Could “full employment” be here faster than the Fed expects?

The Daily Shot: 29-Jun-21
The United States
Canada
The United Kingdom
The Eurozone
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Credit
Global Developments
Food for Thought



 

The United States

1. Perceived labor market slack is part of the reason for the Fed’s reluctance to begin withdrawing stimulus.
 
Source: Nordea Markets  
 
Is it possible that the central bank is misreading the chart above? While some workers will reenter the labor market, there is a chance that many will not. Yes, more Americans are returning to work as states end emergency unemployment benefits (2 charts).
 
Source: Arbor Research & Trading  
 
Source: Morgan Stanley Research; @Scutty  
 
But it is entirely possible that the labor market will remain tight, with full employment returning much faster than the Fed expected. Economic growth could surprise to the upside, …
 
Source: MRB Partners  
 
… pushing the output gap deep into positive territory.
 
Source: MRB Partners  
 
And we could be looking at full employment as soon as Q1 of next year (2 charts).
 
Source: Cornerstone Macro  
 
Source: BCA Research  
 
Moreover, if we see more fiscal stimulus (2 charts) …
 
Source: Scotiabank Economics  
 
Source: @ISABELNET_SA, @GoldmanSachs  
 
… labor shortages will become more acute.
 
Source: Morgan Stanley Research  
 
This chart shows the share of job postings offering hiring incentives. It was trending up even before the pandemic.
 
Source: @AE_Konkel, @indeed, h/t @GregDaco   Read full article  
 
CEO hiring plans have not been this high in two decades – perhaps longer.
 
Source: Cornerstone Macro  
 
The US central bank may well find itself behind the curve later this year as wage growth accelerates (2 charts).
 
Source: Mizuho Securities USA  
 
Source: Cornerstone Macro  
 
For example, here is the “wages and benefits” index for the Texas-area manufacturing sector.
 

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2. The Dallas Fed’s manufacturing index came off the highs in June.
 

 
Many companies continue to report growing unfilled orders.
 

 
Workers are busy.
 

 
Firms are reporting higher vendor delivery times.
 

 
Price pressures continue to grow.
 

 
Texas-area factories are extremely confident about future business activity.
 

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3. Americans are increasingly optimistic about the COVID situation.
 
Source: Gallup   Read full article  


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Canada

1. Small and medium-size business sentiment hit the highest level in over a decade.
 

 
2. Canadian stocks are trading at a deep discount to the US.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  


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The United Kingdom

1. The CBI retail sales index climbed further this month.
 

 
Source: Reuters   Read full article  
 
As a result, we should see more gains in the official retail sales data.
 
Source: Pantheon Macroeconomics  

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2. The UK has a high housing price-to-rent ratio relative to its peers.
 
Source: TS Lombard  
 
While UK home prices are up significantly on the national level, inner London has underperformed as residents flock to the suburbs.
 
Source: TS Lombard  

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3. Market-based inflation expectations are higher than in the US and the Eurozone.
 
Source: Gavekal Research  
 
4. Vaccinations are outperforming the US.
 
Source: Pantheon Macroeconomics  
 
But COVID cases are on the rise.
 


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The Eurozone

1. Germany’s import prices are surging.
 

 
2. This chart shows the composition of the ECB’s balance sheet.
 
Source: ECB   Read full article  
 
Here are the PEPP (emergency QE) purchases by country.
 
Source: ECB   Read full article  
 
Analysts expect QE to remain robust next quarter.
 
Source: Barclays Research  
 
The TLTRO program has been popular with banks (2 charts).
 
Source: ECB   Read full article  
 
Source: ECB   Read full article  
 
3. How has QE impacted bond yields?
 
Source: Barclays Research  
 
4. Spain’s mortgage activity remains tepid relative to the housing bubble levels.
 


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China

1. The World Economics SMI report shows manufacturing growth strengthening this month. Price pressures accelerate.
 
Source: World Economics  
 
2. Retailers have been struggling in the second quarter, according to China Beige Book.
 
Source: @tracyalloway, @ChinaBeigeBook  
 
3. The rebound in hog prices points to higher inflation ahead.
 
h/t John Liu   
 
4. The vaccination program has been going strong.
 
Source: Pantheon Macroeconomics  
 
5. This chart shows China’s total debt-to-GDP ratio.
 
Source: @acemaxx, @CNBC   Read full article  
 
6. Hong Kong’s exports remain robust.
 


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Emerging Markets

1. Let’s begin with some updates on Vietnam.
 
Q2 GDP growth (below consensus):
 

 
Inflation (below consensus):
 

 
Exports (a modest rebound in June):
 

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2. South Africa’s consumer sentiment deteriorated this month.
 

 
The current account surplus has been surging on strong exports.
 
Source: @financialtimes   Read full article  

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3. Russia’s consumer confidence is grinding higher.
 

 
4. India’s consumer confidence hit an all-time low.
 
Source: @adam_tooze, @FT   Read full article  
 
5. Colombia’s central bank did not hike rates despite stronger inflation.
 
Source: Bloomberg   Read full article  
 
6. Mexico’s trade balance deteriorated in May.
 

 
7. Brazil’s loan growth hit 16%.
 

 
8. Pedro Castillo Terrones, the president-elect of Peru, decided to keep the current central banker (surprising the markets).
 
Source: Twitter  
 
The bonds and the Peruvian sol jumped.
 


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Cryptocurrency

1. Bitcoin continues to outperform.
 

 
2. There has been a significant decline in Bitcoin network activity this year (2 chats).
 
Source: @glassnode  
 
Source: Blockchain.com  

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3. Have sellers capitulated? This chart shows record losses last week – realized when coins purchased higher are spent at lower prices, according to Glassnode.
 
Source: @glassnode  
 
4. Bitcoin’s current drawdown is about half of the previous bear market’s drop from peak to trough in 2018-2019.
 
Source: Koyfin  
 
5. Here is the evolution of the total crypto market cap vs. 2017/2018.
 
Source: @ISABELNET_SA, @jpmorgan  
 
6. Bitcoin miner revenue has collapsed during the crypto sell-off.
 
Source: Glassnode   Read full article  
 
7. Everybody wants to have a Bitcoin ETF.
 
Source: CoinDesk   Read full article  


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Commodities

1. US steel prices are surging.
 

 
2. Speculative accounts have been easing their bets on corn.
 
Source: @kannbwx  
 
3. Global food producers are struggling with rising input prices.
 
Source: IMF   Read full article  
 
4. The ratio of US lumber orders to lumber production has collapsed.
 
Source: Cornerstone Macro  


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Energy

1. Brent held resistance at the upper Bollinger Band.
 

 
2. Demand has been the key driver of Brent price gains, according to the NY Fed.
 
Source: NY Fed  
 
3. US natural gas futures are surging, …
 

 
… as exports accelerate.
 
Source: Fitch Solutions Macro Research  


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Equities

1. The S&P 500 is at the upper Bollinger Band. Will we see a pullback?
 
h/t Nancy Moran  
 
2. Positive earnings surprises are expected to continue for the Q2 reporting season.
 
Source: @ISABELNET_SA, @JPMorganAM  
 
Earnings have become the main driver of global equity returns after price-to-earnings expansion drove the initial rebound.
 
Source: Barclays Research  

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3. Sustaining margin growth will be critical.
 
Source: @GinaMartinAdams   Read full article  
 
4. The most-shorted stocks continue to outperform.
 

 
5. Next, we have some sector updates.
 
Communication Services:
 

 
Source: CNBC   Read full article  
Source: CNBC   Read full article  
 
Tech:
 

 
Semiconductors:
 
Source: CNBC   Read full article  
 
Energy:
 

 
Metals & Mining:
 

 
Leisure/entertainment:
 
Source: Forbes   Read full article  

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6. Here are some popular thematic portfolios.
 
Sports betting:
 

 
Clean energy:
 

 
Inflation-sensitive stocks:
 

 
Post-IPO shars:
 

 
ARK Innovation:
 

 
ARK Genomic Revolution:
 

 
Source: Science   Read full article  

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7. Several meme stocks rallied on Monday.
 

 
8. Mutual funds have been underinvested in tech mega-caps, …
 
Source: Goldman Sachs; @themarketear  
 
… missing the rally.
 
Source: @axios   Read full article  

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9. Tech funds saw some outflows recently.
 
Source: @ISABELNET_SA, @BofAML  


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Credit

1. US high-yield spreads continue to hit record lows.
 

 
2. Spreads on mortgage-backed securities (MBS) have widened in recent weeks due to heavy supply and increased concerns about a Fed taper, according to Barclays.
 
Source: Barclays Research  
 
Barclays expects MBS net issuance to decline and banks to remain considerable buyers this year, which could keep spreads tight relative to historical levels (2 charts).
 
Source: Barclays Research  
 
Source: Barclays Research  


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Global Developments

1. Global container shipping rates continue to surge.
 
Source: @benbreitholtz  
 
Dry bulk shipping costs are also at multi-year highs.
 

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2. Here is the relative performance of equity markets around the world.
 
Source: BCA Research  
 
3. Inflation-friendly assets suffered the first weekly outflow since November 2020.
 
Source: Arbor Research & Trading  


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Food for Thought

1. Expected changes in the mix of occupations:
 
Source: McKinsey   Read full article  
 
2. Unpaid jobless claims:
 
Source: @BW   Read full article  
 
3. 5G growth globally:
 
Source: CCS Insight   Read full article  
 
4. Battery prices:
 
Source: @bbgvisualdata   Read full article  
 
5. Gender fluidity:
 
Source: Morning Consult   Read full article  
 
6. Different ways hate is experienced:
 
Source: @axios   Read full article  
 
7. US church membership:
 
Source: Gallup   Read full article  
 
8. Confederate monuments:
 
Source: @axios   Read full article  
 
9. When a car alarm goes off:
 
Source: SquareCirclez  

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