Risk assets around the world are testing resistance

The Daily Shot: 19-Aug-20
The United States
The United Kingdom
The Eurozone
Europe
Japan
Asia – Pacific
China
Emerging Markets
Commodities
Energy
Equities
Credit
Global Developments
Food for Thought



 

The United States

1. As we saw yesterday (#2 here), homebuilder optimism is near record levels as housing demand soars. Residential construction data confirm this trend, with July figures topping economists’ projections. Housing starts hit a multi-year high (unadjusted).
 

 
The latest increase was boosted by multi-family housing.
 

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2. Banks are prioritizing homebuyers vs. refinance applicants, as the two rates diverge.
 
Source: @WSJ   Read full article  
 
The year-to-date growth in house purchase mortgage activity varied across the country.
 
Source: AEI Housing Center  

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3. Rent increases slowed sharply this year (SFRI = CoreLogic Single-Family Rent Index).
 
Source: CoreLogic  
 
4. This chart shows consumer debt changes in the first half of 2019 and 2020 (significant reductions in credit card debt).
 
Source: LendingTree  
 
5. Next, let’s take a look at some high-frequency indicators.
 
Indeed job postings:
 
Source: @JedKolko, @indeed   Read full article  
 
Small business revenues:
 
Source: @EPBResearch  
 
Airbnb bookings:
 
Source: MarketDesk Research  

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6. The Midwest’s economy is recovering, supported by manufacturing coming back online.
 
Source: CIBC Capital Markets  
 
However, Midwest consumers are cautious about the future and have curtailed activity, according to CIBC.
 
Source: CIBC Capital Markets  

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7. This scatterplot shows the relationship between inflation and compensation.
 
Source: Jack Ablin, Cresset Wealth Advisors  
 
8. Improving activity at California ports points to a rebound in US goods imports.
 
Source: The Daily Feather  


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The United Kingdom

1. The pound recovered its losses for the year and is testing resistance.
 

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2. Unlike the US, the UK’s residential construction activity has stalled at half of last year’s levels.
 
Source: Huq.  


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The Eurozone

1. The euro continues to climb.
 
Source: @jsblokland  
 
2. Germany’s economic rebound appears to be losing momentum. Here are the monthly changes in truck mileage vs. industrial production.
 
Source: Barclays Research  
 
Electricity consumption hasn’t quite recovered.
 
Source: Deutsche Bank Research  

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3. Below are a couple of charts on Italy,
 
The GDP trajectory since 2007:
 
Source: @financialtimes   Read full article  
 
Business sentiment:
 
Source: @financialtimes   Read full article  

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4. Here is Morgan Stanley’s forecast for the ECB’s balance sheet.
 
Source: Morgan Stanley Research  


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Europe

1. Job losses due to corporate restructuring have been substantial.
 
Source: ING  
 
2. The Swiss Franc remains negatively correlated with markets that signal risk-on, such as equities and yields/curve.
 
Source: Morgan Stanley Research  
 
3. The pandemic punished European insurance firms.
 
Source: @WSJ   Read full article  


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Japan

1. Machinery orders unexpectedly declined further in June.
 

 
2. Exports regained some ground in July.
 

 
3. Goldman Sachs expects Japan’s core inflation to move into negative territory in the months ahead.
 
Source: Goldman Sachs  


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Asia – Pacific

1. Asian stocks have decoupled from the S&P 500.
 
h/t Moxy Ying  
 
2. The US dollar’s decline against Asian currencies hasn’t been nearly as severe as the drop vs. Europe (DXY is heavily weighted in Europen currencies).
 
Source: ANZ Research  
 
3. Foreign ownership of New Zealand government bonds has fallen since the country’s central bank started large-scale asset purchases. This can continue to generate negative NZD flows, according to Morgan Stanley.
 
Source: Morgan Stanley Research  
 
4. The gains in Australia’s leading indicator have slowed.
 

 
Separately, Australia’s ASX All Ordinaries index is testing resistance.
 


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China

1. China’s key equity index is also testing resistance.
 

 
2. This chart shows China’s onshore corporate bond defaults (SOE = state-owned enterprise).
 
Source: Fitch Ratings  
 
3. COVID-related exports have accelerated.
 
Source: Goldman Sachs  
 
4. Here is how the GDP contribution of China’s trade with the US changed this year.
 
Source: Alpine Macro  


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Emerging Markets

1. Chile’s GDP tumbled in Q2.
 

 
2. Indonesia’s trade surplus rose sharply as imports collapsed.
 
Source: ING  
 
3. These currencies have recently been correlated with EM FX.
 
Source: Morgan Stanley Research  
 
4. How have ex-Soviet republics performed based on their political and economic transformation?
 
Source: Statista  


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Commodities

1. Industrial metals continue to rally.
 

 
Copper is testing resistance.
 

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2. Next, we have some updates on gold.
 
Concerns about overvaluation:
 
Source: @ISABELNET_SA, @BofAML  
 
Production by country:
 
Source: @WSJ   Read full article  
 
Uptrend support:
 


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Energy

1. Will Brent crude shift into a new trading range?
 

 
2. The US rig count is set to recover.
 
Source: @adam_tooze, @NordeaMarkets, @MacrobondF   Read full article  
 
3. This chart shows US wind power capacity over time.
 
Source: AWEA  


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Equities

1. The S&P 500 hit a record high and is testing resistance at 3400.
 

 
2. Should investors be concerned about rising concentrations (2 charts)?
 
Source: @bopinion   Read full article  
Source: @acemaxx, @FT   Read full article  

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3. Correlation among US stocks has declined sharply.
 
Source: Variant Perception  
 
4. Traditional measures of valuations (forward P/E ratios) remain near extreme levels.
 
Source: @LizAnnSonders  
 
5. Fund managers are increasingly convinced that we are in a bull market.
 
Source: @ISABELNET_SA, @BofAML  
 
6. The S&P 500 effective tax rate is near the lows. How much of a risk do the 2020 elections pose to this trend?
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
7. Improving factory activity in the US suggests that funds that trade on fundamentals will increase their exposure to stocks.
 
Source: Deutsche Bank Research  
 
8. Is M&A activity rebounding?
 
Source: S&P Global Market Intelligence  


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Credit

1. Let’s begin with commercial real estate.
 
This chart shows delinquency trends by sector.
 
Source: Mortgage Bankers Association  
 
The majority of US office lease terms are greater than eight years, …
 
Source: Moody’s Analytics  
 
… and they expire slowly over many years.
 
Source: Moody’s Analytics  

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2. Corporate debt issuance is hitting new highs.
 
Investment-grade:
 
Source: @markets   Read full article  
 
Leveraged finance:
 
Source: @lcdnews  
 
Globally, large firms have dominated bond issuance this year.
 
Source: BIS, @tracyalloway   Read full article  

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3. Investors continue to demand LIBOR floors on new leveraged loans.
 
Source: @LPCLoans, @refinitiv  
 
4. Below is the relative performance of credit vs. equities in EUR and USD markets.
 
Source: Goldman Sachs  


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Global Developments

1. Here is Goldman’s proxy for economic growth vs. last year. It’s not a v-shaped recovery.
 
Source: Goldman Sachs  
 
2. This scatterplot shows the labor market churn by country.
 
Source: Morgan Stanley Research  
 
3. What do fund managers think about tail risks and crowded trades?
 
Source: BofA Merrill Lynch Global Research, @MikeZaccardi  


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Food for Thought

1. Internet gambling:
 
Source: @WSJ   Read full article  
 
2. Cash hoarding:
 
Source: The Economist   Read full article  
 
3. Cashless businesses:
 
Source: @WSJ   Read full article  
 
4. Changes in US rent growth:
 
Source: @CoreLogicInc  
 
5. Drought conditions in the US:
 
Source: @NASAEarth, {ht} @adam_tooze   Read full article  
 
6. Water stress globally:
 
Source: BlackRock  
 
7. COVID hospitalization trends:
 
Source: Pantheon Macroeconomics  
 
8. Support for a second stimulus program:
 
Source: @CivicScience  
 
9. Betting market presidential election odds:
 
Source: @PredictIt  
 
10. Confidence in US institutions:
 
Source: Gallup   Read full article  
 
11. Hospitalizations due to fireworks accidents:
 
Source: @SteveStuWill   Read full article   Further reading  

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