Posted on by The Daily Shot Editor: Lev Borodovsky

Services driving gains in consumer spending

The Daily Shot: 04-Oct-21
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Europe
• Japan
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Rates
• Global Developments
• Food for Thought

 

The United States

1. The Treasury market continues to show investors’ unease with the debt ceiling situation (potential risk of default). The X-Date is expected to hit later this month.
 

 
Here is the T-bill yield curve.
 
Source: Goldman Sachs  
 
Some are calling for the US Treasury to issue a trillion-dollar coin and deposit it at the Fed, which would certainly “avoid” default (MMT on steroids).
 
Source: @axios   Read full article  

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2. New unemployment claims remain elevated, running near 2012 levels.
 

 
Continuing claims declined sharply after most emergency benefits were terminated (2 charts).
 
Source: Piper Sandler   
 
Source: @WSJ   Read full article  
 
Consumption declined faster through July in states that ended enhanced unemployment insurance (UEI) early. Will we see an even bigger “income cliff,” after most other states terminated these benefits in September?
 
Source: Deutsche Bank Research  

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2. Consumer spending increased in August, running well above the pre-COVID trend.
 

 
Services have been driving the recent gains in spending (2 charts):
 
Source: @GregDaco  
 
Source: @WSJ   Read full article  

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3. Car sales slumped in recent months, with the September figure coming in below consensus.
 

 
Source: USA Today   Read full article  

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4. The September ISM manufacturing PMI surprised to the upside as orders remain robust.
 

 
Supplier bottlenecks are holding near extreme levels.
 

 
Will higher Treasury yields put downward pressure on US factory activity next year?
 
Source: Trahan Macro Research  

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5. The core PCE inflation, the Fed’s preferred measure, was firmer than expected in August. Prices are running well above the pre-COVID trend.
 

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Canada

1. The GDP remains below pre-COVID levels.
 

 
2. Factory activity held up well in September.
 

 
3. Rate hikes from the Bank of Canada typically lag behind the Fed by a few months
 
Source: Morgan Stanley Research  

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The United Kingdom

1. Home price appreciation is moderating.
 

 
Google search activity suggests that the slowdown will continue.
 
Source: Pantheon Macroeconomics  

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2. The winds haven’t been on the UK’s side this summer as the nation faces a shortage of natural gas. Wind power generation has been well below average.
 
Source: ING  
 
3. Who is responsible for the UK’s fuel shortages?
 
Source: @YouGov   Read full article  

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The Eurozone

1. Hedge funds are boosting their bets against the euro.
 

 
2. Inflation has been gaining momentum, boosted by energy prices.
 
– France (2 charts):
 

 
Source: Pantheon Macroeconomics  
 
– Italy:
 

 
– Germany:
 

 
• At the euro-area level, the core CPI hit the highest level since 2008.
 

 
• Market-based inflation expectations are grinding higher.
 

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3. Consumption indicators were mixed in August.
 
• Spanish retail sales:
 

 
• German retail sales:
 

 
• French household consumption:
 

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4. Germany’s labor market continues to strengthen.
 
Source: Pantheon Macroeconomics  
 
5. As we saw from the flash PMI figures in September, the Eurozone’s manufacturing expansion has been moderating.
 
Source: IHS Markit  
 
Nonetheless, Spanish and Italian factory activity remains robust.
 
Source: IHS Markit  

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Europe

1. Poland’s inflation surged to the highest levels in years.
 

 
The market is betting on rate hikes ahead.
 

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2. Central European manufacturing growth has been moderating.
 
• The Czech Republic
 
Source: IHS Markit  
 
• Poland:
 
Source: IHS Markit  

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3. Next, we have a couple of updates on energy trends in the EU.
 
• Electricity generation by source:
 
Source: Eurostat   Read full article  
 
• Energy consumption sources by country:
 
Source: The Economist   Read full article  
 
There is more on Europe’s energy crisis in the energy section.

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Japan

1. Consumer confidence is near pre-COVID levels.
 

 
2. The Q3 Tankan report showed further improvement in business activity.
 

 
3. The Nikkei is rolling over.
 

 
4. The labor market recovery appears to have stalled.
 

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Asia – Pacific

1. Taiwan’s manufacturing PMI shows some moderation in growth.
 
Source: IHS Markit  
 
Separately, China-related geopolitical risks persist.
 
Source: @WSJ   Read full article  

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2. South Korean PMI increased in September.
 
Source: IHS Markit  
 
Exports hit a record high.
 

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3. COVID-related deaths have picked up recently in Singapore.
 

 
4. New Zealand’s home prices continue to surge.
 

 
Morgan Stanley expects 150 basis points of rate hikes from the RBNZ by the end of next year.
 
Source: Morgan Stanley Research  

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5. Next, we have some updates on Australia.
 
• Home prices have been rising rapidly.
 

 
But mortgage lending declined sharply in August.
 

 
• COVID cases continue to surge.
 

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China

1. Power rationing is now widespread.
 
Source: TLG   Read full article  
 
But reduced steel production should ease China’s power demand.
 
Source: Gavekal Research  

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2. The renminbi continues to strengthen against a basket of currencies as the US dollar rallies.
 

 
Source: Bloomberg   Read full article  

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3. Will Evergrande get a liquidity injection with a sale of a subsidiary?
 
Source: Bloomberg   Read full article  
 
4. Tech shares continue to struggle in Hong Kong.
 

 
5. Hong Kong’s retail sales showed some improvement in August.
 

 
6. China has been successful in eliminating extreme poverty.
 
Source: Gavekal Research  

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Emerging Markets

1. Let’s run through the September manufacturing PMI trends in Asia.
 
• ASEAN PMI stabilized last month.
 
Source: IHS Markit  
 
• Indonesia, the Philippines, and Malaysia showed solid improvement.
 
Source: IHS Markit  
 
Source: IHS Markit  
 
Source: IHS Markit  
 
• Thailand’s factory activity is still sluggish.
 
Source: IHS Markit  
 
• Vietnam remains in recession.
 
Source: IHS Markit  

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2. Brazil’s manufacturing sector continues to grow.
 
Source: IHS Markit  
 
Mexico’s factories are still struggling.
 
Source: IHS Markit  

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3. Banxico hiked rates again amid rising inflation.
 

 
4. LatAm currencies bounced from the recent lows.
 

 
5. Russian bond yields continue to climb.
 

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Cryptocurrency

• Cryptos rebounded at the end of last week.
 

 
• Will the upper Bollinger Band resistance hold for bitcoin?
 

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Commodities

1. US soybean futures are declining in response to higher domestic inventories.
 

 
2. Coffee futures are surging.
 

 
Source: The Conversation   Read full article  

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3. This chart shows the September performance of key commodities.
 
Source: S&P Global Market Intelligence  

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Energy

1. Let’s begin with Europe’s energy situation.
 
• European LNG imports fell sharply earlier this year, mainly due to higher demand from Asia.
 
Source: Barclays Research  
 
• Here is a look at Europe’s sources of natural gas.
 
Source: Barclays Research  
 
• Gazprom has been struggling to meet demand from European customers over the past few months. 
 
Source: Barclays Research  
 
• German gas storage levels are below average.
 
Source: Barclays Research  
 
2. Here is a look at LNG import/export countries.
 
Source: Capital Economics  
 
3. LNG and coal prices soared in Aisa this year.
 
Source: @WSJ   Read full article  
 
4. US rig count momentum has improved.
 

 
But rigs continue to lag oil prices.
 
Source: Chart and data provided by Macrobond  

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5. US energy shares outperformed sharply last week.
 

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Equities

1. Stock investors’ focus is primarily on Treasury yields, …
 

 
… as high-growth stocks trade in tandem with Treasuries.
 
Source: Bloomberg   Read full article  

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2. Small caps held their outperformance last week.
 

 
Below are some other equity factor trends.
 
• Momentum:
 

 
• Value vs. growth (large caps):
 

 
• Value vs. growth (small caps):
 

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3. Next, we have some sector updates.
 
• Banks (boosted by higher Treasury yields):
 

 
• Transportation:
 

 
• Semiconductors:
 

 
• Communication services (XLC):
 

 
By the way, demand for XLC puts has risen as investors hedge Google and Facebook earnings risks.
 
Source: Cornerstone Macro  
 
• Pharma:
 

 
Source: Reuters   Read full article  
 
• Leisure & Entertainment:
 

 
• Here are the Q3 leaders and laggards (sectors and factors).
 
Source: S&P Global Market Intelligence  

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4. The CBOE Skew index has been declining, suggesting that demand for downside protection has eased.
 

 
5. Americans believe that, aside from their financial advisor, they or their partner are the best sources of financial guidance. Dead last are financial professionals in the media. 
 
Source: RIA Intel   Read full article   Further reading  
 
6. Finally, we have the year-to-date performance attribution for large and small-cap stocks.
 

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Rates

1. Let’s begin with the attribution of changes in Treasury yields.
 
• Real rates and inflation expectations:
 
– September:
 

 
– Q3:
 

 
• Term premium and risk-neutral yield:
 
– September:
 

 
– Q3:
 

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2. Treasuries are headed for their first annual loss since 2014.
 
Source: Bloomberg   Read full article  
 
3. Open interest in the 3yr note futures has risen amid increased uncertainty around the timing of liftoff.
 
Source: @CMEGroup  
 
4. Treasury issuance net of Fed purchases is expected to decline next year.
 
Source: Cornerstone Macro  
 
5. Fed officials seem more satisfied with progress toward their goals.
 
Source: Arbor Research & Trading  

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Global Developments

1. Speculative accounts continue to boost their bets on the US dollar.
 

 
Source: Longview Economics  
 
But technicals suggest the dollar is overbought.
 
Source: Longview Economics  

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2. Commodity currencies have been lagging terms of trade (which were boosted by commodity prices).
 
Source: @RobinBrooksIIF  
 
3. Global debt levels continue to climb.
 
Source: @markets   Read full article  
 
Here is the breakdown by sector.
 
Source: The Daily Feather  

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4. Higher oil prices will put downward pressure on global GDP.
 
Source: Nordea Markets  
 
5. Next, we have some updates on central banks.
 
• Debt holdings as a percent of total outstanding (2 charts):
 
Source: Livewire Markets   Read full article  
 
Source: BoE   Read full article  
 
• Bank of America’s forecast for securities purchases:
 
Source: @ISABELNET_SA, @BofAML  

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6. This chart shows global food prices adjusted for inflation.
 
Source: @lisaabramowicz1   Read full article  
 
7. Money supply growth has been moderating.
 
Source: TS Lombard  

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Food for Thought

1. Reading reviews before making a purchase:
 
Source: Digital.com   Read full article  
 
2. New unicorns, by year:
 
Source: Morning Brew   Read full article  
 
3. US household debt share by product and age:
 
Source: Federal Reserve Bank of New York  
 
4. Are long-term interest rates at 5,000-year lows?
 
Source: @ISABELNET_SA, @BofAML  
 
5. Changes in US population by community type:
 
Source: @WSJ   Read full article  
 
6. Elderly-to-working population ratio:
 
Source: Arbor Research & Trading  
 
7. The median age of US homebuyers:
 
Source: Deutsche Bank Research  
 
8. COVID-19 cases in states that ended emergency unemployment benefits early:
 
Source: Deutsche Bank Research  
 
9. Depression rates and social media usage:
 
Source: BCA Research  
 
10. Refugees resettled in the US:
 
Source: Reuters   Read full article  
 
11. Africa’s size in perspective:
 
Source: Visual Capitalist   Read full article  

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