The Daily Shot: 16-Sep-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 market is now pricing in a 60% chance of a 50 bps rate cut this month.
Source: @markets Read full article
• Economists still anticipate around three 25 bps rate cuts this year.
Source: @TheTerminal, Bloomberg Finance L.P.
However, the market’s expected pace of Fed cuts this year seems unrealistic unless a recession materializes.
Source: @TheTerminal, Bloomberg Finance L.P.
• The 2-year Treasury yield hit the lowest level since 2022.
The yield curve steepened again.
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2. The U. Michigan Consumer Sentiment Index edged higher in September.
Here are the contributions to the index.
Source: @TheTerminal, Bloomberg Finance L.P.
• Consumers are more upbeat about their financial situation in a year.
Source: @TheTerminal, Bloomberg Finance L.P.
• However, longer-term expectations of households’ financial situation deteriorated further.
• Despite their pessimism, consumers have an appetite for stocks.
Source: Capital Economics
Households are reporting sharp gains in their stock portfolios this year.
Source: @TheTerminal, Bloomberg Finance L.P.
• Consumers’ 12-month inflation expectations eased further, while longer-term expectations edged higher.
A few survey participants have been projecting massive increases in inflation over the next few years, skewing the mean inflation expectations measure.
Source: @TheTerminal, Bloomberg Finance L.P.
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3. Mortgage rates continue to ease, …
… but housing affordability remains depressed.
Source: @citylab Read full article
• Most homeowners are locked into low mortgage rates.
Source: Simon White, Bloomberg Markets Live Blog
• Home equity balances have been rising.
Source: Oxford Economics
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4. Import prices declined last month.
5. Here is a look at the US trade deficit with major trading partners.
Source: Barclays Research
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The United Kingdom
1. The UK housing market continues to show signs of recovery.
2. Inflation expectations are easing.
3. The BoE’s approval ratings have been improving.
Source: @economics Read full article
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The Eurozone
1. The euro-area industrial production keeps weakening.
Source: @WSJ Read full article
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2. German retail sales dipped below last year’s levels in June.
3. The ECB rate cut cycle is happening against the backdrop of a buoyant equity market, which is unusual.
Source: Deutsche Bank Research
4. Where is the Eurozone’s neutral rate of interest?
Source: @economics Read full article
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Japan
• Speculative bets on yen futures hit the highest level since 2016.
• Will USD/JPY maintain support at 140?
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China
1. China’s economic data remains soft. Industrial production and retail sales were below forecasts last month.
Source: CNBC Read full article
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2. Housing prices continue to sink.
• Month-over-month:
• Year-over-year:
Source: Reuters Read full article
• Residential property sales:
• Residential investment:
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3. Utilized foreign direct investment hit a multi-year low.
4. Bank loans fell significantly below last year’s levels, with lending to households reaching a multi-year low.
Source: Reuters Read full article
• Aggregate financing was in line with 2023 levels due to increased government debt issuance.
• Here are the growth rates in China’s money supply.
• Weak credit impulse signals soft economic activity ahead.
Source: BCA Research
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5. The equity market remains under pressure.
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Emerging Markets
1. Brazil’s economic activity remains solid.
2. The Mexican peso surged last week.
The next support level for USD/MXN is at 19.
Source: @TheTerminal, Bloomberg Finance L.P.
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3. Russia’s central bank unexpectedly hiked rates last week.
Source: Reuters Read full article
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4. Next, we have some performance data from last week.
• Currencies:
• Bond yields:
• Equity ETFs:
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Cryptocurrency
1. Cryptos had a good week.
2. Ether continues to underperform bitcoin.
3. Crypto funds are seeing outflows.
Source: Deutsche Bank Research
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Commodities
1. Gold hit another record high.
• The gold market appears frothy as retail investors increasingly enter the futures market.
Source: @markets Read full article
• China’s jewelry sales are on the decline.
Source: @ANZ_Research
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2. Lithium prices have been trending lower.
However, shares of lithium miners jumped last week.
WSJ: – The world’s biggest maker of batteries for electric vehicles, China’s Contemporary Amperex Technology, is considering the suspension of some lithium mining and production operations, according to a research report by Citi. The company, better known as CATL, is weighing whether to mothball its lepidolite mine in eastern China and one of its three lithium carbonate production lines, the bank said.
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3. Coffee futures hit the highest level since 2011/
The two stories below offer background on the recent strength in coffee futures.
Source: BBC Read full article
Source: @JavierBlas, @opinion Read full article
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4. Here is last week’s performance.
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Energy
1. Brent crude positioning is now bearish.
Source: @markets Read full article
2. The US rig count increased last week.
3. Crack spreads have been declining.
4. Henry Hub Natural Gas is holding support and entering a seasonally strong period. (2 charts)
Source: Aazan Habib, Paradigm Capital
• Natural gas is starting to gain momentum relative to WTI oil.
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5. We asked ChatGPT (Model o1) to estimate the impact on crude oil prices if Russia were to test a nuclear weapon for the first time since 1990 in response to Western nations allowing Ukraine to use their missiles for strikes deep inside Russia over the next month. Here are the potential outcomes.
I. Significant Price Increase (+15% to +25%)
Probability: 50%
Rationale:
• Geopolitical Tensions: A nuclear test by Russia would markedly escalate global tensions, leading to fears of broader conflict.
• Supply Concerns: Potential sanctions on Russian oil exports or disruptions in supply routes could tighten the global oil market.
• Investor Behavior: Investors might rush to buy oil futures as a hedge against uncertainty, driving prices up.
II. Moderate Price Increase (+5% to +15%)
Probability: 30%
Rationale:
• Managed Responses: Diplomatic efforts might prevent immediate severe sanctions, mitigating supply disruptions.
• Strategic Reserves: Release of oil from strategic reserves by major economies could temper price increases.
• OPEC+ Actions: Other oil producers might increase output to stabilize the market.
III. Minimal Price Change (0% to +5%)
Probability: 15%
Rationale:
• Market Skepticism: Traders may perceive the nuclear test as a political maneuver without immediate impact on oil supply.
• Global Economic Factors: Concerns about economic slowdown or lower demand might offset upward price pressures.
• Alternative Supplies: Increased production from non-OPEC countries could fill any potential gaps.
IV. Price Decrease (-5% to 0%)
Probability: 5%
Rationale:
• Demand Destruction: Heightened geopolitical risks could dampen economic activity, reducing oil demand.
• Overreaction Correction: An initial spike in prices might be followed by a sell-off as markets reassess the actual impact.
• Policy Interventions: Coordinated international actions might reassure markets, leading to a price decline.
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Equities
1. It was a good week for stocks, …
… especially tech.
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2. Goldman’s sentiment indicator hit zero (neutral).
Source: Goldman Sachs; @MikeZaccardi
3. Value managers have been adding tech megacaps to boost performance.
Source: @markets Read full article
4. Rising earnings and falling rates could benefit the stock/bond ratio.
Source: MRB Partners
5. Bull markets have been getting longer since the 1990s.
Source: Goldman Sachs; @MikeZaccardi
6. So far, global equities remain in an uptrend while credit spreads are relatively low.
Source: MRB Partners
• US valuations appear stretched.
Source: MRB Partners
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7. 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. This year’s CLO issuance is expected to be close to the 2021 peak.
Source: Deutsche Bank Research
2. Banks have been buying back their CoCo debt.
Source: Bloomberg Law Read full article
3. Here is last week’s performance.
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Global Developments
1. Here is the impact of a hike in tariffs on the largest economies.
Source: Barclays Research
2. Globally, companies are still upbeat about hiring intentions.
Source: MRB Partners
3. Finally, we have some performance data from last week.
• Currencies:
• Bond yields:
• Equity indices:
• Equity ETFs (performance in USD terms):
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Food for Thought
1. Wind energy-related jobs:
Source: @axios Read full article
2. Top challenges managers face when working with GenZ employees:
Source: ResumeBuilder.com Read full article
3. Surge in US chip construction spending following the anticipation and passage of the CHIPS Act:
Source: PIIE Read full article
4. Cumulative police-related deaths by year:
Source: The Economist Read full article
5. Voter eligibility by generation in US presidential elections:
Source: BofA Global Research
6. Projected impact of weight-loss drugs on US food consumption by 2035:
Source: The Economist Read full article
7. 2024 NFL regular season travel distances for each team:
Source: @axios Read full article
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