Confidence, spending moderate as households lose emergency unemployment income

The Daily Shot: 16-Jul-21
The United States
Canada
The United Kingdom
Europe
Asia – Pacific
China
Emerging Markets
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. Last month’s industrial production report was weaker than expected as factory output declined.
 

 
Manufacturing production remains below pre-COVID levels.
 

 
Much of the weakness was due to slowing motor vehicle production (4 charts).
 


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2. The first two regional Fed manufacturing surveys of the month continue to show strong growth, but the changes from June were mixed.
 
The NY Fed’s index (Empire) surged to a record, …
 

 
… but many analysts suggested that it’s an outlier. Here is a comparison with China’s manufacturing PMI.
 
Source: Pantheon Macroeconomics  
 
Employment growth is near multi-year highs while hiring plans (2nd chart) hit a new record.
 

 
Supply-chain constraints remain severe, but fewer companies see rising delivery times.
 

 
Price pressures persist, but manufacturers have gained pricing power …
 

 
… and plan to use it.
 

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The Philly Fed index, on the other hand, was disappointing, which makes the Empire spike that much more suspect.
 

 
Delivery bottlenecks and price pressures persist.
 


 
But the “unfilled orders” index is down sharply from the highs.
 

 
Just like in the Empire report, the percentage of firms expecting to hire more workers is surging.
 

 
CapEx expectations look impressive.
 

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3. Initial jobless claims have not changed much since May.
 
Source: @GregDaco  
 
But as states canceled the emergency unemployment benefits, consumer confidence took a hit (as households worry about personal finances).
 

 
And spending among those who lost government support has underperformed.
 
Source: BofA Global Research  

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4. Corporate tax receipts have surged as earnings rebound.
 
Source: @TCosterg  


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Canada

1. Existing home sales have declined for three months in a row.
 

 
2. This chart shows the number of BoC rate hikes currently priced in.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
3. These charts from Oxford Economics show the growth and composition of households’ excess savings.
 
Source: Oxford Economics  
 
Source: @OxfordEconomics   Read full article  
 
Most of the excess savings are held by higher-income households.
 
Source: Oxford Economics  


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The United Kingdom

The labor market continues to heal (2 charts).
 

 
Source: @jeffsparshott  


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Europe

1. The French public has become more open to getting vaccinated.
 
Source: @abarrous, @elabe_fr  
 
2. The EU’s emergency programs should substantially improve growth and employment in most euro-area economies.
 
Source: TS Lombard  
 
3. Swiss house price appreciation is above 7% for the first time in decades.
 

 
4. Minimum wage levels vary substantially across Western Europe.
 
Source: Eurostat   Read full article  


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Asia – Pacific

1. Japan’s service-sector activity tumbled in May.
 

 
2. New Zealand’s Q2 CPI report surprised to the upside, nearly cementing a rate hike next month. Here is the market-based probability.
 

 
The Kiwi dollar and bond yields rose further.
 

 


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China

1. Deutsche Bank expects China’s credit impulse to recover in the months ahead, which should help stabilize manufacturing conditions (2 charts).
 
Source: Deutsche Bank Research  
 
Source: Deutsche Bank Research  

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2. Variant Perception’s China leading indicator has been held up by external factors, even as domestic liquidity data has slowed materially.
 
Source: Variant Perception  
 
Source: Variant Perception  

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3. Flights to the US have collapsed and show few signs of recovery.
 
Source: Bloomberg   Read full article  


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Emerging Markets

1. The Chilean peso remains under pressure.
 

 
Separately, Chile’s interest expense relative to revenues has been declining.
 
Source: Mizuho Securities USA  

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2. Colombia’s manufacturing output took a hit in May.
 

 
3. LatAm external debt issuance remains robust.
 
Source: Fitch Ratings  
 
Which countries have the highest percentage of external (FX) debt?
 
Source: Fitch Ratings  

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4. India’s exports are now well above 2019 levels.
 

 
Separately, investment in India’s tech sector hit a new high last quarter, driven by the US.
 
Source: @financialtimes   Read full article  

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5. The rally in EM currencies appears stretched.
 
Source: Fitch Solutions Macro Research  


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Commodities

This year’s price action in US lumber futures has been spectacular.
 


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Energy

1. Is Brent crude about to test the 50-day moving average support?
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
2. OECD oil inventories are below the 5yr average and headed lower.
 
Source: Cornerstone Macro  


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Equities

1. Stocks that perform well in a rising inflation environment have underperformed substantially in recent weeks – despite the upside CPI surprises.
 

 

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2. Related to the above, companies with weak balance sheets had a rough 30 days.
 

 
3. Small caps continue to struggle.
 

 
4. Goldman’s “retail favorites” basket had a tough couple of weeks.
 

 
5. Growth stocks appear overbought over the short term.
 
Source: Acorn Macro Consulting  
 
Cyclicals are not yet overbought relative to defensives.
 
Source: Acorn Macro Consulting  

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6. It’s been an amazing first half of the year for ETF inflows.
 
Source: Bloomberg   Read full article  
 
7. The S&P 500 tends to recover 6-months after a capital gains tax increase. 
 
Source: JP Morgan Asset Management  


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Credit

1. Here are some updates on the leveraged finance market from S&P Global Market Intelligence (LCD).
 
Bonds and leveraged loans outstanding:
 
Source: S&P Global Market Intelligence  
 
US HY bond volume by use of proceeds:
 
Source: S&P Global Market Intelligence  
 
M&A-related issuance:
 
Source: S&P Global Market Intelligence  
 
Volume coming from first-time borrowers:
 
Source: S&P Global Market Intelligence  
 
HY Oil & Gas issuance:
 
Source: @WSJ   Read full article  

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2. ESG bond sales are headed for $1 trillion.
 
Source: @business   Read full article  


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Rates

1. The 10yr Treasury yield held support at the 200-day moving average.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
2. CTA funds have bought more duration during the recent bond rally.
 
Source: Deutsche Bank Research  
 
3. Curve flattening has started before a Fed taper.
 
Source: Nordea Markets  
 
4. The recent decline in yields suggests investors are nervous about economic growth.
 
Source: TS Lombard  
 
5. US real yields are well below that of the rest of G10.
 
Source: BCA Research  


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Global Developments

1. Shipping containers from China continues to get more expensive.
 

 
Source: @markets   Read full article  

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2. This chart shows the semiconductor industry’s global market share of demand and supply.
 
Source: Natixis  
 
3. BlackRock expects China to lead global GDP growth, with the US returning to pre-pandemic growth levels. 
 
Source: BlackRock  


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Food for Thought

1. CEO-to-worker pay ratio by industry:
 
Source: Statista  
 
2. Employees’ hopes and fears:
 
Source: McKinsey   Read full article  
 
3. Searches for jobs at companies after wage hike announcements:
 
Source: @nick_bunker, @indeed   Read full article  
 
4. Sales jobs listings:
 
Source: @WSJ   Read full article  
 
5. Slow return to the office in NYC:
 
Source: Bloomberg   Read full article  
 
6. Labor-force participation among women in advanced economies:
 
Source: @WSJ   Read full article  
 
7. Chip shortage impact on US autos:
 
Source: Visual Capitalist   Read full article  
 
8. Support for same-sex marriage:
 
Source: Gallup   Read full article  
 
9. US political polarization:
 
Source: FiveThirtyEight   Read full article  
 
10. Chicken sandwiches:
 
Source: @AdamSinger  

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Have a great weekend!


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