Posted on by The Daily Shot Editor: Lev Borodovsky

The downside PPI surprise boosts bets on Fed rate cuts

The Daily Shot: 15-Jan-24
• The United States
• The United Kingdom
• The Eurozone
• Japan
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Global Developments
• Food for Thought

 

The United States

1. The December PPI report was below forecasts, …
 

 
Source: @economics   Read full article  
 
… with the core PPI remaining unchanged again (an increase was expected).
 

 
• The decline in business markups (trade services) was a drag on core producer inflation. This indicator points to softer corporate margins.
 

 
Trade services PPI has seen a decline for four straight months.
 

 
• Excluding trade services, the core PPI climbed in line with forecasts.
 

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2. The downside PPI surprise has heightened market expectations for Fed easing, with predictions now almost at 170 bps in rate cuts for this year. This contrasts with the December FOMC forecasts, which indicated just 75 bps in reductions. Numerous analysts perceive the market’s stance as excessively dovish.
 

 

 
Despite a pushback from some Fed officials, markets see a March rate cut as highly probable.
 

 
• The 2-year Treasury yield declined again, …
 

 
Source: MarketWatch   Read full article  
 
… now down for six days in a row.
 

 
• The Treasury curve’s bull steepening continued, with the 30-year/2-year spread moving into positive territory.
 

 

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3. Financial conditions have eased sharply in recent weeks.
 

 
4. Card spending has been holding up, according to Bank of America’s data.
 
Source: BofA Global Research  
 
• The boost to household incomes from higher rates will likely fade.
 
Source: Oxford Economics  

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The United Kingdom

1. The November GDP estimate topped expectations.
 

 
• Services and manufacturing output increased.
 

 

 
– Construction activity continued to move lower.
 

 
• The trade gap narrowed.
 

 
• The slowdown in real GDP growth has been driven by sectors with high interest rate sensitivity.
 
Source: Capital Economics  
 
– Capital Economics expects a recovery in real GDP due to interest rate cuts, falling inflation, and a boost to real household incomes.
 
Source: Capital Economics  

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2. Home prices increased in this month.
 

 
• UK housing affordability has been deteriorating for decades.
 
Source: @financialtimes   Read full article  

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3. What do companies view as their top concerns?
 
Source: ING  

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The Eurozone

1. French goods consumption increased in November.
 

 
2. Here is a look at employment PMIs by sector. Construction and manufacturing employment is contracting, while services are still in growth mode.
 
Source: ECB  
 
3. Here is a look at electricity generation by source in Germany, France, Italy, and Spain.
 
Source: @DanielKral1, @OxfordEconomics  

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Japan

1. Stock prices continue to surge.
 

 
• The correlation between equities and dollar-yen has strengthened this year.
 
Source: George Lei, Bloomberg   Read full article  
 
• The correlation between the Nikkei and the S&P 500 moved further into negative territory.
 
Source: George Lei, Bloomberg   Read full article  

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2. Dollar-yen is holding resistance at the 50-day moving average.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
3. The 2-year JGB yield is negative again.
 

 
4. The Economy Watchers Expectations indicator edged lower in December.
 

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China

1. Last month’s loan growth surprised to the downside.
 

 
Here is China’s loan growth on a year-over-year basis.
 
Source: @markets   Read full article  
 
• Aggregate financing was also softer than expected.
 

 
• Growth in monetary aggregates continues to slow.
 

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2. Despite soft credit growth, the PBoC left the 1-year rate unchanged (the market expected a cut).
 

 
3. Onshore ETF flows were robust last year, driven in part by state funds trying to prop up the market.
 
Source: @markets   Read full article  
 
4. Baidu could face US sanctions due to its collaboration with China’s military.
 
Source: South China Morning Post   Read full article  

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Emerging Markets

1. EM currencies appear undervalued based on their average deviation from real effective exchange rates.
 
Source: Oxford Economics  
 
2. BofA’s private clients like EM bonds.
 
Source: BofA Global Research  
 
3. India’s middle class has been growing quickly.
 
Source: @financialtimes   Read full article  
 
4. Romania’s industrial production continues to trend lower (partly due to the Eurozone’s manufacturing slump).
 

 
5. Finally, we have some performance data from last week.
 
• Currencies:
 

 
• Bond yields:
 

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Cryptocurrency

1. “Buy the rumor, sell the news.” Bitcoin dipped below $43k after the launch of spot ETFs.
 

 
2. Ether continues to outperform.
 

 
3. Here is a look at last week’s performance across some of the most liquid cryptos.
 

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Commodities

1. Silver continues to underperform gold.
 

 
• July-September is typically the strongest period for gold.
 
Source: Aazan Habib, Paradigm Capital  
 
• Volatility in gold futures remains historically low, which typically does not indicate the end of an uptrend.
 
Source: Aazan Habib, Paradigm Capital  

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2. Corn futures hit their lowest level since the end of 2020.
 

 
• Speculative accounts continue to boost their bets against corn.
 

 
• Treaders are also increasingly bearish on soybeans.
 

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3. Cocoa futures are surging again.
 

 
4. Here is a look at last week’s performance across key commodity markets.
 

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Energy

1. US natural gas futures climbed further on Friday, …
 

 
… as the “Arctic blast” moved toward Texas.
 
Source: NOAA  
 
• Spot natural gas and electricity prices soared.
 

 
Source: @climate   Read full article  
 

 
Texas electricity demand jumped.
 

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2. US fracking activity continues to trend lower.
 

 
3. Uranium prices keep rising.
 

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Equities

1. Goldman’s sentiment indicator shows investors becoming more cautious.
 
Source: Goldman Sachs; @MikeZaccardi  
 
• Corporate insiders are very nervous.
 
Source: homson Reuters  

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2. Small businesses are reporting falling sales. What does that mean for larger firms?
 
Source: @MikaelSarwe  
 
3. Share buybacks have been lagging earnings growth.
 
Source: Deutsche Bank Research  
 
4. Historically, very strong December periods for the S&P 500 precede subdued returns in January.
 
Source: Citi Private Bank  
 
5. The momentum factor has been outperforming.
 
h/t @MikeZaccardi  
 
6. Earnings preannouncements have been negatively skewed.
 
Source: @MichaelKantro  
 
7. Non-US equity markets have greater room to rerate, according to Oxford Economics.
 
Source: Oxford Economics  
 
8. The stock market’s negative correlation to the dollar intensified post-COVID.
 

 
9. Finally, we have some performance data from last week.
 
• Sectors:
 

 
• Equity factors:
 

 
• Macro basket pairs’ relative performance:
 

 
• Thematic ETFs:
 

 
• Largest US tech firms:
 

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Credit

1. US loan growth has stalled.
 

 
The loan-to-deposit ratio remains well below pre-COVID levels.
 

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2. Financial sector spreads have been tightening.
 

 
3. Repricing of US leveraged loans continued its advance from late last year. However, PitchBook data shows depressed buyout deals as the base borrowing rate remains elevated, potentially softening recent bullish activity.
 
Source: PitchBook  
 
4. Money market funds’ AUM hit another record high.
 

 
Source: BofA Global Research  

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5. Finally, we have some performance data from last week.
 

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Global Developments

1. Container shipping costs from Asia continue to climb.
 

 
2. Gavekal’s global growth indicators are improving. (2 charts)
 
Source: Gavekal Research  
 
Source: Gavekal Research  

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3. Here is a look at housing prices in advanced economies since 2005.
 
Source: @WSJ   Read full article  
 
4. Next, we have some performance data from last week.
 
• Currencies:
 

 
• Bond yields:
 

 
• Large-cap equity indices:
 

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Food for Thought

1. Sports betting:
 
Source: @CivicScience   Read full article  
 
2. Twitter advertising revenue:
 
Source: The Economist   Read full article  
 
3. Child care arrangements:
 
Source: US Census   Read full article  
 
4. Global government debt:
 
Source: Visual Capitalist   Read full article  
 
5. Happiness vs. GDP per capita:
 
Source: @chartrdaily  
 
6. Retirement age around the world:
 
Source: @TheDailyShot  
 
7. The median age of US home buyers:
 
Source: @chartrdaily  
 
8. College majors with the highest unemployment rates:
 
Source: @genuine_impact  
 
9. Martin Luther King Jr. – by the numbers:
 
Source: NBC News  
 
• Views on Martin Luther King’s impact on the US:
 
Source: Pew Research Center   Read full article  
 
• Views on progress made since the March on Washington:
 
Source: Statista  

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