Italy’s and Japan’s Growth Stalled After Debt-to-GDP Ratio Exceeded 100% – a Warning for the U.S.

The Daily Shot: 28-Jul-20
The United States
The Eurozone
Europe
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Global Developments
Food for Thought



 

The United States

1. June was another good month for US durable goods orders. Demand for capital goods, which tends to be a proxy of business investment, topped economists’ forecasts.
 

 
This chart shows the breakdown by sector.
 
Source: Oxford Economics  
 
Here are the year-over-year charts.
 

 
Regional Fed manufacturing surveys suggest that durable goods orders will continue to recover.
 
Source: Capital Economics  

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2. Texas-area factory activity has stabilized, according to the Dallas Fed manufacturing survey.
 

 
Capacity utilization:
 

 
Employment:
 

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3. Regional Fed surveys suggest that the July ISM report will show an acceleration in factory activity at the national level.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
4. Next, let’s take a look at some high-frequency indicators.
 
ANZ activity tracker:
 
Source: ANZ Research  
 
Driving and restaurant dining:
 
Source: LPL Research  
 
Search activity for child care, virtual classroom, and homeschooling:
 
Source: Arbor Research & Trading  
 
Job postings:
 
Source: FiveThirtyEight   Read full article  
 
Small-business activity in rural areas:
 
Source: Center for American Progress, {ht} @axios   Read full article  

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5. According to Goldman Sachs, declines in COVID symptom prevalence seem to be a leading indicator for new cases.
 
Source: Goldman Sachs  
 
Here is the share of states (GDP-weighted) where the number of new COVID cases is rising.
 
Source: ANZ Research  

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6. Sectors that were hardest hit in April …
 
Source: Barclays Research  
 
… had some of the strongest retail sales performance in June.
 
Source: Barclays Research  
 
Deutsche Bank expects consumer spending to take more than two years to get back to pre-crisis levels.
 
Source: Deutsche Bank Research  

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7. Next, we have some updates on the US fiscal situation.
 
Will the economic growth stall after the US debt-to-GDP ratio exceeds 100% as it did in Italy and Japan?
 
Source: Piper Sandler   
 
Fiscal policy uncertainty remains elevated.
 
Source: Arbor Research & Trading  
 
The next two charts show the composition of crisis-
related fiscal disbursements over time.
 
Source: @LizAnnSonders, @USTreasury, @uscensusbureau, @SBAgov  
Source: Morgan Stanley Research  


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The Eurozone

1. Germany’s Ifo index surprised to the upside as business expectations continue to rebound.
 
Source: MarketWatch   Read full article  

 
Here is the Ifo index by sector.
 
Source: ifo Institute   
 
Despite the improvement, the dispersion of business expectations remains elevated (a measure of uncertainty).
 
Source: Goldman Sachs  

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2. French unemployment climbed sharply this year.
 

 
3. The ECB’s lending survey suggests that credit conditions may tighten once government support expires.
 
Source: Barclays Research  
 
4. Inflation is expected to remain subdued over the next couple of years.
 
Source: Natixis  


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Europe

1. Elsewhere in Europe, the Swiss National Bank’s FX interventions have exceeded the 2% of GDP threshold this year (two charts).
 
Source: Morgan Stanley Research  
Source: Morgan Stanley Research  
 
EUR/CHF is holding long-term support.
 
Source: @DantesOutlook  

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2. The Norwegian krone and the Swedish krona have been strengthening against the euro since March.
 

 
3. The EU ‘joint’ debt issuance will be significant.
 
Source: Gavekal   
 
4. This scatterplot shows the stimulus grants vs. the vulnerability index.
 
Source: ING  
 
5. Finally, we have some data on the coronavirus “second wave” in Europe.
 
Source: The Economist   Read full article  
Source: Commerzbank Research  


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China

1. Industrial capacity utilization rebounded sharply in the second quarter.
 
Source: National Bureau of Statistics of China   Read full article  
 
2. For now, economic activity remains below last year’s levels.
 
Source: @adam_tooze, @FT   Read full article  
 
3. Office vacancies are climbing.
 
Source: @markets   Read full article  
 
4. According to the ECB, “The sharp fall in Chinese exports of intermediate goods across most destinations in the first quarter of 2020 suggests that Global Value Chains have already been hit widely as a result of the lockdown …”
 
Source: ECB   Read full article  
 
5. Hong Kong’s exports remain soft.
 


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Emerging Markets

1. Mexico’s trade surplus hit a new record last month as US demand for automobiles recovered.
 

 
2. Turkey’s business confidence has rebounded sharply.
 

 
But capacity utilization is still fragile.
 

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3. India’s business activity remained depressed this month, according to the World Economics SMI report.
 
Source: World Economics  
 
4. EM currencies haven’t participated as strongly in the risk-on rally.
 
Source: Pavilion Global Markets  
 
EM FX valuations look cheap, but not as stretched as after the GFC.
 
Source: Morgan Stanley Research  

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5. EM dollar-denominated debt yields hit the lowest level since 2013.
 
h/t @LyubovEmWorld  
 
Here is Indonesia’s 5yr yield.
 


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Cryptocurrency

 
Bitcoin followed gold higher, breaking resistance at $10.5k.
 

 
The correlation between Bitcoin and gold spiked in recent days.
 


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Commodities

Gold futures hit a record high.
 
Source: @markets   Read full article  
 
US imports of gold have surged this year.
 
Source: Capital Economics  


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Energy

1. Brent resistance is holding.
 
Source: barchart.com  
 
2. The Brent curve is moving back into contango.
 


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Equities

1. Let’s start with some valuation charts.
 
The 12-month forward P/E ratio vs. earnings dispersion:
 
Source: Pavilion Global Markets  
 
Valuations of the tech mega-caps vs. the rest of the S&P 500:
 
Source: @ISABELNET_SA, @GoldmanSachs  
 
Real rates and PE multiples:
 
Source: BCA Research, @jsblokland  
 
The market capitalization ratio and the S&P 500 price-to-sales ratio:
 
Source: Yardeni Research  
 
Earnings-per-share declines during recessions:
 
Source: LPL Research  

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2. Here is Goldman’s forecast for the S&P 500.
 
Source: @ISABELNET_SA, @GoldmanSachs  
 
3. According to Michael Dick (Mizuho Americas Trading Desk), “The S&P 500 has now closed green 12 of the last 13 Mondays. Here is the aggregate S&P 500 performance by day of the week over that time frame.”
 
Source: Michael Dick, Mizuho Americas Trading Desk  
 
4. Next, we have some data on Robinhood (retail) investor positions.
 
Source: @WSJ   Read full article  
 
5. Here is the 50-day moving average of the put/call ratio index (showing increasing complacency).
 

 
6. S&P 500 stocks with international exposure are outperforming.
 
Source: Pavilion Global Markets  
 
7. “Staying in” sectors are outperforming.
 
Source: Arbor Research & Trading  
 
8. Next, we have some sector performance updates (year-to-date).
 
Utilities:
 

 
REITs:
 

 
Banks:
 

 
Housing:
 

 
Energy:
 

 
Industrials:
 

 
Transportation:
 

 
Semiconductors:
 

 
Biotech:
 

 
Consumer discretionary (helped by Amazon):
 

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9. Finally, here are some trends related to the upcoming US elections.
 
The S&P 500 performance around presidential elections:
 
Source: @ISABELNET_SA, @StrategasRP  
 
Volatility rising from July to November during election years:
 
Source: BofA Merrill Lynch Global Research  
 
The October – August VIX futures spread showing rising election risk premium:
 


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Global Developments

1. Here’s a look at asset class performance year-to-date.
 
Source: BlackRock  
 
2. Below is the G10 central banks’ aggregate balance sheet.
 
Source: VOX EU   Read full article  
 
3. Finally, we have each country’s fiscal stimulus and the GDP contraction in the first half of 2020.
 
Source: @WSJ   Read full article  


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Food for Thought

1. Global travel restrictions:
 
Source: Center for Data Innovation   Read full article  
 
2. Cities with the worst traffic congestion:
 
Source: @wef   Read full article  
 
3. College majors with the highest current unemployment rates:
 
Source: Statista  
 
4. The environmental cost of different protein sources:
 
Source: chartr  
 
5. The Philadelphia Fed Partisan Conflict Index:
 
Source: BofA Merrill Lynch Global Research  
 
6. Online grocery shopping:
 
Source: @financialtimes   Read full article  
 
7. US bank branch openings/closings:
 
Source: S&P Global Market Intelligence  
 
8. Handbag sourcing:
 
Source: S&P Global Market Intelligence  
 
9. Ice cream brand preferences:
 
Source: @CivicScience, @benandjerrys   Read full article  

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