Posted on by The Daily Shot Editor: Lev Borodovsky

Mortgage rates near 8% as robust economic data pushes bond yields to multi-year highs

The Daily Shot: 18-Oct-23
• The United States
• Canada
• The United Kingdom
• Europe
• Japan
• China
• Commodities
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought

 

The United States

1. Retail sales remained remarkably strong last month, topping forecasts.
 

 
Source: CNBC   Read full article  
 
• Gains were relatively broad (2 charts).
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Source: @GregDaco  
 
• Automobile sales increased.
 

 
• “Core” retail sales also exceeded forecasts (2 charts).
 

 

 
• Here is a look at retail sales levels (nominal and real).
 

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2. Industrial production also surprised to the upside, with robust gains in manufacturing output.
 

 
Source: MarketWatch   Read full article  
 
Here is the manufacturing production level.
 

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3. Impressive performance in retail sales and industrial production boosted the GDPNow Q3 growth forecast (well above 4%, annualized).
 

 
Here are the contributions to the index (“PCE” refers to consumer spending).
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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4. S&P 500 revenue surprises signal improvements in US factory activity.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
• Leading indicators point to a rebound in global manufacturing activity as well.
 
Source: Deutsche Bank Research  

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5. The NAHB homebuilder optimism index deteriorated further as mortgage rates surged.
 

 
6. Robust economic data sent Treasury yields to multi-year highs, …
 

 
… with the 30-year mortgage rate now nearing 8%.
 
Source: Mortgage News Daily  
 
The 2-year Treasury yield climbed above 5.2% for the first time since 2006.
 

 
7. Fed rate cut expectations continue to moderate, …
 

 
… with the implied fed funds rate trajectory shifting higher.
 

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8. China has been re-routing exports to the US via Southeast Asia to avoid tariffs.
 
Source: Gavekal Research  

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Canada

1. Inflation showed signs of easing, with the headline and core CPI figures coming in below forecasts.
 
• Headline:
 

 
• Core (2 charts):
 

 

 
• Services:
 

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2. Will immigration levels remain elevated?
 
Source: Real Economy Blog   

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The United Kingdom

1. The payrolls estimate declined again, pointing to a softening labor market.
 

 
2. Wage growth appears to be peaking.
 

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Europe

1. Germany’s ZEW expectations indicator showed a sharp improvement this month.
 

 
Source: Reuters   Read full article  

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2. Here is a look at debt-to-GDP ratios and weighted-average bond maturities (WAM).
 
Source: @DanielKral1  
 
3. Economists are rapidly cutting their forecasts for Swiss GDP growth next year.
 

 
4. Poland’s inflation is slowing rapidly.
 

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Japan

1. USD/JPY continues testing 150, a level where increased government intervention risk looms.
 

 
2. JGB yields are hitting multi-year highs.
 
• 5yr yield:
 

 
• 40yr yield (record high):
 

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3. Service activity took a pause in August.
 

 
4. Corporate profits have been very strong.
 
Source: @JeffreyKleintop  

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China

1. Economic indicators topped expectations.
 
– Q3 GDP growth:
 

 
Source: South China Morning Post   Read full article  
 
– Industrial production:
 

 
– Retail sales:
 

 
• Property investment remains soft.
 

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2. Country Garden missed its offshore debt coupon payment.
 
Source: Reuters   Read full article  
 
• The company’s bond price tumbled further.
 

 
• Here is the index of USD-denominated developer debt.
 

 
• Bloomberg’s real estate equity index hit the lowest level since 2009.
 

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3. Beijing is struggling to contain the equity market rout, …
 

 
… as Hong Kong and foreign investors continue to pull capital out of mainland markets.
 

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Commodities

1. The global corn market is expected to be in surplus next year, according to Capital Economics.
 
Source: Capital Economics  
 
But the wheat market will be in deficit.
 
Source: Capital Economics  

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2. Sugar futures hit the highest level since 2011.
 

 
Source: barchart.com   Read full article  

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Equities

1. For now, the market is not too concerned about the looming government shutdown in November.
 

 
2. November is typically a strong month for inflows into equity ETFs and mutual funds.
 
Source: Goldman Sachs  
 
3. Equities have diverged from credit.
 
• The S&P 500 vs. high-yield bond prices
 

 
• The S&P 500 vs. the HY CDX spread:
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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4. The S&P 500 equity risk premium is nearing zero for the first time in over two decades.
 

 
The S&P 500 forward earnings yield is now almost 2% below the yield offered by BBB-rated corporate bonds.
 

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5. The iShares MSCI US Momentum Factor ETF (MTUM) is improving from oversold levels.
 

 
6. US small-cap stocks are entering a seasonally strong period.
 
Source: Aazan Habib, Paradigm Capital  
 
7. Here is a look at the evolution of market capitalization and income contribution by sector.
 
Source: Goldman Sachs; @MikeZaccardi  

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Credit

1. Near-term US high-yield maturity wall continues to climb.
 
Source: Goldman Sachs; @MikeZaccardi  
 
• The European high-yield market has a greater share of debt maturing in three years relative to the US.
 
Source: KKR  

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2. Investment-grade firms are in for a refinancing shock. This chart shows the spread between the IG index average yield and the current coupon.
 
h/t Simon White  
 
3. US investment-grade yields are at mid-2009 levels, while spreads are notably tighter. According to Breckinridge, this gap could compress if a recession occurs.
 
Source: Breckinridge Capital Advisors   Read full article  
 
4. Banks’ deposit costs will keep climbing even after the Fed pauses rate hikes.
 
Source: S&P Global Market Intelligence  

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Rates

1. Longer-dated Treasury yield volatility surged in recent weeks.
 
  Further reading  
 
2. According to Capital Economics, Treasury yields are peaking.
 
Source: Capital Economics  

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Global Developments

Is the IMF too upbeat on economic growth? Here is a comparison with the forecasts from Oxford Economics.
 
Source: Oxford Economics  

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Food for Thought

1. Union membership as a share of employment in the US:
 
Source: @WSJ   Read full article  
 
2. Global electricity sources by fuel type:
 
Source: Visual Capitalist   Read full article  
 
3. Americans without health insurance:
 
Source: US Census Bureau   Read full article  
 
4. The US Department of Defense spending on R&D and cyberspace activities (2 charts):
 
Source: Global X ETFs   Read full article  
 
Source: Global X ETFs   Read full article  

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5. Internet shutdowns:
 
Source: @WSJ   Read full article  
 
6. The luxury watch market:
 
Source: @genuine_impact  
 
• Secondhand luxury watch market prices:
 
Source: WatchEnthusiasts  

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7. Staying connected with your pet:
 
Source: @CivicScience   Read full article  
 

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