Once again, Bloomberg gives us a mental gymnastics clinic in their urge to twist any data series into a bullish headline. This time, it's global auto sales. But is the data really bullish? Let's see for ourselves!
At first glance, what they are saying is objectively true. Looking at auto sales in the US + EU + China, August 2020 was indeed the best August on record so far. But does a single month make a bullish trend? Let's take some deeper cuts at the data!
First, auto sales data is highly seasonal, so let's smooth it by summing over the trailing 12 months. Immediately, we see that something else is at play here. Sales peaked in Sept 2018 (coincidentally, right around when yield curves started inverting and macro turned bearish).
Now, lets take a closer look at the Trailing 12 Months figure as a year-on-year change. The same problems are evident here. Outside of the 2008-2009 period (which was DEFINITELY not bullish for the auto industry), 2019-present is as bad as this data series gets!
Now, to get some context of relative to prior years, let's look at a year-to-date chart. There is some improvement relative to April/May, but we haven't even caught up to 2014 yet! Barring a miracle in Q4, we'll probably end up around 2014 levels (nowhere close to even 2019)
Assuming we end up somewhere in the middle between 2014 & 2015 (I split the difference in my forecast of 57.2M total cars sold), the chart hardly looks bullish. 2019 was already not a great year, and the 2020 forecast is 9.8% below that. Yikes!
If this "2014-2015 level" forecast is even remotely accurate, 2020 will be the worst single year drop in auto sales since the series began in 2000 AND the first back-to-back drop in consecutive years. Even the optimist in me struggles to see anything bullish in these numbers.
In conclusion, when looking at noisy and seasonal data, calling a trend because 1 month happened to be a record is a sure way to look foolish (especially in a year when normal seasonality is disrupted). Besides that, hoped you enjoyed the data and chance to clown on BBG! Cheers!
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quick note on what’s going on at the Swiss National Bank
first, the SNB has slightly unusual rates policy vs other central banks… they have 2 different interest rates on CHF reserves: banks earn the threshold rate up to a limit and then the excess rate on everything above limit
up to late-Sept, the spread between these rates was 25bps, but with the SNB hike last month it has widened to 50bps
since banks are now effectively being penalized more for excess CHF reserves, this creates a pressure on them to get their reserve levels below threshold…
a natural way to do this is to use the SNB reverse repo facilities or do a FX swap for another currency and we’ve definitely seen both get some activity
the move in USDCHF basis is mainly due to this (not USD stress) but there is a limit to how much CHF that market can absorb…
some interesting dispersion in 3 month rates going on right now:
looking at OIS the expected overnight rate compounds to about 1% over the next 3 months... but UST bills are trading about 20bp below that, and 3m Libor about 15-20bps higher
so why the wide range? let's see... 👀
starting on the bills side, we know that 3m bills compete with RRPs, bank deposits, and even shorter govt paper as cash equivs
with RRP and <1m bills around 30bps, investors willing to accept 3m duration can earn an extra 50bp by going to 3m bills... dragging yields down vs OIS
this effect in bills is compounded by the fact that issuance has been low, and cash earning less than 80bps in overnight markets or bank deposits is plentiful
should Treasury issue more bills, or Fed reinvest fewer maturing during QT... the spread to OIS would likely compress
recently we have seen some stress in funding, shown here at the 3m point as a continued rise in credit sensitive rates such as Libor & commercial paper relative to risk-free alternatives such as T-bills & UST repo...
market measures of near-term stress, such as the March FRA-OIS and spread between SOFR and ED futures shown here have widened significantly, especially since March 3...
in the broader historical context of spot Libor spreads vs OIS or T-Bills we are still at fairly moderate levels (on par with normal year-end funding tightness, not a crisis) but some funding premium is definitely noticeable...
why are the Federal Home Loan Banks shrinking and is it a problem for the money markets? 🤔
since the recent peak in Q1 2020, total assets of the FHLBs have fallen by ~40%… let’s look at why this is happening and what the effects are!
to start, the main role of the FHLBs as govt-sponsored banks is to provide flexible funding to member institutions against various types of mortgage-related collateral
these loans are called FHLB advances and are used by many banks and insurers to fund mortgage holdings…
this is reflected on the combined balance sheet of the FHLB system, where the main assets beside cash and HQLA securities are advances
on the liabilities side, the FHLBs do take some deposits but mainly fund their balance sheet thru the issuance of US Agency debt…