The market is tempering Fed rate cut expectations

The Daily Shot: 29-May-23
The United States
Canada
The United Kingdom
The Eurozone
Europe
Japan
Asia-Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. The Q1 GDP growth was revised higher, …
 

 
… partially due to reduced inventory drag.
 

 
This chart shows real final sales to private domestic purchasers (the “core” GDP).
 

 
Unlike the GDP, the GDI measure points to weaker growth (2 charts).
 

 
Source: Wells Fargo Securities  
 
Source: @readep, @economics   Read full article  
 
Corporate profits declined.
 
Source: Wells Fargo Securities  
 
The Q1 core PCE inflation was revised to 5%.
 

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2. Initial jobless claims remain noisy, with further adjustments from the Massachusetts fraud.
 

 

 
Source: @gutavsaraiva, @economics   Read full article  
 
Here is the impact on the seasonally-adjusted claims data.
 
Source: Oxford Economics  
 
Continuing claims remain 25% above last year’s levels.
 

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3. Pending home sales were softer than expected last month, …
 

 

 
… amid rising mortgage rates.
 

 
Softer pending sales point to further weakness in existing home sales.
 
Source: Oxford Economics  

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4. The Chicago Fed’s national activity index rebounded last month.
 
Source: @ChicagoFed; h/t @dailychartbook  
 
5. There was positive news on the debt ceiling negotiations.
 
Source: Reuters   Read full article  
 
Some T-bill yields dropped sharply.
 

 
The US Treasury’s cash balance dipped below $50 billion.
 

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6. Amid positive developments regarding the debt ceiling situation, the market raised expectations of a Fed rate hike in either June or July, …
 

 
… while significantly curbing expectations for rate cuts in the latter part of this year.
 


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Canada

1. The CFIB small/medium-size business indicator improved again this month.
 

 
Here is the breakdown by sector (level and changes).
 

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2. Recreational cannabis sales at licensed stores continue to rise.
 
Source: Global X ETFs   Read full article  


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The United Kingdom

1. Gilt yields keep surging, …
 

 
… rapidly outpacing Treasuries.
 

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2. UK food inflation has surpassed that of other advanced economies.
 
Source: @WSJ   Read full article  
 
3. The CBI retail sales indicator declined in May.
 

 
Source: Reuters   Read full article  

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4. UK trade openness has been lagging.
 
Source: UK in a Changing Europe  


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The Eurozone

1. Germany’s revised Q1 GDP puts the country into technical recession.
 

 
Source: CNBC   Read full article  
 
Here are the contributions.
 
Source: Arcano Economics  
 
Private consumption and government spending were revised lower.
 

 

 
2. Germany’s consumer confidence continues to recover.
 

 
3. French business confidence is rolling over.
 

 
Source: ING   Read full article  
 
French retail sales have been softening.
 

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4. Spain’s PPI is now in negative territory.
 

 
5. Fund outflows finally came to a halt.
 
Source: Arcano Economics  
 
6. Weak economic surprises relative to the US are a headwind for the euro.
 
Source: @themarketear  


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Europe

1. Sweden’s unemployment rate was lower than expected.
 

 
The Swedish krona is nearing the GFC lows vs. the euro.
 

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2. Who is quitting school in the EU? The chart shows people aged 18-24 leaving early from education and training.
 
Source: Eurostat   Read full article  


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Japan

1. The Tokyo CPI declined in May, but the core index continues to climb.
 

 
Here are a couple of CPI components.
 

 

 
2. The services PPI topped expectations.
 

 
3. Roughly 46% of Japanese government debt is held by the BoJ.
 
Source: Torsten Slok,¬†Apollo  


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Asia-Pacific

1. New Zealand’s consumer confidence remains depressed.
 

 
2. Australia’s retail sales were flat last month (an increase was expected).
 

 
Source: @WSJ   Read full article  
 
The market sees the RBA holding rates unchanged in June.
 


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China

1. Economists downgraded the 2023 GDP projections, but growth is expected to be robust.
 

 
Economists continue to lower China’s CPI forecasts.
 

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2. Industrial production has been far short of expectations.
 
Source: Quill Intelligence  
 
3. Large-cap bank stocks have held up as property developers underperform.
 
Source: PGM Global  


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Emerging Markets

1. South Africa’s central bank hiked rates again.
 

 
Source: Reuters   Read full article  
 
The rand tumbled to record lows.
 

 
Source: Reuters   Read full article  
 
The PPI continues to moderate.
 

 
South Africa is one of only a small number of large economies that have experienced a decline in GDP per capita since 2010. Notably, it is the sole country analyzed by the IMF that is projected to endure a continued decrease in per capita income.
 
Source: Codera Analytics   Read full article  

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2. Brazil’s inflation continues to moderate.
 

 
3. Easing inflation pressures could encourage rate cuts in some EM countries.
 
Source: MRB Partners  
 
4. Mexico’s exports dipped below last year’s levels.
 


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Cryptocurrency

1. It has been a difficult month for cryptos, with bitcoin underperforming other main tokens.
 
Source: FinViz  
 
Still, only 33% of altcoins have outperformed bitcoin over the past month.
 
Source: Blockchain Center  

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2. Bitcoin’s put/call ratio is trending lower.
 
Source: The Block Research  
 
3. Bitcoin’s correlation with Chinese equities is now higher than its correlation with the S&P 500.
 
Source: KaikoData  
 
4. Binance may have commingled customer funds with company revenue, according to Reuters.
 
Source: Reuters   Read full article  


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Commodities

1. Beef is in, pork is out.
 
Cattle futures:
 

 
Lean hogs:
 

 
Source: Reuters   Read full article  

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2. The severe drought in Plains states has inflicted significant damage on hay crops, resulting in surging prices.
 
Source: @WSJ   Read full article  


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Energy

1. Oil futures declined on Thursday.
 

 
Source: Reuters   Read full article  

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2. Russia’s oil production has been rebounding.
 
Source: Gavekal Research  
 
3. This chart shows Europe’s diesel imports.
 
Source: @CrowleyKev, @markets   Read full article  
 
4. BofA’s private clients have been dumping energy stocks.
 
Source: BofA Global Research  


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Equities

1. Equal-weighted indices continue to widen their underperformance as tech mega-caps surge.
 
S&P 500:
 

 
Nasdaq 100:
 

 
Tech mega-caps have left the ARK Innovation ETF in the dust.
 
Source: @themarketear  
 
Hedge funds have been boosting their exposure to tech mega-caps (based on GS prime brokerage data).
 
Source: Goldman Sachs; @carlquintanilla  

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2. If consensus estimates prove accurate, the recent contraction in S&P 500 earnings appears relatively mild compared to historical trends.
 
Source: BofA Global Research  
 
3. How do US stock indices correlate to domestic economic activity?
 
Source: S&P Dow Jones Indices  
 
4. The stock-bond correlation continues to move deeper into negative territory.
 

 
5. Retail investor positioning remains light.
 
Source: Vanda Research  
 
Retail investors are not chasing the AI-fuelled rally.
 
Source: Vanda Research  
 
Tax refunds have not been driving retail stock purchasing this year.
 
Source: Vanda Research  

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6. The MSCI ACWI Equal Weight Index (global stock index) is holding support with improving breadth.
 
Source: Aazan Habib, Paradigm Capital  


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Credit

1. The average HY bond trades at 13% below par.
 
h/t BofA Global Research  
 
2. Small banks have driven lending growth over the past year.
 
Source: Torsten Slok,¬†Apollo  


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Rates

1. Longer-term Treasuries’ implied volatility rose sharply this week.
 

 
2. This chart shows selected foreign owners of US Treasury securities.
 
Source: @WSJ   Read full article  
 
3. The US policy rate is about 130 bps above the market expectations for the long-run fed funds rate.
 
Source: @TheTerminal, Bloomberg Finance L.P.  


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Global Developments

1. The dollar’s recent bounce occurred alongside positive US economic surprises relative to other G10 nations. Slightly wider interest rate differentials also helped.
 
Source: BCA Research  
 
2. This chart shows Wells Fargo’s projections for key policy rates.
 
Source: Wells Fargo Securities  


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Food for Thought

1. US wage data from the Bureau of Labor Statistics:
 
Source: Bloomberg Law   Read full article  
 
2. Who intends to buy an EV?
 
Source: @CivicScience   Read full article  
 
3. EV sales projections:
 
Source: Goldman Sachs  
 
4. Polarization in the US Congress:
 
Source: BCA Research  
 
5. Google search frequency for “artificial intelligence”:
 
Source: Google Trends  
 
6. US rail accidents:
 
Source: @WSJ   Read full article  
 
7. Memorial Day plans:
 
Source: @CivicScience   Read full article  
 
Memorial Day cookout:
 
Source: @CivicScience   Read full article  
 
Memorial Day preferred beer brands:
 
Source: @CivicScience   Read full article  
 
8. The number of Americans who served and died in each of the US wars:
 
Source: U.S. Census Bureau   Read full article  
 

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The next Daily Shot will be out on Tuesday, May 30th.
 
Have a great weekend!


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