A notable jump in unemployment applications

The Daily Shot: 10-Mar-23
The United States
Europe
Japan
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. Initial jobless claims jumped last week. Is this the beginning of an upward trend in US unemployment?
 

 
The number of unemployment applications has now surpassed the average of 2018, 2019, and 2022 levels.
 

 
Continuing claims are now well above last year’s levels.
 

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2. Next, we have some additional updates on the labor market.
 
What should we expect from today’s payrolls report?
 
The market sees 225k jobs created last month.
 

 
Oxford Economics projects 200k.
 
Source: Oxford Economics  
 
Strong ISM survey employment indices suggest that the figure could be higher.
 
Source: Torsten Slok, Apollo  
 
According to Pantheon Macroeconomics, the increase in hours worked that occurred in January is expected to be reversed.
 
Source: Pantheon Macroeconomics  
 
Leading indicators signal increasing pressure on the labor markets ahead.
 
Temp employment:
 
Source: Simon White, Bloomberg Markets Live Blog  
 
Small business hiring plans:
 
Source: Piper Sandler   
 
Employment growth tends to be strong just before recessions.
 
Source: Gavekal Research  
 
This chart shows GDP and unemployment changes during recessions.
 
Source: Alpine Macro  

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3. The Fed’s Beige Book sentiment shows some improvement this quarter. Here is the index from Oxford Economics.
 
Source: Oxford Economics  
 
There was less talk about price pressures and recession. But businesses are increasingly concerned about higher rates.
 
Source: Oxford Economics  

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4. Household net worth increased last quarter.
 

 
In real terms, household net worth is on its pre-COVID path.
 

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5. The banking system remains flush with deposits.
 
Source: MRB Partners  
 
6. Manufacturing labor costs have risen sharply in recent years, posing challenges for reshoring projects.
 
Source: Wells Fargo Securities  
 
7. The US remains reliant on Chinese exports.
 
Source: Gavekal Research  


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Europe

1. The euro appears overbought, although speculative positioning and sentiment are not at extreme levels.
 
Source: BCA Research  
 
Drawdowns of 4% to 6% in the euro are very common, even in bull markets.
 
Source: BCA Research  

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2. Sweden’s January GDP estimate topped expectations (2 charts).
 

 
Source: Nordea Markets  
 
Source: @ottummelas, @nicrolander, @economics   Read full article  
 
Household consumption increased.
 

 
After surging over the past couple of years, new industrial orders are back at pre-COVID levels.
 

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3. European financials are testing resistance.
 
Source: Aazan Habib, Paradigm Capital  
 
4. This chart shows employment rates for Europeans with and without children.
 
Source: Eurostat   Read full article  


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Japan

1. The BoJ kept its policy unchanged.
 
Source: Reuters   Read full article  
 
The 10-year JGB yield declined from the BoJ’s cap level.
 

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2. Machine tool orders are about 11% below last year’s levels.
 

 
Source: Nippon.com   Read full article  

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3. The PPI declined more than expected.
 

 
4. Nominal GDP has flatlined since the mid-1990s.
 
Source: Deutsche Bank Research  


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Asia – Pacific

1. Let’s begin with South Korea.
 
Economists have been downgrading South Korea’s GDP growth forecasts for this year.
 

 
The current account deficit hit a new record.
 

 

 
Lending to households has been slowing.
 

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2. Australia’s stock market took a hit, pressured by weakness in financials.
 

 
3. New Zealand’s manufacturing sector is growing again.
 


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China

1. We won’t see a significant boost in fiscal stimulus, according to BCA Research.
 
Source: BCA Research  
 
2. Without inflationary pressures, there is no monetary policy drag in China – unlike in DM economies.
 
Source: TS Lombard  
 
3. China’s government bonds have outperformed Treasuries.
 
Source: Gavekal Research  
 
4. The PPI weakness has been driven by upstream price declines.
 
Source: Arcano Economics  
 
5. Hong Kong-listed stocks are under pressure.
 


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Emerging Markets

1. Mexico’s core CPI appears to have peaked.
 

 
2. South Africa’s current account is back in deficit territory.
 

 
3. Egypt’s core CPI climbed above 40% last month as the currency devaluation takes its toll.
 


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Cryptocurrency

1. Bitcoin is back below $20k, testing support at the 200-day moving average.
 

 
2. Cryptos had a tough week with Litecoin (LTC) underperforming other large tokens.
 
Source: FinViz  
 
3. The volume of transfers on Silvergate bank’s exchange network (SEN) steadily declined over the past two years. SEN facilitated off-blockchain money transfers between large investors and crypto exchanges. The network has been shut down as the bank announced liquidation.
 
Source: CoinDesk   Read full article  
 
4. Bitcoin’s put/call ratio is rising from recent lows.
 
Source: The Block Research  


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Commodities

1. Gold remains vulnerable amid elevated real yields.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
2. Russia says it may not allow Ukraine to export more grain, as the current deal expires.
 
Source: Reuters   Read full article  
 
But the market remains optimistic about the export deal being extended, sending US wheat futures lower.
 

 
Here is Bloomberg’s grains index.
 


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Energy

1. The rebound in crude oil prices could not be sustained due to the Federal Reserve’s hawkish stance.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
2. This chart shows betas to crude oil across energy equity sectors.
 
Source: Alpine Macro  
 
3. Energy sector CapEx has not kept up with free cash flow.
 
Source: Alpine Macro  
 
4. US natural gas in storage remains near the 5-year high.
 

 
5. Including emissions costs in the EU, natural gas is once again cheaper than coal for electricity production.
 
Source: Gavekal Research  


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Equities

1. The S&P 500 declined sharply this week, closing below its 200-day moving average.
 

 
2. Equities have diverged from bonds as recession risks resurface.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
3. What drove the recent declines? Let’s take a look at sector performance.
 
Banks (2 charts):
 

 
Source: @WSJ   Read full article  
 
By the way, regional banks have been stuck in a long-term downtrend relative to the S&P 500.
 

 
The SPDR Financial Sector ETF (XLF) declined from the top of its two-year range relative to the S&P 500. The recovery from 2020 lows has been weak.
 

 
Transportation (2 charts):
 

 
Source: @axios   Read full article  
 
Metals & Mining:
 

 
Consumer Discretionary:
 

 
Tech:
 

 
Utilities:
 

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4. Next, we have some equity factor performance data over the past five business days.
 
Small caps:
 

 
Value vs. growth:
 

 
High-beta:
 

 
Buyback:
 

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5. On an equal-weighted basis, industrials have broken out relative to the S&P 500.
 
Source: @meanstoatrend  
 
Industrials have been in a long-term downtrend relative to technology and communication stocks. Will we see a rotation given recent outperformance?
 
Source: BCA Research  

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6. Hedge funds have been reducing their exposure to the market for some time, according to Goldman.
 
Source: Goldman Sachs  
 
7. The Nasdaq Composite is currently following the Dow Jones trajectory of the early 1970s.
 
Source: BofA Global Research  
 
8. The percentage of JP Morgan’s clients planning to increase equity exposure has been trending lower.
 
Source: JP Morgan Research  
 
9. Finally, we have some updates on the volatility markets.
 
Demand for VIX call options keeps climbing.
 
Source: Chris Murphy, Susquehanna International Group  
 
VIX continues to hold support above 18.50. A breakout above its 40-week moving average could coincide with weakness in the S&P 500.
 

 
Deep out-of-the-money puts on SPY (S&P 500 ETF) have been relatively cheap (tail risk protection).
 
Source: @WSJ   Read full article  
 
Retail investors increasingly dominate the 0DTE S&P 500 and SPY options market (options maturing in less than 24 hours). This activity is not showing up in the total options market data.
 
Source: JP Morgan Research; @MattGarrett3  


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Credit

1. Silicon Valley Bank appears to be in trouble amid a bank run.
 

 
Source: Reuters   Read full article  

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2. Credit Suisse remains under pressure.
 

 

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3. HY bond trading has been low relative to IG
 
Source: Torsten Slok, Apollo  
 
4. Retail investors have been selling credit ETFs.
 
Source: Torsten Slok, Apollo  
 
But IG fund flows remain robust.
 
Source: BofA Global Research  


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Rates

1. Flows into Treasury funds have been strong.
 
Source: BofA Global Research  
 
2. Who owns Treasury securities?
 
Source: Goldman Sachs  
 
3. Very few of JP Morgan’s clients plan to boost their bond portfolio duration.
 
Source: JP Morgan Research  


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Global Developments

1. The global semiconductor cycle could be nearing a turning point, although US/China tensions could be a wildcard.
 
Source: MRB Partners  
 
2. These charts compare the size of the public sector in different countries.
 
Source: Codera Analytics   Further reading  


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Food for Thought

1. Spending tax refunds:
 
Source: @CivicScience   Read full article  
 
2. Buy-now-pay-later usage:
 
Source: EcommerceDB   Read full article  
 
3. Changes in US imports from Mexico vs. China:
 
Source: @WSJ   Read full article  
 
4. Consumption of fuel and materials per capita:
 
Source: Visual Capitalist   Read full article  
 
5. NYC hotel prices:
 
Source: Torsten Slok, Apollo  
 
6. US age distribution projections:
 
Source: CBO   Read full article  
 
7. US population growth projections:
 
Source: CBO   Read full article  
 
8. Digital piracy:
 
Source: @chartrdaily  
 
9. Emoji from 1884:
 
Source: @jasonzweigwsj   Read full article  

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Have a great weekend!


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