The Daily Shot: 14-Dec-21
• The United States
• The United Kingdom
• The Eurozone
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Alternatives
• Rates
• Global Developments
• Food for Thought
The United States
1. Let’s begin with some updates on inflation.
• Forecasts suggest that the headline CPI is peaking, but the core CPI will keep climbing over the next few months.
– Oxford Economics:
Source: Oxford Economics
– Pantheon Macroeconomics:
Source: Pantheon Macroeconomics
– Pictet Wealth Management:
Source: @RollinFrederic, @PkZweifel
Rent is expected to keep upward pressure on the core CPI (2 charts).
Source: Nomura Securities
Source: Deutsche Bank Research
• Inflation peaking doesn’t mean that it will return to pre-COVID levels. Economists continue to boost their inflation forecasts for next year, with projections now well above the Fed’s target.
– Here is a survey from Deutsche Bank showing upside inflation risk.
Source: Deutsche Bank Research
– And this chart shows the PCE inflation distribution of outcomes from Numera Analytics (see comment below).
Source: Numera Analytics
• Used vehicles could become a drag on the core CPI later in the year.
Source: Nomura Securities
• Flows into inflation mutual funds have slowed.
Source: Deutsche Bank Research
• One-year consumer inflation expectations continue to surge, but the three-year indicator seems to have peaked.
Source: NY Fed
Households expect to boost their spending substantially next year.
Source: NY Fed
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2. Next, let’s take a look at monetary policy.
• When will the Fed end quantitative easing (fund manager survey)?
Source: BofA Global Research; @Callum_Thomas
• The Taylor rule implies that the fed funds rate should be 7.6%.
• Jefferies expects the FOMC’s dot plot to shift substantially higher.
Source: Jefferies
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3. What are surveys telling us about supply strains?
• Morgan Stanley:
Source: Morgan Stanley Research
• Oxford Economics:
Source: @GregDaco
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4. US real wages are rapidly returning to their pre-COVID trend as inflation spikes.
5. State tax receipts have improved markedly this year.
Source: Evercore ISI Research
6. This chart shows the Yardeni Boom-Bust Barometer. It’s the ratio of the CRB industrial commodities index to initial unemployment claims.
Source: Yardeni Research
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The United Kingdom
1. The odds of a BoE rate hike this year have collapsed below 20% amid omicron jitters.
In contrast, the Fed is becoming more hawkish, putting downward pressure on the pound.
Source: Pantheon Macroeconomics
Asset managers have increased their bets against the pound.
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2. UK stocks remain attractive based on the relative PE ratio.
Source: Longview Economics
3. Public-sector employment has outpaced private sectors.
Source: BoE Read full article
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The Eurozone
1. Natural gas prices hit a record high, …
Source: @financialtimes Read full article
… and so are German power prices (one year out). These trends will feed into producer and consumer prices in the months ahead.
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2. Economists continue to boost their forecasts for euro-area inflation next year.
3. Here is the 10yr Bund yield adjusted for inflation.
4. Real wage growth in the Eurozone is deeply negative.
Source: Longview Economics
5. Next, we have some updates on Germany.
• Wholesale prices:
• Exports to China and the US:
Source: Oxford Economics
• Older germans falling ill with COVID despite being fully vaccinated:
Source: Commerzbank Research
• Visits to restaurants and shops:
Source: Commerzbank Research
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Asia – Pacific
1. Japan’s Beveridge Curve has diverged from the US.
Source: BIS Read full article
2. Australia’s business confidence eased in November.
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China
1. The developer credit crisis continues to spook investors.
Shimao’s bonds tumbled as JPMorgan flagged liquidity concerns.
Source: South China Morning Post Read full article
• Property shares are rapidly giving up their gains for the month.
• To ease the crisis, the PBoC wants to boost mortgage lending activity which has slowed in recent years.
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2. The Hang Seng is trading below book value.
Source: @DavidInglesTV
• The Hang Seng TECH Index is testing support.
Source: @TheTerminal, Bloomberg Finance L.P.
• Hong Kong’s IPOs have underperformed.
Source: Bloomberg Read full article
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3. The flow of foreign capital into China accelerated this year (2 charts). Fitch Ratings expects this trend to continue next year, given strong M&A activity and robust deal pipelines.
Source: Fitch Ratings
Source: BCA Research
The high-tech industry attracted a growing amount of foreign investment in recent years.
Source: Fitch Ratings
Manufacturing, however, has been a drag on foreign investment.
Source: Fitch Ratings
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4. Analysts expect infrastructure spending to increase.
Source: Alpine Macro
But the revival in infrastructure spending has been slow so far.
Source: BCA Research
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Emerging Markets
1. Mexico’s industrial production is in a holding pattern – well below pre-COVID levels.
• Formal job creation remains robust.
• Banxico’s inflation forecast has risen since September.
Source: Deutsche Bank Research
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2. Brazil’s CPI came in below forecasts. Is it peaking?
3. The Chilean peso has diverged from copper due to political uncertainty.
Source: Wells Fargo Securities
4. LatAm growth expectations have deteriorated since May.
Source: Deutsche Bank Research
5. India’s CPI was below economists’ forecasts.
The rupee continues to slide.
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6. Turkey’s industrial production is holding up well.
7. Romania’s industrial production slumped in recent months.
8. South Africa’s seven-day moving average of new COVID cases exceeded 20k for the first time as omicron spreads.
9. Fund managers have shifted to being underweight EM equities.
Source: BofA Global Research; @Callum_Thomas
10. This chart shows the composition of the MSCI EM equity index.
Source: @ISABELNET_SA, @GoldmanSachs
11. If one excludes China from emerging markets indices and the US from developed markets, the EM-DM valuation gap is nowhere near as large and has been shrinking.
Source: TS Lombard
12. Asian countries have lagged behind others in terms of tourism and recovery in flights relative to 2019 levels.
Source: Fitch Solutions Macro Research
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Cryptocurrency
1. Bitcoin is holding support at the 200-day moving average.
It’s been a tough month for cryptos, …
… with a substantial loss in total market value.
Source: CoinMarketCap
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2. Next, we have the distribution of Bitcoin miners’ costs by region.
Source: J.P. Morgan Asset Management
3. Should crypto regulations be strengthened?
Source: Morning Consult Read full article
4. What would you like Santa Claus to gift you this Christmas?
Source: MagnifyMoney Read full article
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Commodities
1. Lithium prices have been rebounding.
Source: @WSJ Read full article
2. Iron ore inventories in China continue to rise.
3. Palladium (XPD) has been underperforming (XAG = silver, XAU = gold).
Source: @Marcomadness2
4. Production of key minerals is concentrated in a handful of countries.
Source: US Geological Survey
This chart shows China’s and the US’s net reliance on various key minerals, color-coded by country-level concentration (measured by the Herfindahl index).
Source: US Geological Survey
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Energy
1. Brent’s backwardation continues to ease (the curve is flattening).
2. According to the IEA, global crude markets are set to be oversupplied starting Q1 2022.
Source: TS Lombard
3. All the recent US oil production growth has been coming from the Permian Basin.
Source: Princeton Energy Advisors
4. This chart shows a forecast for US coal production.
Source: S&P Global Market Intelligence
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Equities
1. The S&P 500 real dividend yield and real earnings yield hit new lows.
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2. Small caps continue to struggle.
3. The Nasdaq Composite breadth shows no signs of recovery.
Source: @TheTerminal, Bloomberg Finance L.P.
The average stock in the index is 39% below its 52-week high.
Source: @bespokeinvest
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4. 35% of the S&P 500 year-to-date return came from five stocks.
Source: Goldman Sachs; @WallStJesus
5. The S&P 500 long-term P/E ratio is nearing the dot-com peak.
h/t Michael Msika
6. Here is a look at the performance of secular growth themes since September.
Source: Citi Private Bank
7. Speculative stocks had a rough 30 days.
• Post-IPO stocks and ARK Innovation:
• Microcaps:
• Most-shorted names:
• Meme stocks:
• Names favored by retail investing communities:
Source: Citi Private Bank
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8. Below, we have the S&P 500 dividend growth consensus estimates.
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
And this chart shows the number of positive dividend actions by year.
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
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Alternatives
1. November was a difficult month for hedge funds.
2. Next, we have the hedge fund manager dispersion by strategy.
Source: J.P. Morgan Asset Management
3. How do hedge funds perform in different volatility regimes?
Source: J.P. Morgan Asset Management
4. Private equity deal volume soared this year.
Source: @WSJ Read full article
VC activity hit a new record as well.
Source: The Economist Read full article
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5. Private equity portfolios are massively overweight tech.
Source: J.P. Morgan Asset Management
6. PitchBook’s VC-backed IPO index has underperformed the S&P 500 this year.
Source: PitchBook
Public listings dominated VC exits this year.
Source: J.P. Morgan Asset Management
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7. 39% of asset allocators are looking to put more money into co-invests, privates, and crossover strategies.
Source: Zoetrope of Finance; BofA Securities
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Rates
1. The spread between the 10yr Treasury yield and the CPI hit a record low.
Here is the Treasury yield/CPI scatter plot.
Source: @TheTerminal, Bloomberg Finance L.P.
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2. The root mean square error measure (RMSE) shows large deviations in yields for off-the-run Treasuries from the yield curve. It’s an indication of poor market depth/liquidity in the Treasury market.
Source: JP Morgan Research; Matt Kessel
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Global Developments
1. The US dollar index is in a wedge pattern. Will we see a breakout after the FOMC meeting?
Source: @Marcomadness2
2. Hawkish central banks are now the biggest tail risk.
Source: BofA Global Research; @Callum_Thomas
3. Government transfers are correlated with inflation.
Source: Oxford Economics
4. New manufacturing orders have been growing faster than output.
Source: Capital Economics
More firms are reporting material shortages – the most in about 30 years.
Source: Capital Economics
And labor shortages are above the 2018-2019 average.
Source: Capital Economics
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Food for Thought
1. Protein prices:
Source: @bpolitics Read full article
2. Opioid prescriptions:
Source: The Washington Post Read full article
3. The marital wage premium:
Source: AEA Read full article
4. Changes in state voting rights:
Source: @axios Read full article
5. The number of private-equity-backed hospitals around the US:
Source: Wharton Read full article
6. Smartphone and telecom network equipment sales:
Source: The Washington Post Read full article
7. Biggest social media accounts:
Source: @axios Read full article
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