Fast-food restaurant price gains have accelerated

The Daily Shot: 14-Oct-20
The United States
The United Kingdom
The Eurozone
Europe
Asia – Pacific
China
Emerging Markets
Energy
Equities
Credit
Global Developments
Food for Thought



 

The United States

1. Let’s begin with the September CPI report. The headline figures were roughly in line with market expectations.
 

 
However, outside of the gains in used car prices, lockdown-related price gains appear to be easing. Gold prices dipped in response to the report.
 
Source: @jsblokland  
 
The median and the sticky CPI measures slowed.
 

 
Will the core CPI follow European inflation gauges lower?
 
Source: Capital Economics  
 
Here is a forecast from Oxford Economics.
 
Source: @GregDaco  
 
“Food at home” inflation measure is moderating as supply bottlenecks ease.
 

 
However, fast-food restaurant price gains have accelerated (second chart).
 

 
Used car prices climbed by most in recent history, as Americans move to the suburbs and avoid public transportation.
 

 
The latest apartment rental vacancy data show the extent of the shift out of downtown areas.
 
Source: @WSJ   Read full article  
 
However, auction prices suggest that used-car CPI should begin moderating. The chart below shows the month-over-month price changes.
 
Source: Nomura Securities  
 
Rent inflation is slowing rapidly.
 

 
Here is a comparison to previous recessions.
 
Source: Nomura Securities  
 
Medical care CPI is moderating as gains in health insurance prices slow.
 

Source: Pantheon Macroeconomics  
 
Here are a few other components of the CPI index.
 
Apparel:
 

 
Airline tickets:
 

 
Wireless services:
 

 
Hotels:
 

 
College tuition:
 

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2. The NFIB small business sentiment index topped economists’ forecasts. It’s worth noting that the NFIB survey tends to have a political bias. The outcome of the upcoming election may have a significant impact on the index trajectory going forward.
 

 
Here are some of the NFIB index components, which point to ongoing recovery.
 
Hiring plans:
 

 
Price plans:
 

 
CapEx expectations:
 

 
Inventories:
 

 
As a comparison, the Homebase small business data show no improvement in the number of employees or employee hours since July.
 
Source: Homebase  

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3. Job postings remain well below last year’s levels.
 
Source: @JedKolko, @indeed   Read full article  
 
4. Housing affordability declined in August, as rising prices offset lower mortgage rates.
 
Source: NAR  
 
Mortgage credit availability has deteriorated this year, according to the Mortgage Bankers Association.
 

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5. The loss in US airline operating income due to a drop in traffic has been severe.
 
Source: Deutsche Bank Research  


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The United Kingdom

1. The labor market shows signs of strain.
 
The unemployment rate rose more than expected.
 

 
Redundancies are surging.
 
Source: @markets   Read full article  
Source: @adam_tooze, @FT   Read full article  
 
Job vacancies remain depressed, signaling downside risks to employment.
 
Source: Pantheon Macroeconomics  
 
Many jobs are at risk from new restrictions.
 
Source: ING  

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2. Retail sales were robust in September, helped by substantial gains in “excess” household savings (2nd chart).
 

Source: Longview Economics  

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3. Apple’s mobility index has been declining in recent weeks.
 
Source: @MrMBrown  
 
4. Economists have been downgrading their Q4 GDP forecasts.
 


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The Eurozone

1. Let’s begin with Germany.
 
The ZEW expectations index came off the highs this month.
 

 
Core inflation is at multi-year lows, driven in part by the VAT cut.
 

 
Is there more downside to core inflation?
 
Source: Pantheon Macroeconomics  
 
The manufacturing sector has been disproportionately relying on furlough schemes.
 
Source: Deutsche Bank Research  

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2. The Italy-Spain bond spread continues to tighten.
 

 
3. Dividends have driven European bank share returns. Limitations on dividends from now on will be a massive drag on performance.
 
Source: Pantheon Macroeconomics  
 
3. What’s next for the euro?
 


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Europe

1. Here are a couple of updates on Sweden.
 
The unemployment rate:
 

 
The core CPI (lowest since 2014):
 

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2. Iceland’s unemployment rate spiked this year as tourism collapsed.
 

 
3. European ESG funds have outperformed since the crash.
 
Source: Deutsche Bank Research  


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Asia – Pacific

1. Japan’s money supply growth soared this year as the government stepped up support for credit, and companies tapped liquidity.
 

 
2. Taiwan’s central bank is becoming increasingly concerned about the Taiwan dollar strength. Its interventions have become more aggressive, halting the rally.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
3. Singapore’s GDP rebounded in Q3, but there is a long way to go.
 

 
4. The Westpac index showed Australia’s consumer confidence rebounding last month.
 


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China

1. China is retaliating against Australia for supporting the Wuhan investigation.
 
Source: @markets   Read full article  
 
Here is China’s overall coal consumption.
 
Source: Project Syndicate   Read full article  

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2. Imports look too high relative to survey data.
 
Source: Pantheon Macroeconomics  
 
3. Steel output soared after the lockdown.
 
Source: Longview Economics  
 
4. Domestic investors have shifted out of money markets into stocks.
 
Source: Fitch Ratings  


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Emerging Markets

1. Turkey’s industrial production is up 10% from the same time last year.
 

 
2. South Africa’s mining output is recovering quickly.
 

 
3. Indonesia’s terms of trade index is rising, which could support the rupiah.
 
Source: TS Lombard  
 
USD/IDR is at resistance.
 
Source: @DantesOutlook  

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4. Chile’s food inflation spiked last month.
 
Source: Goldman Sachs  
 
5. According to Barclays, LatAm inflation will increase gradually next year.
 
Source: Barclays Research  
 
6. This chart shows consensus forecasts for GDP and inflation from 2020 to 2021.
 
Source: Danske Bank  


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Energy

1. Brent is at the 50-day moving average resistance.
 

 
2. Will natural gas demand peak by 2036?
 
Source: ING  


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Equities

1. Deutsche Bank once again sees an upside surprise to earnings. However, investors are not as defensively positioned as they were ahead of the Q2 earnings season.
 
Source: Deutsche Bank Research  
 
2. The S&P 500 has closely tracked moves in the dollar this year.
 
Source: Alpine Macro  
 
3. The VIX curve shows ebbing election-risk concerns.
 

 
4. According to one indicator, dealers are running substantial short gamma positions. As discussed previously, this exposure can exacerbate market moves.
 
Source: @AndrewThrasher  
 
Demand for stock options remains elevated.
 
Source: @jessefelder, @FT   Read full article  

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5. Next, we have some sector updates.
 
Cyclical sectors tend to outperform defensive sectors when the US comes off an economic trough.
 
Source: Variant Perception  
 
Fund managers are long healthcare and consumer staples and short energy and REITs.
 
Source: BofA Global Research, @Callum_Thomas  
 
This chart shows forward earnings-per-share by S&P 500 sectors. Tech has led the way since 2012.
 
Source: Yardeni Research  
 
Here are some sector performance charts.
 
Industrials:
 

 
Consumer Staples:
 

 
Consumer Discretionary:
 

 
Banks:
 

 
US bank stocks could benefit if low rates and rising liquidity lead to an economic upturn, according to Variant Perception.
 
Source: Variant Perception  


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Credit

1. This chart shows investment-grade bond spreads with and without energy.
 
Source: CreditSights  
 
2. High-yield spreads and bank lending standards have diverged.
 
Source: @ISABELNET_SA, @GoldmanSachs  
 
3. ESG debt issuance surged this year.
 
Source: @JacquelinePoh2, Bloomberg Finance L.P.  


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Global Developments

1. The world doesn’t have a handle on COVID yet.
 
Source: Capital Economics  
 
2. Cross-asset correlations rose this year, similar to the 2008 financial crisis. This makes portfolio diversification difficult.
 
Source: BCA Research  
 
3. Global consumer confidence and share prices have diverged.
 
Source: Variant Perception  
 
4. This year, food has become a large contributor to the OECD CPI.
 
Source: ECB   Read full article  
 
5. Here are JP Morgan’s GDP forecasts for China, the Eurozone, and the US.
 
Source: @ISABELNET_SA, @JPMorganAM  


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Food for Thought

1. How well does the news media cover science?
 
Source: @pewscience   Read full article  
 
2. Non-LGBT identifying Americans, by age:
 
Source: @davidshor  
 
3. Cutting CO2 emissions (2 charts):
 
Source: Deutsche Bank Research  
Source: Morning Consult  

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4. Investors expecting contested elections in the US:
 
Source: BofA Global Research, @Callum_Thomas  
 
5. Attitudes toward US Supreme Court Justices and nominations:
 
Source: The Economist   Read full article  
 
6. Industrial robot density:
 
Source: Statista  
 
7. IRS audit rates:
 
Source: Pro Publica   Read full article  
 
8. EU social distancing guide:
 
Source: Európa Pont  

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