No Fed rate increase in June

The Daily Shot: 22-May-23
Administrative Update
The United States
Canada
The United Kingdom
The Eurozone
Japan
Asia-Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

Administrative Update

 
Please note that The Daily Shot will not be published on Monday, May 29th.


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The United States

1. Let’s begin with some updates on inflation.
 
Economists continue to boost their forecasts for core inflation this year.
 

 
The COVID-era surge in corporate margins has been an important driver of consumer inflation.
 
Source: UBS Research  
 
Cyclical components drove the recent CPI decline, but structural inflation remains sticky.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
Significant improvements in global supply chain conditions have been pulling inflation lower.
 
Source: Deutsche Bank Research  
 
Wholesale used vehicle prices were lower again this month.
 

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2. The GDPNow model is tracking Q2 growth at 2.9% (annualized).
 
Source: @AtlantaFed   Read full article  
 
Here are the contributions.
 
Source: @ANZ_Research  
 
The consensus estimate is well below that figure but is in positive territory.
 

 
The market expects a soft landing.
 
Source: Torsten Slok,¬†Apollo  

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3. Not a pause but a skip? Fed officials are indicating that there will be no rate increase in June.
 
Source: AP News   Read full article  
 
Source: @catarinasaraiva, @RichMiller28, @economics   Read full article  
 
Market expectations got repriced on Friday in response to Fed signals.
 

 

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4. According to Goldman, it may not be June 1st, but the X-date will hit shortly after.
 
Source: @AnsteyAsia, @markets   Read full article  
 
Treasury cash balance continues to dwindle.
 

 
The stock market remains relatively unconcerned.
 
Source: @emily_graffeo, @markets   Read full article  


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Canada

1. Retail sales dropped in March, …
 

 
… as Canadians slowed vehicle purchases.
 

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2. Financial conditions remain tight, according to Oxford Economics.
 
Source: Oxford Economics  


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The United Kingdom

1. Consumer confidence continues to rebound.
 

 
2. Home prices jumped this month.
 

 
3. Strong corporate margins have been boosting food inflation.
 
Source: UBS Research  
 
4. This chart shows non-tourist visa issuance over time.
 
Source: @financialtimes   Read full article  
 
5. GBP/USD appears overbought.
 
Source: BCA Research  
 
Speculative accounts are now net long GBP futures.
 


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The Eurozone

1. The DAX hit a record high last week.
 

 
Source: @financialtimes   Read full article  

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2. Speculative accounts continue to boost their bets on the euro.
 

 
Separately, the euro’s share of reserves peaked at 28% in 2010 and has been stable at around 20% since 2015. Top holdings of the euro continue to rise near record highs.
 
Source: Alpine Macro  

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3. Germany’s PPI is crashing.
 

 
The euro-area inflation breadth is moderating.
 
Source: TS Lombard  

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4. Greece’s economy is projected to surpass the euro area’s growth rate.
 
Source: Goldman Sachs  
 
Greek bond yields are now lower than Italian yields.
 

 
Hedge funds have been betting against Greek bonds.
 
Source: @financialtimes   Read full article  

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5. Will the divergence between services and manufacturing activity persist?
 
Source: Deutsche Bank Research  


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Japan

1. The Nikkei hit a multi-decade high.
 

 
2. The CPI breadth has been rising.
 
Source: Scotiabank Economics  
 
3. Services activity dipped in March.
 


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Asia-Pacific

1. Taiwan’s stocks had a strong performance last week.
 

 
2. South Korea’s exports are 16% below 2022 levels but are still quite strong.
 

 
3. Aussie-yen is at resistance.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
4. Australia’s wage growth “breadth” has been rising.
 
Source: @ANZ_Research  


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China

1. Beijing indicated it was unhappy about the renminbi’s sharp decline.
 
Source: @markets   Read full article  
 
The currency jumped on Friday but is retreating again today.
 

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2. Equity valuations remain depressed.
 
Source: Citi Private Bank  
 
3. So far, China’s economic recovery has been weak.
 
Source: BCA Research  
 
4. How are households allocating their surplus savings?
 
Source: BofA Global Research  


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Emerging Markets

1. Economists have been boosting their estimates for LatAm growth this year.
 
Brazil:
 

 
Mexico:
 

 
Chile:
 

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2. Brazil’s economic activity held up well in March.
 

 
3. South Africa’s bonds and the rand remain under pressure.
 

 

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4. Foreigners continue to exit Turkey’s stock market.
 

 
5. A trough in China’s business cycle could bode well for EM equity earnings, particularly in Asia.
 
Source: Alpine Macro  
 
6. Next, we have some performance data from last week.
 
Currencies:
 

 
Bond yields:
 

 
Equity ETFs:
 


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Cryptocurrency

1. Transaction fees have become a much larger share of bitcoin mining revenues.
 
Source: @WSJ   Read full article  
 
Source: @sidcoins, @DavidPan_1, @technology   Read full article  

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2. Litecoin outperformed sharply last week
 

 


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Commodities

1. Speculative accounts continue to boost their bets against copper.
 

 
2. Here is last week’s performance across key commodity markets.
 


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Energy

1. US rig count is now down on a year-over-year basis.
 

 
Fracking activity has also been slowing.
 

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2. Global crude oil is less oversupplied than in the second half of 2022, …
 
Source: Numera Analytics (@NumeraAnalytics)  
 
… aided by falling production in the Middle East.
 
Source: Numera Analytics (@NumeraAnalytics)  
 
But the rest of OPEC+ is exceeding quota targets.
 
Source: Numera Analytics (@NumeraAnalytics)  

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3. Henry Hub Natural Gas futures could see a seasonal peak in mid-June.
 
Source: Aazan Habib, Paradigm Capital  
 
4. US energy stocks are starting to lag, narrowing their gap with crude oil.
 

 
Merrill Lynch’s private clients have been dumping energy stocks.
 
Source: BofA Global Research  


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Equities

1. Deutsche Bank’s positioning index is back to neutral.
 
Source: Deutsche Bank Research  
 
2. A majority of sub-industry groups show a positive return over the last year.
 
Source: SentimenTrader  
 
3. The S&P 500’s three-month average intraday range has deteriorated.
 
Source: SentimenTrader  
 
4. Equity fund flows have flattened out. Outflows next?
 
Source: BofA Global Research  
 
5. Margin debt as a share of the S&P 500 market cap has been declining.
 
Source: Yardeni Research  
 
6. This chart shows S&P 500 put and call skew trends.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
7. There is a lot of enthusiasm around Nasdaq 100 stocks. Call option volume jumped last week.
 

 
The Nasdaq 100 futures positioning has surged relative to the S&P 500 futures.
 

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8. The Nasdaq 100 (QQQ) has decoupled from Treasury prices (IEF).
 

 
9. Here is the percentage of S&P 500 members outperforming the index.
 
Source: @t1alpha  
 
10. Retail investor purchases of financials have declined but remain elevated relative to pre-SVB levels.
 
Source: Vanda Research  
 
11. High-dividend stocks have been widening their underperformance.
 

 
12. Next, we have some performance data from last week.
 
Sectors (defensives have been lagging):
 

 

 
Equity factors:
 

 
Macro basket pairs’ relative performance:
 

 
Thematic ETFs:
 

 
Largest US tech stocks:
 


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Credit

1. It’s been a good month for IG corporate bond issuance.
 
Source: @axios   Read full article  
 
2. Small bank deposits increased during the week ending on May 10th.
 

 
3. Business loan balances are rolling over.
 

 
There is pain ahead for business credit.
 
Source: Oxford Economics  
 
Small businesses rely heavily on small banks for financing.
 
Source: Goldman Sachs  

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4. Demand and supply of credit are declining as lending standards tighten. (2 charts)
 
Source: Morgan Stanley Research  
 
Source: Morgan Stanley Research  
 
A slowdown in credit growth could have a significant impact on consumption.
 
Source: Morgan Stanley Research  

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5. CLO arbitrage declined this year amid elevated liability costs.
 
Source: @ArroyoNieto, @LisaLeereporter, @markets   Read full article  
 
6. Finally, here is last week’s performance across credit asset classes.
 


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Rates

1. US real yields have been rising.
 

 
2. Treasury funds continue to see inflows.
 
Source: BofA Global Research  


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Global Developments

1. The dollar’s yield advantage is expected to narrow.
 
Source: Alpine Macro  
 
Although the dollar’s share of global reserves declined over the past few decades, there has been no wholesale dumping of dollars.
 
Source: Alpine Macro  

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2. Speculative accounts continue to boost their bets against the US dollar.
 

 
3. Implied volatility across DM currency markets has been trending lower.
 

 
4. Some leading indicators point to a mild economic contraction this year. But it is well anticipated, evidenced by market drawdowns and a sharp decline in downward earnings revisions last year. (2 charts)
 
Source: BofA Global Research  
 
Source: BofA Global Research  

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5. Next, we have some DM performance data from last week.
 
Trade-weighted currency indices:
 

 
Bond yields:
 

 
Large-cap equity indices:
 


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Food for Thought

1. Global EV production:
 
Source: Visual Capitalist   Read full article  
 
2. McDonald’s company-operated vs. franchise stores:
 
Source: @chartrdaily  
 
3. Netflix subscriptions and revenue per membership by region:
 
Source: Reuters   Read full article  
 
4. Passenger aircraft deliveries:
 
Source: Deutsche Bank Research  
 
5. NYC rents (year-over-year growth):
 
Source: BofA Global Research  
 
6. Population projections for China and India:
 
Source: @WSJ   Read full article  
 
7. Vaccination of children around the world:
 
Source: UNICEF   Read full article  
 
8. Duration of MLB games:
 
Source: semafor  
 

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