The Daily Shot: 14-Jan-25
• The United States
• Canada
• The Eurozone
• Europe
• Japan
• China
• India
• Emerging Markets
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought
The United States
1. Let’s begin with the labor market.
• Prime-age labor force participation declined further in December, while the overall participation rate remained unchanged.
Source: @TheTerminal, Bloomberg Finance L.P.
• This is the second longest streak of continuous payroll gains since 1939.
Source: Deutsche Bank Research
• In December, the Household Survey confirmed the strong employment gains reported in the Establishment Survey (official employment report).
• The rise in unemployment from April 2023 to January 2024 was driven by layoffs and completed temporary jobs, while more recent increases reflect higher labor supply from re-entrants and new entrants.
Source: Deutsche Bank Research
• The Indeed New Job Postings Index suggests that the spike in official job openings data may be short-lived.
Source: Pantheon Macroeconomics
• Surveys are pointing to increased consumer jitters about the labor market.
– Expectations of leaving a job voluntarily and expectations of finding a job in three months:
– U. Michigan expectations of higher vs. lower unemployment (through January):
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2. Next, we have a couple of updates updates on inflation.
• The Fed highlights the market-based PCE inflation gauge, which excludes imputed prices, as a reason for confidence, with this measure remaining stable near 2.4% despite broader inflation pressures.
Source: @economics Read full article
• The US COVID-era inflation surge was driven by supply and demand shocks, not monetary policy, according to Bloomberg’s model.
Source: @TheTerminal, Bloomberg Finance L.P.
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3. Betting markets have sharply reduced the likelihood of a recession this year following the election.
Source: Kalshi
4. Uncertainty surrounding US trade policy has risen sharply since the election.
Source: Goldman Sachs; @WallStJesus
• The news that the Trump administration’s approach to tariffs may be gradual sent stock futures higher.
Source: @bpolitics Read full article
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Canada
1. Consumer confidence inched higher again.
2. From Goldman Sachs to Governor of the Bank of Canada, to Governor of the Bank of England, to Prime Minister? Mark Carney’s betting market odds are gaining traction.
Source: Kalshi
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The Eurozone
1. French bond spreads remain elevated amid political/budget uncertainty.
Source: POLITICO Read full article
• French economic policy uncertainty is the highest since the 2017 elections.
• Manufacturing production edged higher in November.
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2. Dutch manufacturing output also improved.
3. Over the past 25 years, it took seven rate cuts on average for the ECB to stabilize growth.
Source: BCA Research
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Europe
1. Sweden’s monthly GDP growth saw a solid year-over-year increase in November.
All key activity indicators improved.
– Industrial production:
– Services output:
– Household consumption:
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2. Gilt yields keep climbing.
3. Norway’s inflation continues to moderate.
Source: @economics Read full article
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4. All sectors in the MSCI Europe and UK indices trade at an abnormally large discount vs. the US. (2 charts)
Source: J.P. Morgan Asset Management
Source: J.P. Morgan Asset Management
4. European companies with significant US exposure have been outperforming, …
… while those likely to be affected by Trump tariffs are lagging.
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Japan
1. The current account surplus surged, …
… boosted by trade.
Source: Kyodo News Read full article
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2. The yen is increasingly undervalued.
Source: @JeffreyKleintop
• The Q4 USD/JPY rally took place without much building of yen shorts by global investors. Instead, speculators ramped up short positions in the Euro, Aussie, and New Zealand dollars.
Source: Deutsche Bank Research
• USD/JPY does not appear stretched based on Deutsche Bank’s measure of the speed of the yen move and the divergence from fundamentals like rates.
Source: Deutsche Bank Research
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3. Japan’s stock/bond correlation remains elevated, which typically occurs during periods of high inflation.
Source: State Street Global Advisors Read full article
4. Stocks sold off today.
Source: Finimize Read full article
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China
1. The short-term repo rates increased, pointing to tight liquidity.
2. Sales revenue and margins continue to weaken, particularly in manufacturing and retail. (2 charts)
Source: China Beige Book
Source: China Beige Book
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3. Social security funds could run dry in about a decade.
Source: Bloomberg TV
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India
1. Consumer inflation eased last month.
Source: CNBC Read full article
• Here is the food CPI.
However, wholesale inflation was firmer than expected in December.
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2. India’s bond yields spiked amid the global bond rout.
Source: Finimize Read full article
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3. The rupee has been under pressure.
Source: Reuters Read full article
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4. India’s stocks have been “expensive” for nearly a decade.
Source: @DavidInglesTV
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Emerging Markets
1. Mexico’s vehicle exports dipped below 2023 levels in December.
2. Brazilian assets are trading at a substantial discount and appear oversold. (2 charts)
Source: MRB Partners
Source: MRB Partners
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3. Analysts have been steadily cutting EM earnings projections for 2025 over the past several months.
Source: Goldman Sachs; @MikeZaccardi
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Commodities
1. Iron ore futures jumped on strong Chinese steel exports.
Source: Finimize Read full article
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2. Speculative accounts have been boosting their bets against US rice futures.
3. The macroeconomic/market cycle has transitioned from ‘Recovery’ to ‘Boom,’ characterized by bear steepening of the yield curve, strong earnings growth, and rising prominence of commodities in this phase of the investment clock.
Source: BofA Global Research
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Energy
1. Brent crude appears overbought.
Source: @RenMacLLC
2. This chart shows the drivers of crude oil prices based on Bloomberg’s model.
Source: @TheTerminal, Bloomberg Finance L.P.
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Equities
1. The S&P 500 Equal Weight Index seems to have reached a bottom relative to the cap-weighted S&P 500.
2. The S&P 500 continues to trade within a well-defined upward channel (log scale).
Source: @FrankCappelleri
3. The S&P 500 earnings sentiment has been trending lower.
Source: Goldman Sachs; @WallStJesus
4. The options market is focused on tomorrow’s CPI report.
Source: @TheTerminal, Bloomberg Finance L.P.
• The options market is anticipating record-high earnings reactions, with implied single-stock moves outpacing broader market volatility.
Source: BofA Global Research
Source: @markets Read full article
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5. Small caps have given up their post-election gains.
• The Russell 2000 held support at the 200-day moving average.
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6. US stocks have benefited from rising global liquidity.
Source: Simon White, Bloomberg Markets Live Blog
7. Stock-bond correlations have risen sharply this month.
8. The sharp drop in funding spreads reflects reduced demand for equity derivatives. Institutional investors, including pension funds and hedge funds, appear to have shifted to net selling amid evolving Fed rate expectations.
Source: Goldman Sachs; @markets Read full article
9. Investment newsletters’ equity allocation has been falling.
Source: Truist Advisory Services
10. Consumer staples have widened their underperformance.
11. Here is a look at the 2024 performance attribution for the US and international markets.
Source: Goldman Sachs; @MikeZaccardi
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Credit
1. Default rates for high-yield bonds and leveraged loans have diverged.
Source: JP Morgan Research; Simon White, Bloomberg Markets Live Blog
2. Here are some updates on the LBO market.
• Leverage for large corporate LBOs has declined.
Source: Torsten Slok, Apollo
• Interest coverage ratios have declined after the Fed raised rates.
Source: Torsten Slok, Apollo
• High debt costs have led to higher equity contributions.
Source: Torsten Slok, Apollo
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Rates
1. The Treasury curve has more room to steepen.
Source: Gavekal Research
2. Here is the attribution of the recent surge in Treasury yields based on Bloomberg’s model.
Source: @TheTerminal, Bloomberg Finance L.P.
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Global Developments
1. According to Bloomberg’s model, the Fed’s hawkish stance has been the primary driver of the recent US dollar rally.
Source: @TheTerminal, Bloomberg Finance L.P.
• According to Deutsche Bank, the persistent US current account deficit could signal domestic overheating and growing medium-term vulnerability for the dollar.
Source: Deutsche Bank Research
• US dollar call options are in high demand, pushing the 3-month risk reversal to its highest level since June.
• Hedge funds haven’t been this bullish on the US dollar since 2018. Too much optimism?
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2. Markets expect economic growth to converge between the US and the rest of the world.
Source: Deutsche Bank Research
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Food for Thought
1. Grocery retailers’ market share:
Source: The Economist Read full article
2. US social media platform usage by age group:
Source: The Economist Read full article
3. Costliest US wildfire disasters:
Source: @climate Read full article
4. Jobs with the fastest growth and declines:
Source: WEF Read full article
5. Locations in South Korea where North Korea’s trash-filled balloons have landed since May 28:
Source: @WSJ Read full article
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