The market scales back Fed rate cut expectations as inflation uncertainty rises

The Daily Shot: 12-Nov-24
The United States
The United Kingdom
The Eurozone
Europe
Asia-Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Credit
Rates
Food for Thought



 

The United States

1. Let’s begin with some updates on inflation.
 
Investors’ inflation expectations increased sharply last week.
 
Source: BofA Global Research  
 
Consumers’ perceptions of inflation uncertainty have been increasing.
 
Source: Damanick Dantes; Bloomberg  
 
Stocks that tend to benefit from higher inflation have been outperforming.
 

 
Nomura anticipates another uptick in the core CPI for October, …
 
Source: Nomura Securities  
 
… with auto insurance and used vehicle inflation rising (2 charts).
 
Source: Pantheon Macroeconomics  
 
Source: Goldman Sachs; @MikeZaccardi  
 
As a result, the core PCE inflation increase (the Fed’s preferred measure) is expected to be the highest since March.
 
Source: Nomura Securities  

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2. With inflation projected to run hotter, the 2-year Treasury yield continues to rise.
 

 
The Treasury curve has flattened again as the market scales back expectations for Fed rate cuts.
 

 

 
A December rate cut is no longer assured, with further reductions appearing even more uncertain.
 

 
The market-implied fed funds rate trajectory has been repriced sharply higher this month.
 

 
The US dollar continues to climb.
 

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3. Goldman expects robust CapEx growth next year.
 
Source: Goldman Sachs; @MikeZaccardi  
 
4. Here’s an overview of the recent hurricanes’ impact on initial jobless claims.
 
Source: Pantheon Macroeconomics  
 
5. The Democrat/Republican consumer sentiment flip, which occurs whenever there’s a change of control in the White House, is underway.
 
Source: @_SofiaBaig_, @MorningConsult  


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The United Kingdom

1. The UK unemployment rate rose more than expected in the three months ending in September.
 

 
Claimant count increased last month.
 

 
Payrolls have peaked earlier this year.
 

 
Vacancies continue to decline and have now fallen within the pre-COVID range.
 

 
Wage growth surprised to the upside.
 

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2. The pound continues to give up recent gains against the USD.
 

 
3. Downside risks for UK retail sales?
 
Source: Capital Economics  


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The Eurozone

1. EUR/USD remains under pressure.
 

 
2. Wage growth is still elevated.
 
Source: Numera Analytics (@NumeraAnalytics)  
 
3. This scatterplot illustrates public debt as a percentage of GDP alongside the ECB’s government debt sales by country.
 
Source: @DanielKral1, @OxfordEconomics  
 
4. Non-performing bank loans in the euro area have significantly declined over the past decade.
 
Source: MRB Partners  
 
5. Here is a look at selected sector PMIs over time.
 
Source: S&P Global PMI  


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Europe

1. Norway’s inflation continues to moderate.
 

 
2. Here’s an overview of tourism accommodation in the EU: leading countries by bed capacity and international guest overnight stays by region.
 
Source: Eurostat   Read full article  
 
3. This chart shows the number of prisoners per 100,000 people in selected countries.
 
Source: The Economist   Read full article  


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Asia-Pacific

1. Japan’s Economy Watchers Survey Expectations came in lower than anticipated last month.
 

 
2. Asian currencies continue to sink against the dollar.
 

 
3. The South Korean won hit its lowest level vs. the dollar since 2022.
 

 
South Korean shares have been struggling.
 

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4. Next, we have some updates on Australia.
 
Consumer sentiment improved again this month (2 charts).
 

 
Source: @ANZ_Research  
 
Source: Reuters   Read full article  
 
Business sentiment strengthened in October.
 


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China

1. Bank lending was softer than expected last month (2 charts).
 

 

 
Aggregate credit was less depressed …
 

 

 
… due to stronger government debt issuance.
 

 
Source: @markets   Read full article  

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2. The renminbi continues to weaken against the dollar.
 

 
CNY/JPY appears stretched.
 
Source: Alpine Macro  

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3. Stocks sold off again in Hong Kong.
 

 
4. Property sales have stabilized.
 
Source: Gavekal Research  
 
A property recovery is needed to rebuild household wealth and unlock consumption.
 
Source: Gavekal Research  

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5. Economic momentum is starting to improve.
 
Source: MRB Partners  
 
High-frequency data suggests a solid Q4 pace.
 
Source: MRB Partners  


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Emerging Markets

1. Mexico’s factory output has been accelerating amid robust US demand.
 

 
Last month’s consumer sentiment topped expectations.
 

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2. Brazil’s debt-to-GDP ratio continues to climb.
 

 
3. Vietnam’s vehicle sales have been very strong.
 

 
4. Here is a look at EM currency correlations to the S&P 500 and the US dollar index.
 


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Cryptocurrency

1. Bitcoin continues to surge, now approaching $90k.
 

 
BTC/USD held its long-term uptrend channel.
 

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2. The total crypto market cap is approaching $3 trillion.
 

 
3. The Crypto Fear & Greed Index moved deeper into “extreme greed” territory, although still below its recent high in March.
 
Source: Alternative.me  
 
4. Short liquidations continued to spike after BTC/USD accelerated past $80K.
 
Source: Coinglass  
 
5. Crypto funds saw inflows last week as investors exited short-BTC products.
 
Source: CoinShares   Read full article  
 
6. Priced in gold (now worth 33.5 oz), bitcoin is yet to breach its 2021 high.
 

 
7. Crypto futures’ open interest jumped last week.
 
Source: @technology   Read full article  


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Commodities

1. Copper is selling off amid a surging US dollar and concerns over Chinese demand.
 

 
Here is a look at China’s copper output.
 
Source: @climate   Read full article  

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2. Iron ore futures are testing support at the 50-day moving average.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
3. Gold is below its 50-day moving average.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Shares of gold miners are under pressure.
 

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4. Lithium miners are cutting production, sending prices higher.
 

 
Source: @markets   Read full article  


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Energy

1. Brent crude is below $72/bbl.
 

 
Source: Reuters   Read full article  

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2. Global refining capacity additions are expected to peak this year.
 
Source: Claudio Lubis, @BloombergNEF   Read full article  
 
3. US LNG exports could face challenges in a trade war scenario.
 
Source: BNEF LNG Research   Read full article  
 
4. Investors have been rotating out of energy shares.
 
Source: BofA Global Research  


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Equities

1. The S&P 500 valuation is nearing its 2020 high.
 

 
2. Speculative activity in the US equity market has accelerated in recent days.
 
Unprofitable tech:
 

 
Post-IPO stocks:
 

 
Retail favorites:
 

 
Crowded longs:
 

 
Stocks with high options volume:
 

 
Meme stocks:
 

 
Tesla:
 

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3. As we saw yesterday, equity positioning surged last week.
 
Source: BofA Global Research  
 
4. US households are very exposed to stocks (2 charts).
 

 
Source: Goldman Sachs  

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5. US shares have significantly widened their outperformance over global peers.
 

 
Valuations continue to diverge.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
US shares increasingly dominate global equity markets (2 charts).
 
Source: @GunjanJS  
 
Source: Goldman Sachs; @MikeZaccardi  
 
Yet global investors remain enthusiastic about US equities.
 
Source: BofA Global Research  

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6. Investors are increasingly upbeat about small caps (2 charts).
 
h/t @GunjanJS  
 
Source: Deutsche Bank Research  

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7. The S&P 500’s return over the past year is now 50x the volatility of its daily returns, which is nearing a historic extreme, according to SentimenTrader.
 
Source: SentimenTrader  


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Credit

1. High-yield bond spreads are the tightest they’ve been since before the GFC.
 

 
2. Muni bonds have bounced, but risks remain.
 

 
Source: @markets   Read full article  

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3. CLO issuance continued to rise in October.
 
Source: PitchBook  


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Rates

1. The 3x leveraged long-term Treasury ETF is experiencing massive inflows, indicating that some investors believe Treasury yields are peaking.
 

 
Source: @markets   Read full article  

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2. The US terminal rate continues to climb as the market scales back Fed rate cut expectations.
 
Source: @TheTerminal, Bloomberg Finance L.P.  


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Food for Thought

1. Top reasons for air travel reluctance among US adults and 2024 holiday travelers:
 
Source: @CivicScience   Read full article  
 
2. Rising trade protectionist measures:
 
Source: IMF   Read full article  
 
3. The US military is grappling with mounting recruitment challenges.
 
Source: Wells Fargo Securities  
 
4. US home buyers’ agent commissions:
 
Source: Redfin  
 
5. Malaria incidence across Africa:
 
Source: Semafor  
 
6. 2024 has been a tough year for political incumbents.
 
Source: Deutsche Bank Research  
 
7. Veterans’ share of each state’s population:
 
Source: @axios   Read full article  
 

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