The Daily Shot: 02-Aug-21
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Asia – Pacific
• China
• Emerging Markets
• Commodities
• Energy
• Equities
• Credit
• Rates
• Food for Thought
The United States
1. Consumer spending was slightly stronger than expected in June, with the dollar level holding above the pre-COVID trend.
Services have been driving recent gains in spending.
Source: Mizuho Securities USA
• Personal income remains well above its pre-pandemic trend.
However, excluding government support, the recovery in incomes has been more modest.
Source: The Daily Feather
• Savings continue to moderate.
This chart shows US saving as a percent of disposable income.
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2. The June PCE inflation measure, while elevated, was a bit softer than expected (especially the core PCE – 2nd chart).
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3. The employment cost index grew at a slower rate in Q2.
Nonetheless, the wages & salaries component has sharply outpaced the post-2008 recovery.
Source: Mizuho Securities USA
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4. Below are some updates on the labor market.
• Job postings increasingly include wage ranges.
Source: Bloomberg Read full article
• Some 1.5 million older workers left the labor force.
Source: Deutsche Bank Research
• Online search activity for “job openings” surged recently. Will we see more Americans returning to work?
Source: Derek Holt, Scotiabank Economics
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5. The U. Michigan buying conditions for vehicles are the worst since the early 1980s due to sharp price gains and limited inventories.
6. A spike in evictions is coming.
Source: Reuters Read full article
Will it cause an uptick in COVID cases?
Source: @citylab Read full article
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7. The Chicago PMI index is near multi-decade highs, surprising to the upside. Business activity in the Midwest remains exceptionally strong.
But the copper/gold ratio points to US manufacturing growth peaking.
Source: Alpine Macro
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Canada
1. The GDP edged lower again in May.
2. Industrial prices have surged in recent months. Are we near a peak?
3. Job postings on Indeed are soaring.
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The United Kingdom
1. The Lloyds Business Barometer ticked lower in July.
2. The market is pricing slower BoE rate hikes over the next few years.
Source: Derek Holt, Scotiabank Economics
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The Eurozone
1. The Q2 GDP reports surprised to the upside, except in Germany. Southern European economies experienced robust growth.
Source: Pantheon Macroeconomics
– Germany:
– France:
– Italy:
– Spain:
– Portugal:
– The Eurozone:
• Domestic demand drove the GDP gains.
Source: Pantheon Macroeconomics
• Confidence indicators point to a strong Q3.
Source: Nordea Markets
• But it will be a while before euro-area growth returns to its pre-COVID trend.
Source: @financialtimes Read full article
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2. Most July inflation data surprised to the upside (we saw Germany’s and Spain’s CPI last week).
• France:
• Italy:
Inflation at the Eurozone level is above 2%. However, the core CPI is holding below 1% (2nd chart).
Here are the contributions to the CPI.
Source: Nordea Markets
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3. German long-term market-based inflation expectations hit the highest level in years.
4. The euro-area unemployment rate continues to moderate.
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Asia – Pacific
1. COVID cases in Japan are surging.
2. South Korea’s exports hit a record high.
Manufacturing growth has been moderating but remains healthy.
Source: IHS Markit
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3. Taiwan’s Q2 GDP surprised to the upside – the economy barely felt the COVID recession (2nd chart).
Manufacturing growth remained robust in July.
Source: IHS Markit
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China
1. The July manufacturing PMI reports were disappointing as new orders slowed.
– Official PMI (a measure below 50 means contraction):
– Markit PMI:
• According to IHS Markit, “market demand was sensitive to product prices, which limited enterprises’ pricing power.” Output price increases have stalled.
• The non-manufacturing PMI was in line with forecasts.
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2. Huarong’s bonds continue to struggle.
Bloomberg’s China HY index yield is nearing 13%.
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3. Hong Kong’s Q2 GDP growth was below expectations.
4. Macau casino revenue remains depressed.
5. Total factor productivity has slipped in recent years.
Source: ANZ Research
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Emerging Markets
1. COVID cases have been surging in several Asian economies.
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2. The pandemic is pressuring manufacturing activity across Asia. Let’s run through the July factory PMIs.
• ASEAN (contracting rapidly):
Source: IHS Markit
• The Philippines (growth stalled):
Source: IHS Markit
• Thailand (moderate contraction):
Source: IHS Markit
• Vietnam (still shrinking):
Source: IHS Markit
• Malaysia (rapidly declining):
Source: IHS Markit
• Indonesia (contraction accelerating):
Source: IHS Markit
• Myanmar (a disaster):
Source: IHS Markit
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3. Peru’s assets took a hit last week.
Source: Bloomberg Read full article
• Stocks:
• Currency:
• Bond yields:
• CDS spread:
But we may see some relief this week.
Source: Reuters Read full article
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4. Brazil’s short-term yields continue to surge.
And the equity market took a hit on Friday.
Separately, Brazil’s debt-to-GDP ratio unexpectedly jumped in June.
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3. Emerging market fund flows improved in recent weeks.
Source: @ISABELNET_SA, @BofAML
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Commodities
Coffee futures tumbled from the highs on Friday.
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Energy
1. US jet fuel demand is improving.
Source: Princeton Energy Advisors
2. US renewable diesel production is expected to surge over the next few years.
Source: @EIAgov Read full article
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Equities
1. Let’s begin with the year-to-date return attribution for the S&P 500 and S&P 600 (small-caps).
2. Next, we have a couple of seasonality charts.
• Number of negative months:
Source: Deutsche Bank Research
• 1st-year presidential cycle 3-month seasonality:
Source: @ISABELNET_SA, @BofAML
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3. The US M2 money supply growth has converged with nominal GDP growth. This could mean there is less excess liquidity to fuel asset prices, according to Alpine Macro.
Source: Alpine Macro
But net-long Australian dollar futures positioning points to rising risk sentiment, which could support equity returns over the next 6-months.
Source: MarketDesk Research
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4. Equity positioning is starting to decline from peak levels.
Source: Deutsche Bank Research
Both discretionary and systematic strategies reduced their equity exposure slightly.
Source: Deutsche Bank Research
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5. Q2 earnings continue to surprise to the upside.
Source: @FactSet Read full article
Tech mega-cap earnings set new records.
Source: Statista
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6. The stock/bond ratio appears stretched.
Source: Alpine Macro
7. The Reddit crowd is growing impatient with meme stocks and shifting back into crypto.
For example, this chart shows WallStreetBets’ comment volume on AMC.
Source: SwaggyStocks
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Credit
1. Here is the distribution of the leveraged loan market by industry and rating.
Source: Yield Book, Refinitiv
2. Mortgage REITs have outperformed over the past year.
Source: Citi Private Bank
3. ESG money market funds are gaining some traction.
Source: Fitch Ratings
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Rates
1. Let’s begin with Treasury yield movement attribution.
• July:
• Year-to-date:
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2. Real yields continue to drift lower, with the 5yr TIPS yield approaching -2%.
3. Speculative accounts are reducing their bets against Treasuries.
4. The US Treasury cash balances at the Fed are tumbling, injecting more liquidity into the private sector.
As a result, the Fed’s RRP balances climbed above $1 trillion last week, …
… with more market participants parking their overnight cash at the Fed.
Source: Bloomberg Read full article
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5. The amount of global negative-yielding debt has been rising.
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Food for Thought
1. Unemployment rate trends in advanced economies during 2020:
Source: Taylor and Francis Read full article
2. Prime-age employment in advanced economies:
Source: @markets Read full article
3. Employees’ work-from-home preferences:
Source: BCA Research
4. Tinder activity during COVID:
Source: @chartrdaily
5. The history of portable music:
Source: Statista
6. OTT services:
Source: Cision PR Newswire Read full article
7. Most popular websites:
Source: Statista
8. Ransomware attempts:
Source: @jessefelder, @FT Read full article
9. Countries with the highest tensions between liberals and conservatives:
Source: Statista
10. Vaccine opposition:
Source: @MorningConsult Read full article
11. The world’s smallest countries:
Source: Statista
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