Posted on by The Daily Shot Editor: Lev Borodovsky

Markets react to Israel’s attack on Iran

The Daily Shot: 19-Apr-24
• Global Developments
• The United States
• Europe
• Japan
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Equities
• Credit
• Rates
• Food for Thought

 

Global Developments

1. Israel launched a retaliatory strike against Iran.
 
Source: @WSJ   Read full article  
 
• Crude oil and safe-haven assets surged.
 

 
– The Swiss franc climbed by over 1% against the euro.
 

 
– Treasury yields declined.
 

 
• Asian stocks and US futures dropped sharply.
 

Here is Taiwan’s key equity index.
 

 
• However, markets have reversed some of the initial moves this morning as Iran downplayed the attack, with the nation’s nuclear facilities reportedly remaining intact.
 
Source: The Jerusalem Post   Read full article  
 
Source: The Independent   Read full article  

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2. Morgan Stanley forecasts a renewed acceleration in global debt-to-GDP alongside rising debt servicing costs. (2 charts)
 
Source: Morgan Stanley Research  
 
Source: Morgan Stanley Research  

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3. Investors have delayed expectations around policy easing across major developed markets.
 
Source: Numera Analytics (@NumeraAnalytics)  
 
4. The IMF’s projections for growth five years out have been trending lower.
 
Source: IMF   Read full article  
 
5. This chart shows the percentage of imports billed in foreign currency by country.
 
Source: Capital Economics  
 
6. Swiss watch exports slumped last month due to weak demand from China.
 

 
Source: @wealth   Read full article  

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The United States

1. Fed officials continue to signal delays in rate cuts.
 
Source: @economics   Read full article  
 
Source: @economics   Read full article  
 
Rate cut expectations for 2024 dipped below 40 bps.
 

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2. The Conference Board’s leading index declined again in March. Some economists argue that in the current environment, this indicator does not effectively measure economic activity.
 

 

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3. The Philly Fed’s regional manufacturing index rose this month, signaling an improvement in US factory activity. This report contrasts with the earlier data from the New York Fed.
 

 
• The Philly Fed’s index is consistent with the ISM PMI (at the national level) reaching 55.
 

 
• Although the region’s factories continue to reduce their workforce and employee hours, …
 

 
… they are becoming more optimistic about labor demand in the coming months.
 

 
• Manufacturers increasingly expect their costs to rise.
 

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4. Next, we have some updates on the labor market.
 
• Initial jobless claims remain low, …
 

 
… but continuing claims appear to be trending up relative to recent years.
 

 
– Here are the seasonally adjusted trends. It is important to note that seasonal adjustments to weekly data may not always be reliable in the short term.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
– Layoff data seem to suggest that jobless claims will move higher in the weeks ahead.
 
Source: Pantheon Macroeconomics  
 
• Economists have been surprised by the strength of the US labor market.
 
Source: @WSJ   Read full article  
 
• The entry of more prime-age women into the labor force has extended the expansion of the US labor force.
 
Source: Merrill Lynch  

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5. Existing home sales dropped below 2023 levels last month, reaching a multi-year low for this time of the year.
 

 
Source: @economics   Read full article  
 
• Here is the regional breakdown (seasonally adjusted).
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
• Inventories of homes for sale have risen well above the 2023 levels, …
 

 
… which is confirmed by RedFin’s data.
 
Source: Redfin  
 
• The median sales price was 4.8% above last year’s level.
 

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Europe

1. The Eurozone’s construction output improved further in February.
 

 
Source: RTT News   Read full article  

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2. EU vehicle registrations dipped below last year’s levels.
 

 
3. Here is a look at the changes in rents and house prices in the EU.
 
Source: Eurostat   Read full article  

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Japan

Inflation eased last month.
 

 
Source: Reuters   Read full article  
 
Here are a couple of CPI components.
 
• Autos:
 

 
• Clothing:
 

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China

1. The renminbi continues to weaken gradually, diverging from the PBoC’s target midpoint.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
2. Coal production declined for the first time since September 2021. This is partly because of recent accidents leading to a tightening of safety regulations, according to Capital Economics.
 
Source: Capital Economics  

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Emerging Markets

1. Asian currencies are weaker after Israel’s retaliatory strike. This chart shows the US dollar gaining against the Philippine peso.
 

 
2. The Vietnamese dong reached a new low against the dollar. Will Vietnam’s central bank intervene to avoid being labeled a currency manipulator by the US Treasury?
 

 
Source: @markets   Read full article  

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3. The increase in Thailand’s exports could benefit domestic earnings growth.
 
Source: Alpine Macro  
 
4. Foreigners continue to buy Turkish stocks.
 

 
5. Here is a look at the Africa-China trade.
 
Source: Boston University Global Development Policy Center   Read full article  
 
6. Argentina’s trade surplus surprised to the upside as exports firmed while imports slumped last month.
 

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Cryptocurrency

1. It has been a tough month for cryptos, with several altcoins underperforming bitcoin.
 
Source: FinViz  
 
2. Bitcoin’s market cap relative to the total crypto market cap (dominance ratio) continues to rise.
 

 
3. Is the bitcoin halving priced in?
 
Source: CoinDesk   Read full article  
 
4. The rally in bitcoin mining stocks has faded.
 
Source: @WSJ   Read full article  

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Commodities

1. The rally in copper remains intact.
 

 
2. The rise in industrial metal prices has been supported by improving global manufacturing PMIs.
 
Source: BCA Research  
 
3 Here is an annotated history of gold.
 
Source: Deutsche Bank Research  
 
• Gold prices continue to diverge from real rates.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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3. The selloff in US soybean futures continues.
 

 
A weak Brazilian real and favorable weather conditions have been a headwind for soybeans.
 

 
4. With nearly half of US soybean oil being used in biofuels, the commodity now behaves like an energy product.
 
Source: @SusanNOBULL, @Barchart   Read full article  
 
5. Lumber prices have been down for 13 days in a row, reaching the lowest level since 2020 this week. Weak US housing data has weighed on lumber.
 

 

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6. Cocoa futures have resumed their unprecedented rally.
 

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Equities

1. Let’s take a look at the market drawdowns in the current selloff.
 
• Sectors:
 

 
• Equity factors/styles:
 

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2. Micorcaps’ underperformance worsened this week.
 

 
3. Investment managers are trimming equity exposure.
 
Source: NAAIM  
 
4. Yesterday, we showed a sharp increase in the US Treasury’s balances at the Fed, which reduces liquidity in the private sector and typically acts as a headwind for risk assets.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
5. Insiders’ net equity buying has been running well below the historical average.
 
Source: @Mayhem4Markets  
 
6. The relative performance of value versus growth stocks is approaching its 50-year lows.
 
Source: @IanRHarnett  
 
7. The S&P 500 dividend yield is over 3% below the 10-year Treasury yield.
 

 
8. First-quarter earnings per share (EPS) beats for the S&P 500 are typically the strongest of the year.
 
Source: Citi Private Bank  

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Credit

1. HYG, the largest corporate high-yield ETF, is testing support at the 200-day moving average.
 

 
2. Foreigners bought $53 billion worth of US corporate bonds in February.
 

 
3. Direct lending funds, including BDCs, are reporting an increase in distressed names within their portfolios.
 
Source: @markets   Read full article  

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Rates

1. A small number of players have been dominating the Treasury futures/cash arb trades (2 charts).
 
Source: @markets   Read full article  
 
Source: IMF   Read full article  

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2. The bid-to-cover ratio at 10-year Treasury auctions has been relatively stable.
 
Source: Alpine Macro  
 
3. Fund flows suggest that investors believe longer-term interest rates have peaked, as evidenced by their rotation from money market funds to longer-term fixed-rate debt.
 
Source: BofA Global Research  

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Food for Thought

1. Return-to-office rates in major US cities during 2023:
 
Source: @markets   Read full article  
 
2. Decline in the willingness of US workers to relocate for employment opportunities.
 
Source: @economics   Read full article  
 
3. Length of House of Representatives GOP speakerships:
 
Source: @axios   Read full article  
 
4. Highly Pathogenic Avian Influenza (bird flu) detections in livestock:
 
Source: USDA   Read full article  
 
5. Fast-casual and quick-service restaurant chains vs. the full-service dining segment:
 
Source: Placer.ai  
 
6. Highest-grossing music festivals:
 
Source: Statista  
 

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Have a great weekend!

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