Posted on by The Daily Shot Editor: Lev Borodovsky

Fed officials are pushing back on rate cut expectations

The Daily Shot: 18-May-23
• The United States
• Canada
• The Eurozone
• Japan
• Australia
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Rates
• Food for Thought

 

The United States

1. Let’s begin with the housing market.
 
• Mortgage applications dipped below 2014 levels last week.
 

 
The number of mortgage rate locks is also at multi-year lows.
 
Source: AEI Housing Center  
 
• Housing starts were almost 23% below last year’s levels in April, but residential construction has been stabilizing.
 

 

 
Source: @gutavsaraiva, @economics   Read full article  
 
– Construction permits dipped below 2018 levels, …
 

 
… which points to weakness ahead for housing starts.
 
Source: Pantheon Macroeconomics  
 
Construction permits for multi-family housing tumbled, …
 

 
… as the pipeline of new supply grows. Multi-family housing under construction hit another record high.
 

 
– This chart shows housing starts by region.
 
Source: Wells Fargo Securities  
 
• The number of houses under construction has been rolling over but remains well above new home sales.
 
Source: Chart and data provided by Macrobond  
 
Single-family homes under construction are down 16% on a year-over-year basis.
 

 
• The recent spike in home-equity extraction was well below pre-GFC levels as a ratio to disposable personal income.
 
Source: Liberty Street Economics   Read full article  
 
• The housing market has been a drag on retail sales.
 
Source: Yardeni Research  

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2. The market continues to price in Fed rate cuts later this year.
 

 
Here is a look at excess Fed tightening versus historical precedents.
 
Source: Deutsche Bank Research  
 
But Fed officials have been pushing back on rate cut expectations.
 
Source: AP News   Read full article  
 
Source: Chattanooga Times Free Press   Read full article  
 
Source: CNBC   Read full article  
 
Source: Reuters   Read full article  
 
• Most fund managers think that rete curs will begin in the first half of next year.
 
Source: BofA Global Research  
 
• The Fed is concerned that inflation could remain well above the FOMC’s forecasts.
 
Source: Mizuho Securities USA  
 
• If the impasse over the debt ceiling is resolved, the possibility of a rate hike in June cannot be ruled out.
 

 
Source: Reuters   Read full article  

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3. US Treasury cash balances continue to sink.
 
Source: @WSJ   Read full article  
 
4. US vehicle miles traveled hit a new high.
 
Source: @WSJ   Read full article  

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Canada

1. A BoC rate hike this summer looks increasingly likely.
 

 
Here is a forecast from Capital Economics.
 
Source: Capital Economics  

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2. Debt service ratios will rise further. Here is a forecast from Desjardins.
 
Source: Desjardins  
 
Resetting mortgages will be painful for homeowners.
 
Source: Desjardins  

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3. Strong population growth is boosting demand for housing.
 
Source: Scotiabank Economics  

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The Eurozone

1. Unemployment remains low for now.
 
• France:
 

 
• The Netherlands:
 

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2. Italy’s trade surplus hit a record high for this time of the year, boosted by improving terms of trade and exports to China.
 

 
3. Portugal’s economy is outperforming its euro-area peers.
 
Source: Arcano Economics  
 
4. Demand for credit has deteriorated sharply.
 
Source: ECB   Read full article  
 
5. TLTRO balances have halved from peak levels, tightening liquidity in the Eurozone (a form of QT).
 
Source: Deutsche Bank Research  
 
6. New car registrations dipped back below 2021 levels.
 

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Japan

1. Industrial production increased again in March.
 

 
Automobile manufacturing has been rebounding.
 

 
But electronics output is near the 2020 lows.
 

——————–

 
2. The trade deficit is narrowing, helped by improving terms of trade.
 

 
3. Inflation expectations continue to climb.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
4. Foreigners have been jumping into Japanese equities, …
 

 
… boosting prices.
 

 
Source: @WSJ   Read full article  
 
Foreign investors appreciate the investor-friendly policies implemented by Japanese companies.
 
Source: @WSJ   Read full article  

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Australia

1. The employment report was disappointing.
 

 
Source: Reuters   Read full article  
 
• The unemployment rate:
 

 
• Labor force participation:
 

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2. Inflation expectations jumped this month.
 

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China

1. The renminbi is rolling over.
 

 
2. Foreign direct investment dipped below 2021 levels.
 

 
3. Consumers are spending much more than last year, albeit well below pre-pandemic levels.
 
Source: MRB Partners  
 
4. Shadow banking activity has started to expand.
 
Source: Gavekal Research  

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Emerging Markets

1. Brazil’s retail sales topped expectations.
 

 
Source: Reuters   Read full article  

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2. South Africa’s retail sales are trending lower.
 

 
• The nation’s current account is back in deficit.
 
Source: Oxford Economics  
 
• The rand hit a new low.
 

 
Bond yields are surging.
 

Back to Index

 

Cryptocurrency

1. The Crypto Fear & Greed Index has been stuck in neutral over the past week.
 
Source: Alternative.me  
 
2. Most Web3 investments have been related to foundation blockchain infrastructure and NFT projects connected to gaming.
 
Source: @K33Research  
 
3. Bitcoin miners have retained just 20% of BTC on balance over the past two weeks. Mining is competitive, and it has been difficult to acquire enough revenue to cover costs.
 
Source: @glassnode  
 
4. Tether, the company behind the largest stablecoin USDT, said it will acquire BTC for reserves.
 
Source: CoinDesk   Read full article  

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Commodities

1. Grains continue to struggle.
 
• Corn:
 

 
• Bloomberg’s grains index:
 

——————–

 
2. Cotton surged on Wednesday, hitting resistance at the 200-day moving average.
 

 
3. The drop in copper prices could point to a decline in developed market industrial activity.
 
Source: Numera Analytics (@NumeraAnalytics)  
 
3. The selloff in silver continues.
 

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Energy

1. US oil inventories increased again last week (3 charts).
 

 

 

 
• But gasoline inventories declined (3 charts).
 

 

 

 
• Distillates inventories remain tight.
 

 
• Here is the US Strategic Petroleum Reserve.
 

 
Source: Reuters   Read full article  

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2. US propane prices have weakened …
 

 
… due to soft demand this past winter.
 
Source: @EIAgov  

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3. European natural gas prices continue to sink.
 

 
4. More than 1,000 hydrogen project proposals have been announced globally, according to McKinsey.
 
Source: McKinsey & Company  

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Equities

1. Regional banks surged on Wednesday.
 

 
Source: Reuters   Read full article  

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2. Office REITs bounced from the lows.
 

 
Financials and REITs have been seeing persistent outflows.
 
Source: Deutsche Bank Research  

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3. Semiconductor shares have been surging.
 

 
4. Is the rally in homebuilder shares showing signs of being overextended? According to the performance of Home Depot stock, the answer appears affirmative.
 
Source: @t1alpha  
 
5. Here is a look at fund managers’ sector sentiment.
 
Source: BofA Global Research  
 
5. The S&P 500 is back at resistance.
 

 
7. The S&P 500 equal-weight index has entered a death cross.
 
h/t @Barchart  
 
8. Investors have increasingly been sellers of overnight gamma (options maturing within 24 hours).
 
Source: JP Morgan Research  
 
Even retail investors have become net sellers of short-term options.
 
Source: JP Morgan Research  

Back to Index

 

Credit

1. A regional bank survey by the Dallas Fed (67 banks) shows credit tightening accelerating through May.
 
Source: Torsten Slok, Apollo  
 
2. Leveraged loan prices have been trending lower.
 

 
3. Government debt funds now dominate the money market fund universe.
 
Source: IIF  

Back to Index

 

Rates

1. The 5-year breakeven inflation expectations index is now at pre-COVID highs. Will the current level continue to act as support?
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
2. The commodity market is pricing a slowdown, as evidenced by the copper-to-gold ratio. Will Treasury yields follow?
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
3. Speculative accounts remain very short on Treasury futures.
 
Source: Deutsche Bank Research  

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Back to Index

 

Food for Thought

1. Genome sequencing:
 
Source: The Economist   Read full article  
 
2. US EV imports:
 
Source: S&P Global Market Intelligence  
 
3. Choosing an apparel exporter:
 
Source: S&P Global Market Intelligence  
 
4. National parks visits:
 
Source: @WSJ   Read full article  
 
5. Purchasing used clothing:
 
Source: @CivicScience   Read full article  
 
6. US box office sales:
 
Source: @financialtimes   Read full article  
 
7. College costs adjusted for inflation:
 
Source: CollegeBoard  
 
8. Book bans in the US:
 
Source: @financialtimes   Read full article  
 
9. Highest-paid athletes:
 
Source: @chartrdaily  

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