The Daily Shot: 12-Apr-24
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Asia-Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Rates
• Global Developments
• Food for Thought
The United States
1. Let’s begin with some updates on inflation.
• The PPI report showed some cooling in wholesale price gains.
Source: CNBC Read full article
– The trade services PPI, which generally reflects business markups, showed an increase in March, indicating that companies are successfully maintaining their profit margins.
– A milder PPI report led Nomura to revise down their estimate for the March core PCE inflation. Nonetheless, the Fed’s preferred indicator is expected to show an increase from February.
Source: Nomura Securities
• US inflation has been surprising to the upside in recent months.
Source: Simon White, Bloomberg Markets Live Blog
• The median CPI gains remain elevated.
• This chart shows the CPI diffusion indices.
Source: @TheTerminal, Bloomberg Finance L.P.
• Robust employment is contributing to persistent inflation.
Source: TS Lombard
• The US dollar continues to strengthen, exerting some downward pressure on inflation.
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2. Elevated consumer inflation has led Deutsche Bank to shift their forecast for the first Fed rate cut to December.
Source: Deutsche Bank Research
3. The quits rate is expected to keep falling, which will likely exert downward pressure on wage growth.
Source: BofA Global Research
4. Initial jobless claims were slightly below 2023 levels last week.
• Continuing claims remain elevated relative to recent years.
• This seasonally adjusted chart illustrates the trends in initial and continuing jobless claims.
Source: @TheTerminal, Bloomberg Finance L.P.
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5. The cumulative federal budget deficit is roughly in line with 2023 levels for this time of the (fiscal) year.
Interest expenses continue to climb.
Source: Oxford Economics
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6. US mortgage rates hit the highest level since November.
Source: Mortgage News Daily
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Canada
1. Moderating inflation points to rate cuts this summer.
Source: BCA Research
2. Oxford Economics sees Canada’s economy contracting this year.
Source: Oxford Economics
3. Debt issuance is projected to increase in the 2024/25 fiscal year. The chart on the right shows DV01, which represents the P&L impact of a one-basis-point parallel shift, effectively illustrating a duration-adjusted trend in debt issuance.
Source: Desjardins
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The United Kingdom
1. The economy shows signs of recovery. We will have more on the monthly GDP report next week.
2. The 10-year gilt yield hit the highest level since November.
3. Wage pressure remains strong, according to business surveys.
Source: Nomura Securities
4. The RICS index signals increased optimism in the housing market.
Source: Pantheon Macroeconomics
Source: @markets Read full article
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5. Housing affordability continues to deteriorate.
Source: ONS Read full article
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The Eurozone
1. The ECB is expected to maintain its current policy stance until June, potentially cutting rates well before the Fed.
Source: @economics Read full article
• Many economists see rate cuts continuing after June.
– Pantheon Macroeconomics:
Source: Pantheon Macroeconomics
– Wells Fargo:
Source: Wells Fargo Securities
– However, Numera Analytics sees a low probability of ECB rate cuts before Q4.
Source: Numera Analytics (@NumeraAnalytics)
• Here is the market-based probability of a rate cut on or before June.
• The market is pricing in slightly less than three rate reductions this year.
• The market-based policy rate trajectory shifted higher over the past 30 days, especially for 2025 and 2026.
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2. The euro has been trading lower vs. USD after the hot US CPI report, …
… as inflation trends diverge (2 charts).
Source: TS Lombard
Source: Deutsche Bank Research
Here is the spread between the 2-year US and German bond yields.
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Asia-Pacific
1. Japan-focused equity funds see some outflows.
Source: BofA Global Research
2. South Korea’s headline inflation has been sticky, which is why the BoK is in no hurry to ease policy.
Source: @ANZ_Research
• Bank lending to households declined last month.
• The won continues to sink vs. the US dollar.
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3. Taiwan’s core inflation remains above 2%.
4. Singapore’s economy barely grew in the first quarter.
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China
1. This is not the trend Beijing wants to see.
Source: @TheTerminal, Bloomberg Finance L.P.
2. Economic growth is improving.
Source: MRB Partners
3. The previous correction in export prices boosted Chinese exports, although prices are starting to rise again, possibly due to narrowing profit margins.
Source: Capital Economics
4. Net migration to urban areas is running below its pre-pandemic trend amid negative natural growth.
Source: Gavekal Research
• Urban employment dipped below trend since the pandemic as rural jobs experienced a smaller decrease.
Source: Gavekal Research
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Emerging Markets
1. Brazil’s retail sales strengthened in February.
2. Mexico’s factory output has been moving higher.
• Wage growth remains elevated, which has been a concern for Banxico.
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3. Peru’s central bank unexpectedly cut rates again.
4. The Indonesian rupiah hit a multi-year low against the US dollar.
5. South Africa’s factory output edged lower in February.
But mining production rebounded.
• Business sentiment has been on the rise.
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Cryptocurrency
1. It was a mixed week for cryptos, with ether (ETH) outperforming and bitcoin cash (BCH) paring back previous gains.
Source: FinViz
2. There has been a cluster of long ETH liquidations over the past month as the crypto failed to decisively break above the $4K resistance level.
Source: Coinglass
However, ETH/USD is holding long-term support with stronger resistance at its 2021 price high.
3. Previous bitcoin price rallies were associated with lower odds of rising interest rates.
Source: Denise Chisholm; Fidelity Investments
4. Large over-the-counter transactions are taking place off-exchanges in US spot-bitcoin ETFs, which could help boost liquidity.
Source: @thetrinianalyst; Bloomberg Intelligence
5. Long/short trend following has historically outperformed a long-only bitcoin strategy.
Source: @crypto Read full article
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Commodities
1. Precious metals continue to surge.
• Gold:
• Silver:
Silver has outperformed gold this year.
Source: MarketWatch Read full article
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2. Sugar futures are testing support.
3. Coffee futures continue to climb.
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Energy
1. European natural gas has been rising as Russia targets Ukraine’s natural gas storage facilities.
Source: Reuters Read full article
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2. US natural gas in storage remains well above its five-year range.
3. US oil and gas stocks still trade at a significant valuation discount relative to the broader market.
Source: MRB Partners
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Equities
1. Equity funds are seeing some outflows.
Source: BofA Global Research
Source: BofA Global Research
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2. Small caps typically perform well following the first Fed rate cut, which may not occur for some time
Source: BofA Global Research
• Small caps are pricing in a lot of downside risk.
Source: Oxford Economics
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3. High-dividend stocks are now much more exposed to rates than the S&P 500.
As a result, we are seeing substantial underperformance for high-dividend sectors.
Dividend growers are also underperforming.
Here are some examples.
– Utilities:
Source: BofA Global Research
– Telecoms:
– REITs:
Source: @business Read full article
• Healthcare stocks are also struggling.
• Historically, the highest dividend yielding companies in the S&P 500 have elevated payout ratios, but that has not necessarily translated into outperformance or sustainable dividend payments going forward.
Source: Breckinridge Read full article
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Rates
1. Investors are demanding extra premiums for rising inflation risks.
Source: Simon White, Bloomberg Markets Live Blog
2. Treasury yields have diverged further from the copper-to-gold ratio.
Source: @TheTerminal, Bloomberg Finance L.P.
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Global Developments
1. March was the first month of lower G10 policy rates since 2020.
Source: Nomura Securities
2. Here is a look at risk/reward across assets.
Source: Oxford Economics
3. This chart shows the services sector employment in advanced economies.
Source: Federal Reserve Bank of St. Louis Read full article
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Food for Thought
1. Duration of adverse possession laws by state:
Source: Statista
2. GDP per capita:
Source: Arcano Economics
3. US goods imports by end use:
Source: Council of Economic Advisers Read full article
4. Shifting age demographics:
Source: Council of Economic Advisers Read full article
• Gen Z now outnumbers baby boomers.
Source: Deutsche Bank Research
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5. Office space that is no longer viable to be used for its intended purposes:
Source: Goldman Sachs
6. Interest in electric vehicles among Americans by income, age, and political ideology:
Source: Gallup Read full article
7. Most streamed shows on Netflix since 2021:
Source: @technology Read full article
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Have a great weekend!
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