Inventory rebuilding kept Q3 growth above zero

The Daily Shot: 29-Oct-21
The United States
Canada
The United Kingdom
The Eurozone
Europe
Japan
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Energy
Equities
Global Developments
Food for Thought



 

The United States

1. GDP growth weakened last quarter, but economists expect a rebound in Q4.
 

 

 
Source: Reuters   Read full article  
 
Inventory rebuilding held growth in positive territory.
 

 
Consumer spending slowed.
 

 
Business investment growth was softer.
 

 
The trade deficit remained a drag on GDP.
 

 
Here is the breakdown.
 

 
Motor vehicles’ contribution to the GDP declined sharply.
 

 
Here is the quarterly contribution to growth from durable goods.
 
Source: @RenMacLLC  
 
A positive signal in the GDP report was the ongoing rebound in services spending.
 

 
Below are a couple of additional comments on US economic expansion.
 
Fiscal policy will be a drag on growth over the next few quarters.
 
Source: Mizuho Securities USA  
 
The incremental nominal GDP added for each $1 of total debt taken on (government + corporate + household) has been declining for decades.
 
Source: Stifel  

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2. Short-term Treasury yields retreated after the GDP report.
 

 
The longer end of the Treasury curve continued to flatten, with the 30yr/20yr segment inverting.
 

 
Inflation expectations were lower as well.
 

 
The dollar declined.
 

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3. Jobless claims continue to trend lower and are now approaching more typical levels seen in recent years.
 

 
Continuing claims keep declining as well.
 

 
Some of the people who lost their emergency benefits should be returning to work. But when?
 
Source: @carlquintanilla, @LeutholdGroup  

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4. The Kansas City Fed’s regional manufacturing report surprised to the upside, with the index back near record.
 

 
Hiring has accelerated.
 

 
CapEx expectations have strengthened.
 

 
Supply-chain issues have been unprecedented.
 
Supplier delivery times:
 

 
Raw materials cost:
 

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5. US supply chains remain vulnerable to bottlenecks abroad.
 
Source: Anna Wong, @TheTerminal, Bloomberg Finance L.P.   Read full article  
 
6. Last month’s pending home sales remained strong for this time of the year, but analysts expected an even better result.
 

 
Here are some additional updates on the housing market.
 
The spike in new mortgages seen since the pandemic has been driven by borrowers with the highest credit score. 
 
Source: Variant Perception  
 
Owners’ equity in real estate is now at the highest level in three decades.
 
Source: IMF  
 
The spike in prices of existing homes in the US has made new homes more attractive.
 
Source: Variant Perception  
 
The US homebuilding industry has become more consolidated, but the top ten still account for only 30% of the market. 
 
Source: Variant Perception  

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7. Unlike the Conference Board’s data, the Langer Consumer Comfort index shows further deterioration in sentiment.
 

 
8. Who is holding the excess savings?
 
Source: @GregDaco  
 
What are the drivers of growth in household assets since the start of the pandemic?
 
Source: Oxford Economics  

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9. Fed tapering is expected to start in December, according to the primary dealer survey.
 
Source: Nordea Markets  


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Canada

1. The CFIB small/medium-size business activity index bounced this month.
 

 
Hospitality growth is back to more typical levels for this time of the year. Construction softened.
 

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2. CapEx plans have been strong.
 
Source: @LJKawa  
 
3. The rise in intellectual property assets has not kept up with the US over the past few years.
 
Source: Scotiabank Economics  


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The United Kingdom

1. Four hikes by June?
 

 
2. The government boosted its GDP projections.
 
Source: Pantheon Macroeconomics  
 
3. Without net migration, the working-age population will start to decline next year, which doesn’t bode well for economic growth.
 
Source: Pantheon Macroeconomics  


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The Eurozone

1. There weren’t any major surprises from the ECB. Nonetheless, short-term rate futures tumbled as traders boosted their bets on rate hikes.
 

 
Here is the 2-year interest rate swap.
 
Source: Bloomberg
 
This was a surprise because Lagarde’s position was quite clear:

Conditions for a rate rise  not likely to be met in the timeframe expected by markets.

Perhaps the market doesn’t believe her, as euro-area inflation surges. Maybe market participants saw slower QE with PEPP purchases ending in March as hawkish? But these policy decisions were expected.

The Governing Council continues to judge that favourable financing conditions can be maintained with a  moderately lower pace of net asset purchases under the pandemic emergency purchase programme (PEPP) than in the second and third quarters of this year.

Italian bonds sold off sharply.
 

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2. The euro jumped, hitting resistance at the 200-day moving average in response to soft GDP data out of the US.
 

 
3. Inflation continues to surprise to the upside, prompting traders to bet on rate hikes.
 
Germany:
 

 
Spain:
 

 
Moreover, consumer inflation expectations have been surging.
 
Source: @markets   Read full article  

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4. Eurozone sentiment indicators were stronger than expected this month.
 

 

 
Here is Italy’s sentiment index.
 

 
Companies are becoming concerned about their competitiveness outside the EU.
 
Source: Pantheon Macroeconomics  

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5. Germany’s labor market continues to improve.
 

 
6. Dutch retail sales remain robust for this time of the year.
 


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Europe

1. Natural gas prices appear to be rolling over.
 

 
2. Sweden’s manufacturing confidence hit a new high this month.
 

 
Traders are increasingly betting on Riksbank rate hikes. The 2yr yield is nearing positive territory.
 

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3. This chart shows the levels of labor market slack in the EU.
 
Source: Eurostat   Read full article  
 
4. Online grocery sales in Europe accelerated over the past couple of years.
 
Source: ING  


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Japan

1. The October Tokyo core CPI declined deeper into negative territory, suggesting that the national inflation report will also be soft.
 

 
Nonetheless, market-based longer-term inflation expectations have been climbing.
 

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2. The jobs-to-applicants ratio continues to improve.
 

 
3. Retail sales were firmer in September (for that time of the year).
 

 
4. Consumer confidence continues to improve.
 


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Asia – Pacific

1. South Korea’s industrial production declined in September but remains on the pre-COVID upward trend.
 

 
Business surveys show increasing divergence between manufacturing and services.
 

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2. New Zealand’s consumer confidence continues to deteriorate as the pandemic takes its toll.
 

 
3. Next, we have some updates on Australia.
 
The market sees the RBA giving up on yield control. The selloff in short-term bonds has been unprecedented.
 

 
Longer-term debt is under pressure as well.
 

 
The stock market is rolling over.
 

 
Retail sales improved in September.
 

 
Private-sector credit growth continues to accelerate.
 


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China

1. The speed of the selloff in coal has been unprecedented.
 

 
2. Property developers continue to struggle.
 
Source: Fitch Ratings   Read full article  
 

 
USD-denominated HY bond prices saw a “dead cat bounce” after Evergrande made its interest payment but are now declining again.
 

 
The central bank has accelerated liquidity injections.
 

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3. According to China Beige Book, business activity decelerated across the board in the fourth quarter.
 
Source: China Beige Book  
 
Power outages have been a significant problem in some sectors.
 
Source: @ChinaBeigeBook  

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4. This chart shows China’s average residential space per person vs. other economies.
 
Source: Alpine Macro  


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Emerging Markets

1. Brazil’s yield curve has inverted as short-term yields surge. The market is increasingly concerned about the nation’s economic growth as the central bank fights inflation.
 

 
2. India’s business activity has stabilized, according to the World Economics SMI report. The jobs market remains soft.
 
Source: World Economics  
 
3. Israel’s short-term yields are surging as the market prepares for rate hikes.
 

 
4. Next, we have some updates on Vietnam.
 
Retail sales have been weak.
 

 
Inflation has been lower than expected.
 

 
Exports are strengthening.
 

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5. The correlation between stocks and local currency bonds in emerging markets has historically been very high, a feature of central banks being forced to tighten policy during economic weakness to control capital flows. This correlation has been steadily declining. 
 
Source: Variant Perception  
 
6. This chart shows projections for each country’s middle-class growth over the next decade.
 
Source: J.P. Morgan Asset Management  


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Cryptocurrency

1. $3.1 billion of bitcoin options are set to mature on Friday, which could be a source of volatility. The top volume contracts have been around the $60K strike price, with calls outweighing puts.
 
Source: Skew  
 
2. Crypto assets have the highest risk-adjusted returns over the past 12 months compared to other major assets, but less so over the past three years.
 
Source: IMF  
 
3. Ether continues to outperform bitcoin. The chart below shows the ETH/BTC ratio approaching upper resistance.
 
Source: Dantes Outlook  
 
4. CeFi (centralized crypto financial services) companies accounted for 50% of crypto fundraising in Q3, while infrastructure and NFT firms also raised a significant amount of money.
 
Source: @MessariCrypto  
 
Here is a deeper look at crypto infrastructure funding over the past quarter.
 
Source: @MessariCrypto  

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5. A CryptoPunks NFT just sold for half a million dollars.
 
Source: Crypto Briefing   Read full article  
 
Source: Lava Labs  
 
It’s a brave new world.
 


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Energy

1. Crude oil sold off on news of Iran resuming nuclear talks (potential new supply). Prices are now rebounding.
 
Source: Reuters   Read full article  
 

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2. According to IEA, the oil market will be back into surplus by the second half of 2022. 
 
Source: Desjardins  
 
3. The US propane market remains tight (Americans who use propane to heat their homes will pay some 50% more this winter.)
 
Source: Princeton Energy Advisors  
 
4. US coal inventories are also very tight.
 
Source: @TheStalwart   Read full article  
 
5. Next, we have some updates on solar energy.
 
US solar capacity growth (2 charts):
 
Source: @FactSet   Read full article  
 
Source: @WSJ   Read full article  
 
US solar panel imports:
 
Source: S&P Global Market Intelligence  
 
Wind and solar market share in the EU:
 
Source: Longview Economics  


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Equities

1. Stock futures are softer this morning, …
 

 
… as Apple misses expectations. Supply-chain issues are taking a toll on earnings.
 
Source: CNBC   Read full article  
 
Source: Stock Market Watch  

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2. After a period of high valuation and margin expansion, especially coming out of the pandemic, the S&P 500 tech sector’s odds of outperformance have shifted lower.
 
Source: Denise Chisholm, Fidelity Investments  
 
3. investment managers have boosted their exposure to US Equity markets.
 
Source: NAAIM  
 
4. Global forward price-to-earnings ratios have diverged across sectors this year.
 
Source: IMF  
 
5. Corporate insider buying transactions among financial firms have fallen to the lowest level in a decade over the past six months.
 
Source: SentimenTrader  
 
6. Here is how hedge fund managers changed their sector allocations over the past three months.
 
Source: BofA Global Research  
 
7. This table shows equity sectors by duration, i.e. vulnerability to rising interest rates. 
 
Source: Variant Perception  
 
8. The S&P 500 dividend yield adjusted for inflation hit a record low.
 

 
9. Be careful in renaming your company.
 
Source: @wealth   Read full article  


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Global Developments

1. Dry bulk shipping costs continue to tumble, partly driven by Beijing’s war on coal prices.
 

 
2. This chart shows online search activity for supply chain topics.
 
Source: @topdowncharts   Read full article  
 
3. Which property markets are in bubble territory?
 
Source: @markets   Read full article  
 
4. Which countries have the highest excess savings (since the start of the pandemic)?
 
Source: IMF   Read full article  
 
5. The share of CPI baskets recording extreme price rises, defined as more than two standard deviations above the five-year average, has spiked to records and has shown consistent co-movement across countries. 
 
Source: Oxford Economics  


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Food for Thought

1. Cyber risk costs:
 
Source: Fitch Ratings  
 
2. Government support for business R&D (BERD = business enterprise expenditure on R&D):
 
Source: BCA Research  
 
3. Corporate merger activity creating value for consumers:
 
Source: Bain & Company    Read full article   Further reading  
 
4. Global orbital launches:
 
Source: Deutsche Bank Research  
 
5. Facebook’s fight against hate speech:
 
Source: Statista  
 
6. US social spending vs. other advanced economies:
 
Source: @SteveRattner  
 
7. Year-over-year changes in US gun deaths:
 
Source: The Washington Post   Read full article  
 
8. News sites seeing lower traffic:
 
Source: @chartrdaily  
 
9. Billionaires in Germany:
 
Source: @Schuldensuehner   Read full article  
 
10. Near-Earth asteroids:
 
Source: JPL  

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Have a great weekend!


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