Higher prices offset rate-driven gains in US housing affordability

The Daily Shot: 01-Sep-20
The United States
The United Kingdom
The Eurozone
Japan
Asia – Pacific
China
Emerging Markets
Commodities
Equities
Rates
Global Developments
Food for Thought



 

The United States

1. Let’s begin with some updates on inflation.
 
Longer-term inflation expectations continue to climb. The market is increasingly convinced that by letting the economy run hot (and not worrying too much about “full employment”), the Fed may reach its 2% goal.
 

 
However, to get the average inflation rate to 2%, the Fed will need price changes to hold above the target for quite some time. But does this policy run the risk of overheating the financial markets?
 
Source: @WSJ   Read full article  
 
The recent US dollar weakness will boost import prices.
 

 
The US velocity of money is at record lows. Some suggest that this trend has been holding down inflation. But is the velocity of money bottoming?
 

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2. The labor market continues to recover, with economists expecting the unemployment rate to dip below 10%.
 
Source: @markets   Read full article  
 
For now, many households still rely on government support.
 
Source: Barclays Research  

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3. US small businesses continue to struggle.
 
Source: @TheTerminal, Bloomberg Finance L.P., @LizAnnSonders  
 
4. Next, we have a couple of updates on the housing market.
 
Higher home prices have offset rate-driven gains in US housing affordability.
 
Source: Dominic Purviance; Atlanta Fed  
 
A peak in housing transactions is occurring similar to 2005, which preceded a decline in home prices. However, given the current inventory shortages, the 2005 pattern is unlikely to repeat.
 
Source: Mitch Bollinger  

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5. Commercial real estate (CRE) prices have doubled over the past decade. At the same time, we saw falling real rents (and thus deteriorating fundamentals) in most CRE sub-categories (according to BCA Research).
 
Source: BCA Research  
 
This chart shows the distribution of commercial property values by sector.
 
Source: BCA Research  

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6. The Dallas Fed regional manufacturing report surprised to the upside, as factory activity rebounded this month.
 

 
There was strength across the board.
 
Shipments:
 

 
Employment (2 charts):
 


 
CapEx expectations:
 

 
Future production:
 


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The United Kingdom

1. The pound hit the highest level (vs. USD) in over two years.
 

 
2. Market-based inflation expectations are climbing.
 

 
3. The 30-year gilt yield rose sharply in August.
 
h/t @highisland  
 
4. Here is the number of furloughed employees.
 
Source: Barclays Research  
 
5. Businesses that rely on commuters are struggling with weak foot traffic in remote-friendly London.
 
Source: @financialtimes   Read full article  


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The Eurozone

1. Let’s begin with inflation updates.
 
Germany’s CPI dipped into negative territory for the first time in years.
 

 
Italy’s inflation declined sharply after the spike in July (driven by the timing of summer sales).
 

 
Here is Spain’s CPI.
 

 
Inflation is weaker at the Eurozone level.
 

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2. The euro is testing 1.20.
 

 
3. Will the recent spike in liquidity result in a sharp rebound in output growth?
 
Source: Pantheon Macroeconomics  


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Japan

1. CapEx tumbled last quirer, …
 

 
… and corporate profits collapsed.
 

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2. The rebound in consumer confidence has stalled.
 

 
3. Construction orders remain soft.
 

 
But housing starts appear to have bottomed.
 

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4. Next, we have some updates on the labor market.
 
The unemployment rate:
 

 
The jobs-to-applicants ratio:
 

 
Foreign workers:
 
Source: @bopinion   Read full article  

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5. Here are Japan’s longest-serving prime ministers.
 
Source: Statista  


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Asia – Pacific

1. South Korea’s factory activity is stabilizing, but the PMI remains in contraction territory.
 
Source: IHS Markit  
 
2. Taiwan’s manufacturing is in growth mode.
 
Source: IHS Markit  
 
3. New Zealand’s building permits declined in July.
 

 
4. Next, we have some updates on Australia.
 
Manufacturing activity (slower):
 

 
Building approvals (an upside surprise):
 

 
The current account balance (record surplus):
 

 
Services exports:
 
Source: Goldman Sachs  


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China

1. The nation’s manufacturing sector is expanding at the fastest pace since 2011.
 

 
Export orders are back in growth mode (PMI > 50).
 

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2. China’s yield curve continues to flatten.
 

 
3. The renminbi keeps climbing.
 

 
4. China’s external debt hit a record high.
 
Source: Barclays Research  
 
5. Hong Kong has blown out its budget.
 


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Emerging Markets

1. Let’s begin with India.
 
Bonds and the rupee rose sharply on RBI’s latest push to boost liquidity (see story)
 
Source:  
Source:  
 
Growth in key industries is recovering.
 

 
The GDP shrunk by nearly a quarter in Q2.
 

Source: ING  

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2. Next, we have some manufacturing PMI charts across EM Asia.
 
Countries with stable factory activity:
 
Indonesia:
 
Source: IHS Markit  
 
Thailand:
 
Source: IHS Markit  
 
Weakening manufacturing activity:
 
The Philippines:
 
Source: IHS Markit  
 
Malaysia:
 
Source: IHS Markit  
 
Vietnam:
 
Source: IHS Markit  

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3. Brazil’s debt-to-GDP ratio has blown out.
 

 
4. Colombia’s central bank cut rates again amid elevated unemployment.
 

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5. Here are some updates on Chile.
 
Industrial production:
 

 
Commercial activity:
 

 
Retail sales:
 

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6. Mexico’s loan growth continues to slow, with consumer credit shrinking rapidly.
 

Source: Goldman Sachs  

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7. LatAm stocks are underperforming.
 


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Commodities

1. Gold is the most overbought since 2011.
 
Source: @mikemcglone11  
 
2. It’s been an amazing year for silver.
 
Source: @markets   Read full article  
 
3. This chart shows rising EU demand for materials used in electric cars and renewable energy.
 
Source: @financialtimes   Read full article  
 
4. Coffee futures keep climbing.
 


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Equities

1. The S&P 500 has been up for five months in a row.
 

 
2. The S&P 500 rally is stretched, according to the RSI measure.
 

 
The index has deviated far above its 200-day moving average.
 
Source: SunTrust Private Wealth Management  

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3. The S&P 500 typically performs well after reaching all-time highs.
 
Source: SunTrust Private Wealth Management  
 
4. Here is the year-to-date performance attribution for the S&P 500 and the S&P 600 (small caps).
 

 
5. This chart shows the contribution to the S&P 500 August performance by sector.
 
Source: S&P Global Market Intelligence  
 
6. JP Morgan says that the likelihood of a Trump victory has increased recently.
 
Source: JP Morgan, @markets   Read full article  
 
The combination of the above trend and the falling odds of Democrats flipping the Senate should boost tax-sensitive shares.
 
Source: @PredictIt  

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7. September and October are not great months for the stock market in election years.
 
Source: LPL Research  
 
8. Both VIX and the S&P 500 have risen in recent weeks, which is unusual.
 
Source: @TheTerminal, Bloomberg Finance L.P.  


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Rates

1. Let’s start with some Treasury yield attribution charts.
 
August:
 

 
Year-to-date:
 

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2. Rate markets are pricing in election risks.
 
Source: @markets   Read full article  
 
3. New securities, such as the 20yr Treasury, tend to see improved liquidity over time.
 
Source: Liberty Street Economics   Read full article  
 
4. The rebound in reserves pushed the fed funds rate lower.
 

 
5. Will improving economic sentiment steepen the Treasury curve?
 
Source: @AndreasSteno   Read full article  
 
6. Real yields continue to decline.
 


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Global Developments

1. The dollar broke below its uptrend support.
 

 
2. A weak US dollar tends to be good for global growth.
 
Source: @ISABELNET_SA, @GoldmanSachs  
 
3. Global debt-to-GDP ratios are climbing.
 
Source: @WSJ   Read full article  


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Food for Thought

1. The most and least profitable Fortune 500 companies:
 
Source: Visual Capitalist, {ht} @trevornoren   Read full article  
 
2. Changes in customer traffic at bank branches:
 
Source: S&P Global Market Intelligence  
 
3. Who are the US small business owners?
 
Source: Thumbtack  
 
4. COVID concentration:
 
Source: KPMG, @ritholtz   Read full article  
 
5. COVID cases by US community type:
 
Source: @JedKolko  
 
6. What is the right amount of screen time for children?
 
Source: Morning Consult   Read full article  
 
7. Are US cities becoming unsafe?
 
Source: BCA Research  
 
8. Ads targeting Senate races:
 
Source: @WSJ   Read full article  
 
9. Cash that travelers left in bins at airports:
 
Source: Sophie Caronello, @TheTerminal, Bloomberg Finance L.P.  

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