US dollar volatility jumps

The Daily Shot: 21-Jan-25
The United States
Canada
The United Kingdom
The Eurozone
China
Emerging Markets
Cryptocurrency
Commodities
Equities
Rates
Global Developments
Food for Thought



 

The United States

1. US dollar volatility jumped this week due to tariff-related uncertainty.
 

 
The selloff:
 
Source: CNBC   Read full article  
 

 
The rebound:
 
Source: @markets   Read full article  
 

 
The trade policy uncertainty index has surged in recent months, …
 
Source: BCA Research  
 
… amplifying overall economic uncertainty.
 

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2. Treasury yields are declining amid a rebound in global bond markets.
 

 
3. Investors are worried about the possibility of the Fed being compelled to raise rates this year.
 
Source: BofA Global Research  
 
4. The federal budget deficit reached $711 billion in the first fiscal quarter.
 
Source: MarketWatch   Read full article  
 

 
Interest expenses are outpacing last year’s levels.
 

 
Net interest costs are expected to rise even with lower interest rates. (2 charts)
 
Source: MUFG Securities  
 
Source: MUFG Securities  
 
Interest payments on the national debt now exceed spending on national defense.
 

 
Even optimistic GDP estimates will not offset a rise in government spending.
 
Source: MUFG Securities  

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5. The aging US population is projected to slow household formation.
 
Source: Barclays Research  
 
6. Labor productivity growth in the US historically accelerated with major technological shifts, peaking at 2.8% during the electricity era and 3.2% during the computer revolution. The emergence of transformational AI is projected to drive productivity growth to 3% by 2030, suggesting a potentially equivalent economic impact to prior revolutionary technologies.
 
Source: BofA Global Research  


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Canada

1. The Canadian dollar whipsawed this week amid tariff-related uncertainty, …
 

 
… driving increased volatility.
 

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2. The BoC business survey revealed a subdued outlook in Q4, …
 

 
… though key components showed improvement.
 
Sales expectations:
 

 
Employment:
 

 
CapEx:
 

 
Canadian companies are no longer cutting prices.
 

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3. Bond yields are moving lower amid a rebound in global bond markets.
 

 
The market sees a high probability of a BoC rate cut this month (on the 29th).
 


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The United Kingdom

1. The unemployment rate has been trending higher.
 

 
UK payroll data, though subject to significant revisions, recorded a second consecutive sharp decline last month.
 

 
The claimant count has been relatively steady in recent months.
 

 
Job vacancies were almost unchanged in December.
 

 
Wage growth has been rising in recent months.
 

 
However, the vacancies-to-unemployed ratio suggests a slowdown ahead.
 
Source: Pantheon Macroeconomics  

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2. UK large-cap stocks’ discount to European peers has widened.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
3. Residential construction slowed in the past couple of years.
 
Source: The Economist   Read full article  
 
This chart shows a dramatic rise in how long it takes low- to middle-income households to save for a home deposit in the UK. The time required has increased from about 2-3 years in 1990 to over 22 years by 2022, with particularly steep increases since 2012.
 
Source: Tony Blair Institute   Read full article  


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The Eurozone

1. Economists continue to lower Germany’s key economic projections for 2025.
 
Industrial production:
 

 
Exports:
 

 
CapEx:
 

 
2. Economists are raising their unemployment forecasts for France this year.
 

 
3. Eurozone construction output saw a rebound in November.
 

 
4. Fund managers have been rotating into Eurozone stocks this month (3 charts).
 
Source: BofA Global Research  
 
Source: BofA Global Research  
 

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5. EUR/USD is holding resistance at the 50-day moving average.
 
Source: @TheTerminal, Bloomberg Finance L.P.  


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China

1. The renminbi jumped this week after Trump discussed trade with Xi Jinping.
 

 
2. Here is a look at China’s renewable electricity capacity growth.
 
Source: @financialtimes   Read full article  
 
3. China’s per-capita GDP growth trails other Asian economies.
 
Source: Visual Capitalist   Read full article  


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Emerging Markets

1. The Mexican peso was whipsawed this week amid tariff-related uncertainty.
 

 
2. Argentina’s exports rose 33.4% last month compared to December 2023.
 

 
The trade surplus topped expectations.
 

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3. India’s equity market is experiencing significant foreign outflows this month.
 

 
4. Planned investments into EM countries have risen sharply in the post-pandemic era.
 
Source: Capital Economics  


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Cryptocurrency

1. Crypto fund inflows surged last week, driven by Bitcoin and Ethereum-focused products. (2 charts)
 
Source: CoinShares   Read full article  
 
Source: CoinShares   Read full article  

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2. The Crypto Fear & Greed Index returned to “extreme greed” territory.
 
Source: Alternative.me  
 
3. There was a spike in both long and short BTC liquidations as the crypto traded around the $100K price level.
 
Source: Coinglass  
 
4. Bitcoin drawdowns can be severe even during strong price uptrends.
 
Source: Deutsche Bank Research  
 
5. Bitcoin has a positive correlation with risk assets and a negative correlation with safe assets.
 
Source: Deutsche Bank Research  
 
6. Decentralized AI venture capital activity surged over the past year.
 
Source: PitchBook  


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Commodities

1. Grain futures are rebounding, …
 

 
… with corn leading the gains.
 

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2. Cocoa prices are consolidating.
 


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Equities

1. Sentiment around 2025 S&P 500 earnings has been weakening, …
 
Source: Goldman Sachs; @MikeZaccardi  
 
… while earnings revisions for high-quality equities have been improving on a relative basis.
 
Source: Morgan Stanley Research; SG Cross Asset Research; @WallStJesus  

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2. Typically, US stocks face challenges after a presidential inauguration.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
However, 2016 proved to be an exception.
 

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3. Measures of equity risk premium remain depressed.
 
Source: SG Cross Asset Research; @WallStJesus  
 
4. Fund managers’ cash levels have dropped to their lowest point since June 2021, …
 
Source: BofA Global Research  
 
… with institutional sentiment diverging from that of retail investors.
 
Source: BofA Global Research  

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5. The strength of the US dollar is projected to reduce S&P 500 EPS growth by about 1.5% in Q1 2025, posing challenges for multinationals.
 
Source: UBS; @WallStJesus  
 
6. How does the S&P 500 typically respond to changes in Treasury yields?
 
Source: Goldman Sachs; @MikeZaccardi  
 
7. Equity fund inflows since 2020 highlight a dramatic preference for US markets, with $1.2 trillion allocated compared to just $215 billion for the rest of the world. This disparity underscores a significant global shift toward US equities in the 2020s.
 
Source: BofA Global Research  
 
8. 29% of large-cap mutual funds outperformed their benchmark last year.
 
Source: Goldman Sachs; @MikeZaccardi  


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Rates

1. Fund managers now anticipate higher bond yields ahead, …
 
Source: BofA Global Research  
 
… reducing their bond allocations to the lowest level since October 2022.
 
Source: BofA Global Research  

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2. Bank reserves are declining and approaching the Fed’s minimum requirement estimate.
 
Source: PGM Global  


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Global Developments

1. Fund managers are very bullish on the US dollar.
 
Source: BofA Global Research  
 
2. Here is a look at currency sensitivity to yield differentials.
 
Source: Codera Analytics  
 
3. Defensive ETFs are outperforming early in 2025, reflecting increased demand for inflation hedges and diversification.
 
Source: @markets   Read full article  


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Food for Thought

1. Semiconductor companies with the highest market value:
 
Source: Visual Capitalist   Read full article  
 
2. OpenAI targets $100B in annual revenue by 2029.
 
Source: @chartrdaily  
 
3. Spot the bubble?
 
Source: Visual Capitalist   Read full article  
 
4. US goods trade with key partners:
 
Source: @WSJ   Read full article  
 
5. Most executive orders were signed between the Progressive Era and the Great Depression.
 
Source: Deutsche Bank Research  
 
6. Structures damaged in California wildfires:
 
Source: The Economist   Read full article  
 
7. Aerial firefighting operations in Los Angeles:
 
Source: r/DataIsBeautiful  
 

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