Headwinds for US retail sales

The Daily Shot: 18-Nov-20
The United States
Canada
The United Kingdom
Europe
Asia – Pacific
China
Emerging Markets
Cryptocurrency:
Commodities
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. US factory output rose last month, in line with expectations.
 

 
Manufacturing capacity utilization continues to improve.
 

 
Here is the total industrial production performance vs. the 2008 recession.
 
Source: Mizuho Securities USA  

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2. October retail sales were softer than expected amid signs of consumer activity losing momentum.
 

 
Nonetheless, the overall rebound has been remarkable.
 
Source: Mizuho Securities USA  
 
Here is the breakdown by sector.
 
Source: @GregDaco  
 
Gains in online sales activity have been impressive.
 
Source: Piper Sandler   
 
Below is the “lockdown” divergence.
 
Source: ING  
 
Retail sales face significant headwinds going forward.
 
Increased concerns about the pandemic:
 
Source: @axios   Read full article  
 
COVID-related hospitalizations:
 
Source: CovidTracking.com   
 
Mobility:
 
Source: JP Morgan, @SteveRattner  
 
Retail foot traffic:
 
Source: AEI Housing Center   Read full article  
 
Chase card spending:
 
Source: JP Morgan, @peterdwilliams  

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3. Homebuilder optimism hit another record as demand soars (2nd chart).
 

 
4. Next, we have some updates on inflation
 
Import prices rose again, boosted by a weaker US dollar.
 

 
And the dollar continues to retreat.
 

 
For now, market-based inflation expectations have been stable.
 
Source: @markets   Read full article  
 
Morgan Stanley expects the core PCE inflation to cross 2% sooner than in past cycles.
 
Source: Morgan Stanley Research  
 
In previous cycles, the Fed tightened policy well before inflation reached 2%.
 
Source: Morgan Stanley Research  
 
However, the relatively weak lending environment could cap inflation.
 
Source: TS Lombard  
 
This chart shows the CPI trend over the past three decades.
 
Source: InflationData   Read full article  
 
Here is the US inflation timeline (from Torsten Slok).
 
Source: Torsten Slok, Apollo  


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Canada

1. Housing starts remain stable.
 

 
2. Many Canadian firms filed for Chapter 15 bankruptcy protection in the US.
 
Source: @TeadraPugh   Read full article  


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The United Kingdom

1. The consumer inflation report was a bit firmer than expected. Here is the core CPI.
 

 
Some sectors have seen significant inflation this year.
 
Source: @financialtimes   Read full article  

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2. Pantheon Macroeconomics expects a GDP decline this month.
 
Source: Pantheon Macroeconomics  
 
3. The inverse correlation between the pound and UK stocks has been elevated.
 
Source: Oxford Economics  
 
4. The job recovery has been uneven.
 
Source: Statista  


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Europe

1. New car registrations are back below the 5-year range.
 

 
2. Europe’s mobility declined more than in the US.
 
Source: Arbor Research & Trading  
 
3. Here is the expected demographic drag on the GDP (due to a shrinking workforce).
 
Source: Pantheon Macroeconomics  
 
4. The euro is the most undervalued currency among the G10 relative to the dollar, while the Swiss franc is the most overvalued, according to OECD calculations.
 
Source: @RothkoResearch  
 
5. Norway’s consumer confidence remains depressed.
 

 
Below are some updates on the Norwegian krone.
 
The krone positioning is still long, but foreigners typically sell NOK during Q4.
 
Source: Nordea Markets  
 
NOK has depreciated in recent years due to falling oil prices and an easy monetary policy stance.
 
Source: Alpine Macro  
 
Higher oil prices should help NOK recover.
 
Source: Alpine Macro  


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Asia – Pacific

1. Japan’s exports have almost fully recovered vs. last year, topping economists’ forecasts.
 

 
2. The world’s busiest domestic flight routes are in Asia.
 
Source: @markets   Read full article  
 
3. Australia’s wage growth hit a record low, with the latest quarterly figures coming in below consensus.
 

 
Here are some trends from ANZ Research.
 
Wage growth including bonus:
 
Source: ANZ Research  
 
By state:
 
Source: ANZ Research  
 
Companies freezing wages:
 
Source: ANZ Research  


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China

1. Bond yields continue to grind higher. At 3.3% China’s 10-year yield looks attractive relative to the rest of the world. As a result, the upward pressure on the renminbi will persist.
 

 
2. Chinext, the index of “new economy” smaller companies, is at support.
 

 
3. China’s productivity growth has been relatively weak.
 
Source: Commerzbank Research  
 
Here is a comparison with the rest of the world.
 
Source: Commerzbank Research  

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4. Hong Kong’s unemployment rate held steady last month (economists expected an increase).
 


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Emerging Markets

1. Russia’s industrial production deteriorated again last month.
 

 
2. Credit expansion in Turkey has been massive.
 
Source: BCA Research  
 
3. LatAm stocks look attractive. The first panel shows the forward P/E ratio relative to the S&P 500. The second compares LatAm stock performance to copper prices.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
4. EM capital flows are recovering.
 
Source: Moody’s Analytics  
 
5. Until the pandemic, the short-end of EM yield curves has been uncorrelated with manufacturing PMIs. This is because EM central banks often face issues other than economic slowdowns, such as currency depreciation, according to Morgan Stanley.
 
Source: Morgan Stanley Research  


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Cryptocurrency:

Bitcoin blasted past $18k and is now up nearly 60% over the past month.
 


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Commodities

1. Industrial metals continue to climb.
 

 
2. Morgan Stanley sees investment demand becoming a drag on gold prices over the next couple of years.
 
Source: @ISABELNET_SA, @MorganStanley  
 
3. Container freight rates are up sharply this year amid capacity constraints.
 
Source: @WSJ   Read full article  
 
4. Technicals suggest that Brent oil is overbought in the near-term.
 
Source: Longview Economics  


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Equities

1. The percentage of S&P 500 members above the 200-day moving average is the highest since 2014.
 

 
2. The Nasdaq 100 index is holding resistance at 1,200. The next stop would be 1,220.
 
h/t Nancy Moran  
 
3. The outperformance of companies with China exposure accelerated this month.
 

 
4. The recent value-growth rotation has been a global phenomenon.
 
Source: @ISABELNET_SA, @MorganStanley  
 
Here is the fund managers’ positioning, according to BofA’s FMS survey.
 
Source: @LizAnnSonders, @BankofAmerica  

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5. Fund managers expect small caps to outperform.
 
Source: @ISABELNET_SA, @BofAML  
 
6. The S&P 500 trades at a 27% premium to the MSCI ACWI World ex-USA, based on its relative forward PE ratio.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
7. The Hussman Margin-Adjusted P/E ratio suggests that stocks are most expensive in at least a century.
 
Source: @jessefelder, @hussmanjp   Read full article  
 
8. When real rates rise 20 to 30 basis points, it usually leads to a setback in risk asset momentum, according to Nordea.
 
Source: Nordea Markets  
 
9. The 60/40 portfolio duration risk has risen recently.
 
Source: Goldman Sachs, @jsblokland  
 
Here is the relative performance of the 50/50 portfolio this year.
 
Source: Allied Investment Advisors  

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10. Shares of pharmacy chains are under pressure as Amazon gets into the business.
 
Source: @axios   Read full article  
 


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Credit

1. The number of bankruptcies among larger companies hasn’t been extreme in this recession because lenders have been willing to amend/restructure debt. Retailers experienced the most defaults this year.
 
Source: S&P Global Market Intelligence  
Source: @markets   Read full article  

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2. “Zombie” firms are sitting on a great deal of debt.
 
Source: @markets   Read full article  


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Rates

1. Here is a look at the 10-year Treasury yield during various Fed regimes.
 
Source: Nordea Markets  
 
2. The market expects short-term rates to remain extremely low five years out. Will the Fed remain this dovish for that long?
 
Source: BCA Research  
 
3. The 10-year Treasury term premium is rising.
 
Source: SPDR Americas Research, @mattbartolini   Read full article  


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Global Developments

1. Equities and industrial metals are the least affected by rising yields, according to TS Lombard.
 
Source: TS Lombard  
 
2. Can you tell which countries had the most aggressive fiscal stimulus programs?
 
Source: OECD   Read full article  
 
3. Here is the IMF’s forecast for European and US debt-to-GDP ratios.
 
Source: @WSJ   Read full article  
 
4. And this chart shows the IMF’s forecast for the 2020 GDP growth.
 
Source: @WSJ   Read full article  


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Food for Thought

1. Support for raising the minimum wage:
 
Source: The Brookings Institution  
 
2. Election credibility partisan gaps since 1992:
 
Source: Morning Consult   Read full article  
 
3. Do you believe that Donald Trump should concede?
 
Source: Morning Consult   Read full article  
 
4. US election size relative to other countries?
 
Source: Statista  
 
5. Catholics’ support for gay marriage:
 
Source: Pew Research Center   Read full article  
 
6. The US share of chip manufacturing segments:
 
Source: @WSJ   Read full article  
 
Chip manufacturing capacity:
 
Source: @WSJ   Read full article  

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7. US social media interactions related to the coronavirus:
 
Source: @axios   Read full article  
 
8. Mandatory mask-wearing:
 
Source: @axios   Read full article  
 
9. Roundabouts by country:
 
Source: Statista  

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