Entering the Slow Phase of the Recovery

The Daily Shot: 25-Jun-20
The United States
Canada
The Eurozone
Europe
Asia – Pacific
Emerging Markets
Energy
Equities
Rates
Global Developments
Food for Thought



 

The United States

1. Once again, let’s start with the housing market.
 
Mortgage applications to purchase a house are holding at multi-year highs for this time of the year.
 

 
Home price appreciation ticked lower in April, but still registered a 5.5% increase from a year ago.
 
Source:  
 
Mortgage rates are hovering near record lows, but they have lagged the declines in the 10-year Treasury yield (second chart).
 
Source: @WSJ   Read full article  
Source: Piper Sandler   
 
One of the reasons for the persistent gap between mortgage rates and Treasury yields is the elevated spread on mortgage-backed securities (MBS). This spread would have been even wider without the Fed’s rapid-fire MBS purchases since March (see chart).
 

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2. The Oxford Economics activity tracker shows the US recovery slowing.
 
Source: Oxford Economics  
 
After a sharp post-reopening rebound, we are entering the slow phase of the recovery.
 
Source: Oxford Economics  

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3. Here is the HPS-CS consumer sentiment indicator.
 
Source: @HPSInsight, @CivicScience  
 
4. This chart shows cumulative spending across the various federal stimulus programs.
 
Source: Morgan Stanley Research  
 
And there is more stimulus on the way.
 
Source: @bpolitics   Read full article  

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5. US-listed companies have raised record amounts of cash to get through the crisis.
 
Source: @WSJ   Read full article  
 
The bulk of that capital has been raised in the credit markets, pushing corporate debt to new highs (see chart).
 
Source: Jack Ablin, Cresset Wealth Advisors  

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5. Currency traders are nervous about the November elections. This chart shows the spread between the six- and the 3-month implied volatility in dollar-yen.
 
Source: @markets   Read full article  


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Canada

1. Fitch stripped Canada of its AAA rating in response to “the deterioration of Canada’s public finances resulting from the coronavirus pandemic.”
 
Source: Fitch Ratings   Read full article  
 
2. Consumer confidence continues to recover.
 

 
3. The market expects Canada to lead in hiking rates next year.
 
Source: CIBC Capital Markets  
 
4. Just like in the US, mortgage applications to purchase a house have been rising rapidly.
 
Source: CIBC Capital Markets  
 
5. Industries dominated by office work experienced further job losses in May.
 
Source: CIBC Capital Markets  


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The Eurozone

1. The Ifo indicator showed a sharp improvement in Germany’s business expectations (second chart).
 

 
This rebound was primarily driven by manufacturing (chart in the upper left).
 
Source: ifo Institute  
 
Germany’s consumer sentiment is rebounding as well.
 

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2. The bounce in French manufacturing confidence was weaker than expected.
 

 
3. Italy has been issuing large amounts of bills to cover crisis-related expenses.
 
Source: Morgan Stanley Research  
 
Bill issuance lowered the nation’s average debt maturity (WAM).
 
Source: Morgan Stanley Research  
 
Italian spreads remain elevated relative to other debt markets, including corporate bonds.
 


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Europe

1. Sweden’s sentiment indicators showed improvement in June.
 
Consumer:
 

 
Manufacturing:
 

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2. European household saving rates rose sharply this year.
 
Source: Barclays Research  
 
3. Here is the distribution of fiscal stimulus measures in the EU.
 
Source: Eurofound   Read full article  


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Asia – Pacific

1. Singapore faces a record fiscal deficit in 2020.
 
Source: ANZ Research  
 
2. How much of a rebound in domestic demand will we see in Q3?
 
Source: ANZ Research  
 
3. Next, we have some updates on Australia and New Zealand.
 
The decline in Australia’s job vacancies through May was severe.
 
Source: Goldman Sachs  
 
Speculative accounts are adding to their long positions in Aussie and Kiwi dollars.
 
Source: ING  
 
Australia’s yield curve is the steepest in the developed world.
 
Source: Morgan Stanley Research  

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4. Interest rate differentials between Japan and the G10 average have narrowed over the past few years.
 
Source: Fitch Solutions Macro Research  
 
5. Capital inflows could support the yen.
 
Source: Fitch Solutions Macro Research  


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Emerging Markets

1. Brazil’s consumer confidence bounced from extreme lows.
 

 
2. The collapse in Colombia’s retail sales and consumer confidence has been devastating.
 
Source: CME Group   Read full article  
 
Colombia’s yield curve is the steepest since 2014, which could weigh on growth.
 
Source: CME Group   Read full article  

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3. South Africa’s inflation surprised to the downside.
 

 
4. Turkey’s business confidence bounced from extreme lows.
 

 
Capacity utilization remains depressed (66%).
 

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5. Here are the components of India’s June SMI. Business activity remains deep in contraction territory.
 
Source: World Economics  
 
6. Indonesia’s unemployment has been surging.
 
Source: ANZ Research  
 
7. Malaysia’s record deflation did not ease last month.
 

 
8. Here is a summary of EM central banks’ policy responses this year.
 
Source: IIF  


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Energy

1. Brent crude tumbled 5.4% on Wednesday and is testing support at $40/bbl.
 
Source: barchart.com  
 
2. US crude oil production unexpectedly bounced last week.
 

 
3. Will US rig counts start increasing if oil prices recover further?
 
Source: Capital Economics  
 
4. US gasoline demand continues to rebound.
 

 
Refinery runs are still soft.
 

 
Jet fuel demand appears to have bottomed.
 
Source: @DoneDraperClone  

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5. US crude oil stockpiles hit another record high.
 

 
But inventories are drifting lower when measured in days of supply.
 

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6. US natural gas futures are nearing multi-year lows.
 


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Equities

1. Wednesday was a tough day for stocks as pandemic-related concerns reemerged.
 
Source: @markets   Read full article  
 
The “stay-at-home” basket has been outperforming,
 
Source: @markets   Read full article  

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2. Earnings estimates appear to have stabilized.
 
Source: SunTrust Private Wealth Management  
 
This chart shows the S&P 500 earnings forecasts from Yardeni Research (which are below consensus).
 
Source: Yardeni Research  
 
And here are the growth estimates for Q2 2020 by sector.
 
Source: @FactSet   Read full article  

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3. The S&P 500 dividend yield remains above the 10yr Treasury yield.
 
Source: SunTrust Private Wealth Management  
 
4. This chart compares the S&P 500 to the US truck tonnage index.
 
Source: @ISABELNET_SA  
 
5. The US market’s outperformance vs. the rest of the world has been unprecedented.
 
Source: @topdowncharts   Read full article  
 
6. The equity market’s inverse correlation to the US dollar is near extreme levels.
 
h/t Michael Brown, Caxton  
 
7. The value line median price-to-equity ratio reached an all-time high.
 
Source: @DavidTaggart  


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Rates

1. Bullish sentiment on Treasuries is nearing past cyclical peaks.
 
Source: BCA Research  
 
2. Who are the largest foreign holders of Treasuries?
 
Source: Morgan Stanley Research  
 
3. US real money supply growth hit the highest level since the early 1940s.
 
Source: @ISABELNET_SA, @MorganStanley  


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Global Developments

1. Service sector activity has been stabilizing.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
2. The IMF now sees a deeper 2020 recession than its April estimate.
 
Source: @markets   Read full article  
 
Here are the GDP trajectories for advanced and emerging economies.
 
Source: IMF   Read full article  

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3. Commercial property prices in the US and Europe are falling.
 
Source: Oxford Economics  


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Food for Thought

1. US personal incomes derived from government benefits:
 
Source: @markets   Read full article  
 
2. Who has benefitted the most from the US stimulus bill?
 
Source: Morning Consult   Read full article  
 
3. The global tourism industry (2 charts):
 
Source: @adam_tooze, The Economist   Read full article  
Source: @financialtimes   Read full article  

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4. Changes in approval ratings of global leaders:
 
Source: Morning Consult   Read full article  
 
5. Perceptions of the most pressing problems in the US:
 
Source: The Daily Feather  
 
6. Prime-age foreign-born people in the US (% of the prime-age population):
 
Source: CBO   Read full article  
 
7. Support for returning to lockdowns:
 
Source: @axios   Read full article  
 
8. Mask-wearing requirements:
 
Source: @jduchneskie, @phillyinquirer   Read full article  
 
9. The most popular sheet music:
 
Source: Musicnotes, Inc.   Read full article  

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