A cautious rate hike

The Daily Shot: 23-Mar-23
The United States
The United Kingdom
Europe
Asia – Pacific
Emerging Markets
Commodities
Energy
Equities
Credit
Rates
Food for Thought



 

The United States

1. The FOMC delivered a cautious rate hike, raising concerns about the banking sector turmoil.
 

 
The statement suggests that the Fed’s tightening is nearing completion.
 
Source: @NickTimiraos  
 
The dot-plot median was unchanged for the end of this year, with a small increase for 2024.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
The market is now well below the FOMC’s rate projections.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
The FOMC raised its inflation forecasts for both the current year and 2024.
 

 
Not all economists see the unemployment rate rising as quickly as the Fed expects. Here is a forecast from Scotiabank.
 
Source: Scotiabank Economics  
 
More FOMC members saw inflation risks as “balanced.”
 
Source: Board Of Governors of The Federal Reserve System  

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2. One more rate hike ahead in May? Perhaps.
 

 
Here is a forecast from Wells Fargo.
 
Source: Wells Fargo Securities  
 
The rate trajectory expectations have repriced massively over the past couple of weeks.
 

 
The market continues to expect rate cuts this year, even as Chair Powell continues to push back on the idea.
 

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3. The stock market sold off, which was driven more by Treasury Secretary Yellen’s comments (see the equities section).
 

 
The dollar declined.
 

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4. Mortgage applications continue to track 2014 levels.
 

 
This chart shows the rate lock count.
 
Source: AEI Housing Center  
 
The spread between mortgage rates and the 10-year Treasury yield has been elevated.
 
Source: Yardeni Research  

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5. Consumers are facing tight credit conditions.
 
Source: Torsten Slok,¬†Apollo  
 
How is credit card spending different compared to last year?
 
Source: BofA Global Research  


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The United Kingdom

1. The CPI report surprised to the upside.
 
Source: CNBC   Read full article  
 

 

 
Retail prices jumped.
 

 
Food inflation is out of control.
 

 
Here are some additional CPI components.
 
Services:
 

 
Clothing:
 

 
Pharmaceuticals:
 

 
Restaurants and hotels:
 

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2. Gilt yields jumped, …
 

 
… with BoE rate hike expectations rising after the inflation report.
 

 
The pound sagged against the euro.
 

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3. The PPI continues to moderate.
 

 
4. Industrial orders weakened further this month.
 

 
Price pressures are easing, …
 

 
Source: Reuters   Read full article  
 
… which signals lower PPI ahead.
 
Source: Pantheon Macroeconomics  

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5. Gains in the official index of home price appreciation slowed more than expected in January.
 

 
6. There has been a persistent wave of worker strikes over the past six months (2 charts).
 
Source: Variant Perception  
 
Source: Macrobond  


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Europe

1. A third of investors view a systemic credit event as the biggest market risk, according to a BofA survey of European fund managers.
 
Source: BofA Global Research  
 
61% of investors surveyed expect a recession in Europe over the next 12 months.
 
Source: BofA Global Research  
 
Global fund managers view long exposure to European equities as the most crowded trade.
 
Source: BofA Global Research  

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2. Burning coal for power in Germany is no longer profitable.
 
Source: @megacontango, @business   Read full article  
 
3. Anyone looking to hire banking professionals?
 
Source: @financialtimes   Read full article  


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Asia – Pacific

1. Japan’s bank lending is growing again, while corporations are reducing their cash and security positions.
 
Source: Variant Perception  
 
Japanese banks have significantly outperformed since the yield curve control (YCC) band widened in December 2022.
 
Source: BCA Research  

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2. Economists see Taiwan’s GDP growing less than 2% this year.
 


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Emerging Markets

1. South Africa’s CPI topped expectations.
 

 
Food inflation continues to surge.
 

 
Source: Daily Maverick   Read full article  

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2. Argentina’s GDP declined less than expected last quarter.
 

 
The unemployment rate continued to fall.
 

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3. Retailers in Colombia are becoming more cautious.
 

 
4. This chart shows 10-year bond term premia in select economies.
 
Source: Oxford Economics  


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Commodities

1. Gold is making another run at $2,000/oz.
 
Source: barchart.com  
 
2. Concerns over tight supplies sent cocoa futures to the highest level since 2020.
 


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Energy

1. US crude oil inventories climbed slightly last week (first chart shows week-over-week changes).
 

 

 
But gasoline inventories tumbled, …
 

 

 
… as demand improves.
 

 
Gasoline futures jumped.
 

 
Refinery runs remain soft for this time of the year.
 

 
Crude oil inventories at Cushing, OK (WTI settlement hub) are rolling over.
 

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2. Money managers sharply reduced their energy exposure last week.
 
Source: @JKempEnergy  
 
3. US natural gas production remains elevated.
 
Source: Capital Economics  


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Equities

1. Bank shares tumbled after Treasury Secretary Yellen’s comments on deposit guarantees.
 
Source: CNBC   Read full article  
 

 
US financials have sharply underperformed European peers.
 

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2. Small caps have widened their recent underperformance.
 

 
The Russell 2,000 small-cap ETF (IWM) appears oversold, although resistance could stall a brief recovery. (2 charts)
 
Source: Variant Perception  
 
Source: Variant Perception  
 
The IWM/SPY price ratio is approaching initial support.
 

 
The Russell 2000 underperformance vs. the Nasdaq 100 has been massive this month.
 

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3. Apple’s and Microsoft’s combined share of S&P 500 capitalization is near record highs.
 
Source: @WSJ   Read full article  
 
4. Next, we have some sector updates.
 
Fund managers’ sector allocations:
 
Source: BofA Global Research  
 
Buy ratings:
 
Source: @FactSet   Read full article  
 
Beta to Treasuries:
 
Source: TS Lombard  


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Credit

1. European financials’ CDS spreads are tightening.
 

 
US financial CDS spreads are still elevated.
 

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2. UBS shares sold off but held their outperformance.
 

 
3. The European CoCo market seems to be stabilizing.
 

 
The UBS CoCo is trading at a substantial discount to the rest of Europe.
 
Source: Bloomberg Law   Read full article  

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4. This scatterplot shows declines in bank share prices vs. bank balance sheet vulnerability by country.
 
Source: Oxford Economics  
 
5. In the US, First Republic Bank’s shares and preferreds remain under pressure.
 

 

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6. US deposits’ decline was faster than the one in Europe due to the Fed’s QT.
 
Source: Deutsche Bank Research  
 
Source: Alpine Macro  

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7. Will dollar liquidity tightness become more acute as the Fed continues QT?
 
Source: BCA Research  
 
8. Investors’ concerns about credit/counterparty risks have risen this month.
 
Source: BofA Global Research  


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Rates

1. Treasury market liquidity deteriorated since the SVB fiasco.
 

 
2. More fixed-income investors plan to increase their portfolio duration, according to a JP Morgan survey.
 
Source: JP Morgan Research; @WallStJesus  
 
3. Reserve balances are at pre-QT levels.
 
Source: Simon White, Bloomberg Markets Live Blog  


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Food for Thought

1. The effective corporate tax rate for the largest US firms:
 
Source: @TopdownCharts  
 
2. IT job postings on Indeed:
 
Source: @WSJ   Read full article  
 
3. US production of high-tech equipment:
 
Source: Yardeni Research  
 
4. News sites’ change in web traffic:
 
Source: @chartrdaily  
 
5. Sustainable coffee?
 
Source: Barclays Research  
 
6. Cancer cases and the mortality rate:
 
Source: USAFacts  
 
7. Educational attainment by state:
 
Source: USAFacts  
 
8. Working-age population in the largest economies:
 
Source: @portereduardo, @opinion   Read full article  
 
9. Biggest movie franchises:
 
Source: @genuine_impact  
 

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