Daily Chartbook #141

Welcome back to Daily Chartbook: macro market charts, data, and insights pulled from various sources around the Internet by a solo retail investor.

1. Small biz optimism. Optimism "increased 0.5 points in January to 90.3, remaining below the 49-year average of 98".

2. Weak USD. "Investors and analysts expect the dollar to weaken over the next 12 months".

3. World Interest Rate Probabilities. "The implicit rate for the December Federal Open Market Committee meeting has never been higher since the start of the contract. Nearly at 5%, it suggests that there will be no rate cuts this year".

4. Last hike. Most fund managers see the last hike coming on May 3.

5. Peak rate. "Investors increasingly see the terminal rate above 5%".

6. Recession fears. "Recession odds peaked in Nov'22 at 77% and have since declined to 24% this month (down 27ppt MoM), lowest since Jun'22".

7. Hard vs. soft. "One of the largest gaps between hard and soft data on record".

8. Financial conditions. "Overall financial conditions are now as easy as they were before the Fed started raising interest rates. .. In other words, it looks like more Fed hikes are needed to get inflation all the way back to the Fed’s 2% inflation target".

9. Inflation expectations. "Fund managers expect lower inflation".

10. Tail risk. The "biggest 'tail risk' remains 'higher-for-longer' inflation".

11. CPI (I). Headline inflation increased by 0.5% in January (in-line), the most in 3 months.

12. CPI (II). Core inflation rose by 0.4% in January (in-line), the same pace as December.

13. CPI (III). "Core Services ex shelter up 0.27% M/M, lowest since October".

14. CPI (IV). "Services ex-rent — the metric Jay Powell has explicitly called out publicly — is still north of 7%, even though it's cooled a little".

15. CPI (V). "Shelter CPI moved up to 7.9%, the highest rate of housing inflation since 1982".

16. CPI (VI). "Alternate US CPI [measures] accelerated last month".

17. Fed rate path. "The market's expectations for the Fed rate path is indicating a further upward shift following today's CPI data. Here is today, yesterday, & February 1's projected rate paths".

18. Breakevens. "Breakeven inflation expectations have surged since we got the +517k jobs report on Feb 3, and today's CPI print didn't bring them down. Powell has mentioned needing this to stay contained, 10-yr is ok, but 2- and 5-yr readings have spiked".

19. SPR. "With the 26 million barrels release confirmed last night (due to Congress mandated sales), the size of the US Strategic Petroleum Reserve will drop to ~345 million barrels by mid-year, the lowest level in 40 years".

20. Energy exposure. "Energy bulls losing interest".

21. FMS cash levels. Fund manager cash levels ticked down but remain elevated.

22. FMS positioning (I). "Fund managers are positioned for bonds to outperform stocks (which they will do if there is a recession)".

23. FMS positioning (II). "About 31% of investors are now underweight equities".

24. ETF flows. "Investors are running away from large-cap equity ETFs, pulling nearly $3.8 billion over past week ... for past month, international funds (both equity and fixed income) have made up 65% of all fund inflows".

25. Exposure plans. "The crowd isn't planning to increase equity exposure. The question is whether or not the market forces them to chase?"

26. S&P vs. EM. "Price return correlations between the S&P 500 and MSCI EAFE/Emerging Markets are below 5-year averages and trending lower. That is a positive sign for global equities".

27. Earnings revisions. "Looks like analysts got too pessimistic last year. The number of companies with earnings estimates being revised higher is climbing".

28. Not convinced. And finally, the “rally from Oct 12th (blowout CPI) driven by easier financial conditions (lower yields, lower volatility, lower US dollar) [is] generally viewed by investors as a bear market rally (66%) rather than a new bull market (23%)".

Thanks for reading!