Posted on by The Daily Shot Editor: Lev Borodovsky

Smaller cities are pushing up rent inflation

The Daily Shot: 13-Dec-23
• The United States
• The United Kingdom
• The Eurozone
• Japan
• China
• Emerging Markets
• Energy
• Equities
• Credit
• Global Developments
• Food for Thought

 

The United States

1. The CPI report was roughly in line with expectations, with the core inflation strengthening in November.
 
– Headline:
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
– Core:
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
– The supercore CPI:
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Here is a quote from Nomura.

The pickup in November was largely driven by the mean-reversion in components, which surprised on the downside in October, including used autos and lodging away-from-home.

• The core CPI held steady on a year-over-year basis.
 

 
• Core goods prices declined again (2 charts).
 

 
Source: Nomura Securities  
 
• The core services inflation strengthened in November, …
 

 
… boosted by a surprise increase in the owners’ equivalent rent (OER) (see the 2nd panel below).
 

 
– OER gains were driven by some of the largest cities.
 
Source: Nomura Securities  
 
– On the other hand, smaller cities have been pushing up rent inflation.
 
Source: Nomura Securities  
 
• Here are some additional CPI components.
 
– New vehicles:
 

 
– Used vehicles:
 

 
– Car insurance (up 19% percent year-over-year):
 
Source: Scotiabank Economics  
 
– Electricity:
 

 
– Apparel:
 

——————–

 
2. The market reaction was muted, with the 2-year Treasury yield edging higher.
 

 
• The 10-year yield declined, …
 

 
… pushing the yield curve further into inversion territory.
 

 
• Stocks continued to surge.
 

——————–

 
3. The NFIB small business sentiment edged lower last month.
 

 
• Sales expectations showed some improvement.
 

 
• The hiring plans index ticked up.
 

 
• More firms will be boosting wages in the months ahead.
 

 
• Fewer businesses are raising prices, …
 

 
… but more firms expect to increase prices next year.
 

 
• Credit conditions have deteriorated for small firms.
 

——————–

 
4. Consumer sentiment is rebounding.
 
Source: @CivicScience  
 
5. The budget deficit widened last month.
 

 
Source: Reuters   Read full article  

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The United Kingdom

1. The ONS says it’s in the process of fixing the UK unemployment report. The data points we do have indicate a softening labor market.
 
• Payrolls:
 

 
• Net unemployment claims:
 

 
• Vacancies:
 

 
Wage growth slowed more than expected.
 

——————–

 
2. Bregret?
 
Source: @financialtimes   Read full article  

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The Eurozone

1. Germany’s ZEW expectations index surprised to the upside again.
 

 
2. Dutch exports are down sharply on a year-over-year basis.
 

 
3. Will the euro-area credit contraction nudge the ECB to cut rates next year?
 
Source: @ANZ_Research  
 
4. Growth in negotiated wages has been accelerating.
 
Source: Barclays Research  
 
5. The PMI measures still signal a recession.
 
Source: Pantheon Macroeconomics  

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Japan

The Tankan report shows business sentiment improving this quarter.
 
• Large manufacturers:
 

 
• Small manufacturers:
 

 
• Large non-manufacturing firms:
 

 
• Small non-manufacturing firms:
 

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China

1. No bazooka stimulus means no market rebound.
 

 
Source: @bpolitics   Read full article  
 
So far, the stimulus announcements haven’t been enough.
 
Source: @bpolitics   Read full article  

——————–

 
2. China’s CPI deflation is unique.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
3. Retail volumes rebounded last month, led by luxury goods.
 
Source: China Beige Book  
 
4. Developers’ sales remain depressed.
 
Source: @financialtimes   Read full article  
 
Real estate will remain a drag on growth for years.
 
Source: The Economist   Read full article  

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Emerging Markets

1. Mexico’s factory output edged lower in October but remained near record highs.
 

 
• The rebound in Oil & Gas production appears to be stalling.
 

 
• Construction output has been surging.
 

——————–

 
2. Brazil’s inflation declined again, suggesting more rate cuts ahead.
 

 
Here is the 2-year yield.
 

——————–

 
3. A 54% devaluation for Argentina’s currency ahead?
 
Source: @economics   Read full article  
 
Source: @TheTerminal, Bloomberg Finance L.P.  

——————–

 
4. India’s industrial production accelerated in October.
 

 
Source: The Times of India   Read full article  
 
• Inflation picked up last month but was lower than expected.
 

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Energy

1. Crude oil prices continue to tumble, …
 

 
… with contango intensifying (3 charts).
 

 

 

 
• The WTI oil futures price appears oversold, although momentum remains negative.
 

——————–

 
2. Crude oil speculators have quickly unwound their crowded long positions since the July-September price rally.
 
Source: Aazan Habib, Paradigm Capital  
 
3. US gasoline futures dipped below $2/gal.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
4. US natural gas futures are getting obliterated.
 

 

——————–

 
5. Here is a look at global LNG exports.
 
Source: Goldman Sachs  

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Equities

1. The S&P 500 hit the highest level since January of 2022. Technicals suggest that the index is overbought.
 

 
• A large number of S&P 500 stocks closed at record highs on Tuesday.
 
Source: @WSJ   Read full article  

——————–

 
2. The S&P 500 has diverged from its earnings revision breadth.
 
Source: Morgan Stanley Research; @dailychartbook  
 
3. Capital Economics sees US shares continuing to outperform international markets next year.
 
Source: Capital Economics  
 
4. Small caps tend to outperform in December.
 
Source: Goldman Sachs; @Marlin_Capital  
 
5. Next, we have some updates on the volatility markets.
 
• Options average daily volume hit a record this year, …
 
Source: @WSJ   Read full article  
 
… boosted by short-term contracts.
 
Source: @WSJ   Read full article  
 
• VIX is nearing 12 for the first time since 2019.
 

 
Here is the 3-month VIX-equivalent.
 

 
• Relaized vol is also crashing.
 

 
• The market isn’t too worried about this week’s FOMC meeting.
 
Source: Nomura Securities; @WallStJesus  

——————–

 
6. One measure of market froth is the PE/VIX ratio (valuation relative to perceived risk).
 

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Credit

1. “Higher for longer” will be troublesome for leveraged firms.
 
Source: @BW   Read full article  
 
2. The quality of the US high-yield index has improved since the financial crisis…
 
Source: Oxford Economics  
 
…although fundamentals have weakened since the onset of the Fed’s hiking cycle.
 
Source: Oxford Economics  

——————–

 
3. Interest coverage ratios are trending lower.
 
Source: S&P Global Market Intelligence  

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Global Developments

1. The sharp decline in US economic surprises relative to other G10 nations has weighed on the dollar.
 
Source: MRB Partners  
 
2. Here is a look at government debt ownership by country.
 
Source: Torsten Slok, Apollo  

——————–

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Food for Thought

1. US population growth:
 
Source: @GameofTrades_  
 
2. Homeschooling:
 
Source: @chartrdaily  
 
3. A failing education system?
 
Source: The Economist   Read full article  
 
4. Why do people immigrate to the US?
 
Source: Visual Capitalist  
 
5. Afghanistan poppy cultivations:
 
Source: Statista  
 
6. Injuries related to Christmas decoration activities:
 
Source: USAFacts  
 

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