Bank crisis makes US recession much more likely

The Daily Shot: 16-Mar-23
Credit
Equities
Energy
Commodities
Emerging Markets
China
Asia – Pacific
Japan
The Eurozone
Canada
The United States
Global Developments
Food for Thought



 

Credit

1. Let’s start with Credit Suisse. The chronology of events over the past 24 hours is laid out in the headlines below.
 
Starting point:
 
Source: Reuters   Read full article  
 
Market reaction:
 
Stock price:
 

 
CDS spread (nearing 1000 bps):
 

 
Senior bond price:
 

 
CoCo price:
 

 
Counterparty fears:
 
Source: Bloomberg Law   Read full article  
 
The request:
 
Source: @financialtimes   Read full article  
 
The response:
 
Source: @WSJ   Read full article  
 
The rescue:
 
Source: @WSJ   Read full article  

——————–

 
2. Other European banks’ shares tumbled, …
 

 
Source: TS Lombard  
 
Credit default swap spreads have widened, but there is no panic.
 

 
European banks are generally in good shape.
 
Source: Wells Fargo Securities  

——————–

 
3. With Credit Suisse in trouble, attention turned to large banks in the US.
 

 
However, one regional US bank spooking investors is First Republic Bank.
 

 
This chart shows Google search activity for “First Republic.”
 
Source: Google Trends  
 
Debt was downgraded to junk.
 
Source: Fitch Ratings   Read full article  
 
Here is the bond price.
 

 
What to do?
 
Source: @GillianTan, @MattMonks123, @business   Read full article  

——————–

 
4. In the wake of SVB, smaller banks will be reorganizing their balance sheets, leading to tighter credit conditions in the US. This development makes a recession much more likely.
 
Source: Torsten Slok,¬†Apollo  


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Equities

1. The Fear & Greed index is in “extreme fear” territory, which tightens financial conditions.
 
Source: CNN Business  
 
2. Dealer gamma is negative, which could exacerbate volatility.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
3. Stifel expects a secular bear market in stocks versus commodities, which typically occurs after major market tops.
 
Source: Stifel  
 
4. Stocks tend to bottom in March.
 
Source: Equity Clock  
 
5. Industrials have been seeing inflows.
 
Source: Deutsche Bank Research  
 
6. Companies exposed to the US government are underperforming.
 

 
7. The stock market was tightly linked to the US monetary policy between 1966 and 1978.
 
Source: @TheTerminal, Bloomberg Finance L.P.  


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Energy

1. Crude oil has been under pressure amid bank crisis fears.
 

 
Source: Reuters   Read full article  

——————–

 
2. US gross crude oil exports are near record levels.
 

 
Below, we have some data on the destinations of US oil exports (2 charts).
 
Source: @EIAgov  
 
Source: @EIAgov  

——————–

 
3. The US rig count declined again last week.
 

 
4. US crude oil inventories remain elevated.
 

 
Product inventories are inside the 5-year range.
 

 
Gasoline demand is still relatively soft.
 

 
Refinery runs improved last week.
 

——————–

 
5. The Global X Uranium ETF has been selling off.
 


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Commodities

1. Industrial metals prices took a hit.
 
Source: Nikkei Asia   Read full article  
 
The LME metals index:
 

 
Copper:
 

 
Zinc
 

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2. Gold has been rallying …
 

 
Source: Reuters   Read full article  
 
… together with the US dollar. That’s highly unusual, indicating a rush into “safe-haven” assets.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Gold tends to outperform the S&P 500 after yield curve inversions.
 
Source: @TaviCosta  

——————–

 
3. The Invesco Commodity Index ETF (DBC) is declining from long-term resistance.
 

 
The DBC/TLT price ratio is also declining, reflecting commodity weakness relative to Treasuries.
 


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Emerging Markets

1. India’s exports are holding up well.
 

 
The trade deficit was lower than expected last month.
 

——————–

 
2. Turkey’s government deficit has blown out.
 

 
Source: Bloomberg Tax   Read full article  

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3. The Nigerian CPI continues to surge, even amid the scarcity of the naira (due to the currency “redesign” policy).
 

 
4. South Africa’s retail sales have been strengthening.
 

 
5. Peru’s economic activity deteriorated in January.
 


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China

1. After months of declines China’s new home prices jumped in February.
 

 
2. Here are the key economic indicators.
 
Source: Gavekal Research  
 
3. Companies on the US “Entity List” have outperformed over the past two years.
 
Source: Alpine Macro  


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Asia – Pacific

1. New Zealand’s GDP declined more than expected last quarter, …
 

 
… after a strong run.
 
Source: @ANZ_Research  

——————–

 
2. Next, we have some updates on Australia.
 
The jobs market rebounded last month, topping expectations. An RBA rate hike ahead?
 

 

 
The unemployment rate dropped.
 

 
Source: Reuters   Read full article  
 
The participation rate edged higher.
 

 
Hours worked continue to climb.
 
Source: @ANZ_Research  
 
Despite the robust jobs data, bond yields are sharply lower.
 

 
Inflation expectations are moderating.
 


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Japan

1. Exports strengthened last month.
 

 
The trade deficit narrowed more than expected.
 

——————–

 
2. Core machinery orders jumped in January.
 

 
Source: RTT News   Read full article  


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The Eurozone

1. The market no longer sees a 50 bps rate hike.
 

 
2. Industrial production strengthened in January.
 

 
Source: MarketWatch   Read full article  

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3. News-based economic uncertainty in Germany receded but remains elevated.
 
Source: Deutsche Bank Research  


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Canada

1. Bank shares remain under pressure.
 

 
2. The uptrend in Canadian energy stocks is weakening.
 
Source: Aazan Habib, Paradigm Capital  
 
3. This chart shows the Q4 earnings growth by sector.
 
Source: @FactSet   Read full article  
 
4. Existing home sales increased last month.
 

 
Housing starts surprised to the upside.
 

 
Home price declines are slowing. Here is a forecast from Capital Economics.
 
Source: Capital Economics  


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The United States

1. The 2-year Treasury yield is down 118 bps from the peak.
 

 
2. Retail sales declined last month.
 
Nominal monthly changes:
 

 
Contributions:
 
Source: @GregDaco  
 
However, the “core” retail sales (control group) unexpectedly increased.
 

 
Source: Reuters   Read full article  
 
Below are the retail sales levels – nominal and real.
 
Headline retail sales:
 

 
Core retail sales:
 

——————–

 
3. The Atlanta Fed’s Q1 GDP growth tracker climbed to 3.2%, …
 
Source: @AtlantaFed   Read full article  
 
… driven by stronger spending on goods.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

——————–

 
4. The PPI unexpectedly declined in February.
 

 
The core PPI was flat.
 

 
Softer core PPI signals slower CPI ahead.
 
Source: Pantheon Macroeconomics  
 
The weakness in the core PPI was driven, in part, by trade services (business markups). Shrinking margins represent good news for the Fed, but not so much for the stock market.
 

 
Here is the core PPI excluding trade services.
 

——————–

 
5. Business inventories declined in January.
 

 
Inventory-to-sales ratios were lower.
 

——————–

 
6. CEO outlook improved this quarter (before the banking crisis).
 
Source: @axios   Read full article  
 
7. This chart shows commercial real estate vacancy rates.
 
Source: Wells Fargo Securities  


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Global Developments

1. Which banking sectors sold off the most in recent days?
 
Source: Oxford Economics  
 
2. Job postings on Indeed are slowing, especially in Australia.
 
Source: @ShaneOliverAMP  
 
3. Since 2010, productivity growth has been the fastest in countries such as China, India, and Vietnam.
 
Source: Codera Analytics   Read full article  


——————–

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Food for Thought

1. US state and federal prison population:
 
Source: The Sentencing Project  
 
2. People under US correctional supervision:
 
Source: The Sentencing Project  
 
3. Imprisonment rates by state:
 
Source: The Sentencing Project  
 
4. Vehicle theft in the 30 US cities with available data:
 
Source: Council on Criminal Justice  
 
5. Women on banknotes:
 
Source: Statista  
 
6. Replacing coal capacity:
 
Source: Canary Media   Read full article  
 
7. Clean energy projects:
 
Source: Canary Media   Read full article  
 
8. Atmospheric concentrations of CO2 over time:
 
Source: EPA   Read full article  
 
9. Views on China in the US:
 
Source: Alpine Macro  
 
10. An annoying adult or a misbehaving child?
 
Source: PhotoAiD   Read full article  

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