Posted on by The Daily Shot Editor: Lev Borodovsky

Market sees massive BoE rate hikes amid relentless inflation

The Daily Shot: 22-Jun-23
• The United Kingdom
• The United States
• The Eurozone
• Europe
• Asia-Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought

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As a reminder, the next Daily Shot will be published on Monday, June 26th.
 

 

The United Kingdom

1. As we mentioned yesterday, the UK inflation report was well above expectations again, …
 

 
… with services driving the core CPI to multi-decade highs.
 

 
• Here is how inflation compares to the BoE’s forecast.
 
Source: ING  
 
• UK inflation stands out relative to peers (2 charts).
 
Source: @financialtimes   Read full article  
 
Source: @financialtimes   Read full article  
 
Elevated wage growth and extreme energy price shock explain why UK CPI has been outpacing other economies.
 
Source: Capital Economics  

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2. Short-term rates continue to surge, …
 

 
… with markets pricing multiple BoE rate hikes ahead. Moreover, market pricing now puts decent odds on one or more 50 bps increases. Are these expectations overdone?
 

 
• The terminal rate continues to climb, moving further out.
 

 
• Here is the market pricing for the overnight rate after the February MPC meeting.
 

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3. Long-term market-based inflation expectations are rising again.
 

 
4. Producer prices offer a hopeful signal for the CPI.
 

 
5. Industrial orders show signs of improvement.
 

 
Manufacturers are reducing the pace of price increases.
 
Source: Reuters   Read full article  
 

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6. Home prices have been holding up better than expected.
 

 
7. Government borrowing in May topped forecasts, …
 

 
… pushing the debt-to-GDP ratio above 100% for the first time in decades.
 
Source: @PhilAldrick, @markets   Read full article  

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The United States

1. Chair Powell struck a hawkish tone on Wednesday.
 
Source: Reuters   Read full article  
 
The market is now pricing in a small chance of a rate hike in November.
 

 
The terminal rate moved higher.
 

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2. Mortgage applications appear to have stabilized below 2014 levels.
 

 
This chart shows the rate lock count.
 
Source: AEI Housing Center  
 
• The supply of homes for sale continues to sink.
 
Source: Redfin  

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3. The World Economics SMI report shows business activity improving in June.
 
Source: World Economics  
 
4. State and local governments are sitting on substantial excess savings (as evidenced by their holdings of Treasury securities).
 
Source: Deutsche Bank Research  
 
5. Business applications remain elevated.
 
Source: Arcano Economics  

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The Eurozone

1. New vehicle registrations are back above 2021 levels in the EU and the Eurozone.
 

 
2. China remains a key trading partner for the Eurozone.
 
Source: @WSJ   Read full article  
 
3. Ireland is distorting the euro-area manufacturing output figures.

III Capital Management: – Irish data continues to distort overall Euro area data due to Ireland’s role as a profit center for multi-nationals and a hub for multi-nationals’ intellectual property rights. The latest example was April industrial production data, which was reported at 1% month-over-month, but actually declined by 0.8% ex-Ireland. Overall, industrial output in Europe ex-Ireland remains below its pre-Covid level.

Source: JP Morgan Research; III Capital Management  
 
4. It will take a long time for Greece’s economy to return to the 2008 peak.
 

 
Source: Alpine Macro  
 
The deleveraging process in Greece is ongoing.
 
Source: Alpine Macro  

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5. Putin is having a field day with this development.
 
Source: Reuters   Read full article  
 
Source: @pollofpolls_EU  
 
Source: @Wahlen_DE  

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Europe

1. Sweden’s short-term bond yields continue to climb.
 

 
2. Poland’s industrial production bounced in May but remained below last year’s levels.
 

 
3. This chart shows the Swiss broad money supply (year-over-year).
 

 
4. Finally, we have some data on road accident fatalities across Europe.
 
Source: @EU_Eurostat   Read full article  

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Asia-Pacific

1. Foreign purchases of Japanese stocks remain elevated.
 

 
2. New Zealand’s exports hit a record high.
 

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China

1. Consumer confidence is improving, but loan growth has been slow.
 
Source: Alpine Macro  
 
2. Only a third of investors surveyed by BofA think Chinese equities will retest the October 2022 price low.
 
Source: BofA Global Research  
 
3. Here is an illustration of China’s interest rate system.
 
Source: ING  
 
4. Residential real estate transactions remain below last year’s levels.
 
Source: Arcano Economics  
 
5. Has corporate loan growth peaked?
 
Source: Pantheon Macroeconomics  

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Emerging Markets

1. Mexico stands to gain from the US-China decoupling.
 
Source: Alpine Macro  
 
2. Argentina’s trade deficit has widened sharply.
 

 
3. Brazil’s CDS spread is below the EM average.
 
Source: Pantheon Macroeconomics  
 
4. Turkey’s manufacturing confidence is improving.
 

 
5. South Africa’s inflation is moderating.
 

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Cryptocurrency

1. It has been a strong week for cryptos so far, with Bitcoin Cash outperforming peers.
 
Source: FinViz  
 
2. Bitcoin has been surging on hopes that cash bitcoin ETFs will finally be approved in the US.
 
Source: CNBC   Read full article  
 
• Bitcoin extended gains, but is not yet overbought. Next resistance is at the 40-week moving average near $32K.
 
Source: Symbolik  
 
• BTC’s rally past $30K triggered another spike in short liquidations.
 
Source: CoinGlass  

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3. Only 4% of altcoins have outperformed BTC over the past month. Traders continue to prefer bitcoin during this rally, which is unusual for risk-on phases.
 
Source: Blockchain Center  

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Commodities

1. US grains continue to surge as crop conditions deteriorate.
 
Source: Farm and Dairy   Read full article  
 
• Corn:
 

 
• Soybeans:
 

 
• Bloomberg’s grains index:
 

 
• Wheat also got a boost from some international news.
 

 
Source: Reuters   Read full article  

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2. Feeder cattle broke below the 50-day moving average as grain prices soared.
 

 
Source: barchart.com   Read full article  

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3. Here is a look at the changes in global steel production.
 
Source: Capital Economics  
 
4. Nuclear reactors are expected to double by 2050, which could support uranium prices.
 
Source: PGM Global  

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Equities

1. Goldman’s positioning indicator has moved into “stretched” territory.
 
Source: Goldman Sachs  
 
2. US retail sentiment is the most bullish since late-2021, shortly before the recent bear market began.
 
Source: Longview Economics  
 
3. The Nasdaq 100 trailing PE ratio jumped by almost 50% over the past six months – a highly unusual move.
 
h/t @themarketear  
 
4. The S&P 500 equity risk premium is nearing the pre-GFC lows.
 
  Further reading  
 
5. The S&P 500 is typically higher one year after rising from a 52-week low to a 52-week high. Pullbacks are likely during the next one-to-three months.
 
Source: @scottcharts  
 
6. Hedge funds’ gross leverage has been surging this year.
 
Source: Goldman Sachs  
 
7. The CBOE skew index is tumbling.
 

 
8. ARK Innovation continues to follow the dot-com analog.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Source: Reuters   Read full article  

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Credit

1. The Fed’s RRP balances keep moving lower, …
 

 
… offsetting the liquidity drain from the US Treasury rebuilding its holdings at the Fed.
 

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2. With many existing CLOs ending their reinvestment periods, new CLOs will have no shortage of product to buy.
 
Source: @financialtimes   Read full article  
 
3. This chart shows corporate bond spread compression since May 23rd.
 
Source: Capital Economics  

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Rates

1. US short-term real yields keep rising.
 
Source: @axios  
 
2. The T-bill share of the Treasury market is expected to climb further as the US Treasury boosts its post-debt-ceiling issuance.
 
Source: Oxford Economics  
 
3. The Fed owns the highest concentration of 10+ year Treasuries, with roughly 36% outstanding.
 
Source: Deutsche Bank Research  

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Global Developments

1. The dollar remains dominant in global markets.
 
Source: Alpine Macro  
 
2. Global M1 money supply has declined sharply.
 
Source: Deutsche Bank Research  
 
3. Next, we have nominal and real year-over-year house price changes.
 
Source: Oxford Economics  

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Food for Thought

1. US tariffs on manufactured goods:
 
Source: @WSJ   Read full article  
 
2. Endowment funds:
 
Source: Visual Capitalist   Read full article  
 
3. Samsung Electronics’ number of employees in China:
 
Source: @WSJ   Read full article  
 
4. Changes in Medicaid enrollment:
 
Source: USAFacts  
 
5. Views on MMR vaccine requirements to attend public schools:
 
Source: Pew Research Center   Read full article  
 
6. Afghan refugees’ perilous journey:
 
Source: The New York Times   Read full article  
 
7. Plants and animals at risk of extinction:
 
Source: Statista  
 
8. New Zealand’s sheep-to-people ratio:
 
Source: @chartrdaily  

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As a reminder, the next Daily Shot will be published on Monday, June 26th
 
Have a great weekend!

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