The Daily Shot: 01-Jun-20
• Emerging Markets
• China
• Asia – Pacific
• Japan
• The Eurozone
• The United Kingdom
• Canada
• The United States
• Rates
• Credit
• Equities
• Commodities
• Food for Thought
Emerging Markets
1. The number of daily new infections globally is still rising. The pandemic has exploded across developing economies, while progress stalls in the US (see the US section).
Source: JHU CSSE
A considerable portion of new global cases is now in South America, but other regions are struggling as well.
Source: @axios Read full article
Below are some of the countries that are yet to see the peak in new infections.
• Brazil (over 30k per day):
Source: JHU CSSE
• India:
Source: JHU CSSE
• Colombia:
Source: JHU CSSE
• Qatar:
Source: JHU CSSE
• Egypt:
Source: JHU CSSE
• Afghanistan:
Source: JHU CSSE
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2. Brazil’s first-quarter GDP contracted in line with expectations. Q2 will be far worse.
The nation’s fiscal situation is deteriorating.
Source: Goldman Sachs
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3. Chile’s unemployment rate rose, and economic activity plummetted in April.
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4. Several central banks cut rates on Friday.
• Colombia:
… as unemployment soars:
• Nigeria:
• Romania:
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5. Next, we have some updates on India.
• Output in key industries saw record deterioration in April.
• Factory activity remained deep in contraction territory in May.
• Here is the consensus year-over-year GDP forecast for the second quarter.
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6. Southeast Asian manufacturing PMI indices bounced from record lows, but activity continues to shrink.
7. Saudi Arabia’s FX reserves plunged in April.
Source: @JavierBlas
8. Turkey’s economic confidence index bounced from the lows but remains depressed.
9. South Africa had the largest trade deficit on record in April.
China
1. China’s PMI reports show modest expansion in business activity in May (PMI > 50 means growth).
• Official manufacturing PMI:
• Official services PMI:
• Markit manufacturing PMI:
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2. The China-US 10yr bond spread hit a multi-year high.
3. Sovereign credit default swap spreads are starting to rise again.
Source: FHN Financial
4. China’s domestic airlines have been more active than US peers in May.
Source: @LizAnnSonders, @bloomberg, @cirium, @TheTerminal
5. Hong Kong’s stock market has massively underperformed in recent weeks. However, it’s up 3.5% on Monday.
h/t Amanda Wang
Asia – Pacific
1. South Korea’s exports ticked up in May but are still down nearly 24% from a year ago.
The nation’s factory activity continues to deteriorate.
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2. Taiwan’s manufacturing activity showed no improvement in May.
3. Next, we have some updates on Australia.
• There was a modest increase in the key manufacturing index.
• Home prices are contracting in Melbourne and Sydney.
Source: Goldman Sachs
• A measure of inflation (from Melbourne Institute) collapsed in May.
• The Aussie dollar is back to pre-pandemic levels.
Japan
1. Consumer confidence ticked higher in May but remained well below the worst levels of 2008/09.
2. Q1 corporate profits were down 32% on a year-over-year basis.
3. Growth in business loans jumped as companies raised cash in April.
4. Housing starts keep sinking.
5. BCA Research expects Japanese exports to follow China’s PMIs higher.
Source: BCA Research
6. The Nikkei 225 Index is approaching its initial resistance.
Source: @DantesOutlook
7. Japanese investors purchased $5 trillion worth of US debt in March while selling off nearly $2 trillion of French sovereign bonds.
Source: Morgan Stanley Research
8. USD/JPY has been stuck in a range over the past two months.
Source: @DantesOutlook
The Eurozone
1. Inflation continued to trend lower in May.
• French CPI:
• Italian CPI:
• German import price index:
• The Eurozone CPI:
Source: Eurostat Read full article
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2. Next, we have some updates on consumption (through April).
• Germany’s retail sales (held up better than expected):
• Portugal’s retail sales:
• Ireland’s retail sales:
• French consumer spending (severe contraction, but the worst is over):
French consumption is now rebounding.
Source: Pantheon Macroeconomics
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3. Italian GDP hit the lowest level since 2000.
Source: @financialtimes Read full article
Here is ANZ’s forecast for Italy’s nominal GDP trajectory.
Source: ANZ Research
The United Kingdom
1. Motor vehicle traffic showed improvement in May.
Source: Pantheon Macroeconomics
2. The 2yr gilt yield is now firmly below zero, as the market expects the BoE to take rates into negative territory.
3. This chart shows an estimate of the UK’s natural rate of interest.
Canada
1. The economy contracted sharply in the first quarter.
• Quarter-over-quarter:
• Year-over-year:
• GDP components:
Source: Scotiabank Economics
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2. The next three charts show the BoC’s securities purchases and projections from Scotiabank.
Source: Scotiabank Economics
3. The loonie is recovering.
The United States
1. The declines in new COVID-19 infections have stalled. While some of the increase in new cases is due to improved testing, the US now substantially lags Italy for this phase in the pandemic.
Here is a comment from Steven Kopits, Princeton Energy Advisors.
•
New confirmed cases continue to look terrible. We projected 11,300 cases for May 30; the actual was 25,300, 125% above forecast over just a week’s horizon. US containment efforts are visibly failing. As a result, the forecast date for new cases coming in below 1000 has been pushed back an alarming 40 days to July 29th. The forecast for new cases below 100 has been pushed out 56 days to August 28th. The US may enter the new flu season beginning in late September, with new cases still in the thousands. Thus, there will be limited lifting of social distancing practices and very possibly a resumption of tighter lockdowns in the fall as a new outbreak flares, just as Drs. Fauci and Redfield, as well as the WHO, have warned us.
A “W”-shaped epidemic is now emerging as our expected case forecast, with the economic and social consequences implied.
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2. Personal income spiked in April as Americans got their CARES Act checks (2 charts).
Source: @WSJ Read full article
• Spending collapsed (2 charts).
Source: Oxford Economics
• Plummetting consumption sent the Atlanta Fed’s GDPNow Q2 growth forecast to -51.2% (annualized).
Source: @AtlantaFed
• The personal savings rate hit a record high (see story).
Source:
• Why are consumers saving?
Source: MagnifyMoney Read full article
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3. All indicators point to improvements in consumption in May.
• High-frequency metrics:
Source: Goldman Sachs
• Online search activity:
Source: Arbor Research & Trading
• Chase consumer card spending data:
Source: JP Morgan Read full article
Source: JP Morgan Read full article
In the chart below, “card present” represents mostly in-store purchases, while “card not present” are primarily online transactions.
Source: JP Morgan Read full article
Separately, this table provides card spending data as of May-16th for select states.
Source: BofA Securities
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4. The U. Michigan consumer sentiment index was downgraded from the earlier estimate, pointing to some deterioration in the second half of May. The expectations index (second chart) was lower in May than in April.
Households are increasingly uncertain about their incomes going forward.
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5. Next, we have some updates on inflation.
• The PCE measure (the Fed’s preferred indicator) showed inflation slowing further in April.
• Here is the Dallas Fed’s Trimmed Mean PCE.
• The Fed’s deflation probability indicator spiked.
• Consumer inflation expectations have diverged from market-based indicators.
Source: @GregDaco
• However, short-term market-based inflation expectations are rebounding.
Source: FHN Financial
• Velocity of money has been collapsing as the economy is flooded with liquidity it can’t deploy.
Some suggest that the velocity of money is a leading indicator of inflation.
Source: Deutsche Bank Research
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6. The MNI Chicago Business Barometer, which measures business activity in the manufacturing-heavy Chicago area, deteriorated further in May. Given the improvements in regional Fed surveys, this was a surprise.
Source: Pantheon Macroeconomics
What does it mean for the ISM manufacturing index at the national level?
Source: Pantheon Macroeconomics
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7. After months of declines, wholesale inventories unexpectedly jumped in April.
8. US international trade activity deteriorated sharply in April.
Source: Oxford Economics
Rates
1. The 5-year Treasury yield dipped below 0.3%, a record low.
2. T-Bill issuance is expected to slow in the second half of the year.
Source: Morgan Stanley Research
Credit
1. Flows into US high-yield ETFs have reached an extreme.
Source: Arbor Research & Trading
2. This chart shows the breakdown of money market funds’ portfolios.
Source: Morgan Stanley Research
3. The 3-month LIBOR-OIS spread is back below 0.3%.
Equities
1. Stock funds are finally seeing inflows, although fixed income assets continue to dominate.
Source: Arbor Research & Trading
2. Net-short speculative positioning in S&P 500 futures is at the most extreme level since 2015. While these investors are not necessarily short the market (futures are often used to hedge stock portfolios), it does suggest persistent caution among leveraged funds.
Source: @iv_technicals
3. Actively managed ETFs have become more popular lately.
Source: @LizAnnSonders, @bloomberg, @TheTerminal
4. Global fund managers are increasingly overweight US stocks – the highest level in nearly five years, according to a BofA survey.
Source: @WSJ Read full article
5. Bloomberg’s startup index has given up its outperformance vs. the Nasdaq 100.
Source: @LizAnnSonders, @bloomberg, @TheTerminal
6. Companies with strong balance sheets continue to widen their outperformance.
Source: Goldman Sachs, Bloomberg
7. Equity volatility has fallen faster than F/X volatility.
Source: Morgan Stanley Research
Commodities
1. Iron ore futures are soaring in response to stronger demand from China and Brazil’s worsening coronavirus epidemic.
Steel prices in China are higher as well.
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2. Next, we have some updates on gold.
• Gold ETF holdings:
• COMEX gold inventories:
Source: @markets Read full article
• Long-term chart of the Dow/gold ratio:
Source: Incrementum
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3. Flows into industrial and materials ETFs have increased over the past two months, while investors moved out of energy ETFs.
Source: Arbor Research & Trading
4. US milk futures continue to rally (Class III milk is used to make cheese).
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Food for Thought
1. Assessment of the effectiveness of remote work:
Source: @WSJ Read full article
2. Which industries are best positioned for remote work?
Source: Statista
3. How have jobs changed?
Source: Zapier
4. Used car sales/prices:
Source: CoPilot Read full article
5. US aid to airlines:
Source: @bpolitics Read full article
6. The introduction of AI translation boosted online sales to customers in Latin America.
Source: Brynjolfsson et al.
7. Worker vs. employer contributions to healthcare plans:
Source: @WSJ Read full article
8. Poor-quality nursing homes:
Source: Deutsche Bank Research
9. The spacecraft and high-tech suit used in the SpaceX launch:
Source: @WSJ Read full article
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