Grocery price declines could prove fleeting

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The Daily Shot will not be published this Friday, June 23rd.


Back to Index

 

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.
 

——————–

 
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  

——————–

 
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?
 

——————–

 
4. The timeline for recession expectations continues to be pushed further into the future.
 
Source: BofA Global Research  


Back to Index

 

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.
 

——————–

 
2. Consumer inflation expectations are moderating.
 

 
3. Home price appreciation continues to ease.
 


Back to Index

 

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  

——————–

 
2. Italian bond spreads have been tightening rapidly.
 

 
3. Here is a look at banknotes and coins in circulation.
 
Source: Arcano Economics  


Back to Index

 

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.
 

——————–

 
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  


Back to Index

 

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.
 


Back to Index

 

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  


Back to Index

 

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  

——————–

 
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:
 


Back to Index

 

Commodities

1. Tin is in backwardation again, signaling tightness in the market.
 

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


Back to Index

 

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.
 

——————–

 
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  

——————–

 
11. Finally, we have last week’s performance data.
 
Sectors:
 

 
Equity factors:
 

 
Macro basket pairs’ relative performance:
 

 
Thematic ETFs:
 

 
Largest US tech firms:
 


Back to Index

 

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  


Back to Index

 

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  

——————–

 
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.
 


Back to Index

 

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  


Back to Index

 

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:
 


——————–

Back to Index

 

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  
 

——————–


Back to Index