Stephane Deo
@StephaneDeo
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Senior PM. Central bank nerd. Sport fanatic. Food lover. Enthusiastic but pathetic chess player. Views are my own.
Paris, France
Joined April 2014
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China is exporting deflation now.
Export prices are down a bit more than 10% YoY.
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Uh-oh (5)
Now, that is ugly. Bigly ugly!!!!
US CPI super core +8.2% over the past three months annualized.
Uh-oh (4)
For the sixth month in a row, the short-term dynamic of the "super core PCE" is superior to the yoy dynamic. An indisputable sign that inflation is reaccelerating.
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A permanent chock in oil consumption?
Oil consumption hasn’t reversed to its pre-Covid trend. There’s roughly a 5% stable gap between that pre-Covid trend and actual consumption.
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Yesterday’s Euro CPI shows that 78% of the components are decelerating. That’s totally unprecedented.
The slowdown in inflation is spreading to a very wide range of sectors.
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A big change in Euro inflation dynamic.
On my count, in Oct mast year, 80% of the components were accelerating. A very wide diffusion of inflationary pressures.
In May this year, less than 30% of the components have accelerated.
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Yes, Italy has a very high public debt to GDP.
BUT: its net external position (i.e., its net debt to the rest of the world) is actually positive.
Italy is a net creditor to the rest of the world.
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Meanwhile in China: HY credit approaching 25%.
All time high.....
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Trouvé dans mes lectures économiques matinales, un chart important « Pauillac vs. Prozac ».
Je dis ça, je dis rien.
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Uh-oh (4)
For the sixth month in a row, the short-term dynamic of the "super core PCE" is superior to the yoy dynamic. An indisputable sign that inflation is reaccelerating.
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77
What a change!
US core inflation dips below Fed funds rate for the first time since early 2019.
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European equity discount vs. US is currently at an extreme compared to history.
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On my count, using 51 central banks in the world, I got :
=> 6 rate HIKES in October, lowest since Jul 2021.
=> 5 rate CUTS in October, highest since Jul 2020.
The times, there are a changing….
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Ce qui est impressionnant c’est le « contenu emploi de la croissance ».
A croissance équivalente, on crée chaque trimestre depuis 2016, 0.2 à 0.3 % d’emplois en plus que sur la période pré-2015.
Pas mal du tout ….
Le
#Ch
ômage a été la préoccupation N1 pendant 30 ans. Il est tout en bas de la liste actuellement
Tant mieux
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China export prices have been in freefall since last summer.
This is a sizeable deflation pressure for Western economies.
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The shadow Nasdaq crash: 55% of Nasdaq stocks are down 50% (or more) since their all-time high.
However, they account for only 7.6% of the market cap of the Nasdaq.
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#ECB
: yet another TLTRO matured last week. That’s 100 Bn EUR of liquidity drained.
As a result, excess liquidity continues to decline, down 182 Bn in a week.
Or a massive 1,26 Tr since the top last Nov.
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European inflation: last month’s pattern is accelerating.
In Oct last year, 80% of the components were accelerating. A very wide diffusion of inflationary pressures.
In June this year, only 1/4 of the components have accelerated. A big change!
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France just released its January budget balance.
It would obviously be overly simplistic to extrapolate one month of cash deficit for the rest of the year. Nevertheless, it looks like the year is starting on a very strong note!
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Fed reverse repo down from 2.4 Tr USD at the end of March to 1.1 Tr now.
A 55% decline in just 7 months.
The fall in excess liquidity is precipitous.
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2-year US yield today: between 3.83% and 4.38% depending at what time you traded.
A 55 bp daily trading range. Not a market for the fainthearted.
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100 % d'accord.
On peut aussi le montrer comme ça :
Ce chart montre évidemment qu'un investisseur long terme sur le SP500 est toujours gagnant
Mais fait travailler les méninges sur la gestion de la durée des phases "intermédiaires"
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No wage-inflation spiral in Europe?
Really?
Look at French data this morning.
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On the same idea.
This morning’s French INSEE survey tells us that industrialists’ price expectations are dipping neatly below the pre-covid norm.
Yesterday’s Euro CPI shows that 78% of the components are decelerating. That’s totally unprecedented.
The slowdown in inflation is spreading to a very wide range of sectors.
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The details of the Euro Area CPI show no deceleration of underlying pressures. My trimmed index is still zooming up !
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The striking part of this morning’s European industrial production data is the confirmation of steady underperformance of Germany.
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Quand tu perd plus de 10% contre la livre turque c'est que l'heure est grave.
😂😂😂
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Japanese Q3 GDP this morning. One really impressive data point is the deflator: +5.3% YoY!!!!
And a strong (albeit slightly less impressive) +3.1% for the deflator of consumption.
The Times They Are A-Changin' …..
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NFIB Dec survey just released: the component “Small Business Compensation Plans“ suggests that wage pressures are far from disappearing.
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French budget balance cumulated Jan to Aug.
Worst ever.
Even worse than during Covid.
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Drawdown of a Bund portfolio : 10% today !
Worst ever since the launch of the Euro.
Oh, happy day....
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US consumer credit: the three largest monthly increases ever recorded have taken place over the past three months (Feb-Apr).
Meanwhile the Fed: “Let’s hike 50 bp every six weeks”.
There will be blood.
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Fed’s reverse repo down below 700Bn. At this pace, we get to zero in April.
It will be fun.
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@AndreasSteno
I'm afraid it works even better if you use twin deficits.
Here is the chart you dont want to see as a USD bull
(I am a USD bull).
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Meanwhile, the ECB is accelerating its QT, in line with the increase in redemptions.
Last week, APP holdings declined by slightly more than 15 Bn EUR. A new record.
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The Taylor rule (for those old enough to remember what it is) suggests that Fed funds should be currently at 7.59%.
That’s 7,5% higher than the actual Fed funds.
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Today gas transit capacity booked on the Yamal-Europe pipeline: 0 (that’s ZERO !).
The European energy crisis is unlikely to come to a halt anytime soon.
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Et voila M'sieur
@lolomart1
:
Leçon du choc d'infla 1970 : les actions ont un drawdown plus fort que les taux, mais rebondissent beaucoup plus vite. Et t'es breakeven en termes réels bien avant un portefeuille taux.
Il faut juste être un peu patient.
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We have to go back almost two years, as far as Oct-2021, to find a Euro-Area counry with a sub-2% inflation print (Portugal 1.8% infla).
NOT ANY MORE!
Three countries are back below 2% in June according to this morning's Eurostat release: Belgium, Luxembourg and Spain.
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One collateral damage of higher yields: less than 2 year after it’s been issued, the 100-year Austrian Bond is trading at a 46% discount to par.
I’ve never seen that for a AA+ rated bond!
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The market has consistently rewarded companies that return the cash to shareholders.
Whether it’s via dividend or buybacks.
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Autre point peu commenté (et pourtant ça vaut le détour) : depuis 5 ans la production industrielle française a résisté nettement mieux qu’en Allemagne.
Un vrai changement après deux décennies continues de sous-performance.
Je complète avec un graphique sur les EA-5 + US et UK : le seul grand pays de la Zone Euro qui fait mieux (et de pas grand chose) ce sont les Pays-Bas.
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An obvious reminder: inflation is already denting households purchasing power.
Real wages are close to -3% in Europe. It hurts!
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Uh-oh !
The Case Schiller is a very good 12-month leading indicator of shelter prices in the CPI.
The Case Shiller continues to reaccelerate: -0.37% in May last year, 5.03% in Nov and 5.53% in Dec.
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ECB terminal rate now expected above 4%
And still climbing...
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Putaing, toujours aussi belles ces médailles.
Je m’en lasse pas. 😁😁😁
Fini de rigoler. Finis les semi-Ironman et autres jeux d’enfants. Là c’est du mastoc.
La macchina 😍😍😍 est prête. Y’a plus qu’à.
Demain c’est
#Ironman
de Suède.
#triathlon
#colnago
#RMA
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France, currently rated AA-, is now trading somewhere between Portugal and Spain.
I.e. France is now trading as a single-A.
The market has already anticipated the downgrade.
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Interesting chart from today’s ECB Bank lending survey.
“Green firms” benefit from easier credit standards while “brown firms” will face tightening conditions.
The difference between the two is significant.
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Fed funds futures are expecting 22 basis points CUT next year.
At the beginning of June, expectations were for 35 bp HIKE.
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Euro stock market is still unusually cheap vs. the US.
Even if we do an “old economy” index (i.e. if we removing the Tech sector).
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According to the NY Fed’ decomposition of oil prices, the 2021 increase was essentially a story of demand. I.e. it was the result of the world economy recovering fast.
The surge this year is purely a supply issue. I.e. it’s a drag on the economy.
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Euro CPI down to 2.9% in October after 4.3% in Sep and … 10.7% last October.
As a result, ECB’s repo rate is now 1.6% ABOVE inflation.
I.e. one of the highest print, meanwhile, Euro GDP is contracting.
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SI !!!
Classement world rugby. On est passé devant les anglais.
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Recession in Europe? What recession?
The implied default rate on IG credit is neatly below its long-term average.
Mr market is quite zen.
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Bonjour
@GregoireFavet
Suite à ta question sur les pertes de la BCE et de la Fed. Voici mes estimations.
Avec beaucoup plus de détails, en particulier sur les implications, dans notre hebdo.
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Based on today’s publication of Euro Area inflation details for November: I find 80% of the components in deceleration.
An unprecedented level.
The decline in European inflation is very broad based.
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The ECB’s balance sheet fell sharply: 8.77 Tr in mid-November, 7.99 Tr at the end of 2022.
The decrease, of almost 800 billion, is explained by the two early repayments of TLTROs.
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What a cool market.
Out of the 499 compagnies in the S&P, 207 have already reported.
ALL the sectors have surprised on the upside so far.
ALL the sectors (except "Communications") are down on the publication.
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US PPI is slowing down.
China PPI is telling us that the downward trend will continue and could accelerate
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En route pour de nouvelles aventures !
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Half of the Euro Stoxx has reported.
Surprises on sales are very small (-0.66% according to Bloom).
Surprises on earning are substantial (+6.78%).
By definition it means that margins are much better than expected.
Yes, once again…..
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Indeed’s wage tracker, a reasonably decent leading indicator of Eurostat’s official wage data, is down to 3.0% in April.
Yet another ECB worry gradually disappearing.
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Un point intéressant :
- Le PIB US fin 2021 était 3,2 % plus HAUTque fin 2019.
- L’emploi fin 2021 était 2,0 % plus BAS que fin 2019.
Les US produisent plus avec moins de personnes. C’est un choc de productivité majeur.
En 2021, l'économie US avec 5,7% de croissance réelle a généré un record de 6,4mlns d'emplois après les 9,4mlns détruits en 2020
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Remember the problem when Draghi was head of the ECB with persistently sub-target inflation? And the nonsensical debate about Japanification?
Problem solved by Lagarde.
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The stock rally is becoming broader.
The share of S&P 500 stocks outperforming the index is back above 50%. It was much lower for most of this year.
The period of very narrow rally seems to be over.
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Flash back on the US inflation data: the Cleveland Fed’s “trimmed index” is indeed declining. It’s still at 6.6% though.
But over 3 months, it’s reaccelerating and at 5.8%.
Inflation is unlikely to converge nicely/quickly towards 2%.
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Fini de rigoler. Finis les semi-Ironman et autres jeux d’enfants. Là c’est du mastoc.
La macchina 😍😍😍 est prête. Y’a plus qu’à.
Demain c’est
#Ironman
de Suède.
#triathlon
#colnago
#RMA
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Crucial point indeed.
Italy provides another striking example.
Super-important chart (same for other EMU countries), which tells several stories, incl:
- single biggest beneficiary of past 10 yrs mon pol has been the governments, I.e. society as a whole.
- the claim that
@ecb
cannot raise int rates because of state of budgets is bonkers.
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European natural gas price this morning at its lowest since Feb-21 last year!
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Today the US 10-y went briefly above 5%.
More impressive, today’s range is above 15 bp.
It’s the 12th day this month, out of 15 trading days, with a range above 10 bp. This is a very unusual volatility. Such a proportion of high-range days has happened only 4 times since 2010!
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The proportion of "distressed" countries (i.e. spread higher than 1000 bp) in the EM EMBIG index just moved above 25%.
That's a proportion consistent with a crisis.
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French central government cash deficit up to Sep: still zero sign of improvement.
It's worse than in 2021!
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The VIX (a measure of expected risk by financial markets) is still low, but the SKEW (a measure of tail risks expected by financial markets) is very elevated.
Unusual situation: markets are confident about their central case scenario but very worried about extreme events.
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Merci
@GregoireFavet
!
Intéressant de regarder le "taux de change effectif" de l'EUR tel que calculé par la BCE (en jargon d'économistes c'est EUR vs. panier de monnaies).
L'euro résiste. On assiste surtout et avant tout à un dollar fort.
Source :
#EURUSD
< 1 : "la faute à la BCE" (qui en fait trop ou pas assez ou whatever)
£ = sous-valorisé de 36% après +125bp de la BoE en 6m
¥ = sous-valorisé de 50% après JAMAIS AUCUNE hausse de la BoJ
€ = sous-valorisé de 20%
Avec
@StephaneDeo
@OstrumAM
#SmartBourse
@B_SMART_TV
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EPS revisions are still trending up in Europe on the wake of, once again, a good reporting season.
The market is still considerably lower and super pessimistic.
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BBG* Mitsotakis Vows Early Repayment of Greece's Bailout Loans
Greece (rated BB+ by S&P) is now trading through Italy (rated BBB) by the widest margin ever. The recent improvement of Greece has been quite impressive.
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Another one for the history books: in Europe, the inflation surprise index above 50 used to be exceptional.
We’re currently at 274!
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Interesting to note that Euro peripherical spreads have been highly correlated with emerging market spreads.
It looks like the risk premium in Europe is not driven by ECB or any other domestic issues, but much more by global risk appetite.
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Chinese’ Q3 GDP : an interesting point is that consumption accounts for 95% of the GDP growth.
This is unprecedented (well, data are going back less than a decade); the average contribution over the period is close to 50%.
Is that the start of a growth rebalancing?
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US CPI collateral damages.
Post CPI release, the most likely Fed scenario according to the option market is: one single by yearend. It’s a 33% probability; the “two cuts” scenario is at 32% probability.
What a change compared to what was priced at the beginning of the year!
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The fall of the
#Bitcoin
means you need more bitcoins to buy goods.
That’s what we call “inflation”.
If the Bitcoin was our currency;
#inflation
would be close to 150% now in the Euro zone.
A big drop though, it was 260% in Sep!
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Euro Area core inflation: 3-month annualized (after my adjustment for seasonal effects) is down to 2.8% in October. It was 7.8% a year ago.
Base effects will continue to drop, core inflation will continue to abate rapidly.
Euro CPI down to 2.9% in October after 4.3% in Sep and … 10.7% last October.
As a result, ECB’s repo rate is now 1.6% ABOVE inflation.
I.e. one of the highest print, meanwhile, Euro GDP is contracting.
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Just a reminder: USA has switched from large importer of oil & gas to a significant exporter.
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Really, really impressive to compare French and Italian yields behavior.
So far this year, Italian 10 year spreads were moving 3 to 4 times faster than French ones. Italy was viewed as 3 to 4 times riskier.
This week, Italian spreads are moving LESS (!!!) than French ones.
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Now below 1 Tr.
A 58% drop since end of March.
And the plunge will continue...
Fed reverse repo down from 2.4 Tr USD at the end of March to 1.1 Tr now.
A 55% decline in just 7 months.
The fall in excess liquidity is precipitous.
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“Copper prices will go down caus’ Chinese demand is collapsing”.
Well actually it’s not collapsing at all.
All the contrary.
Import in 2023 are up 9% compared to 2022.
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Et le beta des hedge funds au S&P est proche des plus bas historiques.
Les HF one énormément sous-sensibilisé leur exposition aux actions.
Jamais depuis Mars '09 les investisseurs n'ont autant sous-pondéré les Actions par rapport aux Obligations
If “consensus lust for recession” isn’t satisfied in the second quarter, the “pain trade” would be a rally in bond yields and bank stocks (BofA)
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"Remittances" are the profits from Fed that are paid back to the Treasury. Last week was a record 10 Bn loss.
The situation is probably similar in Europe, but no precise equivalent data is available from the ECB.
This is an issue for public finances.
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The Euro area GDP contraction in Q4, if it happens, is likely to be very small. It’s plausible the quarter could be slightly up.
On top of that, nowcast models point to a recovery in Q1.
The probability of a recession is fast declining.
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Wages in France, published this am.
No wage/inflation spiral ? Really ?
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YEESSSSSS !!!!!
Je suis AWA. 😍😍😍
Classé dans le top 10% des ironmen 2023.
C’était LE but de l’année dernière.
Je viens de récupérer le certificat aujourd’hui.
#IM
#ironman
#AWA
#triathlon
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What a day for the Euro Stoxx!
- 3.13% in intraday after the inflation numbers.
But
+0.96% at market close.
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French nominal wages at 1.7% yoy in Q4 2021.
But with inflation now running at 3.6%, if there’s no acceleration in Q1 that would be almost a 2% loss in purchasing power.
As a reminder, consumption is about 2/3 of GDP. Not good…
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Just a simple reminder: if the ECB does not cut (they will cut actually), that would push real rates up as inflation recedes.
Real rates are already quite high while the inflation problem is disappearing.
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This morning’s INSEE survey says: no more inflation, no deflation.
Just back to normal trend.
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HUGE disagreement between stocks & bonds!
The V2X is a proxy of euro stock market stress. It’s super low.
EUR Swaption vol is a proxy euro souverain market stress. It’s super high.
Historically, this divergence never lasted. And it’s the bond market that contaminates stocks…
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The EUR at about 1,10 is weak vs. USD.
But on trade weighted basis (aka in economists’ parlance “effective exchange rate”) it is not so far from its all-time high.
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