Morning Macro 14th November
Weaker Chinese economic data overnight after U.S. equities fall (Nasdaq -2%, S&P500 -1.7%) as chances of Fed rate cuts recede. Dec 10th meeting now prices exactly 50:50 after 3 Fed Presidents say they are more concerned about inflation. With equities falling Japan’s 10-year government bond yield rises to highest since 2008. This is NOT a good sign.
However, U.S. equity earnings are still strong, margins continue to increase, and the data centre build out continues. But the market is clearly getting nervous the AI trade and rotating out. Percentage below 52-week high – Google: -5% Amazon: -8% Microsoft: -9% Nvidia: -12% Tesla: -16% Palantir: -17% Bitcoin: -22% Ethereum: -35% Coinbase: -36% MicroStrategy: -62%
Chinese Oct industrial growth 4.9% y/y [Est.5.5%] (Chart 1, @C_Barraud, National Bureau of Statistics)
Chinese Jan-Oct fixed asset investment -1.7% y/y [Est.-0.8%] largest y/y drop since June 2020. (Chart 2, @C_Barraud, National Bureau of Statistics)
Chinese Oct retail sales 2.9% y/y [Est.2.7%], Chinese Oct Unemployment 5.1% [Prev. 5.2%]
Kevin Hassett, National Economic Council Director, says the shutdown caused about 60,000 non-federal job losses, cost the economy $15 billion per week (around $92 billion total), and may cut Q4 GDP by 1.5 points.
CDS MARKET FLASHING WARNING SIGNS: CDS spreads continue to surge for AI companies. Oracle, CoreWeave 10Y CDS spreads are up over 30% in the past month alone, with other major players also up double digits. We are seeing a ton of heavy, upfront “capex” spending by these companies. Not only that, but these hyperscalers are tapping the credit market for this capital at a scale we haven’t truly seen before. The ultimate return on these investments is becoming more uncertain; hence investors are bidding up protection against the credit. (Chart 3, Bloomberg, @Coffee__Capital)
And with that their bonds are obviously falling too; Oracle’s $3.5 billion of 30-year debt issued in September has cratered by 8% from the October peak. (Chart 4, Bloomberg)
The unemployment rate for US college graduates is now 9.3%, higher than a peak of 8.7% during the 2008 Great Financial Crisis.
401(K) hardship withdrawals hit the highest level since record keeping began
The Cass Freight Shipments index has hit yet another new low for the current cycle. (Chart 5, @AvidCommentator, Cass Freight Index)
The Cass Freight Shipments index has hit yet another new low for the current cycle. Excluding a few brief months at the start of the pandemic, it is at its lowest level since the GFC era. CHINA FOREIGN MINISTRY, ON US APPROVED ARMS SALES TO TAIWAN: US ARMS SALES TO TAIWAN GROSSLY VIOLATE ONE CHINA PRINCIPLE……Never a dull day in geopolitics!
Legendary investor Howard Marks puts it bluntly: “When you buy the S&P 500 at a 23x P/E, your 10-yr annualized return has always fallen between +2% and –2%, in every case, every case.” Today the market sits at a 25x P/E. Add inflation… and your “returns” are negative.
The White House announces that the October jobs report will be released WITHOUT an unemployment rate.
