The Daily Shot: 10-Jun-21
• The United States
• The United Kingdom
• The Eurozone
• Europe
• Japan
• China
• Emerging Markets
• Commodities
• Energy
• Equities
• Credit
• Rates
• Food for Thought
The United States
1. Let’s begin with some labor market and wage trends.
• As discussed previously, worker shortages in manufacturing are becoming acute.
Source: Barron’s Read full article
The hires-to-openings ratio in the sector is lower than the overall US labor force.
• Restaurants are having trouble hiring as they reopen.
Source: Guggenheim
• This scatterplot shows the relationship between changes in job openings and sector wages.
Source: JP Morgan; @bcheungz
• Here are the dollar amounts drawn from unemployment benefits programs (2 charts).
Source: Mizuho Securities USA
Source: Morgan Stanley Research
When will the emergency programs expire?
Source: Morgan Stanley Research
• Labor force growth is vital for economic expansion.
Source: Bain & Company Read full article
But it’s expected to remain tepid.
Source: Bain & Company Read full article
• This chart shows the recent divergence between productivity and wages (these indices were partially distorted by disproportionally large job losses in low-wage sectors).
Source: Yardeni Research
• Wage growth has been surprising to the upside.
Source: @markets Read full article
• Evercore ISI expects faster growth in compensation costs in Q2.
Source: Evercore ISI
• Above-average wage growth can compress business margins.
Source: HBR Read full article
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2. Restaurant and auto sales have been leading the surge in retail activity.
Source: MarketDesk Research
3. Rising prices in consumer durables and rapid home price appreciation are becoming a drag on consumer confidence.
Source: @HPSInsight, @CivicScience
4. The market is buying the Fed’s “transient” inflation narrative. Here is the US inflation swap curve.
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The United Kingdom
1. Home price appreciation strengthened last month.
2. The sharp uptick in COVID cases is alarming.
Source: Pantheon Macroeconomics
The pace of vaccinations needs to accelerate.
Source: Pantheon Macroeconomics
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The Eurozone
1. Many analysts don’t expect the ECB to begin tapering until Q4 or later.
Source: Pantheon Macroeconomics
• ING does not expect the ECB to follow the Fed’s lead in selling its corporate bond holdings.
Source: ING
• Here are some scenarios for today’s ECB announcement and a potential impact on the euro.
Source: ING
2. Positive economic surprises relative to the US have benefited EUR/USD over the past year.
Source: Nordea Markets
However, a record spread between euro-area and US core-inflation could weigh on EUR/USD.
Source: Nordea Markets
3. Here is a comment from Danske Bank on inflation: “Although the recent recovery in inflation expectations is welcoming news for the ECB, we think the rise in core inflation observed this year will be temporary.”
Source: Danske Bank
4. Germany’s trade surplus continues to trend lower.
5. Italy’s retail sales remain well below the pre-COVID trend.
6. Despite sharp increases in debt-to-GDP ratios, governments’ interest payments have been moving lower.
Source: The Economist Read full article
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Europe
1. Let’s begin with Sweden.
• Household consumption tumbled in April.
• Industrial orders eased.
• Private-sector output is still below pre-COVD levels.
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2. The EU’s labor force growth will remain negative in the decades to come.
Source: Bain & Company Read full article
3. This chart shows household rent burdens in select economies.
Source: WEF Read full article
4. European equity markets are hitting record highs.
Source: S&P Global Market Intelligence
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Japan
1. Producer price gains surprised to the upside, driven by energy and industrial commodities.
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2. Gains in machine tool orders paused in May.
3. Tokyo’s office vacancy rate keeps climbing.
4. Private consumption is expected to be a drag on GDP growth again this quarter.
Source: Pantheon Macroeconomics
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China
1. Land sales point to real estate investment slump.
Source: TS Lombard
How do property developers fund themselves?
Source: TS Lombard
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2. Beijing’s crackdown on tech firms had more impact on shares trading in Hong King than in the mainland.
Source: @WSJ Read full article
3. According to Gavekal Research, “migration is shrinking the average household size more sharply than previously estimated.”
Source: Gavekal Research
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Emerging Markets
1. Let’s begin with Mexico.
• The markets cheered the ruling leftist coalition failing to secure two-thirds of the seats in the lower house.
Source: BCA Research
• Core inflation surprised to the upside, with price gains now deviating from the pre-COVID trend (2nd chart).
• A sharp increase in single Mexican men apprehended at the US border points to a deterioration in the nation’s labor market.
Source: CBP
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2. Guatemala’s remittances remain at record highs for this time of the year.
3. South Africa’s business confidence is rebounding.
4. EM Asia’s inflation is on the upswing.
Source: MRB Partners
5. Asian equity markets saw outflows in May.
Source: Reuters Read full article
6. This scatterplot shows the relative amounts of public and private debt vs. external/internal debt mix.
Source: Barclays Research
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Commodities
1. Industrial metal prices appear to be overbought.
Source: MRB Partners
2. Industrial metals users’ business activity accelerated in May.
Source: IHS Markit
3. This chart illustrates the looming lithium market deficit.
Source: Kitco Read full article
4. Technicals don’t look great for lumber.
5. Here the price evolution of major emissions allowance markets.
Source: ftserussell.com Read full article
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Energy
1. US gasoline demand dropped sharply last week, perhaps distorted by the Memorial Day holiday.
Source: Princeton Energy Advisors
2. Non-gasoline refined products inventories jumped.
Source: @bespokeinvest Read full article
3. Refinery utilization is surging.
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4. Global nuclear electricity generation has been steadily recovering over the past decade.
Source: Longview Economics
Uranium mining stocks have rallied over the past year.
Source: Longview Economics
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5. Here are the largest global oil & gas companies.
Source: Statista
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Equities
1. Most-owned names in the S&P 500 have consistently underperformed over the past 12 months.
Source: @MichaelKantro
2. Valuation multiples tend to contract when inflation climbs.
Source: @ISABELNET_SA, @BofAML
3. Japanese investors have been selling US stocks.
Source: Masaki Kondo Read full article
4. The 15% minimum effective tax rate should not impact the market (consensus estimates are higher across the board).
Source: @ISABELNET_SA, @GoldmanSachs
5. Growth stocks have posted strong earnings, although valuations remain high.
Source: TS Lombard
The earnings recovery for value stocks has lagged growth over the past year (2 charts).
Source: TS Lombard
Source: TS Lombard
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6. The recent underperformance of growth stocks has been more pronounced among small-caps.
Source: FTSE Russell
7. Companies with weak balance sheets continue to outperform (reflation bets).
8. Companies are increasingly citing “ESG” on earnings calls.
Source: @FactSet
9. According to Goldman, “small-lot trading declines prior to the peak in share price, implying that large traders drive stock price moves prior to and following the peak in the episodes we analyzed.”
Source: Goldman Sachs; @carlquintanilla
10. Next, we have some updates on the options markets.
• Demand for call options accelerated in recent days, …
… sending the put-call ratio to extreme lows.
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• The VVIX-to-VIX ratio keeps climbing, pointing to strong demand for VIX call options.
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Credit
1. Muni markets continue to outperform.
• The muni-Treasury yield ratio:
Source: @markets Read full article
• HY muni yield (a new low):
• High-yield munis outperforming high-yield corporates:
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2. Corporate pensions are close to being fully funded. Will they roll out of risky assets into investment-grade debt to lock in their funding levels?
Source: Bloomberg Read full article
3. US CLO activity remains robust.
Source: Deutsche Bank Research
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Rates
1. The 10yr Treasury yield is below 1.5%, …
… as the Treasury curve flattens.
Is all the “good news” about the US economy priced in?
Source: @oliver_brennan
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2. Longer-dated real yields continue to move lower.
3. The decline in China’s credit impulse points to lower Treasury yields.
Source: Alpine Macro
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Food for Thought
1. US population growth (3 charts):
Source: Brookings
Source: @PollsAndVotes Read full article
Source: Moody’s Analytics
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2. US population with a driver’s license:
Source: Mizuho Securities USA
3. Homeownership by age:
Source: Deutsche Bank Research
4. Why are some parents sticking with remote learning – even as schools reopen?
Source: The Brookings Institution Read full article
5. State-funded preschool:
Source: The Upshot Read full article
6. Underfunded US infrastructure:
Source: Oxford Economics
7. US states ranked:
Source: YouGov Read full article
8. Falling support for holding the Summer Olympics in Japan:
Source: Morning Consult Read full article
9. The 1946 Italian referendum on becoming a republic vs. a monarchy:
Source: Wikipedia Read full article
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