Posted on by The Daily Shot Editor: Lev Borodovsky

What caused the COVID-era inflation spike?

The Daily Shot: 22-Nov-22
• The United States
• The Eurozone
• Europe
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Energy
• Equities
• Rates
• Global Developments
• Food for Thought

US imports are expected to decline next year

 

The United States

1. Let’s begin with some updates on inflation.
 
• Disinflation ahead?
 
Source: Alpine Macro  
 
• Private measures of rent inflation have been falling faster than the official index (2 charts).
 
Source: @jasonfurman  
 
Source: realtor.com  
 
• Surveys point to some moderation in wage inflation.
 
Source: BCA Research  
 
• Import prices declined less than expected in October.
 

 
• These charts show CPI components by inflation rate for the US and the Eurozone.
 
Source: IIF  
 
• What caused the COVID-era inflation spike? Hint: it wasn’t the Fed’s QE.
 
Source: @jessefelder, @BW, @foxjust   Read full article  
 
– Here is a more recent example of the above.
 
Source: KCRA3   Read full article  
 
Consumer spending by state:
Source: YipitData  
 
– The spike in margins, driven by surging demand (above) and strained supply chains, resulted in the CPI outpacing labor costs.
 
Source: Pantheon Macroeconomics  

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2. Excess cash levels have been moderating.
 
Source: Morgan Stanley Research  
 
Households are expected to keep drawing on excess savings next year.
 
Source: Goldman Sachs  

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3. Fund managers increasingly expect a recession.
 
Source: BofA Global Research  
 
Forecasters are calling for a mild recession next year.
 
Source: Deutsche Bank Research  

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4. Imports are expected to decline in 2023 as demand weakens.
 

 
5. The World Economics SMI index shows slower growth in US business activity this month. Price pressures persist.
 
Source: World Economics  

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The Eurozone

1. Household holiday spending plans have declined.
 
Source: ECB  
 
2. Underlying inflation remains elevated, although PCCI (measures persistence) has been declining since May.
 
Source: ECB  
 
3. Long-term inflation expectations have been grinding higher.
 
Source: BIS   Read full article  
 
4. Capital Economics expects the US-Germany rate spreads to tighten next year.
 
Source: Capital Economics  

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Europe

1. Energy dependence will keep European real disposable income in the red next year.
 
Source: Goldman Sachs  
 
2. Next, we have some updates on Sweden.
 
• The unemployment rate topped expectations.
 

 
• Home prices are down 10% from a year ago, the largest decline in years.
 

 
Source: @wealth, @nicrolander   Read full article  
 
– The housing price decline has exceeded Riksbank’s forecasts.
 
Source: ING  
 
– Housing supplies are elevated.
 
Source: Nordea Markets  
 
– More pain ahead in the housing sector?
 
Source: Nordea Markets  
 
• Despite the housing market slump, more rate hikes are coming.
 
Source: ING  

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3. The Norwegian krone should be stronger versus the euro.
 
Source: Oxford Economics  
 
• Norway’s economy continues to grow.
 

 
• Economists have been boosting their forecasts for Norway’s inflation next year.
 

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4. The Swiss central bank continues to reduce liquidity.
 

 
5. European assets bounced relative to the US, partly because of the weaker dollar.
 
Source: MRB Partners  

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Asia – Pacific

1. Taiwan’s export orders fell well below last year’s levels.
 

 
2. A weak yen should be a tailwind for Japan’s stocks.
 
Source: Alpine Macro  
 
3. South Korea’s consumer confidence declined this month.
 

 
Growth in household credit has slowed sharply.
 

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4. New Zealand’s trade deficit has blown out, …
 

 
… as imports hit a record high.
 

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China

1. Economists have been downgrading projections for China’s 2023 GDP growth.
 

 
Here is Goldman’s forecast over the next decade.
 
Source: Goldman Sachs  

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2. Beijing wants banks to boost lending to property firms.
 
Source: Alpine Macro  
 
Source: Reuters   Read full article  

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3. Local governments increasingly rely on non-tax revenue.
 
Source: @opinion, @shuli_ren   Read full article  
 
4. The World Economics SMI report shows business activity stabilizing this month as business confidence improves.
 
Source: World Economics  

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Emerging Markets

1. The market is pricing sharp rate cuts ahead for Chile as recession looms.
 
Source: @business, @Sebaboyd, @ValentinaKaryme   Read full article  
 
2 India’s SMI indicator is in growth territory as business confidence jumps.
 
Source: World Economics  
 
3. This chart shows the evolution of 2023 GDP growth forecasts from Oxford Economics.
 
Source: Oxford Economics  

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Cryptocurrency

1. Crypto market pain persists, …
 

 
… with bitcoin holding below $16k.
 

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2. The total crypto market cap has fallen to around $800 billion from its peak of $2.9 trillion last year.
 
Source: Morgan Stanley Research  
 
3. Here is a list of crypto exchange tokens, which are treated as a representation of the company’s value.
 
Source: Morgan Stanley Research  
 
4. Genesis Trading, a major crypto broker-dealer, warned that it may file for bankruptcy.
Source: Decrypt   Read full article  
 
The company’s lending has fallen significantly this year.
 
Source: Morgan Stanley Research  

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5. Investors piled into short-Bitcoin investment products last week.
 
Source: CoinShares   Read full article  
 
6. Ark funds have been buying up Coinbase as well as other crypto-focused companies.
 
Source: @business, @Matt_Turnerr   Read full article  

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Energy

1. The decline in Brent backwardation (curve flattening) has been rapid.
 
Source: @HFI_Research  
 
2. US energy companies have been boosting CapEx.
 
Source: Capital Economics  
 
3. OPEC has been taking production down, as promised.
 
Source: Goldman Sachs  
 
4. This chart illustrates China’s rising control over global solar capacity manufacturing.
 
Source: @WSJ   Read full article  
 
5. Energy stocks are not yet overbought relative to the S&P 500.
 
Source: @mark_ungewitter  

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Equities

1. US stocks continue to trade at a premium to other advanced economies.
 
Source: @WSJ   Read full article  
 
2. Will the pace of earnings downgrades ease as economic surprises turn positive?
 
Source: Deutsche Bank Research  
 
3. MRB Partners expects lower real returns for stocks.
 
Source: MRB Partners  
 
4. The number of corporate spinoffs jumped this year.
 
Source: @FactSet   Read full article  
 
5. Sustainable funds saw outflows in October.
 
Source: Morningstar  
 
6. The S&P 500 buyback yield is back near 2%.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
7. Implied and realized volatility indicators have diverged.
 
Source: Deutsche Bank Research  
 
8. Next, we have some sector updates.
 
• Tech and consume discretionary shares underperformed on Monday.
 

 

 
• Healthcare outperformed.
 

 
Here is fund managers’ positioning in healthcare vs. the consumer sector (2 charts).
 
Source: BofA Global Research  
 
Source: BofA Global Research  

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• Industrials have been outperforming.
 

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Rates

1. Mortgage bonds have been outperforming Treasuries in recent days, …
 

 
… as convexity turns positive.
 
Source: MarketDesk Research  

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2. The average bid-ask spreads for Treasury notes remain moderately wide, although well below the pandemic peak in 2020.
 
Source: Federal Reserve   Read full article  
 
3. Fund managers see lower yields and a steeper curve ahead.
 
Source: BofA Global Research  
 
4. Speculative accounts remain very short rate futures.
 
Source: Deutsche Bank Research  

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Global Developments

1. The increase in bond yields has been concentrated in the real component as inflation expectations have remained broadly stable.
 
Source: BCA Research  
 
2. The manufacturing PMI signals a global earnings recession.
 
Source: BofA Global Research  
 
4. Here is JP Morgan’s Q4 growth forecast for the three largest economies.
 
Source: JP Morgan Research; @carlquintanilla  
 
5. Fund managers increasingly view the US dollar as overvalued, …
 
Source: BofA Global Research  
 
… boosting their bets against the greenback.
 
Source: @markets, @Ruth_Liew10   Read full article  

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Food for Thought

1. Office occupancy rates by day of the week:
 
Source: @axios   Read full article  
 
2. Paying over $1k per month for a new car:
 
Source: Edmunds  
 
3. Land used for mining:
 
Source: @BBGVisualData, @opinion, @davidfickling   Read full article  
 
4. Green project debt financing:
 
Source: @WSJ   Read full article  
 
5. Preferred news networks:
 
Source: CableTV   Read full article  
 
6. State tax on recreational marijuana:
 
Source: @TaxFoundation  
 
7. Search volume for plant-based milk alternatives:
 
Source: @chartrdaily  

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