Just-in-time inventory management has gone out the window

The Daily Shot: 05-Oct-21
The United States
The Eurozone
Europe
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. Let’s begin with some updates on manufacturing.
 
Factory orders continued to climb in August.
 

 
Capital goods orders and shipments were adjusted higher, pointing to robust business investment.
 

 
The ISM manufacturing PMI continues to show a gap between the new orders and production indices. Supply bottlenecks are increasingly holding back factory output.
 
Source: Piper Sandler   
 
Manufacturers are building larger-than-normal inventories to deal with shortages. The just-in-time (JIT) inventory management method has gone out the window.
 
Source: Mizuho Securities USA  
 
China’s factory activity tends to lead the US, pointing to moderation in American manufacturing growth ahead.
 
Source: Pantheon Macroeconomics  

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2. Retailers are struggling to maintain sufficient inventories.
 
Source: @lisaabramowicz1   Read full article  
 
American consumers are not used to this.
 
Source: Morning Consult   Read full article  

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3. Residential and non-residential construction spending trends continue to diverge.
 
Source: Chart and data provided by Macrobond  
 
By the way, US construction productivity hasn’t grown since WW-II.
 
Source: The Economist   Read full article  

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4. Next, we have some updates on the labor market.
 
Job openings on Indeed:
 
Source: @AE_Konkel, @indeed  
 
Online job search activity:
 
Source: Arbor Research & Trading  
 
Quit rate (pointing to further upside in wage growth):
 
Source: Deutsche Bank Research  

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5. Kayak searches for flights are rebounding as the pandemic eases.
 
Source: @RenMacLLC  
 
6. Mortgage applications have been resilient despite higher housing prices. But housing activity will see a pullback if Treasury yields rise further.
 
Source: BCA Research  
 
7. Households that received unemployment benefits reduced spending more than those that did not.
 
Source: The Daily Feather  
 
8. The Atlanta Fed’s GDPNow model forecast for the third-quarter GDP growth continues to sink.
 
Source: @AtlantaFed   Read full article  
 
9. How will a 5% gain in the US dollar (trade-weighted) impact the GDP?
 
Source: @TheTerminal, Bloomberg Finance L.P.  


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The Eurozone

1. Investor sentiment declined again.
 

 
2. German electricity prices are moving lower.
 

 
But power prices remain elevated across Europe.
 
Source: @MikeZaccardi, @enelyst_  
 
Increased energy costs will squeeze disposable incomes.
 
Source: TS Lombard  

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3. Will euro-area PMI catch up to the US ISM, …
 
Source: MRB Partners  
 
… or will China derail Eurozone’s manufacturing expansion?
 
Source: @AndreasSteno  

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4. Here are the drivers of euro-area inflation (2 charts).
 
Source: Pantheon Macroeconomics  
 
Source: Nordea Markets  


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Europe

1. Poland’s bond yields are surging on expectations of rate hikes.
 

 
2. Swiss inflation is in positive territory. Will it stay there?
 

 
3. EU building permits have recovered.
 
Source: ING  
 
4. Nordic water shortages are putting downward pressure on hydroelectric power output.
 
Source: @C_Barraud   Read full article  


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Asia – Pacific

1. Tokyo’s core CPI has stalled below zero, which suggests that inflation remained subdued at the national level in September.
 

 
2. South Korea’s stock market is rolling over.
 
Source: barchart.com  
 
And the won has been trending down amid capital outflows.
 

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3. New Zealand has been experiencing robust job growth despite lockdowns. Rate hikes are coming.
 
Source: ANZ Research  
 
4. Next, we have some updates on Australia.
 
The trade surplus surged to new highs.
 

 
Consumer confidence is rebounding.
 

 
Job ads are off the highs.
 


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China

1. Leveraged developers’ debt spreads have blown out.
 
Source: UBS; @AlessioUrban  
 
China’s housing market was already slowing before the Evergrande fallout hit the newswires. 
 
Source: Nordea Markets  
 
House price-to-income ratios dominate the list of the world’s most expensive cities (2 charts).
 
Source: Longview Economics  
 
Source: @ExanteData  
 
Residential investment has been surging.
 
Source: @WSJ   Read full article  

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2. Coal inventories tumbled this year.
 
Source: @HFI_Research  
 
The spat with Australia didn’t help.
 
Source: Chen Zhao, Alpine Macro  
 
Here is China’s energy mix.
 
Source: IEA; @andrewtwone  

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3. China’s refined fuel exports have tumbled.
 
Source: EIA  
 
See this story (from August) explaining the situation.
 
Source: Reuters   Read full article  

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4. Semiconductor stocks have seen strong relative earnings growth.
 
Source: Pavilion Global Markets  
 
Integrated circuits output has been rising.
 
Source: Pavilion Global Markets  
 
China is now ahead of Taiwan as the largest buyer of chip equipment.
 
Source: Pavilion Global Markets  


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Emerging Markets

1. Let’s begin with some updates on Chile, where economic growth remains robust.
 
Unemployment:
 

 
Retail sales:
 

 
Manufacturing production:
 

 
Copper output:
 

 
Economic activity:
 

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2. Brazil’s 2yr bond yield is approaching 10%.
 

 
The unemployment rate is finally below 2020 levels.
 

 
Vehicle sales remain soft (a global trend).
 

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3. Colombia’s central bank hiked rates for the first time since 2016.
 

 
The labor market is recovering.
 

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4. Next, we have some updates on Mexico.
 
Consumer confidence:
 

 
Vehicle sales;
 

 
More rate hikes ahead:
 
Source: Pantheon Macroeconomics  

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5. South Africa’s trade surplus surprised to the upside again.
 

 
Factory growth remains robust.
 

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6. Turkey’s inflation continues to climb.
 

 
7. Israel’s trade deficit hit another record.
 

 
8. India’s coal inventories have collapsed.
 
Source: @JKempEnergy  
 
Indian trade deficit surged due to a spike in oil imports.
 
Source: @SergiLanauIIF  
 
India’s PMI reports continue to show moderate growth (2 charts).
 
Source: IHS Markit  
 
Source: IHS Markit  

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9. COVID-19 cases have peaked in developed and emerging economies, …
 
Source: TS Lombard  
 
… especially in Southeast Asia, which recently experienced a surge in Delta variant cases.
 
Source: TS Lombard  


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Cryptocurrency

1. The correlation between bitcoin and ether increased during the recent crypto sell-off.
 
Source: @CoinbaseInsto  
 
2. Bitcoin trading volume has been subdued relative to the levels we saw earlier this year.
 
Source: @WSJ   Read full article  
 
3. Ethereum transactions settled surged this year.
 
Source: @RyanWatkins_  
 
4. Crypto funds saw $90 million of inflows last week, marking the seventh consecutive week of inflows.
 
Source: CoinShares   Read full article  
 
5. Circle Financial, a key supporter of the USDC stablecoin, is under investigation by the SEC.
 
Source: CoinDesk   Read full article  


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Commodities

1. Bloomberg’s broad commodity index hit a record high as oil prices surged.
 

 
2. Tin prices have been soaring.
 
Source: @JeffWeniger  
 
3. China’s deteriorating credit impulse poses a risk for commodities.
 
Source: @AndreasSteno  


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Energy

1. Brent climbed above $81/bbl after bullish news from OPEC+.
 

 
Source: @WSJ   Read full article  

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2. Refinery margins are surging.
 
Europe:
 

 
Asia:
 

 
US (3-2-1 crack spread):
 
Source: @HFI_Research  

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3. US crude and refined products inventories are well below the 5-year average.
 
Source: Cornerstone Macro  
 
4. US fracking activity continues to recover.
 


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Equities

1. Growth stocks remain under pressure amid jitters about bond yields.
 

 
The tech sector’s drawdown is still relatively modest.
 

 
Growth shares’ relative performance is highly correlated to Treasury prices.
 

 
The valuation gap between growth and value stocks remains near extremes.
 
Source: Trahan Macro; @RBAdvisors  
 
The tech mega-caps are testing support at the 200-day moving average.
 

 
By the way, these companies remain a substantial component of the S&P 500.
 
Source: Bloomberg   Read full article  
 
Here are the largest contributors to the S&P 500 decline from the peak (and stocks offsetting the drop).
 
Source: @bespokeinvest   Read full article  

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2. Speculative tech stocks are finally underperforming as the Reddit crowd retreats.
 

 
Where is the Reddit crowd going? Into crypto, of course.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
By the way, here is the ARK Innovation ETF overlaid on top of the dot-com bubble.
 
Source: @JulianMI2  
 
It’s been a good year for OTC share trading.
 
Source: @WSJ   Read full article  

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3. The fourth quarter historically has the best performance.
 
Source: LPL Research  
 
4. Sentiment has deteriorated.
 
Source: Truist Advisory Services  
 
Source: BCA Research  

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5. Small-caps’ relative performance has been correlated with Treasury yields.
 
Source: Acorn Macro Consulting Ltd.  
 
6. Liquidity is a leading driver of equity returns, and the latest prints suggest worse returns ahead. 
 
Source: Alpine Macro  
 
7. This chart shows how stocks performed around the world last month.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  


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Credit

1. BDCs remain resilient despite softer stock and high-yield bond prices.
 

 
2. US corporate bond issuance hit an all-time high last year, primarily driven by investment-grade credit.
 
Source: NY Fed  
 
US corporate debt growth is starting to slow as a percentage of GDP, while total debt continues to grow.
 
Source: S&P Global Market Intelligence  
 
A large amount of US corporate debt is due to mature over the next few years. S&P warned that a rise in borrowing rates related to inflation could make it harder for companies to make repayments.
 
Source: S&P Global Market Intelligence  
 
Here are some trends in corporate debt globally.
 
Source: @adam_tooze; The Economist   Read full article  


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Rates

1. Speculative accounts boosted their bets on the 10yr Treasury.
 

 
But asset managers are short.
 
Source: @EricGPlatt, @FT   Read full article  

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2. The 10-year Treasury futures trading volume spiked over the past month.
 
Source: FHN Financial  
 
3. Slowing global economic growth could weigh on yields. 
 
Source: Alpine Macro  


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Global Developments

1. Let’s start with last month’s performance across asset classes (z-scores).
 
Source: BCA Research  
 
2. The number of central banks hiking rates jumped in September.
 
Source: @macro_daily  
 
3. Speculators remain long euro and CAD and short the Aussie and Japanese yen.
 
Source: Morgan Stanley Research  


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Food for Thought

1. The number of close friendships that Americans have (2021 vs. 1990):
 
Source: @axios   Read full article  
 
2. US fastest-growing cities:
 
Source: Visual Capitalist   Read full article  
 
3. Household income growth by race and ethnicity:
 
Source: Bloomberg   Read full article  
 
4. US number of births per death:
 
Source: @WSJ   Read full article  
 
5. Sporting goods store visits vs. 2019:
 
Source: Placer.ai  
 
6. US mortgage originations by age:
 
Source: Federal Reserve Bank of New York  
 
7. Enrollment in US veterinary schools by gender:
 
Source: AAVMC- American Association of Veterinary Medical Colleges  
 
8. Most common plastic surgeries:
 
Source: Statista  

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