Negative economic surprises signal lower Treasury yields ahead

The Daily Shot: 14-May-24
The United States
Canada
The Eurozone
Europe
Japan
Asia-Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Credit
Food for Thought



 

The United States

1. The New York Fed’s US consumer survey indicated rising short-term inflation expectations in April, …
 

 
… while longer-term expectations have eased.
 

 
More households expect to be “much worse off” in a year.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Lower-income Americans are increasingly worried about finding work if they lose their job.
 
Source: Federal Reserve Bank of New York  

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2. The Citi Economic Surprise Index continues to trend lower, …
 

 
… with the soft-data indicator (surveys) converging with hard data.
 
Source: Citi; @TheTerminal, Bloomberg Finance L.P.  
 
Negative economic surprises signal lower Treasury yields ahead.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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3. Next, we have some updates on inflation.
 
What should we expect from the CPI report this week? Here are some estimates for the April core CPI (monthly changes).
 
Wells Fargo (0.29%):
 
Source: Wells Fargo Securities  
 
Morgan Stanley (0.29%):
 
Source: Morgan Stanley Research  
 
Nomura (0.33%):
 
Source: Nomura Securities  
 
Nomura projects the supercore CPI to slow to 0.40%, which remains too high for the Fed’s comfort.
 
Source: Nomura Securities  
 
Elevated vehicle repair costs have propelled car insurance inflation higher.
 
Source: Morgan Stanley Research  
 
There has been a sizable gap between healthcare prices and costs.
 
Source: BCA Research  
 
The sharp deceleration in new rents indicates weaker shelter inflation ahead.
 
Source: Alpine Macro  
 
Single-family rent inflation is running stronger than multi-family.
 
Source: Deutsche Bank Research  

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4. Will households start tapping into their substantial home equity?
 
Source: Deutsche Bank Research  


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Canada

1. Building permits declined more than expected in March.
 

 
2. Consumer sentiment continues to drift lower.
 


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The Eurozone

1. After months of persistent downgrades, economists have upgraded Germany’s GDP growth forecasts for this year (slightly).
 

 
This year, the decline in German exports is expected to be less severe than the decline in imports.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
 
2. Economists continue to upgrade their GDP forecasts for Italy and Spain.
 

 


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Europe

1. Narrower interest rate differentials could weigh on EUR/SEK.
 
Source: Alpine Macro  
 
2. The Czech CPI report topped expectations, …
 

 
… further supporting the Czech koruna.
 

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3. Here is a look at employment rates across the EU.
 
Source: Eurostat   Read full article  


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Japan

1. The yen continues to weaken, …
 

 
… and is now massively undervalued.
 
Source: @JeffreyKleinto  

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2. JGB yields are surging, with the 30-year rate climbing above 2%.
 

 
Source: @economics   Read full article  
 
Source: @markets   Read full article  

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3. The April PPI was a bit higher than expected.
 


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Asia-Pacific

1. South Korea’s export price gains have been accelerating.
 

 
2. Australian households cut back on spending in April.
 

 
3. New Zealand’s house sales are holding above last year’s levels.
 


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China

1. Weak liquidity conditions will be a drag on economic activity.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
2. Markets are betting on PBoC rate cuts in the months ahead.
 
3-year bond yield:
 

 
One-year swap rate:
 

 
The swap curve:
 

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3. The credit crunch among Chinese developers continues to fester as Agile defaults on dollar bonds.
 
Source: @markets   Read full article  
 

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4. This chart displays projections for the public debt-to-GDP ratios of the US and China.
 
Source: IMF   Read full article  


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Emerging Markets

1. India’s year-over-year CPI growth was roughly unchanged from March.
 

 
Separately, here are India’s youth unemployment rates by education levels.
 
Source: The Economist   Read full article  

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2. Turkey’s industrial production declined in March.
 

 
3. Indonesia’s consumer sentiment is nearing multi-year highs.
 

 
4. Ukraine’s CPI was lower than expected in April.
 

 
5. Many EM equity markets trade at historical valuation lows.
 
Source: TS Lombard  


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Cryptocurrency

1. Crypto funds saw the fourth straight week of outflows.
 
Source: CoinShares   Read full article  
 
US funds experienced the most outflows last week, which overshadowed inflows in Hong Kong following recent crypto ETF approvals, …
 
Source: CoinShares   Read full article  
 
…but the initial wave of inflows did not last long.
 
Source: CoinDesk   Read full article  

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2. This chart compares the record speed of IBIT’s AUM growth (before recent outflows) versus other top ETFs.
 
Source: @thetrinianalyst  
 
3. Here is a look at the most frequently asked crypto-related questions on Google.
 
Source: CoinLedger  


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Commodities

1. Cocoa futures took a massive hit on Monday.
 

Source: The Spokesman-Review    Read full article  
 
2. The selloff in coffee futures resumed.
 

 
3. Soft red winter wheat is approaching $7 per bushel as funds rotate out of cocoa and coffee into grains.
 

 
Corn futures are grinding higher as well.
 

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4. Sugar remains under pressure.
 

 
Source: barchart.com   Read full article  

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5. Oats futures continue to rally.
 

 
6. It’s been a good month for milk futures.
 

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7. Copper prices are soaring.
 

 
Source: @WSJ   Read full article  


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Energy

1. Brent crude remains below its 200-day moving average.
 
Source: Bloomberg
 
2. The US oil rig count declined again last week.
 

 
Source: Reuters   Read full article  

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3. Capital Economics expects OPEC+ production cuts will start to be unwound from July.
 
Source: Capital Economics  
 
4. The US natural gas price is testing initial resistance at its 40-week moving average, although momentum is improving.
 

 
Gas flows to the US Freeport LNG export terminal have recovered following outages last month. The unwind of a substantial surplus in gas storage helped to stabilize natural gas prices over the past week.
 
Source: Capital Economics  

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5. Nuclear energy ETFs have experienced strong inflows.
 
Source: The ETF Shelf  
 
6. Short interest in energy companies continues to rise.
 
Source: Deutsche Bank Research  


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Equities

1. The Reddit crowd’s “pump ‘n dump” activity is back.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Source: ABC News   Read full article  
 
The meme share bid triggered a short squeeze in a number of names,…
 

 
… giving many hedge funds a headache.
 

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2. Trading volumes in the most liquid US equity securities, SPY and QQQ, continue to fall.
 

 
3. The percentage of unprofitable small caps remains elevated.
 
Source: Goldman Sachs; @MikeZaccardi  
 
4. The largest global equity market ETF hit a record high.
 
Source: @GunjanJS, @WSJmarkets, @jackpitcher20  
 
5. Here is the performance attribution across key global markets over the past 12 months.
 
Source: Goldman Sachs; @MikeZaccardi  
 
6. This chart illustrates the performance of select factors under various CPI levels and CPI volatility environments.
 
Source: @GinaMartinAdams  


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Credit

1. B- downgrades in the US and Canada rose last year amid high leverage and cash flow deficits. S&P expects the share of downgrades to remain elevated this year. (2 charts)
 
Source: S&P Global Ratings  
 
Source: S&P Global Ratings  

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2. Corporate bonds have massively outperformed Treasuries since the onset of the pandemic.
 
Source: BofA Global Research  


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Food for Thought

1. Growth in business applications:
 
Source: CreditDonkey; SBA  
 
2. Food recalls:
 
Source: @axios   Read full article  
 
3. Impact of early AI detection on treatment outcomes across medical specialties:
 
Source: The Economist   Read full article  
 
4. The US fertility rate since 1965:
 
Source: @axios   Read full article  
 
5. Israel’s budget deficit:
 
Source: @bpolitics   Read full article  
 
6. A warm April:
 
Source: @axios   Read full article  
 
7. Wildfires in Canada and Greece:
 
Source: Our World in Data   Read full article  
 
8. Ticket sales for stand-up comedy:
 
Source: @technology   Read full article  

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