U.S. Banks’ Loan-to-Deposit Ratio Lowest Since the 1970s

The Daily Shot: 26-May-20
Credit
Equities
Energy
Commodities
Emerging Markets
China
Asia – Pacific
The Eurozone
Europe
The United Kingdom
Canada
The United States
Global Developments
Food for Thought



 

Credit

1. The speed of corporate sub-investment-grade ratings downgrades has been unprecedented.
 
Source: @WSJ   Read full article  
 
Here is the percentage of leveraged loans with the weakest ratings.
 
Source: @WSJ   Read full article  
 
US industrials’ credit quality has deteriorated rapidly.
 
Source: Credit Benchmark  

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2. US companies have issued a record amount of debt, in part to refinance commercial paper (two charts).
 
Source: @financialtimes   Read full article  
Source: @financialtimes   Read full article  

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3. US restaurant chains’ default probability has spiked this year.
 
Source: S&P Global Market Intelligence  
 
4. Next, we have some updates on household credit.
 
The charts below show the percentage of US newly delinquent consumer loans relative to jobless claims. Credit cards and auto loans were already exhibiting weakness heading into this crisis, …
 
Source: Moody’s Investors Service  
 
… but residential mortgages were in good shape entering the downturn.
 
Source: Moody’s Investors Service  

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US consumer financial obligation and debt service ratios were well below historical averages going into the crisis.
 
Source: Moody’s Investors Service  
 
Ginnie Mae has the highest percentage of its mortgage servicing portfolio in forbearance.
 
Source: Mortgage Bankers Association  
 
A meaningful portion of loan portfolios at some large regional banks is in forbearance.
 
Source: @markets   Read full article  
 
According to Moody’s, US banks will further tighten underwriting standards for consumer credit.
 
Source: Moody’s Investors Service  

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5. US banks’ loan-to-deposit ratio hit the lowest level since the 1970s. The Fed’s securities purchases have been driving up deposits (see #3 here for an illustration of the process).
 

 
6. Finally, the chart below shows the weekly issuance of municipal bonds.
 
Source: @WSJ   Read full article  


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Equities

1. US stock futures are up sharply as the rally continues.
 

 
2. Tech and consumer discretionary have led the market rally.
 
Source: Longview Economics  
 
3. The next chart shows when the public expects the stock market to fully recover from the pandemic selloff.
 
Source: MagnifyMoney   Read full article  
 
4. Speculative futures positions in the S&P 500 are extremely short, …
 
Source: Deutsche Bank Research  
 
… but only modestly so in the Nasdaq 100. Note that many speculative traders use S&P 500 futures to offset their long positions.
 
Source: Deutsche Bank Research  

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5. Historically, the US stock market treads water during summer months.
 
Source: Lindsey Bell (Ally Invest)  
 
6. The ratio of the S&P 500 dividend yield over the 10-year Treasury yield is at its highest level since the 1940s. However, this assumes that companies will maintain their dividend.
 
Source: BofA Merrill Lynch Global Research  
 
7. The cyclicals/defensives ratio has diverged from bond yields.
 
Source: Longview Economics  
 
8. The Nasdaq year-to-date performance would have been substantially worse without its China-based companies.
 
Source: @LizAnnSonders, @bloomberg  
 
9. “Zombie” small-cap shares have been outperforming.
 
Source: @LizAnnSonders  
 
10. Global equity flows have been declining over the past few years as investors pile into bonds.
 
Source: BofA Merrill Lynch Global Research  
 
11. There has been a rotation from value and cyclicals into secular growth funds.
 
Source: Deutsche Bank Research  
 
12. Retail investors have increasingly been trading equity options.
 
Source: Goldman Sachs, @markets   Read full article  


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Energy

1. The number of US oil rigs keeps shrinking, but the declines have slowed (2nd chart).
 

 
Shale CapEx expectations continue to contract.
 
Source: @financialtimes   Read full article  

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2. Except for the hurricane disruptions, US refinery inputs are the lowest in nearly 30 years.
 
Source: @bopinion   Read full article  


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Commodities

1. Gold has substantially outperformed gold mining shares over the past decade.
 
Source: Economic Perspectives   
 
2. Rice futures keep climbing.
 


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Emerging Markets

1. India’s central bank cut rates again, as the daily number of new COVID-19 cases soars.
 

Source: JHU CSSE  

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2. Turkey’s manufacturing capacity utilization remained near extreme lows in May.
 

 
3. This chart illustrates the trajectory of South Africa’s hard-currency sovereign debt downgrades.
 
Source: @business   Read full article  
 
South Africa’s new coronavirus infections keep climbing.
 
Source: JHU CSSE  

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4. Brazil’s consumer confidence showed only minimal improvement in May.
 

 
5. LatAm financial conditions have eased from mid-March levels.
 
Source: Goldman Sachs  


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China

1. The PBoC has been guiding the renminbi lower to support the export sector.
 

 
2. According to Goldman Sachs, Beijing’s fiscal stimulus has been more forceful than the headline figures suggest.
 
Source: Goldman Sachs  
 
3. Large manufacturing firms have bounced back faster than small firms.
 
Source: Gavekal   
 
4. Young adults in China want to buy a car.
 
Source: @FT, @adam_tooze   Read full article  
 
5. China’s defense spending keeps rising, although the pace of increases has slowed.
 
Source: Global Times   Read full article  
 
6. Hong Kong’s school shutdowns have been the longest in the world.
 
Source: @technology   Read full article  


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Asia – Pacific

1. Taiwan’s industrial output held up well in April.
 

 
The unemployment rate climbed above 4% for the first time since 2014.
 

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2. South Korea’s consumer confidence bounced from the lows but remains depressed.
 
Source: @tracyalloway, @samkimasia   Read full article  
 
3. Department store sales in Japan collapsed last month.
 

 
4. Next, we have some updates on Australia.
 
Australia’s banks are heavily exposed to mortgage debt.
 
Source: @markets   Read full article  
 
Here is the banking sector’s price-to-book ratio.
 
Source: @ThePainReport  
 
Household credit card spending has been on the rise in recent weeks.
 
Source: @CommSec  
 
Australia’s official figures understate the nation’s unemployment.
 
Source: Goldman Sachs  


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The Eurozone

1. Germany’s Ifo business expectations index surprised to the upside as the country eased lockdown measures.
 
Source: MarketWatch   Read full article  

 
Customers are gradually returning to retail stores.
 
Source: Commerzbank Research  
 
Here is the Ifo index breakdown by sector.
 
Source: ifo Institut   

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2. The expected consumer sentiment rebound in Belgium didn’t materialize this month.
 

 
3. This chart shows the euro-area corporate debt trends before the crisis.
 
Source: @WSJ   Read full article  
 
4. Inflation expectations continue to trend lower.
 
Source: Scotiabank Economics  
 
5. The Eurozone has experienced substantial portfolio outflows.
 
Source: Pantheon Macroeconomics  


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Europe

1. Sweden’s unemployment rate rose further last month but remains well below the 2009 highs.
 

 
2. Sweden’s and Norway’s nominal GDP growth has held above the Eurozone’s over the past decade.
 
Source: Alpine Macro  
 
3. Nordic countries have a higher household debt to disposable income ratio than other major economies.
 
Source: Alpine Macro  
 
4. Switzerland’s central bank (SNB) continues to intervene in the currency markets.
 
Sight deposits:
 

 
The monetary base:
 

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5. Czech consumer sentiment recovered partially from the April lows.
 

 
But business confidence continued to deteriorate.
 

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6. Poland’s industrial production and retail sales plummetted in April.
 

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7. Southern Europe will benefit the most from the EU Recovery Fund.
 
Source: @markets   Read full article  


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The United Kingdom

1. The UK government borrowing spiked in April. The second chart shows (fiscal) year-to-date borrowing trends by year.
 

 
The divergence between government spending and receipts was unprecedented.
 
Source: Pantheon Macroeconomics  

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2. Retail sales plunged last month, pointing to a nearly 10% year-over-year decline in consumption.
 

Source: Goldman Sachs  
 
Here are some of the components of UK retail sales.
 
Source: ING  


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Canada

1. Canada’s March retail sales tumbled, driven by automobiles. April figures will be far worse.
 

 
2. Banks are expected to boost loan loss provisions in Q2.
 
Source: @markets   Read full article  
 
3. Retail and diversified REITs (property operators) continue to underperform year-to-date.
 
Source: Market Ethos, Richardson GMP  


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The United States

1. Mall owners received just a quarter of expected rent payments.
 
Source: @business   Read full article  
 
That’s why shares of malls have massively underperformed other property operators.
 

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2. This chart shows the unemployment rate by state.
 
Source: @GregDaco, @OxfordEconomics, @OrenKlachkin   Read full article  
 
3. “Reopening” doesn’t mean a return to “normal.”
 
Source: @SteveRattner  


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Global Developments

1. Let’s begin with some year-to-date performance charts.
 
Currencies and stocks:
 
Source: Gavekal   
 
Credit, equities, currencies, and commodities:
 
Source: Arbor Research & Trading  

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2. Trade has plummetted this year.
 
Source: @business   Read full article  
Source: @markets   Read full article  

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3. Budget deficits are widening globally.
 
Source: IIF  


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Food for Thought

1. US mortgage originations by age:
 
Source: New York Fed  
 
2. The world’s wealthiest women:
 
Source: Statista  
 
3. Americans living alone:
 
Source: Self   Read full article  
 
4. COVID-related legal complaints:
 
Source: @bopinion   Read full article  
 
5. Who is doing an “outstanding job”?
 
Source: Edelman Trust Barometer   Read full article  
 
6. COVID-related online search activity in select countries:
 
Source: @axios   Read full article  
 
7. Who is comfortable sending children back to school?
 
Source: Ipsos  
 
8. Presidential job approval ratings:
 
Source: Echelon Insights  
 
9. Celebrating Memorial Day:
 
Source: @CivicScience   Read full article  

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