Posted on by The Daily Shot Editor: Lev Borodovsky

Factories haven’t been this backed up in decades

The Daily Shot: 21-May-21
• The United States
• The United Kingdom
• The Eurozone
• Japan
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Energy
• Equities
• Rates
• Global Developments
• Food For Thought

 

The United States

1. The Philly Fed’s manufacturing index weakened more than expected this month.
 

 
To be sure, the PA/NJ/DE-area factory activity remains strong, but this report shows a loss of momentum. Much of this pullback was due to supply bottlenecks but not all. Demand eased slightly as well (chart below). Are higher output prices to blame?
 

 
• Hiring slowed, but many manufacturers are boosting workers’ hours.
 

 
• The CapEx expectations index remains elevated.
 

 
• Supply challenges are hitting extreme levels as delivery times extend further.
 

 
By the way, chip lead times have risen sharply around the world.
 
Source: Bloomberg   Read full article  
 
• Factories haven’t been this backed up on orders in decades.
 

 
• Manufacturers have been increasing inventories.
 

 
• Price pressures continue to surge. While businesses are increasingly passing on a portion of these costs (2nd chart) to clients, at some point, buyers are going to balk.
 

——————–

 
2. The downside surprise in the Philly Fed’s report sent the Citi Economic Surprise Index below zero.
 

 
We also saw a pullback in the Oxford Economics Recovery Tracker.
 
Source: Oxford Economics  

——————–

 
3. Initial jobless claims continue to ease. We should see a substantial drop in continuing claims (2nd chart) next month as several states terminate emergency benefits.
 
Source: Oxford Economics  
 
4. The Conference Board’s index of leading indicators rose sharply last month, …
 

 
… driven by the decline in initial jobless claims.
 
Source: @OxfordEconomics, @nanc455  

——————–

 
 
4. Next, we have some updates on inflation.
 
• Inflation options markets are assigning a 40% probability of inflation running above 3% over the next five years (2 charts).
 
Source: Arbor Research & Trading  
 
Source: @WSJ   Read full article  
 
• Morgan Stanley sees scope for mobility-sensitive inflation components to rise (2 charts).
 
Source: Morgan Stanley Research  
 
Source: Morgan Stanley Research  
 
• More US companies are mentioning “inflationary pressures” during earnings calls.
 
Source: Market Ethos, Richardson GMP  
 
• Most fund managers see above-trend growth and above-trend inflation ahead.
 
Source: @DiMartinoBooth, @BankofAmerica  
 
• A survey from Evercore ISI suggests that rent inflation should be rebounding.
 
Source: Evercore ISI  
 
• Will the recent spike in disposable incomes put upward pressure on the CPI?
 
Source: Cornerstone Macro  
 
• Nearly half of US CPI components are rising faster than 0.3% per month.
 
Source: Longview Economics  
 
• Here are the components of CPI.
 
Source: Gavekal Research  
 
• Inflation is not extreme at this point. The two-year changes in inflation are in line with the levels we saw in 2018 and 2019.
 
Source: Brad McMillan  

Back to Index

 

The United Kingdom

1. Industrial orders surged this month, …
 
Source: Reuters   Read full article  
 

 
… pointing to gains in factory output.
 
Source: @samueltombs  
 
More firms are boosting prices.
 

——————–

 
2. Business turnover is rebounding quickly.
 
Source: Pantheon Macroeconomics  
 
3. Consumer confidence has recovered to pre-COVID levels.
 
Source: @financialtimes   Read full article  
 

——————–

 
4. Leveraged funds have been net-long the pound over the past year.
 
Source: Morgan Stanley Research  
 
GBP/USD has been supported by real yield differentials.
 
Source: Morgan Stanley Research  

Back to Index

 

The Eurozone

1. Germany’s producer prices have been rising quickly (chart below), but the gains are not very large on a 2-year basis (2nd chart).
 

 
2. Dutch unemployment continues to moderate.
 

 
Home price appreciation has accelerated.
 
Source: @jsblokland  

——————–

 
3. Construction output has rebounded but is still running below 2019 levels.
 

 
4. Here is Morgan Stanley’s estimate for the ECB tapering.
 
Source: Morgan Stanley Research  

Back to Index

 

Japan

1. Inflation is back in negative territory.
 

 
2. Factory activity expanded at a slower pace in May.
 

 
But manufacturers are upbeat about the future.
 

 
3. Japan’s service firms continue to struggle …
 

 
… and are less optimistic about the future.
 

Back to Index

 

Asia – Pacific

1. Taiwan’s export orders have been remarkably strong this year (boosted by semiconductor demand).
 

 
2. New Zealand’s credit card spending is running well below the pre-COVID trend (similar to the US).
 

 
3. Next, we have some updates on Australia.
 
• Business activity is rapidly expanding, especially in manufacturing.
 

 
• April retail sales surprised to the upside and are running well above the pre-COVID trend (2nd chart).
 

 
• The Aussie-Yen cross is highly correlated with the S&P 500 (AUD/JPY is an indicator of global risk appetite).
 
Source: @Not_Jim_Cramer  
 
AUD/JPY is at support at the 50-day moving average.
 

Back to Index

 

China

1. Bond yields have been declining, …
 

 
… with China’s debt outperforming other EM.
 
Source: Bloomberg   Read full article  

——————–

 
2. Here is the evolution of China’s fund industry.
 
Source: @WSJ   Read full article  
 
3. Long-distance travel has recovered.
 
Source: Gavekal Research  
 
4. Hong Kong’s unemployment is starting to ease.
 

Back to Index

 

Emerging Markets

1. Brazil’s tax collections have been strong this year.
 

 
2. Argentina’s economic activity is continuing its pre-COVID downward drift.
 

 
3. Indonesia’s exports are near record highs.
 

 
4. Energy-intensive manufacturing has been shifting to EM.
 
Source: J.P. Morgan Asset Management  

Back to Index

 

Cryptocurrency

1. Bitcoin hasn’t been able to break resistance at $42k and is now trading below $40k.
 

 
2. Here is the history of bitcoin drawdowns.
 
Source: Visual Capitalist   Read full article  
 
3. Bitcoin has been more resilient than other cryptos.
 
Source: @WSJ   Read full article  
 
4. Etherium saw a 45% intraday move.
 

 
5. This chart shows bitcoin futures’ open interest.
 
Source: bybt  
 
6. Crypto enthusiasts are not very happy with our friend Elon (at least on Twitter).
 
Source: Arbor Research & Trading  
 
7. US authorities are becoming more focused on the crypto market.
 
Source: Reuters   Read full article  
 
Source: Reuters   Read full article  

——————–

 
8. While there are other reasons for the massive selloff in China’s thermal coal futures (chart below), a potential reduction in electricity demand from the nation’s bitcoin mining industry has contributed to this decline.
 
Source: Forbes   Read full article  
 

Back to Index

 

Energy

A deal with Iran could add substantial supplies to the global crude oil market.
 
Source: The Hill   Read full article  
 

Back to Index

 

Equities

1. Non-profitable tech continues to outperform as cryptos struggle.
 

 
Here is a basket of post-IPO stocks.
 

——————–

 
2. Inflows into EV funds have slowed.
 
Source: @business   Read full article  

Back to Index

 

Rates

1. Money market mutual funds and other market participants move cash into the Fed’s RRP facility as the market is flooded with liquidity.
 

 
2. Morgan Stanley projects that T-bills as a percentage of Treasury debt outstanding will decline going forward.
 
Source: Morgan Stanley Research  
 
3. US yields are very low given current inflation data (relative to the historical relationship).
 
Source: Market Ethos, Richardson GMP  

Back to Index

 

Global Developments

1. Global market-based inflation expectations have been climbing.
 
Source: Arbor Research & Trading  
 
2. Shipping costs have been trending higher before the Suez Canal blockage. This is primarily due to container shortages which have contributed to longer delivery times, according to Capital Economics.
 
Source: Capital Economics  
 
3. How much auto production has been lost due to chip shortages?
 
Source: Fitch Ratings  

——————–

Back to Index

 

Food For Thought

1. US department store foot traffic:
 
  Read full article  
 
2. Companies acting in the best interest of consumers:
 
Source: Morning Consult   Read full article  
 
3. Interest in watching the Summer Olympics:
 
Source: Morning Consult   Read full article  
 
4. Investment banking revenues at the largest US banks:
 
Source: S&P Global Market Intelligence  
 
5. The number of craft breweries and their beer production:
 
Source: Statista  
 
6. New vaccinations in the US:
 
Source: Mizuho Securities USA  
 
• Vaccine-persuadable holdouts:
 
Source: Echelon Insights   Read full article  
 
• Potential responses to vaccination requirements:
 
Source: Morning Consult   Read full article  
 
• State vaccination rates vs. percent uninsured:
 
Source: @axios   Read full article  
 
• Vaccination rates vs. percent without internet:
 
Source: @axios   Read full article  

——————–

 
7. Streaming services:
 
Source: @axios   Read full article  
 
8. Electronics costs in automobiles:
 
Source: Bloomberg   Read full article  
 
9. Street food in India:
 
Source: The Better India  

——————–

 
Have a great weekend!

Back to Index