How will a protracted election uncertainty impact different asset classes?

The Daily Shot: 28-Sep-20
The United States
The United Kingdom
The Eurozone
China
Emerging Markets
Commodities
Equities
Credit
Global Developments
Food for Thought



 

The United States

1. The August durable goods orders figure was disappointing.
 

 
However, capital goods orders, a proxy for business investment, showed robust growth.
 

 
The dollar amount of capital goods orders hit the highest level since 2018.
 

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2. Next, we have a couple of updates on inflation.
 
BlackRock expects a higher inflation regime in the medium term (well above market-based inflation expectations).
 
Source: BlackRock  
 
Inflation has been driven by demand this year.
 
Source: @WSJ   Read full article  

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3. According to Homebase, small business recovery has stalled.
 
Source: @homebase_data   Read full article  
 
This chart shows population-adjusted business closures.
 
Source: Yelp  

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4. The largest decline in credit/debit card spending has been among Americans with the best credit scores.
 
Source: Moody’s Analytics  
 
Bank of America’s card data showed a slowdown in restaurant spending.
 
Source: BofA Securities, @WallStJesus  

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5. How will a protracted election uncertainty impact different asset classes?
 
Source: MarketDesk Research  
 
6. Next, we have some updates on trade.
 
US imports by country of origin:
 
Source: Jungle Scout  
 
By product:
 
Source: Jungle Scout  
 
West Coast import- and export-related activity:
 
Source: Cass Information Systems  


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The United Kingdom

Government borrowing spiked this year amid unprecedented spending.
 

Source: The Guardian   Read full article  
 
But this stimulus is about to slow, creating a drag on the recovery.
 
Source: Pantheon Macroeconomics  
 
Moreover, the second wave will pressure the service sector.
 
  Further reading  


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The Eurozone

1. The euro-area broad money supply expansion is off the peak.
 

 
Business loan growth remains elevated.
 

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2. Here is the growth rate in household deposits and loans.
 
Source: ECB   Read full article  
 
And this chart shows private deposits by country.
 
Source: Pantheon Macroeconomics  

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3. Where will the core CPI bottom?
 
Source: @NordeaMarkets  
 
A low term premium relative to breakeven rates suggests that the market is pricing persistent ECB quantitative easing, according to Deutsche Bank.
 
Source: Deutsche Bank Research  

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4. Here is an overview of the ECB’s executive board (over time).
 
Source: @markets   Read full article  
 
5. Who are the biggest beneficiaries of the EU stimulus program (2 charts)?
 
Source: @bpolitics   Read full article  
Source: @bpolitics   Read full article  

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6. Germany’s orders-to-inventory ratio spiked this summer.
 
Source: @OliverRakau  
 
Auto manufacturers have been especially upbeat.
 
Source: @OliverRakau  

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7. Italian sentiment indicators surprised to the upside.
 

 
8. The STOXX 600 index is at support.
 

 
The STOXX 600 Banks index hit a new low.
 


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China

1. Industrial profits growth remains robust.
 

 
2. China’s export strength this year has been remarkable.
 
Source: TS Lombard  
Source: Variant Perception  
 
Exports shifted from COVID-related products to a broader set of goods.
 
Source: Gavekal   

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3. China is leading the global recovery in industrial production.
 
Source: Barclays Research  
 
4. Outbound tourism has collapsed this year.
 
Source: Pantheon Macroeconomics  
 
5. Property investment is likely to be sustained, given the rise in land transactions.
 
Source: Barclays Research  
 
6. This recovery has been much faster than what we saw after earlier periods of economic weakness.
 
Source: Gavekal   
 
7. Electric vehicle growth is expected to accelerate over the next couple of decades.
 
Source: Statista  


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Emerging Markets

1. The Russian ruble has been lagging crude oil and other EM currencies.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
Source: @TheTerminal, Bloomberg Finance L.P.  

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2. Was the unexpected rate hike in Turkey enough to halt the lira’s decline?
 

 
Separately, Turkey’s tourism industry remains depressed.
 

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3. Hungary’s economic sentiment recovery has stalled.
 

 
4. Next, we have some updates on India.
 
Consumption:
 
Source: TS Lombard  
 
Trade deficit (narrowed on weak import growth):
 
Source: TS Lombard  
 
The World Economics SMI (still in contraction territory):
 
Source: World Economics  

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5. Mexico’s economy continued to recover in July, but there is a long road ahead.
 

 
6. Colombia’s central bank cut rates below 2% for the first time.
 


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Commodities

1. Precious metals continue to struggle.
 

 
Hedge funds have been reducing their exposure to gold.
 

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2. Here is how key commodities performed during previous sharp increases in inflation expectations, according to Morgan Stanley.
 
Source: Morgan Stanley Research  


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Equities

1. Speculative accounts have been hedging their portfolios by shorting index futures, especially the Nasdaq 100.
 

 
This chart shows large speculators’ total positioning in Nasdaq, S&P 500, and Dow Jones futures.
 
Source: @sentimentrader  

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2. US stocks have underperformed this month.
 

 
3. The S&P 500 has underperformed bond indices in 2020.
 
Source: @WSJ   Read full article  
 
4. Investors pulled a substantial amount of capital out of equity funds last week (2 charts).
 
Source: Goldman Sachs  
Source: @ISABELNET_SA, @BofAML  

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5. US IPO activity hit a year-to-date record.
 
Source: @WSJ   Read full article  
 
Average first trading day gains of IPOs have trended higher over the past few years, but remain below peak levels of the dot-com boom.
 
Source: Robeco   Read full article  

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6. Options markets have priced in a significant election-related risk.
 
Source: S&P Global Market Intelligence  
 
Here is a comparison to previous elections.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  

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7. The market will be more sensitive to earnings surprises in the weeks ahead.
 
Source: @ISABELNET_SA, @GoldmanSachs  


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Credit

1. High-yield funds experienced some outflows last week.
 
Source: @financialtimes   Read full article  
 
2. North American investment-grade corporate leverage hit a new high.
 
Source: Goldman Sachs  
 
3. This chart shows the evolution of US household vs. corporate debt.
 
Source: @jsblokland  


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Global Developments

1. How will the outcome of the US election impact the currency market?
 
Source: @WSJ   Read full article  
 
2. The lockdown stringency has been highly correlated with the GDP decline.
 
Source: ING  
 
3. How long can households cover their living expenses after a job loss?
 
Source: @bopinion   Read full article  
 
4. This chart shows governments’ support for the labor market in March versus September.
 
Source: BlackRock  
 
5. How do businesses view the global recovery?
 
Source: Oxford Economics  


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Food for Thought

1. Marriage penalty by state:
 
Source: @TaxFoundation   Read full article  
 
2. Property taxes by county:
 
Source: CNN Business, h/t @jdcmedlock  
 
3. US low-wage workers:
 
Source: @KFF   Read full article  
 
4. The shift to online retail:
 
Source: Statista  
 
5. US incumbent party’s margin of victory vs. job growth:
 
Source: Deutsche Bank Research  
 
6. The predictive power of national polls preceding elections:
 
Source: JP Morgan  
 
7. US solar installations:
 
Source: Porch.com   Read full article  
 
8. Nuclear weapons testing over time:
 
Source: @adam_tooze, Bulletin of the Atomic Scientists   Read full article  
 
9. Spending time eating and drinking:
 
Source: Statista  

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