Don’t Expect a V-Shaped Recovery, Says Bank of America

The Daily Shot: 22-May-20
Administrative Update
The United States
The United Kingdom
The Eurozone
Japan
China
Emerging Markets
Cryptocurrency
Energy
Equities
Credit
Rates
Food for Thought



 

Administrative Update

Please note that The Daily Shot will not be published on Monday, May 25th.


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The United States

1. Let’s start with the Markit PMI report, which showed a somewhat slower pace of declines in US business activity this month.
 
Factory activity remains deep in contraction territory (PMI < 50).
 
The headline PMI index:
 

 
New orders:
 

 
The employment index barely budged.
 

 
And manufacturers remain gloomy about future output.
 

 
The contraction slowdown in services was more pronounced.
 

 
New orders:
 

 
Employment:
 

 
Expectations:
 

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2. The Philly Fed’s regional manufacturing report was a bit more encouraging.
 
The headline index:
 

 
New orders:
 

 
Employment:
 

 
Expectations:
 

 
Improvements in business conditions later this year may not result in stronger hiring.
 
Source: @TheTerminal  

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2. Another two million Americans applied for unemployment benefits last week.
 

Source: Economic Policy Institute  
 
This chart shows the total (continuing) unemployment claims.
 

 
In some states, the total share of workers applying for unemployment rose above 30%.
 
Source: Deutsche Bank Research  
 
Online search activity suggests that the weekly new claims number is no longer declining.
 
Source: Pantheon Macroeconomics  

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3. Next, we have some updates on small business.
 
Small business CEO sentiment showed a slight improvement.
 
Source: The Vistage CEO Confidence Index   Read full article  
 
PPP loans have stabilized payrolls for many firms.
 
Source: The Vistage CEO Confidence Index   Read full article  
 
Some small business owners are tapping into personal savings.
 
Source: Expertise.com  

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4. Bloomberg’s consumer sentiment index hasn’t found a bottom yet.
 

 
5. The Conference Board’s index of leading indicators bounced from the lows in April but remains well below the worst levels of 2008.
 

 
Here are the components.
 
Source: Oxford Economics  

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6. The NY Fed’s economic activity index hit another record low.
 

 
7. Don’t look for a V-shaped recovery, according to BofA Global Research.
 
Source: @ISABELNET_SA, @BofAML  
 
8. Finally, we have some updates on the housing market.
 
Existing home sales declined sharply in April but did not collapse (down 18% from the same time last year).
 


 
Housing inventories are extraordinarily tight.
 

 
Home price appreciation remains robust.
 
Source: Oxford Economics  
 
Here is Redfin’s homebuyer demand index.
 
Source: Redfin, @tayloramarr   Read full article  


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The United Kingdom

1. According to Markit, the contraction in business activity moderated in May.
 
Manufacturing PMI:
 

 
Services PMI:
 

 
What does the PMI report mean for the GDP?
 
Source: Goldman Sachs  

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2. The April CBI industrial orders report was a disaster.
Source: CityAM   Read full article  

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3. Employment loss in the second quarter is expected to be unprecedented.
 
Source: Pantheon Macroeconomics  
 
4. Consumer confidence deteriorated further.
 

 
5. A portion of the gilt curve is in negative territory.
 

 
6. The spike in public debt will be offset by extremely low interest rates.
 
Source: The Economist   Read full article  


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The Eurozone

1. The decline in euro-area manufacturing activity has slowed this month, although Germany’s situation has barely changed. Here are the Markit PMI trends.
 
The Eurozone:
 

 
France:
 

 
Germany:
 

 
Just like in the US, the improvement was more pronounced in services:
 
The Eurozone:
 

 
France:
 

 
Germany:
 

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2. This scatterplot shows the relationship between the changes in unemployment and GDP growth.
 
Source: Pantheon Macroeconomics  
 
3. Germans seem to support the French-German proposal to establish an EU relief fund (see story). Here is the support breakdown by party.
 
Source: @adam_tooze, @CarolineGruyter  


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Japan

1. The Markit Manufacturing PMI continued to decline in May. The services index has bottomed but remains at extreme lows.
 

 
2. This chart shows the breakdown of Japan’s exports by destination.
 
Source: Pantheon Macroeconomics  
 
3. Core inflation is approaching zero.
 


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China

1. Beijing’s intent to impose a sweeping “security” law has rattled Hong Kong’s stock market.
 
Source: The Washington Post   Read full article  

 
There is now a possibility of blowback from Washington, further escalating US-China tensions.
 
Source: @WSJ   Read full article  
 
The renminbi (chart below) and the stock market (second chart) have been weakening.
 

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2. This chart from Goldman provides a summary of China’s recovery by sector.
 
Source: Goldman Sachs  


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Emerging Markets

1. EM central banks continue to cut rates.
 
South Africa:
 

 
Turkey:
 

 
The above two reductions are not included in this summary of rate changes.
 
Source: Capital Economics  
 
Here is a forecast for policy rates 12 months out vs. market expectations (from Capital Economics).
 
Source: Capital Economics  

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2. Turkey’s banks are running substantial liabilities in dollars and euros.
 
Source: @WSJ   Read full article  
 
3. India’s bond yields continue to trend lower.
 

 
4. Russia’s April industrial production decline was not as severe as expected.
 

 
5. Brazil’s stock market has been underperforming.
 
Source: @markets   Read full article  
 
Financial conditions in Brazil are tighter than they were in February despite deeper than expected central bank easing, according to Goldman.
 
Source: Goldman Sachs  


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Cryptocurrency

1. Bitcoin has been consolidating as the $10k resistance holds.
 

 
2. Here is the monthly performance of crypto hedge funds.
 
Source: @financialtimes   Read full article  


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Energy

1. Crude oil is lower on Friday as the rally fades.
 

 
2. The improvements in US gasoline demand have stalled.
 
Source: Princeton Energy Advisors  
 
3. European natural gas prices are collapsing.
 


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Equities

1. Financial advisors are becoming more bullish.
 
Source: @WillieDelwiche  
 
Overall, investors are skeptical of the current market rally (and high valuations).
 
Source: Alpine Macro  
Source: BofA Merrill Lynch Global Research  

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2. Here are a couple of charts that show the disconnect between the stock market and economic trends.
 
S&P 500 vs. truck tonnage:
 
Source: @ISABELNET_SA  
 
S&P 500 vs. consumer sentiment:
 
Source: @Not_Jim_Cramer  


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Credit

1. Leveraged loan default rates are rising.
 
Source: @lcdnews, @Kakourisr  
 
2. Deutsche Bank expects more US and European fallen angels.
 
Source: Deutsche Bank Research  
 
3. Spreads on short-term corporate debt have returned to pre-crisis levels.
 
Source: @WSJ   Read full article  
 
4. Since the pandemic hit, mortgage REITs have severely underperformed the real estate sector, which was already lagging behind the S&P 500.
 
Source: Koyfin  
 
5. Commercial real estate debt delinquencies are climbing.
 
Source: Morgan Stanley Research, @tracyalloway  
Source: @adam_tooze, @EricGPlatt   Read full article  


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Rates

1. One-year forwards on the 10-year Treasury are pricing in a yield of 0.89%, which is not far off from current levels, according to Pavilion Global Markets.
 
Source: Pavilion Global Markets  
 
2. The Fed’s balance sheet exceeded $7 trillion (the second chart shows weekly changes).
 

 
The Fed’s MBS holdings hit a record high.
 


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Food for Thought

1. Growth in mobile shopping:
 
Source: The Atlantic   Read full article  
 
2. Emissions from clothing production:
 
Source: @business   Read full article  
 
3. The CDC’s emergency preparedness funding:
 
Source: Trust for America’s Health   Read full article  
 
4. The male-to-female ratio of COVID fatalities (by country):
 
Source: The Brookings Institution   Read full article  
 
5. Trusting others during the pandemic:
 
Source: YouGov   Read full article  
 
6. Cancer surgeries canceled:
 
Source: The Economist   Read full article  
 
7. The locust infestation:
 
Source: VOX, @adam_tooze   Read full article  
 
8. The US-China phase-1 deal tracker:
 
Source: @LizAnnSonders, @PIIE   Read full article  
 
9. Tweets by China’s Foreign Ministry:
 
Source: @WSJ   Read full article  
 
10. Belief in Bigfoot:
 
Source: @CivicScience  

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The next Daily Shot will be out on Tuesday, May 26th.
Have a great weekend.


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