The Daily Shot: 19-Jun-23
• Administrative Update
• The United States
• The United Kingdom
• The Eurozone
• Europe
• Asia-Pacific
• China
• Emerging Markets
• Commodities
• Equities
• Alternatives
• Credit
• Rates
• Global Developments
• Food for Thought
Administrative Update
The Daily Shot will not be published this Friday, June 23rd.
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The United States
1. The U. Michigan consumer sentiment index showed some improvement this month, topping forecasts.
• Positive momentum in the stock market and reduced pessimism surrounding the housing market were a tailwind for sentiment this month.
• Buying conditions have been rebounding from extreme lows.
• However, consumers are growing more unsettled with their present financial circumstances in comparison to their situation five years ago.
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2. Next, we have some updates on inflation.
• The U. Michigan one-year inflation expectations index declined sharply this month. Longer-term inflation expectations remain elevated.
Source: Reuters Read full article
– The decrease in inflation expectations can be attributed, in part, to easing grocery prices.
Source: @WhiteHouseCEA
– However, the recent surge in grain prices is likely to reverse this trend.
Source: @SusanNOBULL
• Business inflation expectations are also moving lower.
Source: Federal Reserve Bank of Atlanta
• Nomura expects a decline in the core PCE inflation figure for the month of May, …
Source: Nomura Securities
… with a sharp drop in the super-core PCE.
Source: Nomura Securities
• Private measures of rent inflation continue to trend lower.
Source: @WSJ Read full article
However, private new-tenant rent data takes about a year to show up in the CPI figures.
Source: Deutsche Bank Research
• Freight spending and costs have been rolling over.
Source: Cass Information Systems
Source: Cass Information Systems
Trucking industry prices are down sharply.
Source: Cass Information Systems
• Here is a look at US inflation components and their weights.
Source: Arcano Economics
• Import prices are falling.
• Will semiconductor prices start rising again later this year?
Source: Scotiabank Economics
• Economists’ inflation forecasts have been persistently too low.
Source: Torsten Slok, Apollo
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3. Fed officials are preparing the market for more rate increases.
Source: @Jonnelle, @economics Read full article
Source: @SteveMatthews12, @economics Read full article
A July hike increasingly looks likely. Could we also see one in September?
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4. The timeline for recession expectations continues to be pushed further into the future.
Source: BofA Global Research
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The United Kingdom
1. Elevated core inflation …
… is fueling bets on multiple BoE rate hikes ahead, going into next year.
• The market is pricing in an additional 140 bps of BoE rate hikes in this cycle. Too hawkish?
• Short-term gilt yields have been surging.
– Here is the yield curve.
– UK short-term rate expectations are outpacing the US.
Source: ING
And here is a look at the US-UK 10yr spread.
– Gilts are pricing in a lot of inflation.
Source: Capital Economics
Market-based inflation expectations jumped this month.
• The pound is surging.
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2. Consumer inflation expectations are moderating.
3. Home price appreciation continues to ease.
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The Eurozone
1. ECB officials signal potential rate hikes beyond this summer.
Source: @jrandow, @WeberAlexander, @economics Read full article
Wells Fargo sees the ECB being done next month.
Source: Wells Fargo Securities
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2. Italian bond spreads have been tightening rapidly.
3. Here is a look at banknotes and coins in circulation.
Source: Arcano Economics
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Europe
1. Sweden’s unemployment is at multi-year lows.
Economists have been revising their 2023 GDP forecasts higher while lowering growth projections for next year.
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2. The chart below shows the labor market slack in the EU.
Source: Eurostat Read full article
3. Here is a look at women in science and technology.
Source: Eurostat Read full article
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Asia-Pacific
1. The Tokyo core CPI has been surging.
Source: Scotiabank Economics
2. Hedge funds boosted their bets against the Aussie dollar last week.
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China
1. The Citi Economic Surprise Index has been deteriorating as the economic rebound loses steam.
2. Corporate and financial debt securities growth has been slowing.
Source: @financialtimes Read full article
3. The scorching heat wave sweeping across various regions of China is intensifying the strain on the electricity grid.
Source: @JKempEnergy
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Emerging Markets
1. Let’s begin with Brazil.
• The economic activity index:
• Economists’ projections for the 2023 and 2024 GDP growth:
• The broad price index monthly change (includes consumer prices, producer prices, and construction costs):
• Decreased reliance on foreign funding:
Source: PGM Global
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2. Economists have been upgrading their forecasts for Chile’s GDP growth this year.
3. LatAm rate cuts are coming soon.
Source: Scotiabank Economics
4. Next, we have some performance data from last week.
• Currencies:
• Bond yields:
• Equity ETFs:
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Commodities
1. Tin is in backwardation again, signaling tightness in the market.
2. Below is last week’s performance across key commodity markets.
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Equities
1. The S&P 500 and Nasdaq Composite appear extended over the short term.
Source: Aazan Habib, Paradigm Capital
Here are the RSI indicators.
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2. Historically, spikes in bullish price momentum precede higher returns. Stocks can remain overbought in an uptrend.
Source: SentimenTrader
3. Deutsche Bank’s positioning indicator moved deeper into overweight territory, with both systematic and discretionary strategies rising.
Source: Deutsche Bank Research
4 Goldman’s equity desk is seeing long-only demand for the “everything else” trade.
Source: Goldman Sachs
5. The S&P 500 has diverged from reserves (bank liquidity held at the Fed).
Source: @TheTerminal, Bloomberg Finance L.P.
6. The mega-cap concentration in the S&P 500 is back near the peak.
Source: BofA Global Research
7. The S&P 500 earnings yield is now well below cash yield.
8. The Renaissance IPO ETF (IPO) is improving on an absolute and relative basis.
Source: Aazan Habib, Paradigm Capital
9. Corporate insiders have turned bullish on S&P 500 consumer discretionary stocks.
Source: SentimenTrader
10. Next, let’s look at some trends in the options market.
• IWM (Russell 2000 ETF) call option open interest hit a new high.
• Here is the S&P 500 call option trading volume.
– The total call option volume has also been climbing.
Source: Deutsche Bank Research
• But the VIX call option open interest has been surging as well (bets on higher vol).
• Put options are becoming cheap.
Source: Goldman Sachs
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11. Finally, we have last week’s performance data.
• Sectors:
• Equity factors:
• Macro basket pairs’ relative performance:
• Thematic ETFs:
• Largest US tech firms:
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Alternatives
1. Institutions are under-allocated to private credit relative to their targets by at least 200 basis points.
Source: Goldman Sachs
2. Direct lending accounts for the largest part of private credit assets under management, with a balanced mix across other categories.
Source: Goldman Sachs
3. The average private debt fund size has been climbing.
Source: @theleadleft
4. The middle market’s share of private equity funds is at its highest in years.
Source: PitchBook
5. Venture accelerators have provided a pivotal advantage for entrepreneurs in the US with an impressive track record. According to PitchBook, 50% to 70% of cohort companies successfully secure funding within three years of completing an accelerator program.
Source: PitchBook
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Credit
1. This chart shows US CLO issuance with a forecast from Deutsche Bank.
Source: Deutsche Bank Research
Bigger managers are increasing their market share.
Source: Deutsche Bank Research
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2. Here is a look at interest coverage ratios of the 20 largest leveraged buyouts in 2021.
Source: PitchBook Read full article
3. Below is last week’s performance by asset class.
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Rates
1. The 2-year TIPS yield (US short-term real yield) hit a multi-year high.
2. The US neutral rate (r*) is approaching zero as the aftereffects of the pandemic linger and reduce potential GDP growth, according to PGM Global.
Source: PGM Global
3. Who buys Treasuries?
Source: Deutsche Bank Research
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Global Developments
1. Fund flows into safe assets are still outpacing risky assets.
Source: Goldman Sachs; @WallStJesus
2. The RBA and BoC have maintained their tightening cycle as house prices remain elevated.
Source: MRB Partners
3. Which are the most overvalued/undervalued currencies?
Source: Deutsche Bank Research
4. Finally, we have last week’s DM performance data.
• Currencies:
• Bond yields:
• Large-cap equity indices:
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Food for Thought
1. Views on Juneteenth being taught in public schools:
Source: Gallup Read full article
2. Concerns about gun violence:
Source: @TheDailyShot
3. Switching religions:
Source: @axios Read full article
4. Melting European glaciers:
Source: @WSJ Read full article
5. Projected top ten power plants:
Source: @business Read full article
6. AI-related lobbying efforts:
Source: Semafor
7. Global game console shipments:
Source: S&P Global Market Intelligence
8. Non-cash payments:
Source: The Economist Read full article
9. Air conditioner sales forecast:
Source: @ainefquinn, @markets Read full article
10. Projected wealth inherited by each generation:
Source: The New York Times Read full article
11. NBA championships:
Source: Statista
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