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The Daily Shot: Fund Managers Stung by Commodities – Wall Street Journal


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Twitter: @SoberLook




The Daily Shot: 28-Jan-20
Commodities
Energy
Equities
Credit
Rates
Emerging Markets
China
Asia – Pacific
The Eurozone
The United Kingdom
The United States
Global Developments
Food for Thought

Commodities

1. Bloomberg’s broad commodity index is down nearly 6% since the start of the year.

 

Below is the index of industrial metals.

 

And here is copper.

 

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2. Global agricultural commodities have been under pressure as well. US soybeans are now down for the sixth day in a row (see chart from yesterday). Here are several other markets.

Palm oil is rolling over, down 6% on the day.

 

Coffee futures have nearly reversed the recent rally.

 

US livestock futures have been tumbling.

Live cattle:

 

Hogs:

 

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3. According to the BofAML FMS monthly survey, global fund managers started the year overweight commodities (highest in eight years). Based on the charts above, these positions didn’t work out well. Nonetheless, once the coronavirus scare eases, we may see a rebound in some commodity markets.

Source: BofA Merrill Lynch Global Research

 

4. Global dry bulk shipping costs (for commodities such as iron ore) are at the lowest level since early 2016.

 

Part of the reason for soft shipping demand is Vale’s slow start this year.

Hellenic Shipping News: – … sources with access to Brazilian port data suggest Vale’s [iron ore] output has been weaker than expected in the first three weeks of the year, possibly because of flooding in the southern regions of Brazil.

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5. Bitcoin shows signs of “safe-haven” behavior, but it has underperformed gold in recent months.

 


Back to Index

Energy

1. Has the US rig count bottomed? Crude oil prices will need to move up meaningfully to get a rebound in rigs.

 

2. US gasoline and heating oil futures tumbled in recent days, sending crack spreads lower (second chart).

 

 


Back to Index

Equities

1. The growth rate in the number of coronavirus cases outside of China appears to be slowing.

Source: Johns Hopkins CSSE; Read full article

 

US stock futures seem to have stabilized.

 

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2. The VIX curve inverted on Monday (in the front end), which tends to happen during periods of uncertainty.

 

Here is the spread between the 3-month vol index (VXV) and the 1-month vol index (VIX).

 

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3. Once the coronavirus scare is over, will investors turn their attention to the US 2020 elections? Global fund managers now see it as the “biggest tail risk.”

Source: BofA Merrill Lynch Global Research

 

And for some sectors, there are reasons to be concerned. The betting markets now have Bernie Sanders as the frontrunner for the Democratic presidential nomination.

Source: @PredictIt

 

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4. The chart below shows the 5-year rolling correlation between equity prices and business sentiment. The market has been shrugging off weak ISM data, for example.

Source: Moody’s Investors Service

 

5. Momentum stocks have been outperforming in recent weeks.

 

6. Next, we have some sector updates.

Q4 earnings and revenue surprises:

Source: @FactSet; Read full article

 

Housing:

 

Consumer staples:

 

Energy:

 

Semiconductors:

 

Transportation:

 

Small-cap biotech stocks have been improving relative to the S&P 500 – a standout in the healthcare space.

Source: Alpine Macro

 


Back to Index

Credit

1. High-yield spreads have widened modestly. Here is the HY CDX spread.

 

2. Effective durations in the US high-yield market have been relatively low, driven by refinancing. Investors should not be lulled by this trend, however. Durations can quickly extend if yields rise and it becomes uneconomical for borrowers to refinance.

Source: @WSJ; Read full article

 


Back to Index

Rates

1. The kink in the Treasury curve is back.

 

2. The market is now pricing in the possibility that the Fed will cut rates more than once this year.

 

Here is the change in the fed funds rate trajectory implied by the futures markets.

 

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3. The 5-year TIPS yield (real rates) is moving deeper into negative territory. It’s an indication of accommodative monetary conditions.

 

4. Inflation expectations continue to sink.

 

5. While SOFR-linked securities issuance has been subdued (#4 here), SOFR derivatives activity continues to improve.

Rate swaps (SOFR vs. fixed-rate):

Source: @WSJ; Read full article

 

Basis swaps (SOFR vs. fed funds):

Source: @WSJ; Read full article

 

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6. Morgan Stanley expects the Fed’s repo financing to wind down by March as reserves climb.

Source: Morgan Stanley Research

 


Back to Index

Emerging Markets

1. Kenya was the latest country to cut rates (analysts expected the central bank to remain on hold).

 

Here is a map of the latest central bank activity.

Source: @markets; Read full article

 

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2. Lebanon’s inflation is accelerating, which could fuel more social unrest.

 

3. India’s bank asset quality has been worsening in recent years.

Source: ANZ Research

 

4. Mexico’s retail sales surprised to the upside.

 

Same-store sales seem to be recovering.

Source: Goldman Sachs

 

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5. The Chilean peso is weakening again.

 

6. EM earnings have been resilient outside of the tech sector.

Source: Oxford Economics

 


Back to Index

China

1. The number of confirmed coronavirus cases keeps climbing.

Source: Johns Hopkins CSSE; Read full article

 

Source: Johns Hopkins CSSE; Read full article

 

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2. Nonetheless, the offshore renminbi appears to have stabilized.

 

3. Credit expansion has been underpinning China’s growth over the past decade.

Source: Goldman Sachs

 

4. According to ANZ, Hong Kong’s headline inflation will remain above 3% in the near term, fueling upward pressure on civil servant salary adjustments and residential rents.

Source: ANZ Research

 


Back to Index

Asia – Pacific

1. Bond yields tumbled in recent days.

New Zealand:

 

Singapore:

 

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2. The BoJ’s purchases of government debt continue to slow.

Source: @WSJ; Read full article

 

3. Next, we have some updates on Australia.

Business confidence is deteriorating.

 

The spike in Australia’s current account surplus has been driven by metals exports to China.

Source: Morgan Stanley Research

 

Australians are increasingly dissatisfied with their country’s environmental efforts.

Source: Gallup; Read full article

 


Back to Index

The Eurozone

1. Let’s begin with Germany.

The Ifo expectations index surprised to the downside, and some have suggested that the recovery is stalling.

 

However, the Ifo components paint a different picture. The recovery in manufacturing and trade remains in place. Construction has been soft, and services expectations ticked lower (but should rebound next month).

Source: ifo Institut

 

According to TS Lombard, if German companies are unable to raise prices, they could face a squeeze on their earnings.

Source: TS Lombard

 

The government upgraded the 2020 GDP growth forecast slightly.

Source: @markets; Read full article

 

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2. French unemployment is gradually falling. Will this trend help Macron’s reform efforts (see story)?

 

3. The growth in the euro-area broad money supply (M3) has been inversely correlated with the euro.

Source: Morgan Stanley Research

 

4. ECB officials have dampened bearish outlooks for the economy over the past three months.

Source: Arbor Research & Trading

 

5. Public support for the euro has been rising.

Source: ANZ Research

 


Back to Index

The United Kingdom

1. The post-election improvement in business sentiment has been impressive. Will it persist?

 

2. Housing finance approvals continue to surprise to the upside.

 

And further strength in mortgage activity is expected this month.

Source: Pantheon Macroeconomics

 

Moreover, the stock market is pricing in a substantial rebound in housing price appreciation.

Source: Pantheon Macroeconomics

 

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3. Here are ING’s estimates of the market impact from several potential outcomes of this week’s MPC meeting.

Source: ING

 

Separately, technicals indicate a bottom in EUR/GBP.

Source: BCA Research

 


Back to Index

The United States

1. Let’s begin with the housing market.

The seasonally-adjusted measure of new houses sold was below market expectations.

 

New housing pending sales were off the recent highs.

Source: Ali Wolf, Meyers Research

 

Nonetheless, new home sales were at multi-year highs in December, some 24% above 2018 levels (second chart).

 

Here is the supply of new homes.

 

This chart shows the distribution of new home prices.

Source: @calculatedrisk; Read full article

 

Finally, we have new home sales by decade.

Source: @lenkiefer

 

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2. The Dallas Fed Manufacturing Index showed stabilization in regional factory activity this month.

 

The indices of new and expected orders rose sharply.

 

Source: @EPBResearch

 

CapEx expectations rebounded.

 

However, employment growth remains soft for now.

 

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3. Middle-market CEOs were less upbeat in the latest Marcum survey.

Source: Marcum LLP and Hofstra University’s Frank G. Zarb School of Business

 

4. Growth in business (C&I) loans slowed substantially in recent weeks despite loosening lending standards. It’s worth noting that some analysts view C&I credit as a lagging indicator.

Source: Piper Sandler 

 


Back to Index

Global Developments

1. Let’s start with bank rating changes in the second half of last year.

Source: Fitch Ratings

 

2. Global shadow banking activity continues to grow (NBFI = non-bank financial institution).

Source: @WSJ; Read full article

 

3. Fixed-income ETFs have surpassed $1 trillion in assets.

Source: @financialtimes; Read full article

 

4. Here are the contributions to Goldman’s current activity indicators (CAI) for select economies.

Source: Goldman Sachs

 

Source: Goldman Sachs

 

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5. According to Oxford Economics, one should expect to see copper outperforming stocks in a global industrial rebound.

Source: Oxford Economics

 

Just the opposite seems to be taking place.

 

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Back to Index

Food for Thought

1. FICO scores by generation/age:

Source: Deutsche Bank Research

 

2. Changes in the under-18 population:

Source: @axios; Read full article

 

3. Democrats’ preferences for 2024:

Source: @axios; Read full article

 

4. Getting news from social media sites:

Source: Pew Research Center; Read full article

 

5. Cancer deaths attributed to tobacco:

Source: @MaxCRoser, @_HannahRitchie

 

6. Vehicle miles traveled:

Source: Statista

 

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Back to Index





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