The Daily Shot: 02-Jun-21
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Europe
• Asia – Pacific
• China
• Emerging Markets
• Commodities
• Energy
• Equities
• Credit
• Rates
• Food for Thought
The United States
1. The ISM Manufacturing PMI continues to show rapid expansion in US factory activity.
• US manufacturers are struggling to keep up …
… as customers’ inventories shrink.
• Factories face two headwinds.
– worsening supply-chain bottlenecks:
– worker shortages (creating a drag on hiring):
Source: MarketWatch Read full article
• As a result, production growth has been moderating.
• Subdued manufacturing growth in China points to downside risks for the ISM Manufacturing PMI.
Source: Pantheon Macroeconomics
2. A similar manufacturing indicator from IHS Markit also shows tremendous growth, …
Source: IHS Markit
… with manufacturers rapidly boosting output prices.
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2. Out-of-stock or discontinued items remain about 20% higher than pre-pandemic levels. This is due to many sectors experiencing shortages of materials and labor.
Source: III Capital Management
3. Next, we have some updates on inflation.
• Economists were surprised by the intensity of the pandemic recovery price gains. The Citi Inflation Surprise Index hit a record high.
• The component of core PCE inflation that does not correlate with the business cycle is rising sharply.
Source: Alpine Macro
• US inflation spiked after WW-II but subsided within a couple of years. Should we expect a similar pattern in the current cycle?
Source: Atlanta Fed
• A majority of inflation gains in the April CPI report came from flexible prices, not sticky prices, which tend to move more slowly.
Source: Morgan Stanley Research
• The Fed has been taking comfort in inflation expectations being “well-anchored.”
– Consumer inflation expectations (short-term vs. long-term):
Source: @WSJ Read full article
– Market-based inflation expectations (short-term vs. long-term):
Source: @TheTerminal, Bloomberg Finance L.P.
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4. Small business data from Homebase point to an ongoing recovery in the labor market.
Source: Homebase
5. High-frequency indicators continue to improve.
Source: Cornerstone Macro
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Canada
1. Economic activity expanded quickly in March, …
… but the GDP growth for Q1 was disappointing (vs. expectations).
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2. Factory activity remains robust, but Canada’s manufacturers face the same issues as US peers.
Source: IHS Markit
3. Unlike the US, Canada did not experience a spike in mortgage delinquencies during the pandemic.
Source: Scotiabank Economics
4. Mortgage spreads have been somewhat stable over the past year.
Source: Scotiabank Economics
5. Home prices are still exploding relative to incomes.
Source: Bespoke Investments
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The United Kingdom
1. Home prices were up over 10% in May (relative to May of 2020).
2. Business sentiment continues to rebound and is now well above pre-COVID levels.
3. Manufacturing output has almost fully recovered.
Source: Pantheon Macroeconomics
4. Factory activity grew rapidly in May, …
Source: IHS Markit
… and output price hikes point to a sharp rise in the PPI.
Source: Pantheon Macroeconomics
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5. Public transportation costs have risen massively over the past decade.
Source: Statista
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The Eurozone
1. Manufacturing growth has been exceptional, but supply-chain bottlenecks have intensified.
• Spain:
Source: IHS Markit
• Italy:
Source: IHS Markit
• The Eurozone:
Given slower growth in China, the euro area’s factory activity expansion is about to peak.
Source: Pantheon Macroeconomics
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2. The Eurozone’s core CPI is still below 1%.
• Energy drove most of the year-over-year increases in the headline CPI.
Source: Pantheon Macroeconomics
• Businesses expect sharp gains in output prices, which points to higher consumer inflation ahead.
Source: Pantheon Macroeconomics
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3. The ECB estimates that negative rates, the central bank’s forward guidance, and QE depressed bond yields by more than 250 bps.
Source: @fwred
4. European industrial stocks have been outperforming materials since the financial crisis low.
Source: BCA Research
5. Greek bond spreads over Germany hit a record low.
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Europe
1. The Swiss economy is roaring back.
• Retail sales:
• Economic expectations:
• The leading index:
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2. Central Europe’s factory activity is surging.
• Poland:
Source: IHS Markit
• The Czech Republic:
Source: IHS Markit
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3. Norway’s unemployment rate continues to moderate.
Is USD/NOK set for another down cycle?
Source: Dantes Outlook
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4. Sweden’s wage growth has not rebounded to pre-COVID levels.
But consumer sentiment is soaring.
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5. This chart shows electricity prices vs. wind and solar penetration.
Source: J.P. Morgan Asset Management
6. Equity derivatives activity (used to leverage equity positions) has been on the rise.
Source: ECB, Bloomberg Read full article
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Asia – Pacific
1. South Korea’s inflation was firmer than expected in May.
2. Australia’s first-quarter GDP growth exceeded economists’ forecasts.
3. New Zealand’s home price appreciation topped 20% in May.
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China
1. Smaller growth stocks (ChiNext) have been outperforming large caps.
h/t John Liu
2. Hong Kong’s retail sales remain depressed – well below forecasts.
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Emerging Markets
1. The Turkish lira hit a record low.
Source: @markets Read full article
Source: barchart.com
Turkey’s manufacturing activity contracted in May.
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2. Here are some updates on South Africa.
• Manufacturing PMI (stronger than expected):
• Credit growth:
• Trade surplus (well above forecasts):
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3. Philippine private-sector credit continues to contract.
4. India pulled out of recession in Q1.
5. Next, we have some updates on Mexico.
• Economic activity (through March):
• The unemployment rate (higher than expected):
• Manufacturing activity (still in contraction territory):
• Remittances (a record high for this time of the year):
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6. Chile’s economic activity contracted less than expected in April.
Business confidence remains robust.
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7. Colombia’s manufacturing sector is struggling.
Source: IHS Markit
8. Here is Argentina’s consumer confidence.
9. How long will it take to return to pre-COVID GDP per capita levels?
Source: OECD Read full article
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Commodities
Here is the May performance across select commodities.
Source: Fiona Boal, S&P Global Market Intelligence
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Energy
1. The WTI crude curve backwardation keeps increasing as US inventories tighten.
2. European coal prices have been surging.
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Equities
1. Let’s start with the May returns across sectors and factors.
Source: S&P Global Market Intelligence
And here is how markets performed globally.
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
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2. Next, let’s take a look at year-to-date sector performance.
• Banks:
• Housing:
• REITs:
• Industrials:
• Transportation:
• Metals & Mining:
• Tech:
• Consumer discretionary:
• Consumer staples:
• Utilities:
• Healthcare:
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3. Stock-bond correlations remain elevated, especially for growth shares.
4. Many SPACs will be forced to buy overpriced companies before hitting their deadlines (to return cash to investors).
Source: @jessefelder, @WSJ Read full article
5. There are “retail favorites,” and then there are meme stocks.
Madness …
Source: @jessefelder, The Blindfolded Chimpanzee Read full article
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Credit
High-yield munis continue to rally, …
… outperforming high-yield corporates.
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Rates
1. Realized volatility has declined in the 10-year Treasury yield and the iShares 20+ year Treasury bond ETF (TLT) since March (2 charts).
Source: @TheTerminal, Bloomberg Finance L.P.; h/t Chris Murphy, Susquehanna Derivative Strategy
Source: @TheTerminal, Bloomberg Finance L.P.; h/t Chris Murphy, Susquehanna Derivative Strategy
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2. Based on current yield levels, the bond market still doesn’t expect high inflation to persist for very long. The Fed’s QE also contributes to lower yields.
Source: @MikaelSarwe
3. The Fed now holds more Treasuries than foreign investors.
Source: Nordea Markets, @jessefelder
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Food for Thought
1. Declining hunger rate in the US:
Source: The Economist Read full article
2. Demand for grilling products:
Source: Bloomberg Read full article
3. Views on business regulation:
Source: Pew Research Center
4. The value of US rental homes:
Source: @WSJ Read full article
5. US solar panel imports:
Source: S&P Global Market Intelligence
6. US motorcycle exports to the EU:
Source: @jeffsparshott
7. AI publications (2 charts):
Source: Artificial Intelligence Index Report 2021
Source: Artificial Intelligence Index Report 2021
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8. World leaders with most Twitter followers:
Source: Statista
9. Types of economics papers:
Source: @maximananyev
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