Remote schooling is taking a toll on the economy

The Daily Shot: 18-Sep-20
Administrative Update
The United States
The United Kingdom
Europe
Asia – Pacific
China
Emerging Markets
Commodities
Energy
Equities
Credit
Alternatives
Global Developments
Food for Thought



 

Administrative Update

Please note that at the end of each section of The Daily Shot, there is a “Back to Index” link, which gets you to another section in two clicks (without having to scroll).
 


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The United States

1. At first glance, the August residential construction report was a bit softer than expected.
 

 
However, some of the weakness can be attributed to Hurricane Laura and Tropical Storm Marco. We can see that the drop in housing starts was more pronounced in the South.
 

 
Moreover, the decline was driven by multi-family housing.
 

 
Single-family construction activity remains robust.
 

 
New home sales point to further improvements in residential construction ahead.
 
Source: Pantheon Macroeconomics  

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2. The Philly Fed’s September regional manufacturing report was solid. The headline index declined, …
 

 
… but the underlying trends showed strength in factory activity.
 
Orders and shipments:
 

 
Expected employment:
 

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3. Initial jobless claims fell last week but held above one million new applications.
 
Source: Oxford Economics  
 
The total number of Americans receiving unemployment benefits remains stubbornly high.
 
Source: Piper Sandler   

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4. Mortgage lenders continue to kick the can down the road by extending loan forbearance.
 
Source: @WSJ   Read full article  
 
5. Next, let’s take a look at some high-frequency indicators of economic activity.
 
The NY Fed’s weekly national activity index:
 

 
Bloomberg’s consumer sentiment index:
 

 
The Oxford Economics Recovery Tracker:
 
Source: Oxford Economics  
 
Business applications:
 

 
Air travel:
 
Source: TSA  
 
Other indicators from Pantheon Macroeconomics:
 
Source: Pantheon Macroeconomics  

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6. Permanent business closures continue to climb.
 
Source: Yelp   Read full article  
Source: Yelp   Read full article  

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7. The $44 billion currently allocated for enhanced unemployment payments ($300/week) is expected to run out this month. Will we see a replacement? Forecasters increasingly expect a delay in the next stimulus package.
 
Source: Morgan Stanley Research  
 
8. Remote schooling, while often necessary, is taking a massive toll on the economy, …
 
Source: Branch  
 
…. as households with school-age children lose income.
 
Source: Branch  


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The United Kingdom

The Bank of England is contemplating negative rates.
 
Source: CNBC   Read full article  
 
The market has been anticipating negative rates for some time and is now convinced that the central bank will get there.
 
The overnight rate trajectory priced into the market:
 
Source: ING  
 
The overnight rate expectations over time:
 
Source: Pantheon Macroeconomics  
 
The gilt curve:
 

 
According to ING, setting rates to -25 bps will have a much greater impact on gilt yields than another £100 billion of QE.
 
Source: ING  
 
By the way, the pound sold off initially after the MPC announcement but rebounded shortly after.
 


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Europe

1. EU car registrations weakened last month.
 

 
But consumer sentiment points to a rebound.
 
Source: Pantheon Macroeconomics  

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2. Eurozone construction recovery has slowed.
 

 
3. Italian trade surplus hit a record high.
 

 
4. Poland’s labor market recovery will take some time.
 

 
5. This chart shows the cost of uncollected VAT in the EU.
 
Source: Statista  


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Asia – Pacific

1. Japan is in deflation again, as the core CPI drops below zero.
 

 
2. The US-Japan yield differential suggests that the yen should be stronger.
 
Source: Capital Economics  
 
3. Asian currencies are rallying.
 
The South Korean won is approaching January highs.
 

 
USD/TWD is at support.
 

 
Here is Bloomberg’s Asia currency index.
 

 
4. The New Zealand dollar is testing resistance after the Finance Minister’s comments.
 

Source: Newstalk ZB   Read full article  

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5. Next, we have some updates on Australia.
 
Online search activity points to Australia’s economic activity underperforming.
 
Source: Arbor Research & Trading  
 
The pipeline of apartments due to be completed is expected to decline next year. In the future, the RBA expects supply to slowly adjust as international borders reopen.
 
Source: RBA   Read full article  
 
Advertised rents are declining, except in Perth, which follows several years of weak growth.
 
Source: RBA   Read full article  
 
Vacancies have risen in Sydney and Melbourne.
 
Source: RBA   Read full article  


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China

1. China’s households are almost as leveraged as the US ones.
 
Source: BCA Research  
 
However, they have more cash than the US counterparts.
 
Source: BCA Research  

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2. Passenger volume has not yet recovered.
 
Source: Commerzbank Research  
 
3. Exports helped China’s industry to recover faster than other economies.
 
Source: Gavekal   
 
4. Here is Deutsche Bank’s forecast for China’s GDP trajectory vs. the US.
 
Source: Deutsche Bank Research  
 
5. Hong Kong’s unemployment rate held steady last month (an increase was expected).
 


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Emerging Markets

1. The Malaysian ringgit continues to rally.
 

 
2. The Thai baht (USD/THB) has been consolidating.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
3. Latin America’s stocks have significantly underperformed broad emerging markets.
 
Source: MarketDesk Research  
 
4. EM bond markets are enjoying robust fund inflows.
 
Source: @WSJ   Read full article  


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Commodities

1. Copper hit the highest level in over two years.
 

 
2. Demand for Lithium could skyrocket as the world shifts to electric vehicles.
 
Source: IEA  
 
3. US soybean exports to China have picked up momentum.
 

 
4. US high-protein wheat prices are rebounding.
 


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Energy

1. Crude oil has bounced sharply in recent days on lower-than-expected US inventories.
 

 
2. This chart shows the evolution of global oil demand by sector.
 
Source: @ISABELNET_SA, @BofAML  
 
3. Since 1990, greater energy efficiency has led to a decrease in the amount of energy demanded per unit of GDP, according to IEA.
 
Source: IEA  
 
4. Despite the heat waves this summer, the amount of US natural gas in storage rose to a five-year high last week.
 

 
Natural gas futures plummetted by almost 12%.
 

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5. What are Americans’ views on nuclear energy?
 
Source: @MorningConsult, @l_m_j_   Read full article  


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Equities

1. The market has been rewarding firms known for dividends and buybacks rather than those focused on CapEx and R&D. Here is the relative performance based on Goldman’s indices.
 

 
2. A divided government tends to be good for stocks (fewer adverse legislative surprises).
 
Source: @ISABELNET_SA, @GoldmanSachs  
 
3. Cylicals/defensives ratio (equal-weighted) is at long-term resistance.
 
Source: Stifel  
 
4. This table shows the results of buying stocks trading above and below 10x sales.
 
Source: @alphaarchitect   Read full article  
 
5. Next, we have some valuation trends.
 
The S&P 500 cyclically adjusted price-to-earnings ratio (CAPE) is not yet at bubble territory.
 
Source: Stifel  
 
US valuations have been resetting while earnings rebound.
 
Source: SunTrust Private Wealth Management  

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6. Here are a couple of sector updates.
 
Tech sector free cash flow:
 
Source: @acemaxx, @JPMorganAM  
 
Transportation subsectors’ YTD performance:
 
Source: Yardeni Research  

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7. Intangible assets increasingly dominate corporate balance sheets.
 
Source: BofA Securities, @tracyalloway  
 
8. Why did the rally stall on September 2nd?
 
Source: @BW   Read full article  


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Credit

1. Large retailers continue to file for bankruptcy.
 
Source: S&P Global Market Intelligence  
 
2. The number of ‘zombie’ companies is approaching the 2000 peak.
 
Source: @financialtimes   Read full article  
 
3. Gross leverage of BBB-rated firms is now above the 2009 highs.
 
Source: CreditSights  
 
4. This chart shows US middle market loan amendments last quarter (“fixing” covenant violations).
 
Source: @theleadleft, @LPCLoans   Read full article  
 
5. The credit volatility curve is now pricing in the risk of US elections.
 
Source: @WSJ   Read full article  
 
6. Global corporate bond issuance is now above last year’s levels.
 
Source: @MaxJReyes, Bloomberg Finance L.P.  


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Alternatives

1. Dividend recaps spike amid extraordinarily cheap financing.
 
Source: @financialtimes   Read full article  
 
2. Private markets have largely outperformed during this cycle.
 
Source: StepStone Group  
 
Private markets captured about 60% of the downside during the financial crisis. Historically, general partners are not forced to sell at the bottom and do not capture all the volatility in a market turmoil, according to StepStone.
 
Source: StepStone Group  

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3. Here’s a breakdown of private market dry powder.
 
Source: StepStone Group  
 
4. The sports card market has performed well in recent years. Just like in the stock market, the top 100 cards significantly outperformed the broad index.
 
Source: PWCC   Further reading  
Source: PWCC   Further reading  


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Global Developments

1. The largest economies have rebounded much faster than they did after the Great Financial Crisis.
 
Source: Morgan Stanley Research  
 
2. Fixed-income flows remain robust.
 
Source: @ISABELNET_SA, @BofAML  
 
3. This chart shows some of the previous market “manias.”
 
Source: BCA Research  
 
4. Finally, we have real interest rates around the world.
 
Source: @RichardDias_CFA  


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Food for Thought

1. How much cash do you need to generate $50k/year without taking risk?
 
Source: @LanceRoberts, @slangwise   Read full article  
 
2. How long will $1 million in savings last during retirement?
 
Source: @WSJ   Read full article  
 
3. US debit- and credit-card spending changes (by sector):
 
Source: @WSJ   Read full article  
 
4. The decline in upward mobility:
 
Source: Visual Capitalist   Read full article  
 
5. Taking the foreign-service-officer test:
 
Source: @adam_tooze, @TheEconomist   Read full article  
 
6. US presidential election polls (2020 vs. 2016):
 
Source: Morning Consult   Read full article  
 
7. Households without internet:
 
Source: Moody’s Analytics  
 
8. Second thoughts on a COVID-19 vaccine:
 
Source: @pewresearch   Read full article  
 
9. Smoke from the west coast:
 
Source: @financialtimes   Read full article  

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Have a great weekend!


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