Faster wage growth limited to low-wage sectors

The Daily Shot: 26-Jul-21
The United States
Canada
The United Kingdom
The Eurozone
Asia -Pacific
China
Emerging Market
Cryptocurrency
Commodities
Energy
Equities
Rates
Global Developments
Food for Thought



 

The United States

1. The flash Markit PMI report shows factory growth accelerating this month.
 

 
Service-sector growth remains robust but is well off the highs (and below forecasts).
 

 
Manufacturing supply constraints remain severe.
 

 
And price pressures worsened further this month.
 

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2. Next, we have some updates on inflation.
 
Businesses are boosting prices across industries.
 
Source: S&P Global Market Intelligence  
 
Retailers’ pricing power has been surging, according to Evercore ISI.
 
Source: Evercore ISI  
 
The current recovery in CPI is not extreme relative to history.
 
Source: Deutsche Bank Research  
 
This chart shows two inflation scenarios from Cornerstone Macro. Will we get the “sticky price” outcome?
 
Source: Cornerstone Macro  
 
US economic growth is expected to run above its potential, which tends to be inflationary.
 
Source: Deutsche Bank Research  
 
High-frequency measures show that shelter inflation should accelerate.
 
Source: Arbor Research & Trading  
 
Medical care CPI has been moderating.
 
Source: Deutsche Bank Research  
 
Faster wage growth has been constrained to several low-wage sectors, according to BCA Research.
 
Source: BCA Research  
 
Core goods prices, excluding used cars, have surged over the past three months.
 
Source: Deutsche Bank Research  
 
But they are expected to start moderating. At the same time, services inflation (including shelter) will be rebounding.
 
Source: Cornerstone Macro  
 
The market expects inflation to ease going forward.
 
Source: BCA Research  

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3. Finally, let’s take a look at a couple of COVID metrics.
 
New cases:
 

 
Vaccinations:
 
Source: Yardeni Research  


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Canada

1. Retail sales slowed further in May.
 

 
2. The Oxford Economics Recovery Tracker is above pre-COVID levels.
 
Source: Oxford Economics  
 
3. “Subprime” mortgages are on the rise in Canada.
 
Source: @C_Barraud   Read full article  


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The United Kingdom

1. Retail sales remain robust.
 

 
2. The flash PMI report surprised to the downside. To be sure, growth in business activity is strong, but we are off the highs.
 
Manufacturing:
 

 
Services:
 

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3. Public debt surged since the start of the pandemic.
 
Source: @financialtimes   Read full article  
 
4. The travel sector’s current account has been in surplus as more Britons stay local.
 
Source: @Gavekal  
 
5. Job adverts have been on the rise in London (driven by financial and consulting firms).
 
Source: @StuartLWallace, @EamonFarhat   Read full article  
 
6. Hospital admissions would be surging without the vaccine program.
 
Source: @financialtimes   Read full article  


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The Eurozone

1. The flash PMI report showed stronger growth in July.
 

 
French results were a bit below consensus.
 
Manufacturing:
 

 
Services:
 

 
But German PMI indices topped forecasts.
 
Manufacturing:
 

 
Services (surging):
 

 
Price pressures persist.
 
Source: @markets   Read full article  

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2. Next, we have some additional updates on Germany.
 
The 2yr yield:
 

 
Auto industry jobs:
 
Source: Bloomberg   Read full article  
 
Exports to the US vs. China:
 
Source: Bloomberg   Read full article  
 
Manufacturing orders (showing a drop in global demand):
 
Source: @RobinBrooksIIF  

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3. Finally, here are a couple of updates on Spain.
 
Electricity demand (driven by the heatwave):
 
Source: @markets   Read full article  
 
Mortgage approvals:
 


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Asia -Pacific

1. Japan’s manufacturing growth eased further this month. Services are still in bad shape (PMI < 50 means contraction).
 

 
2. Taiwan’s industrial production is surging.
 

 
3. Singapore’s inflation remains tepid (below forecasts).
 

 
4. New Zealand’s exports are hitting new highs. Exports usually decline in June – but not this year.
 

 
5. Next, we have some updates on Australia.
 
Australian equities appear stretched based on MRB’s momentum measures …
 
Source: MRB Partners  
 
… as government bonds unwind from oversold conditions. 
 
Source: MRB Partners  
 
Margin debt has been rising.
 
Source: @Scutty, @CommBank, @martin_whetton  
 
The COVID situation is getting worse.
 

 
Source: Reuters   Read full article  
 
The ANZ activity tracker tumbled to levels not seen since October 2020.
 
Source: @ANZ_Research, @DimesHayden  


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China

1. Education stocks are tumbling as Beijing cracks down (forcing them to become non-profit organizations).
 
Source: @WSJ   Read full article  
 

 
And that’s dragging markets in Hong Kong and the mainland sharply lower.
 

 

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2. Bond yields are drifting lower.
 

 
3. The World Economics SMI report shows acceleration in business activity this month. Hiring has strengthened.
 
Source: World Economics  
 
4. China has been using cheap coal power to drive down polysilicon costs and dominate the global solar panel market.
 
Source: @adam_tooze, @alexbhturnbull   Read full article  


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Emerging Market

1. Brazil’s inflation continues to climb.
 

 
2. Mexican retail sales are near pre-COVID levels (but well below trend).
 

 
3. The Chilean peso remains under pressure.
 

 
4. This chart shows real GDP growth in LatAm economies since 2009.
 
Source: @RobinBrooksIIF  
 
5. Russia’s central bank aggressively hiked rates (as expected) to combat rising inflation.
 

 
6. Israel’s leading index remains well below its pre-COVID trend.
 


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Cryptocurrency

1. Bitcoin rallied sharply over the weekend and is now approaching $40k.
 

 
2. Cryptocurrencies appear oversold, although the cyclical trend is still facing downward pressure, according to MRB Partners.
 
Source: MRB Partners  
 
3. A significant number of “whales” (large holders) are sending BTC to exchanges, which typically means an intention to sell rather than hold in digital wallets.
 
Source: @ki_young_ju  
 
4. Crypto valuations are correlated with network size.
 
Source: Goldman Sachs; @MichaelRinko  
 
Ethereum has experienced the most network growth.
 
Source: Goldman Sachs; @MichaelRinko  

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5. Over the past year, nearly BTC 200k has been wrapped on the Ethereum blockchain.
 
Source: @skew  
 
6. Below is a comparison of network transaction speeds.
 
Source: @TeddyVallee, @MichaelRinko  


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Commodities

1. Commodities appear extremely overbought.
 
Source: MRB Partners  
 
2. Are steel prices pointing to another leg up in metals?
 
Source: BCA Research  
 
The VanEck Vectors Steel ETF (SLX) is testing resistance. 
 
Source: Dantes Outlook  

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3. Next, we have some updates on precious metals.
 
Gold vs. TIPS yield (US implied real rates):
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Silver breakdown?
 
Source: @sunchartist  
 
Precious metals miners’ free cash flow spread to the S&P 500:
 
Source: @TaviCosta  


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Energy

1. US rig count and frac spreads continue to recover.
 

 
2. Jet fuel inventory remains elevated.
 
Source: @markets   Read full article  
 
3. Speculative accounts continue to increase their bets against US natural gas.
 


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Equities

1. The S&P 500 hit another record high and is now back at the upper Bollinger Band.
 

 
The largest growth stocks continue to lead the rally.
 

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2. The correlation between the S&P 500 and the equal-weight index has been unusually low.
 

 
3. Forget the Fed Put – we now have the “retail put.” Retail investors have been consistently buying market dips.
 
Source: Vanda Research, Bloomberg   Read full article  
 
Call options allow retail investors to punch above their weight.
 
Source: @ISABELNET_SA, @GoldmanSachs  

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4. The S&P 500 dividend yield is the lowest in a couple of decades.
 
Source: @sunchartist  
 
5. The rising US dollar hasn’t been pressuring stocks (for now).
 

 
6. Next, we have some sector updates.
 
Banks:
 

 
Housing:
 

 
Energy:
 

 
Communication Services:
 

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7. Cyclical sectors have not participated in the broader market rise in recent weeks. Typically, sectors become oversold when the percentage of stocks above the 50-day moving average is lower than 20% to 30%, according to Truist.
 
Source: Truist Advisory Services  
 
Long-only investors have cut back on cyclicals relative to defensives last month, according to an Evercore ISI survey.
 
Source: Evercore ISI  

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8. This chart shows US equities vs. corporate bonds.
 
Source: @ISABELNET_SA, @BofAML  


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Rates

1. The 10yr TIPS yield (US real rate) is near all-time lows.
 

 
2. The US Treasury’s cash balances at the Fed continue to shrink.
 

 
3. The US monetary policy is extraordinarily accommodative.
 
Source: SG Cross Asset Research; @jessefelder, Bloomberg   Read full article  


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Global Developments

1. Here is a look at asset returns year-to-date relative to their 2021 range so far. 
 
Source: BlackRock  
 
2. Speculative accounts are now net long the US dollar.
 

 
3. Container rates appear to be peaking.
 
Source: @benbreitholtz  


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Food for Thought

1. Percentage of workers back in the office:
 
Source: @BobOnMarkets, @bopinion   Read full article  
 
2. US business applications:
 
Source: Deutsche Bank Research  
 
Source: @axios   Read full article  

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3. Willingness to pay more for sustainable products (in Europe):
 
Source: McKinsey   Read full article  
 
4. US homebuyers with less than a 20% downpayment:
 
Source: Mizuho Securities USA  
 
5. Countries with most Olympic gold medals over time:
 
Source: @axios   Read full article  
 
6. Should Olympic athletes be allowed to use marijuana?
 
Source: Morning Consult   Read full article  
 
7. US air rage cases:
 
Source: @business   Read full article  
 
8. 4G vs. 5G download speeds:
 
Source: Statista  
 
9. The most common language spoken at home other than English or Spanish:
 
Source: Markets Insider   Read full article  

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