Rotation from goods to services

The Daily Shot: 17-Aug-21
The United States
Canada
The Eurozone
Japan
Asia – Pacific
China
Emerging Markets
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. The first regional Fed manufacturing survey of the month (from the NY Fed) showed some moderation in factory activity.
 

 
Shipments eased, but expectations remain strong (2nd chart).
 

 
Price pressures persist. The prices paid index is off the highs, but the prices received indicator hit a new record.
 

 
Supply-chain bottlenecks continue to bedevil the region’s manufacturers.
 
Unfilled orders:
 

 
Delivery times:
 

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2. The July PPI surprise points to rotation from goods to services, according to BCA Research.
 
Source: BCA Research  
 
Going forward, reduced goods consumption and increased service consumption will likely relieve pressure on commodity inflation, according to Danske Bank.
 
Source: Danske Bank  

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3. Tech led the latest CapEx recovery, as companies prioritized digitization.
 
Source: Cornerstone Macro  
 
That trend contributed to higher tech-related employment.
 
Source: Cornerstone Macro  

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4. The share of the population aged 65 and higher is expected to rise, which will be a drag on labor force participation (2 charts).
 
Source: Morgan Stanley Research  
 
Source: Morgan Stanley Research  

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5. Will the looming debt ceiling battle in Congress be a non-event, or will we get a repeat of 2011 (which resulted in a US debt downgrade)?
 
Source: @WSJ   Read full article  
 
6. US air travel has been resilient and is now near 2019 levels (for this time of the year).
 


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Canada

1. Existing-home sales declined for the fourth month in a row.
 

 
2. Factory sales remain near record highs.
 

 
3. Here is a look at regional vaccination rates.
 
Source: Desjardins  


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The Eurozone

1. Economists boosted their forecasts for next year’s GDP growth in the Eurozone.
 

 
2. The bounce in oil prices alongside dovish ECB guidance contributed to higher European breakeven inflation rates, similar to the US.
 
Source: Morgan Stanley Research  
 
On a related note, the euro fell throughout July as real yields declined.
 
Source: Morgan Stanley Research  

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3. Next, we have a couple of updates on politics.
 
French polls:
 
Source: Pantheon Macroeconomics  
 
German election odds in the betting markets:
 
Source: @PredictIt  


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Japan

1. Industrial production is back at pre-COVID levels.
 

 
2. Asset managers and leveraged funds are significantly net-short yen.
 
Source: Morgan Stanley Research  
 
Separately, USD/JPY has traded lower during NY hours.
 
Source: Morgan Stanley Research  


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Asia – Pacific

1. The South Korean won has been under pressure amid capital outflows.
 

 
2. Singapore’s exports remain robust.
 

 
3. New Zealand’s health officials are looking into a new community transmission of COVID in Auckland. Markets were pricing in a series of RBNZ rate hikes, but the pandemic risk could derail these plans.
 
Source: RNZ   Read full article  
 
Bond yields and the Kiwi dollar tumbled.
 

 

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4. Australia’s public transit trend stands out.
 
Source: Cornerstone Macro  


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China

1. Tech stocks remain under pressure.
 

 
2. China’s small caps have been outperforming as Bejing targets some industry leaders.
 

 
3. For now, there are no signs of an infrastructure boost to reverse the current economic slowdown.
 
Source: Pantheon Macroeconomics  
 
4. Youth unemployment has risen.
 
Source: Bloomberg   Read full article  
 
5. China’s total trade surged over the past year.
 
Source: DeepMacro¬†  


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Emerging Markets

1. India’s wholesale prices are rising at a slower pace.
 

 
2. Israel’s GDP is back inside the multi-year range.
 

 
3. Governments in the Northern Triangle countries have zero incentive to curtail migration to the US. Remittances increasingly provide much-needed dollars to the nations’ struggling economies. To put this into perspective, Guatemala’s coffee exports are worth $0.65 billion per year. Banana exports are $0.94 bn/year. On the other hand, migrant labor “exports” now deliver $1.35 billion – per month. Remittances totaled $11.34 billion in 2020, representing 14.7% of the GDP. The figure will be even higher this year.
 


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Commodities

1. North American steel prices continue to surge.
 

 
2. Next, we have some updates on the US corn market.
 
Crop yields over time:
 
Source: @FarmPolicy, @USDA_ERS   Read full article  
 
Yield changes by state:
 
Source: @FarmPolicy, @USDA_ERS   Read full article  
 
Corn utlization:
 
Source: @FarmPolicy, @USDA_ERS   Read full article  
 
Exports:
 
Source: @FarmPolicy, @USDA_ERS   Read full article  

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3. Wine prices continue to climb.
 


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Energy

1. The US rig count is nearing 400.
 

 
2. China’s refinery demand has slowed.
 
Source: Bloomberg   Read full article  
 
3. Next, we have some updates on natural gas markets.
 
European natural gas inventories are running below 2018 levels.
 
Source: Cornerstone Macro  
 
UK natural gas futures hit a record high.
 

 
Exporting US LNG to Europe is increasingly profitable.
 
Source: Cornerstone Macro  
 
Speculative accounts continue to increase their bets against US natural gas.
 
Source: Fundamental Analytics   Read full article  

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4. US residential electricity consumption per capita has been flat for over a decade.
 
Source: EIA  
 
5. This chart shows solar and wind share of electricity generation for select economies (Row = “rest of the world”).
 
Source: Cornerstone Macro  


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Equities

1. The S&P 500 has doubled from the pandemic lows (3/23/2020).
 
h/t Sophie Caronello  
 
The rise has been remarkably fast.
 
Source: @RyanDetrick  
 
Source: CNBC   Read full article  

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2. The stock market has been exceptionally quiet this month.
 
Source: @markets   Read full article  
 
3. The S&P 500’s valuation dispersion is far above the 25-year average.
 
Source: J.P. Morgan Asset Management  
 
4. Companies are talking more about inflation and wage pressures on earnings calls, although mentions of margin pressure have been relatively low. 
 
Source: Market Ethos, Richardson GMP  
 
5. Investor sentiment has diverged from consumer sentiment.
 
Source: @Callum_Thomas, @takis2910  
 
6. Earnings growth over 2019 levels has been strong globally.
 
Source: Deutsche Bank Research  
 
7. Tech long-term growth estimates seem too optimistic.
 
Source: BCA Research  
 
Antitrust lawsuits could put pressure on tech valuations.
 
Source: @ISABELNET_SA, @GoldmanSachs  

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8. The betting markets don’t expect substantial corporate tax hikes in the US.
 
Source: BCA Research  
 
9. Small-cap valuations continue to improve, with the forward P/E ratio dipping below pre-COVID levels.
 

 
10. The quality factor has outperformed the S&P 500 over the past month.
 

 
11. Hedge funds’ most popular stock picks have underperformed sharply this year.
 


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Credit

1. Here is a look at relative value across the US investment-grade sector.
 
Source: Mizuho Securities USA  
 
Investment-grade spreads have contracted in several cyclical sectors this year.
 
Source: Mizuho Securities USA  

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2. US banks’ lending standards are the easiest in decades.
 
Source: Deutsche Bank Research  
 
3. The loan-to-deposit ratio decline at small banks has been much less severe than at large firms,
 
Source: Mizuho Securities USA  
 
4. Massive gains in agricultural commodity prices boosted US farm income.
 
Source: @KansasCityFed, @FarmPolicy   Read full article  
 
As a result, demand for farm loans has collapsed.
 
Source: @KansasCityFed, @FarmPolicy   Read full article  


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Rates

1. A rapid taper?
 
Source: @WSJ   Read full article  
 
2. The Taylor Rule suggests that the current monetary policy is too accommodative.
 
Source: Christof Leisinger  
 
3. This chart shows 10yr Treasury yield forecasts for the fourth quarter (an impressive dispersion).
 
Source: @DavidInglesTV  
 
4. Adjusting for the liquidity premium puts the 10yr TIPS yield near zero.
 
Source: Cornerstone Macro  
 
Here is an estimate of the liquidity premium over time (from Cornerstone Macro).
 
Source: Cornerstone Macro  

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5. TIPS inflows have been unprecedented.
 
Source: Arbor Research & Trading  


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Global Developments

1. The dollar index (DXY) has been stuck in a range since Q4 and faces resistance at 93.
 
Source: Morgan Stanley Research  
 
2. Speculative accounts continue to add to their net long dollar positions.
 
Source: Danske Bank  
 
3. In Japan, earnings yields for stocks have risen once bond yields fell below 2% in the early 2000s. Meanwhile, the earnings yield in German stocks has been stuck around 5% over the past decade as Bund yields collapsed.
 
Source: Alpine Macro  
 
4. ETF assets have exceeded $9 trillion.
 
Source: @WSJ   Read full article  
 
5. Here is a look at income inequality around the world.
 
Source: Quill Intelligence  


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Food for Thought

1. Bezos’s and Branson’s reusable spacecraft:
 
Source: @financialtimes   Read full article  
 
2. Cellular traffic vs. mobile revenues per gigabyte:
 
Source: @tefficient   Read full article  
 
3. Most watch video games on Twitch:
 
Source: Statista  
 
4. Undernourished people globally:
 
Source: @business   Read full article  
 
5. Share of US population believing in God without a doubt:
 
Source: @ryanburge  
 
6. Trust in US intritutions:
 
Source: Gallup   Read full article  
 
7. A warm July:
 
Source: @axios   Read full article  
 
8. Undesired weight gain during the pandemic:
 
Source: APA  
 
9. COVID undercounting in New York City’s first wave:
 
Source: Phys.org   Read full article  
 
10. The most popular yoga and mindfulness apps:
 
Source: Statista  
 
11. US support for Afghanistan withdrawal:
 
Source: Morning Consult   Read full article  
 
12. Highest-paid MLB players:
 
Source: Sportico   Read full article  

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