The supply of available lots for home construction continues to dwindle

The Daily Shot: 12-Aug-21
The United States
The United Kingdom
The Eurozone
Japan
Asia – Pacific
China
Emerging Markets
Commodities
Energy
Equities
Rates
Global Developments
Food for Thought



 

The United States

1. Consumer price gains remained elevated last month, but the pace of growth slowed (roughly in line with expectations).
 

 
Shelter, new autos, and hotels drove much of the CPI increase in July.
 
Source: MRB Partners  
 
The monthly changes in these three categories are shown below.
 
Rent and owners’ equivalent rent:
 

 
Automobiles (price gains on used cars slowed):
 

 
Lodging away from home (the price index shown in the second chart):
 

 
The core CPI index is now well above the pre-COVID trend.
 

 
On a year-over-year basis, the core CPI is expected to stay elevated, even as the base effects dissipate. Here is a forecast from Oxford Economics.
 
Source: @GregDaco  
 
Three-month changes show the core goods and core services CPI (ex shelter) peaking.
 
Source: JP Morgan; @carlquintanilla  
 
The median CPI rose sharply in July, indicating that price gains have been broad.
 
Source: Longview Economics  

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2. Markets breathed a sigh of relief on signs that inflation appears to be peaking.
 

 
The dollar and bond yields declined.
 

 

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3. Next, we have some updates on housing.
 
Mortgage applications continue to run in line with the 2019 levels.
 

 
Rate locks are even stronger.
 
Source: AEI Center on Housing Markets and Finance  
 
Mortgage refi activity remains elevated.
 

 
Approximately 7.3 million homeowners have been in a forbearance plan at some point over the past 15 months. That’s more than 14% of all mortgage properties, according to Black Knight.
 
Source: Black Knight  
 
Increased household formation should continue to support the housing market in the next few years.
 
Source: Henry H. McVey, KKR  
 
Home price gains have surpassed the prior housing bubble peak.
 
Source: Quill Intelligence  
 
Home price appreciation has reduced consumer real estate leverage.
 
Source: Mizuho Securities USA  
 
The supply of available lots for home construction continues to dwindle.
 
Source: @AliWolfEcon  
 
Rental vacancies are trending lower.
 
Source: Nomura Securities  

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4. Business applications remain elevated.
 

 
5. Finally, we have the federal budget deficit (year-to-date).
 


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The United Kingdom

1. The GDP report was in line with expectations as growth resumed in Q2.
 

 
But private consumption surprised to the upside.
 

 
The UK’s recovery is still lagging other advanced economies.
 
Source: Pantheon Macroeconomics  
 
We’ll have more on the GDP report later.

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2. Home price appreciation ticked lower last month but remained near the peak.
 
Source: Reuters   Read full article  
 

 
This chart shows the price changes when homeowners upgrade (by property type).
 
Source: @financialtimes   Read full article  
 
Homebuyers are increasingly in higher-income brackets.
 
Source: @financialtimes   Read full article  


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The Eurozone

1. The euro held support at $1.17 as US inflation data showed some moderation.
 

 
2. Germany’s Greens continue to poll well despite some recent missteps.
 
Source: @adam_tooze, @Wahlrecht_de   Read full article  


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Japan

1. Producer prices rose more than expected, driven by industrial commodities.
 

 
2. Machine tool orders continue to climb.
 

 
3. Japan’s bankruptcy cases keep trending lower.
 


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Asia – Pacific

1. Australia’s mobility has now diverged sharply from the US and the UK.
 
Source: ANZ Research  
 
2. The market is pricing in a high probability of three RBNZ hikes before the year-end.
 
Source: @DavidInglesTV  
 
Higher inflation expectations and the housing bubble should put the central bank on a hawkish path.
 
Source: @DavidInglesTV  
 
Source: ANZ Research  


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China

1. Credit growth was slower than expected, with aggregate financing falling well below last year’s levels.
 

 
Money supply expansion data also came in below forecasts.
 

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2. The Delta variant is starting to have an impact on economic activity.
 
Source: Gavekal Research  
 
Source: Gavekal Research  

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4. Last year’s sector winners became this year’s losers. 
 
Source: MRB Partners  
 
Financial and tech earnings are now rebounding.
 
Source: MRB Partners  

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5. This chart shows China’s cumulative corporate bond issuance.
 
Source: @WSJ   Read full article  


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Emerging Markets

1. Brazil’s retail sales remain on the pre-COVID path.
 

 
The nation’s imports spiked amid weather-related domestic agricultural output challenges.
 
Source: @BLaw   Read full article  

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2. Mexico’s industrial production has been rolling over.
 

 
3. This chart shows LatAm fiscal measures in response to COVID.
 
Source: Gavekal Research  
 
4. South Africa’s business confidence took a hit.
 
Source: Bloomberg   Read full article  
 

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5. Russia’s exports surged in June, boosting the trade surplus.
 

 
6. A third of the MSCI EM index is in Chinese stocks.
 
Source: Jack Ablin, Cresset Wealth Advisors  
 
Here is the relative performance vs. the same index ex. China.
 

 
As a result, the MSCI EM index is trading at a sharp discount to advanced economies.
 
Source: @ISABELNET_SA, @GoldmanSachs  


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Commodities

1. US lumber prices continue to sink.
 

 
2. The slowdown in China’s manufacturing PMI points to lower industrial metal prices.
 
Source: BCA Research  
 
3. Speculative bets on commodities continue to moderate.
 
Source: Arbor Research & Trading  


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Energy

1. US crude oil inventories have leveled off.
 

 
But gasoline stockpiles are now below 2019 levels.
 

 

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2. Jet fuel demand is back below its multi-year range.
 
Source: Princeton Energy Advisors  
 
3. China’s crude oil import growth is at a multi-year low and is expected to continue lower.
 
Source: Fitch Solutions Macro Research  
 
Nonetheless, Goldman sees the global market remaining in deficit.
 
Source: Goldman Sachs; @spaghettilisbon  

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4. US natural gas supplies in storage are expected to remain tight.
 
Source: EIA   Read full article  


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Equities

1. “Reopening” stocks continue to outperform.
 

 
2. Retail bullish sentiment has declined from extreme levels. 
 
Source: Longview Economics  
 
3. Merrill Lynch private clients’ equity allocations remain near record highs.
 
Source: @ISABELNET_SA, @BofAML  
 
4. The put/call ratio’s deviation from trend could point to short-term strength in equities.
 
Source: Longview Economics  
 
5. Options volume is still elevated, especially relative to share trading volumes.
 
Source: Goldman Sachs; @themarketear  
 
6. China’s influence on the US stock market continues to moderate.
 
Source: Cornerstone Macro  
 
7. This chart shows the S&P 500 performance under different US unemployment regimes.
 
Source: BCA Research  
 
8. Finally, we have the value and growth factors’ (relative performance) correlation to the 10yr Treasury yield.
 
Source: Scotiabank Economics  


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Rates

1. The 10-year real Treasury yield is far below the neutral real interest rate (r*).
 
Source: Danske Bank  
 
2. Despite the drop in long-dated yields, the 5-year/5-year forward Treasury yield (expectations of the 5yr yield five years from now) remains close to fair value, according to BCA Research.
 
Source: BCA Research  
 
3. The divergence between the copper-to-gold ratio and bond yields has widened.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
4. Historically, the iShares 7-10 year Treasury Bond ETF has traded lower after peak inflows (which occurred last week).
 
Source: Chris Murphy; Susquehanna Derivative Strategy  


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Global Developments

1. The global policy stimulus impulse is deeply negative, which means economic growth could normalize to lower levels.
 
Source: Variant Perception  
 
Global excess liquidity growth continues to roll over.
 
Source: Variant Perception  

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2. This chart shows inflation-adjusted 10yr government bond yields.
 
Source: Alpine Macro  
 
3. Here is a look at sector performance during the recovery and mid-cycle expansion phases (2 charts).
 
Source: TS Lombard  
 
Source: TS Lombard  


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Food for Thought

1. Human trafficking prosecutions:
 
Source: Statista  
 
2. Startup CEO salaries during COVID:
 
Source: @deenashakir, @bizcarson, @protocol   Read full article  
 
3. Enjoying more greenery:
 
Source: The New York Times   Read full article  
 
4. In-person voting and COVID cases:
 
Source: The Economist   Read full article  
 
5. US Christians vs. religiously unaffiliated:
 
Source: Pew Research Center   Read full article  
 
6. It’s only a matter of time:
 
Source: @adam_tooze, @FT   Read full article  
 
7. Amazon sales by source:
 
Source: Statista  
 
8. Pent-up demand for weddings:
 
Source: The Wedding Report, Inc.  
 
9. US wealth-to-income ratios by age:
 
Source: @JPMorganAM  
 
10. Belief in aliens:
 
Source: Statista  

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