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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