Surge in services costs drove Treasury yields higher

The Daily Shot: 08-Jan-25
The United States
The United Kingdom
The Eurozone
Europe
Asia-Pacific
China
Commodities
Energy
Equities
Alternatives
Credit
Food for Thought



 

The United States

1. Job openings rose again in November, surpassing forecasts.
 

 
The upside surprise was largely due to a sharp increase in vacancies in the Business Services sector (3 charts).
 

 
Source: @TheTerminal, Bloomberg Finance L.P.  
 

 
Source: @economics   Read full article  
 
However, several other key sectors have been experiencing weaker trends in job openings.
 
Manufacturing:
 

 
Retail:
 

 
Logistics:
 

 
Quits and hires both declined, indicating the labor market may not be as robust as the headline job openings index suggests.
 

 

 
Layoffs remain subdued.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Here is the Beveridge Curve.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

——————–

 
2. The ISM Services PMI echoed S&P Global’s findings, showing continued expansion in the US service sector in December.
 

 
Demand growth and hiring held up well.
 

 

 
The biggest surprise in the ISM Services PMI was the prices paid index, which revealed a sharp acceleration in cost inflation.
 

 
Source: @economics   Read full article  

——————–

 
3. The unexpected rise in the ISM Services cost index pushed Treasury yields higher, …
 

 
… with further yield curve steepening (2 charts).
 

 

 
Inflation expectations climbed, …
 

 
… while stocks sold off.
 

 
Mortgage rates moved higher.
 
Source: Mortgage News Daily  
 
The market scaled back Fed rate cut expectations.
 

——————–

 
4. The trade deficit widened in November.
 

 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Did the sharp rise in imports result from frontloading ahead of tariffs?
 
Source: Estelle Ou; @TheTerminal, Bloomberg Finance L.P.   Read full article  
 
Here is a look at the US trade balance with Canada, Mexico, and China.
 
Source: @TheTerminal, Bloomberg Finance L.P.  


Back to Index

 

The United Kingdom

1. Gilt yields continue to climb.
 

 
2. UK construction growth weakened in December, with housing activity staying in contraction territory.
 

 
3. Falling vacancy rates point to weaker wage pressures.
 
Source: Nomura Securities  


Back to Index

 

The Eurozone

1. French and Italian CPI reports were softer than expected in December.
 

 

 
At the Eurozone level, inflation was firmer, with the core CPI holding steady.
 

 
Source: @WSJ   Read full article  
 
Services CPI remains persistently high (2 charts).
 

 
Source: @DanielKral1, @OxfordEconomics  
 
However, survey data indicate that services inflation is likely to ease in the coming months.
 
Source: BCA Research  
 
Inflation expectations increased in November.
 

 
Source: @economics   Read full article  

——————–

 
2. The euro-area unemployment rate remained unchanged, while Italy’s unemployment rate continued to decline.
 

 
3. Germany’s construction sector slump continues.
 

 
4. Euro-area industrials are trading at a relative premium even as economic activity weakens.
 
Source: BCA Research  
 
5. Analysts are lowering their 2025 EPS estimates for European firms.
 
Source: @markets   Read full article  
 
Here is the earnings growth outlook by industry, …
 
Source: @markets   Read full article  
 
… and by country.
 
Source: @markets   Read full article  


Back to Index

 

Europe

1. Sweden’s inflation was softer than expected in December.
 

 
The Swedish krona weakened.
 

——————–

 
2. Swiss inflation continues to moderate.
 


Back to Index

 

Asia-Pacific

1. Japan’s consumer confidence edged lower last month.
 

 
2. Taiwan’s headline CPI ticked up while core inflation continued to moderate.
 

 
3. Similarly, Australia’s monthly inflation rose slightly while core inflation softened.
 

 
Australia’s job vacancies have paused their downward trend, which began in mid-2022.
 


Back to Index

 

China

1. The renminbi coninues to weaken.
 

 
2. China’s FX reserves declined sharply last month.
 

 
3. The weak credit and fiscal impulse suggest continued softness in domestic demand.
 
Source: BCA Research  
 
4. Relatively low unemployment and higher working hours point to underemployment.
 
Source: Capital Economics  
 
5. China’s working-age population is shrinking.
 
Source: @WSJ   Read full article  


Back to Index

 

Commodities

1. Copper is holding support.
 

 
2. Shanghai steel futures remain under pressure.
 

 
3. Silver is testing support.
 

 
4. Chicago cattle and hog futures have been trending in opposite directions.
 


Back to Index

 

Energy

1. Brent crude futures continue to climb.
 

 
2. Solar stocks have been rallying in recent days as the market anticipates growing power demand fueled by AI.
 


Back to Index

 

Equities

1. How did different market segments react to rising yields on Tuesday?
 

 
Cyclicals underperformed.
 

——————–

 
2. Market breadth has been weakening.
 

 
3. The stock-bond correlation is positive again.
 

 
4. Treasury yields remain highly sensitive to inflation surprises, maintaining elevated responsiveness since 2022. In contrast, equity markets have shown a sharp decline in sensitivity.
 
Source: Goldman Sachs; @MikeZaccardi  
 
5. According to the options market, there is a 16% probability of a 20% selloff from current levels by year-end.
 
Source: MarketWatch   Read full article  
 

——————–

 
6. Similar to the collapsing equity risk premium observed yesterday, the spread between the S&P 500 earnings yield and BBB corporate bond yield has fallen to multi-year lows.
 
Source: @markets   Read full article  
 
7. The S&P 500 typically struggles between February and March.
 
Source: Aazan Habib, Paradigm Capital  
 
8. Here is a look at the share of activist campaigns by type.
 
Source: @WSJ   Read full article  


Back to Index

 

Alternatives

1. Private equity exit counts are expected to rebound this year.
 
Source: VRC  
 
2. Asian private equity fundraising has drifted away from China in recent years.
 
Source: PitchBook  
 
3. There has been a rise in the number of private-equity growth/expansion deals in recent years as add-ons declined.
 
Source: VRC  
 
4. The private equity market is much more concentrated in tech compared to the public small-cap market.
 
Source: J.P. Morgan Asset Management  
 
5. Japan’s VC dealmaking is rising.
 
Source: PitchBook  
 
However, VC fundraising in Japan has declined in recent years.
 
Source: PitchBook  

——————–

 
6. Over 40% of unicorns (startups valued at over $1 billion) have been in venture portfolios for at least nine years.
 
Source: PitchBook  


Back to Index

 

Credit

1. Global bond issuance got off to a strong start in the first few days of 2025.
 
Source: @markets   Read full article  
 
2. Last year’s bankruptcy filings reached their highest level since 2010.
 
Source: @financialtimes   Read full article  


——————–

Back to Index

 

Food for Thought

1. White-collar headcount changes at US public companies, with managers seeing the largest cuts:
 
Source: @WSJ   Read full article  
 
2. Natural disasters globally:
 
Source: Codera Analytics  
 
3. Africa has seen a rise in conflicts. (2 charts)
 
Source: @WSJ   Read full article  
 
Source: @WSJ   Read full article  

——————–

 
4. Pregnancy and birth statistics in Texas compared to US averages:
 
Source: The Washington Post   Read full article  
 
5. Support for the TikTok ban in the US by age group:
 
Source: @EmersonPolling  
 
6. Dance music events are ending earlier in many cities compared to a decade ago.
 
Source: @financialtimes   Read full article  
 

——————–


Back to Index