The 10-year/3-month Treasury curve is no longer inverted

The Daily Shot: 16-Dec-24
The United States
Canada
The United Kingdom
The Eurozone
Europe
Japan
Asia-Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Credit
Global Developments
Food for Thought



 

The United States

1. Let’s begin with some updates on inflation.
 
US Import prices unexpectedly rose last month despite the stronger dollar.
 

 
Economists now see inflation risk skewed to the upside.
 
Source: @economics   Read full article  
 
Tariffs and persistent inflationary pressures could keep core PCE above the Fed’s 2% target, according to Pantheon Macroeconomics. Will the Fed be forced to tighten again?
 
Source: Pantheon Macroeconomics  
 
US freight deflation appears to have ended.
 
Source: Goldman Sachs; Cass Information Systems  

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2. Industrial production of high-tech industries has accelerated since the passage of the CHIPS Act.
 
Source: J.P. Morgan Asset Management  
 
3. The Magnificent 7 capex spree reflects the structural AI boom, which is key to America’s economic divergence (2 charts).
 
Source: Torsten Slok, Apollo  
 
Source: @financialtimes   Read full article  
 
AI-driven productivity gains might offset wage inflation as Trump’s deregulation accelerates tech adoption.
 
Source: Alpine Macro  

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4. The US has been accustomed to an era of free trade, while protectionism was the norm during the industrialization boom.
 
Source: Deutsche Bank Research  
 
Here is a look at US imports from Canada and Mexico by category.
 
Source: @financialtimes   Read full article  

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5. The 10-year – 3-month portion of the Treasury curve is no longer inverted.
 

 
Here is the yield curve change over the past seven days.
 


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Canada

1. Manufacturing sales gained in October, but the trend does not look promising.
 

 
2. Capacity utilization improved again in Q3.
 

 
3. The BoC’s policy easing widened Canada’s rate gap with the US.
 
Source: MRB Partners  
 
4. The loonie continues to weaken.
 


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The United Kingdom

1. The latest report reveals that UK GDP contracted for the second consecutive month.
 

 
Source: Reuters   Read full article  
 
Manufacturing production (another decline):
 

 
Services output (growth stalling):
 

 
Construction:
 

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2. The trade deficit widened in October.
 

 
3. UK inflation expectations are back near 3%.
 

 
Economists have been boosting their forecasts for UK inflation next year.
 

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4. Economists have lowered their projections for BoE rate cuts, now anticipating 105 bps of reductions by the end of next year.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
5. Home price appreciation showed some improvement this month relative to 2023.
 


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The Eurozone

1. The market is still pricing in some probability of an ECB jumbo rate cut in January or April.
 

 
2. Euro-area industrial production was unchanged in October.
 

 
3. With Trump doubling down on pro-growth policies, the Fed may maintain its stance, while the ECB’s dovish pivot could place additional pressure on the euro.
 
Source: Alpine Macro  
 
4. Germany’s trade surplus narrowed more than expected in October as exports slowed.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Source: @WSJ   Read full article  


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Europe

1. Sweden’s unemployment rate surprised to the downside last week.
 

 
2. Poland’s exports remain strong.
 

 
3. Here is a look at fatal workplace accidents and incidence rates in the EU.
 
Source: Eurostat   Read full article  


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Japan

1. The December PMIs indicated improvement, with a slower contraction in manufacturing and accelerated growth in services.
 

 
2. Machinery orders topped expectations.
 

 
3. Japan’s VAT hikes triggered brief inflation spikes that quickly faded in the absence of income growth.
 
Source: Alpine Macro  


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Asia-Pacific

1. The South Korean won continues to weaken amid political uncertainty.
 

 
Source: Reuters   Read full article  

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2. Australia’s manufacturing PMI shifted deeper into contraction territory this month, while services growth remained tepid.
 

 
AUD/USD is trading near the lowest levels in over a year.
 


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China

1. Bank credit growth disappointed again, registering the lowest level and year-over-year growth in years.
 

 

 
Government bond issuance was strong in November.
 

 
However, government spending hasn’t been large enough to accelerate economic growth.
 
Source: @bpolitics   Read full article  

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2. Industrial production grew in line with forecasts, …
 

 
… but retail sales were much softer than expected in November.
 

 
Source: @financialtimes   Read full article  

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3. Home price declines slowed last month, …
 

 
… but residential property sales and investment remained soft.
 

 

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4. Utilized foreign direct investment was slightly above last year’s levels.
 

 
5. Bond yields tumbled further in response to soft economic data.
 

 

 
Source: @markets   Read full article  
 
Here is the China-US 10-year spread.
 


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Emerging Markets

1. Brazil’s economic activity is surging.
 

 
2. India’s business activity remains remarkably strong.
 

 
Last month’s wholesale inflation was softer than expected.
 

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3. Indonesia’s exports are nearing an all-time high.
 

 
7. Next, we have some performance data from last week.
 
Currencies:
 

 
Bond yields:
 

 
Equity ETFs:
 


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Cryptocurrency

1. Bitcoin reached a record high this morning following its seventh consecutive weekly gain.
 

 
2. Here is the month-to-date performance.
 


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Commodities

1. Cocoa futures are nearing the April peak.
 

 
2. Here is last week’s performance data.
 


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Energy

1. Capital Economics forecasts declining oil prices due to structurally weak demand.
 
Source: Capital Economics  
 
2. Cushing, OK, oil inventories are very low (Cushing is the settlement hub for NYMEX WTI crude).
 
Source: @JKempEnergy  


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Equities

1. Market breadth continues to deteriorate.
 

 
2. Growth stocks keep outperforming (2 charts) …
 

 

 
… boosted by tech.
 

 
The S&P 500 Value Index has fallen for ten consecutive days.
 

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3. Small and mid-cap shares are underperforming again.
 

 
4. Implied correlations have been moving lower.
 

 
5. The earnings growth and profit margins of the Magnificent 7 stocks have far outpaced those of the S&P 500.
 
Source: J.P. Morgan Asset Management  
 
6. US equity fund inflows are hitting record highs.
 
Source: Goldman Sachs; @dailychartbook  
 
7. High-beta stocks are improving versus low-volatility stocks.
 
Source: Aazan Habib, Paradigm Capital  
 
8. Foreingers’ holdings of US assets are increasingly concentrated in stocks.
 
Source: @Callum_Thomas  
 
9. Next, we have some performance data from last week.
 
Sectors:
 

 
Equity factors/styles:
 

 
Macro basket pairs’ relative performance:
 

 
Largest US tech firms:
 


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Credit

1. Despite Fed hikes, US corporate interest payments as a percentage of operating surplus are near record lows. Fixed-rate debt locked in at low rates during the pandemic has insulated many firms for now.
 
Source: Torsten Slok, Apollo  
 
Refinancing will continue to boost corporate interest expenses over time.
 

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2. Earnings growth of US leveraged loan issuers increased in Q3.
 
Source: PitchBook  
 
3. Here is a look at last week’s performance (losses driven by Treasury market selloff).
 


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Global Developments

Here is some performance data from last week.
 
Currency indices:
 

 
Bond yields:
 

 
Equities:
 

 
USD-denominated ETFs:
 


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Food for Thought

1. Comparison of mobile data costs across 52 countries in 2024:
 
Source: Visual Capitalist   Read full article  
 
2. The most influential business leaders in 2024, according to Fortune:
 
Source: Visual Capitalist   Read full article  
 
3. Increasing inheritance amounts and their share of household net worth in the US:
 
Source: @economics   Read full article  
 
4. Real per capita disposable personal income excluding government transfers:
 
Source: @WhiteHouseCEA  
 
5. Lightweight plastic bag consumption in the EU:
 
Source: Eurostat   Read full article  
 
6. Rising participation of US women in apprenticeship programs:
 
Source: CEA   Read full article  
 
7. Top streamed song on Spotify by year:
 
Source: Visual Capitalist   Read full article  
 

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