Posted on by The Daily Shot Editor: Lev Borodovsky

Pandemic boosts public construction spending

The Daily Shot: 04-Aug-20
• The United States
• The Eurozone
• Europe
• Japan
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought

 

The United States

1. The ISM manufacturing PMI report showed US factory activity expanding at a faster pace in July.
 

 
• New orders accelerated, while export orders returned to growth (PMI > 50).
 

 
Factory orders point to further gains in the headline ISM index ahead.
 
Source: @Not_Jim_Cramer  
 
• However, manufacturing employment remains in contraction territory (2 charts).
 

Source: Pantheon Macroeconomics  
 
• Prices paid by factories are no longer declining.
 

 
• Separately, the Milwaukee (regional) PMI has not yet returned to growth.
 

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2. US construction spending declined for the fourth month in a row in June.
 

 
• Year-over-year growth in private construction spending has stalled.
 

 
• However, public construction expenditures strengthened, boosted by healthcare.
 

 
FEMA provided some of the funds.
 
Source: FEMA   Read full article  

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3. Next, we have some updates on the labor market.
 
• Small business employment peaked in late June.
 
Source: Homebase  
 
Because of the sampling periods, the July payrolls report will still incorporate gains in small business jobs.
 
Source: Homebase  
 
• PPP small business funding may have significantly curtailed layoffs.
 
Source: S&P Global Market Intelligence  
 
• The percentage of Americans experiencing loss of employment income keeps climbing.
 
Source: @wolfofwolfst   Read full article  

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4. The Midwest registered the largest increase in business applications.
 
Source: DeepMacro  
 
5. Trucking loads have rebounded sharply but appear to be moderating.
 
Source: Morgan Stanley Research  
 
6. US vehicle sales improved further in July.
 
Source: WARD’s Automotive Group  
 
7. School and daycare closings will create a substantial drag on the nation’s GDP growth.
 
Source: Arbor Research & Trading  

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The Eurozone

1. European manufacturing is back in growth mode. Earlier, we saw the PMI gains in Germany and France. Below, we have factory activity trends for Italy and Spain.
 
• Italy:
Source: World Economics   Read full article  
 
• Spain:
Source: World Economics   Read full article  
 
Here is the final PMI at the Eurozone level (firmly in growth territory).
 
Source: World Economics   Read full article  
 
However, just like in the US, employment remains in contraction territory.
 

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2. Here are a couple of additional charts on Italy.
 
• New car registrations (year-over-year):
 

 
• Electricity demand:
 
Source: Morgan Stanley Research  

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3. Spain’s second wave appears to be less deadly.
 
Source: Gavekal   
 
4. Sales are rising for German small-cap firms.
 
Source: Pavilion Global Markets  
 
Separately, the increase in investor expectations could provide a further lift for German equities.
 
Source: Pavilion Global Markets  

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5. The July CPI bump is likely to be reversed this month.
 
Source: Pantheon Macroeconomics  

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Europe

1. Sweden’s manufacturing returned to growth.
 

 
2. Norway’s unemployment rate unexpectedly paused in July.
 

 
3. Poland’s factory activity accelerated with the Eurozone.
 
Source: World Economics   Read full article  
 
However, manufacturing in the Czech Republic remains in contraction mode.
 
Source: World Economics   Read full article  
 
Separately, the Czech fiscal situation continues to deteriorate.
 

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Japan

1. The Tokyo core CPI surprised to the upside.
 

 
2. Last month’s vehicle sales remained 20% below 2019 levels.
 

 
3. The monetary base has been climbing rapidly since the BoJ boosted stimulus.
 

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Asia – Pacific

1. South Korea’s core CPI is off the lows.
 

 
The nation’s consumer confidence is gradually recovering.
 
Source: ANZ Research  

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2. Singapore’s manufacturing returns to growth.
 

 
3. Next, we have some updates on Australia.
 
• Consumer confidence:
 

 
• Retail sales (upside surprise):
 

 
Retail sales volume (year-over-year):
 
Source: Goldman Sachs  
 
• The ASX’s performance from March lows vs. previous recoveries:
 
Source: @DoyleAUD  

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China

1. According to Markit, manufacturing is expanding at the fastest pace in a decade.
 

 
2. The renminbi has been weakening against the CFETS currency basket (following the dollar lower).
 

 
3. The ChiNext/Shanghai Composite ratio can be viewed as the relative performance of the “new” vs. “old” economy.
 
h/t @sharonchenhm  
 
4. The size of the PBOC’s balance sheet has been relatively stable over the past few years.
 
Source: Goldman Sachs  
 
5. Americans increasingly have an unfavorable view of China.
 
Source: Pew Research Center   Read full article  

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Emerging Markets

1. Let’s begin with the July manufacturing PMI updates.
 
• Brazil (impressive gains):
 
Source: IHS Markit   Read full article  
 
• Mexico (deep in contraction mode):
 
Source: World Economics   Read full article  
 
• India (still weak):
 
Source: World Economics   Read full article  
 
• Russia (yet to stabilize):
 
Source: World Economics   Read full article  
 
• Turkey (rapid acceleration):
 
Source: IHS Markit   Read full article  

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2. Here are a couple of other updates on Turkey.
 
• The lira:
 
Source: @financialtimes   Read full article  
 
• Current account:
 
Source: @financialtimes   Read full article  

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3. South Africa’s July car sales were still 30% below last year’s levels.
 

 
4. Chile’s economic activity remains depressed.
 

Source: Pantheon Macroeconomics  

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5. Argentina’s demand for the US dollar spiked.
 
Source: @markets   Read full article  
 
Will we see a debt restructuring deal soon?
 
Source: @markets   Read full article  

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6. A weaker US dollar means outperformance for EM shares (2 charts).
 
Source: @ISABELNET_SA, @BofAML   Read full article  
Source: @StrategasRP  

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Cryptocurrency

Ethereum’s outperformance has been impressive.
 
Source: @WSJ   Read full article  

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Energy

1. Exxon and Chevron reported unprecedented losses.
 
Source: @financialtimes   Read full article  
 
2. US natural gas futures spike despite bloated inventories (2nd chart). Foreign demand for LNG is starting to pick up.
 

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Equities

1. Some of the trends we saw earlier this summer remain intact.
 
• Hedge funds’ picks still in favor:
 

 
• Investor preference for companies with strong balance sheets:
 

 
• Rewarding companies with China exposure:
 

 
• Growth vs. value:
 

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2. Lowflation has been boosting the growth/value outperformance.
 
Source: MarketDesk Research  
 
3. Here is the updated year-to-date performance attribution.
 
• The S&P 500:
 

 
• The S&P 600 (small caps):
 

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4. Analysts are concerned about rising market concentrations.
 
Source: @Not_Jim_Cramer  
 
5. Investment-grade debt yield has converged with the S&P 500 dividend yield for the first time.
 
Source: @lisaabramowicz1, @TheOneDave  
 
6. The put/call ratio continues to show elevated risk appetite.
 
Source: @danny_kirsch  
 
7. Analysts are boosting S&P 500 quarterly EPS estimates for the first time since Q1 2018.
 
Source: @FactSet   Read full article  
 
8. Is the low-vol factor making a comeback?
 
Source: MarketDesk Research  

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Credit

1. Banks have tightened credit standards across the board. Demand for credit weakened last quarter except in residential mortgages.
 
• Business loans:
 
Source: Federal Reserve Board of Governors  
 
• Commercial real estate loans:
 
Source: Federal Reserve Board of Governors  
 
• Consumer loans:
 
Source: Federal Reserve Board of Governors  
 
• Mortgages:
 
Source: Federal Reserve Board of Governors  
 
However, the latest NACM data shows improved credit demand and credit conditions in the corporate sector.
 
Source: Longview Economics  
Source: Longview Economics  

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2. The leveraged loan market covenant quality (lender protections) has deteriorated further.
 
Source: Moody’s Investors Service  
 
Here are the components.
 
Source: Moody’s Investors Service  

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3. Large-company bankruptcies have accelerated.
 
• Monthly:
 
Source: Koyfin   Read full article  
 
• Yearly:
 
Source: Nancy Moran, Bloomberg   Further reading  

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Rates

1. Here is the attribution of Treasury yield declines over the past month.
 

 
2. This chart shows real yields in Japan, the US, Germany, and the UK.
 
Source: @ISABELNET_SA, @GoldmanSachs  

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Global Developments

1. Airlines continue to lay off or furlough employees.
 
Source: @business   Read full article  
 
2. Tourism recovery has been uneven.
 
Source: @financialtimes   Read full article  
 
3. Asset managers continue to press their bets against the US dollar.
 
Source: Goldman Sachs  

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Food for Thought

1. When will a vaccine become widely available?
 
• Market experts:
 
Source: Deutsche Bank Research  
 
• Healthcare industry leaders:
 
Source: @LizAnnSonders, @Lazard  
 
2. Vaccine candidates by technology platform and development phase:
 
Source: McKinsey & Company   Read full article  
 
Here is one approach.
 
Source: BBC   Read full article  

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3. Face mask mandates:
 
Source: Morgan Stanley Research  
 
• Mask effectiveness (2 charts):
 
Source: Danske Bank  
Source: Journal of Hospital Infection, @wef   Read full article  

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4. Congressional job approval:
 
Source: Gallup   Read full article  
 
5. Americans’ political ideology:
 
Source: Gallup   Read full article  
 
6. Teens’ use of social media platforms:
 
Source: Statista  
 
7. R&D investment league table:
 
Source: BofA Merrill Lynch Global Research, @TayTayLLP  
 
8. Attempts to land on Mars:
 
Source: @WSJ   Read full article  

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