Posted on by The Daily Shot Editor: Lev Borodovsky

Core inflation to moderate amid used car price pullback

The Daily Shot: 28-Jun-21
• The United States
• The Eurozone
• Japan
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Rates
• Food for Thought

 

The United States

1. Personal income eased in May but remained above the pre-COVID trend.
 

 
This chart shows the drivers of personal income changes since February 2020.
 
Source: @GregDaco  
 
• Consumer spending has returned to its pre-pandemic trend.
 

 
Here is the breakdown of spending changes by sector.
 
Source: MarketDesk Research  
 
By the way, spending on clothing is now running well above 2019 levels, according to BofA’s card data.
 
Source: BofA Global Research; @TheStalwart  

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2. The May PCE inflation report was roughly in line with consensus.
 

 
• The core inflation price index is now firmly above the pre-COVID trend.
 

 
• Pantheon Macroeconomics expects the core PCE inflation to moderate in the months ahead as used car prices pull back from the highs.
 
Source: Pantheon Macroeconomics  
 
• The closely watched trimmed mean PCE inflation measure (from the Dallas Fed) remains relatively subdued.
 

 
3. Here are some additional updates on inflation.
 
• Odds of a high inflation regime similar to the 1970s remain low, according to Oxford Economics (3 charts).
 
Source: Oxford Economics  
 
Source: Oxford Economics  
 
Source: Oxford Economics  

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• The number of news articles mentioning higher inflation has been moderating.
 
Source: @benbreitholtz  
 
• Inflation has been less responsive to changes in employment.
 
Source: Barclays Research  

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4. Finally, the charts below show how consumers feel about buying and selling a home in response to surging prices.
 
h/t @Not_Jim_Cramer  

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The Eurozone

1. Let’s begin with Germany.
 
• Consumer confidence rebounded sharply in June.
 

 
• Who owns German government debt?
 
Source: @WSJ   Read full article  
 
• Here is the evolution of Germany’s yield curve.
 
Source: Deutsche Bank Research  

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2. Italian sentiment indicators are surging.
 

 
Separately, more superforecasters are predicting the Brothers of Italy winning the largest number of parliamentary seats in the next election.
 
Source: Good Judgment  

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3. The Eurozone’s broad money supply remains well above its pre-COVID trend.
 

 
Household “excess” savings are substantial and rising.
 
Source: Pantheon Macroeconomics  

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Japan

1. Consumer confidence has not caught up with the sharp rise in retail sales.
 
Source: Fitch Ratings  
 
2. Export volumes have surged over the past year.
 
Source: Fitch Ratings  
 
3. The Markit composite PMI index shows that the overall business activity is contracting (PMI < 50).
 
Source: IHS Markit  
 
4. Japan’s vaccination program is lagging other economies.
 
Source: Statista  

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China

1. Industrial profits remained robust in May.
 

 
2. Barclays sees limited pass-through from surging PPI into CPI.
 
Source: Barclays Research  
 
3. Interbank rates have been trending down since the pandemic shock last year.
 
Source: Longview Economics  
 
4. Loan growth has trended lower over the past few years.
 
Source: Fitch Ratings  
 
5. The employment outlook has improved sharply.
 
Source: Longview Economics  
 
6. Next, we have some data on China’s domestic debt defaults.
 
Source: Charles Chang, S&P Global   Read full article  
 
7. Semiconductor stocks have been rallying amid Beijing’s support for the sector.
 
Source: @bpolitics   Read full article  
 
8. Small-cap growth stocks have been popular lately.
 
Source: @markets   Read full article  

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Emerging Markets

1. Mexico’s economic recovery stalled in April.
 

 
2. Signs point to further gains in Brazil’s consumer inflation.
 
Source: Pantheon Macroeconomics  
 
3. Malaysia’s exports hit a record high.
 

 
4. EM economies should see strong growth this year.
 
Source: TS Lombard  
 
5. Most EM economies do not face excess credit and high inflation last seen during the 2013 taper tantrum.
 
Source: BCA Research  

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Cryptocurrency

1. Bitcoin had another volatile weekend, once again testing support at $30k.
 

 
The regulatory news from the UK didn’t help.
 
Source: Reuters   Read full article  

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2. DeFi tokes remain under pressure.
 
Source: CoinMarketCap  
 
3. The average deal size for late-stage crypto/blockchain venture capital transactions has sharply increased over the past two years.
 
Source: PitchBook   Read full article  
 
4. Bitcoin and Ethereum dominate the discourse on Twitter.
 
Source: Arbor Research & Trading  
 
5. This chart shows JP Morgan’s momentum index for Bitcoin.
 
Source: JP Morgan; @themarketear  
 
6. Media coverage of crypto markets remains positive.
 
Source: Arbor Research & Trading  
 
7. Bitcoin short interest has tumbled.
 
Source: @RMKOutFront  
 
8. This chart shows the Bitcoin hash rate mapped against recent Chinese regulatory actions.
 
Source: @takenstheoreum  

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Commodities

 
The US Supreme Court dealt a blow to the ethanol industry.
 
Source: Forbes   Read full article  
 
Corn and ethanol prices retreated.
 

 

 
By the way, here is the renewable fuel standard by year.
 
Source: US Department of Energy   Read full article  

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Energy

1. As we saw last week, the Brent futures curve has moved into deep backwardation.
 
Source: Longview Economics  
 
Technicals suggest the Brent futures backwardation should reverse in the near-term.
 
Source: Longview Economics  
 
2. Net-long speculative positioning in WTI crude oil futures appears stretched.
 
Source: Longview Economics  
 
3. Global coal prices continue to climb.
 
Source: @financialtimes   Read full article  
 
Source: @WSJ   Read full article  

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4. US propane prices have been rising.
 
Source: @markets   Read full article  
 
5. Global energy subsidies seem to be trending lower.
 
Source: IEA  

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Equities

1. Speculative accounts boosted their bets on S&P 500 futures last week.
 
h/t Cormac Mullen   
 
2. Cyclical stocks have been outperforming defensives, which is typical following a recession. 
 
Source: Variant Perception  
 
Flows into cyclical ETFs surged as investor confidence recovered.
 
Source: Variant Perception  

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3. The S&P 500 seasonal pattern suggests that we will see further gains in Q4 after a pause.
 
Source: @Callum_Thomas, @topdowncharts  
 
However, the market could experience a drawdown of as much as 16% based on the post-financial crisis parallel. 
 
Source: Chris Murphy; Susquehanna Derivative Strategy  

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4. Most of the gains in the SPDR S&P 500 ETF have been in the after-hours sessions.
 
Source: @Not_Jim_Cramer  
 
5. The Reddit crowd’s interest in some of the most popular meme stocks has waned.
 
Source: SwaggyStocks  
 
Short sellers worry about the Reddit crowd’s next target, which has resulted in falling short interest across the US equity market.
 
Source: @financialtimes   Read full article  

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6. Financials saw outflows recently.
 
Source: @ISABELNET_SA, @BofAML  
 
But the Fed’s stress test results sent bank shares sharply higher last week.
 

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7. Transport stocks have been underperforming, which some view as a bearish sign for the market.
 

 
8. SPAC deal fees are drying up.
 
Source: @WSJ   Read full article  
 
9. The CBOE skew index continues to hit new highs, pointing to robust demand for downside protection.
 

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Rates

1. The massive rise in the Fed’s RRP balance …
 

 
… drained some reserves from the banking system (which was the Fed’s goal).
 

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2. FOMC participants see higher uncertainty in their outlook for PCE inflation, …
 
Source: Barclays Research  
 
… with risks to their forecast skewed to the upside.
 
Source: Barclays Research  

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3. Here is the FOMC dove-hawk spectrum.
 
Source: Barclays Research  
 
4. Markets expect the Fed to raise rates by 34 basis points in 2022 and an additional 51 basis points in 2023. On the surface, this explains the recent dollar rally, but rate expectations between the US and the rest of the world were largely unchanged as real rates moved higher across the G10, according to BCA Research.
 
Source: BCA Research  
 
5. The divergence between real yields and inflation expectations during the 2013 taper tantrum didn’t last long. Is it different this time?
 
Source: MRB Partners  

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Food for Thought

1. The prevalence of COVID variants:
 
Source: @WSJ   Read full article  
 
2. Where US taxpayers claim the most healthcare expenses:
 
Source: LendingTree   Read full article  
 
3. American diets:
 
Source: Statista  
 
4. Defining happiness and success:
 
Source: CivicScience   Read full article  
 
5. The share of homes with air conditioning:
 
Source: @business   Read full article  
 
6. Companies discussing carbon on earnings calls:
 
Source: @financialtimes   Read full article  
 
7. Updated US drought map:
 
Source: @business   Read full article  
 
8. The US Navy’s spending plans …
 
Source: CBO   Read full article  
 
… and ship inventory goals:
 
Source: CBO   Read full article  

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9. These lines are straight and parallel.
 
Source: BrainDen.com   

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