————–

 
5. The Invesco Equal-Weight Consumer Discretionary ETF (RCD) is holding up relative to the S&P 500.
 
Source: Aazan Habib, Paradigm Capital  
 
6. Equity ETF flows deteriorated at the start of the year.
 
Source: @bespokeinvest   Read full article  
 
7. Industrials are highly vulnerable to an economic downturn.
 
Source: Numera Analytics (@NumeraAnalytics)  

Back to Index

 

Credit

1. Mutual fund inflows into US investment-grade credit increased this year, outpacing ETF flows.
 
Source: Morgan Stanley Research  
 
• High-yield funds saw substantial outflows last month.
 

——————–

 
2. US investment-grade total returns rolled over sharply with the rate sell-off in February.
 
Source: Morgan Stanley Research  

Back to Index

 

Global Developments

1. Global manufacturing activity has stabilized, with the PMI index back at 50.
 
Source: S&P Global PMI  
 
Here are the PMI indicators by country.
 
Source: S&P Global PMI  
 
And this chart shows the one-month change.
 
Source: Deutsche Bank Research  

——————–

 
2. Here is a look at February and year-to-date performance across major assets. The risk-on rally ran out of steam last month.
 
Source: Deutsche Bank Research  
 
3. The dollar’s risk premium declined, but remains at high levels.
 
Source: Deutsche Bank Research  

——————–

Back to Index

 

Food for Thought

1. Average US tax refund by year:
 
Source: Earnest  
 
2. How borrowers intend to spend “forgiven” student debt:
 
Source: @CivicScience   Read full article  
 
3. US government spending as a share of GDP:
 
Source: BofA Global Research  
 
4. Expected population changes by age group:
 
Source: @jeffsparshott, @WSJ  
 
5. Fertility rates in select countries (2 charts):
 
Source: @samkimasia, @economics   Read full article  
 
Source: Torsten Slok, Apollo  

——————–

 
6. North Korea’s estimated GDP:
 
Source: @JonHerskovitz, @bpolitics   Read full article  
 
7. What are the preferred destinations for individuals considering migration?
 
Source: Gallup   Read full article  
 
8. I would rather ____ than file my taxes:
 
Source: LendingTree   Read full article  
 

——————–

Back to Index