Posted on by The Daily Shot Editor: Lev Borodovsky

US factory capacity utilization hits the highest level since 2007

The Daily Shot: 18-Apr-22
• The United States
• Canada
• The Eurozone
• Europe
• Japan
• Asia – Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought

 

The United States

1. The March retail sales report was softer than expected. Excluding volatile items, retail sales were down for the second month in a row.
 

 
Online (chart below) and automobile (2nd chart) sales declined.
 
Source: Pantheon Macroeconomics  
 

 
Source: @markets   Read full article  

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2. Gasoline prices came off the highs in recent days, …
 

 
… boosting consumer confidence this month.
 

 

 
• Inflation expectations held steady.
 

 
• But buying conditions remain depressed.
 

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3. March manufacturing output topped forecasts, …
 

 
… as automobile production improved. The rebound suggests some easing in supply chain bottlenecks.
 

 
Source: Reuters   Read full article  
 
Factory capacity utilization hit the highest level since 2007.
 

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4. The pace of inventory building remained buoyant in February.
 

 
But the inventories-to-sales ratio held near the lows.
 

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5. Gains in US import prices (excluding petroleum) reached the highest level since the late 1980s.
 

 
A stronger US dollar should ease import price inflation.
 

 
Given the Fed’s hawkish stance, the dollar could continue to rally.
 
Source: Wells Fargo Securities  
 
But technical indicators suggest that the dollar is overbought (and approaching resistance).
 
Source: MRB Partners  

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6. The first regional manufacturing report of the month surprised to the upside. The NY Fed’s indices of new orders and shipments rebounded sharply.
 

 
• Price pressures continue to worsen, …
 

 
… and the index of unfilled orders remains elevated.
 

 
• Hiring slowed this month.
 

 
• And forward-looking indicators deteriorated.
 
– Factories now expect to be cutting inventories in the months ahead.
 

 
– Expectations of new orders and shipments tumbled.
 

 
– Here is the overall business outlook for the region’s factories.
 

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7. US jobless claims are above 2019 levels but remain very low for this time of the year.
 

 
Below are the continuing claims.
 

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8. Treasury yields keep climbing.
 

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Canada

1. Manufacturing sales have been surging.
 

 
2. Residential mortgage rates are rebounding rapidly.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  

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The Eurozone

1. The ECB’s response to surging inflation remains cautious.
 
Source: @financialtimes   Read full article  
 
• The central bank’s dovish comments lowered the expected rate hike trajectory, …
 

 
… bringing down the 2yr Bund yield.
 

 
At the same time, inflation concerns sent the 30yr Bund yield above 1%, …
 

 
… resulting in a sharp curve steepening on Thursday.
 

 
• With the ECB’s policy tightening lagging the Fed’s, …
 
Source: Alpine Macro  
 
… the euro came under pressure.
 

 
2. The F/X options market is signaling further downside risks for the euro ahead of the French elections (2nd round).
 

 
The betting markets see Macron comfortably winning the presidency.
 
Source: @PredictIt  

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3. Weak sentiment poses downside risks for the Eurozone’s stock market.
 
Source: PGM Global  
 
Euro-area stock valuations look attractive relative to the rest of the world.
 
Source: PGM Global  

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4. This chart shows the cost of public programs to ease consumer energy costs.
 
Source: Pantheon Macroeconomics  

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Europe

1. Sweden’s CPI report was a shocker.
 

 
Economists are rapidly adjusting their 2022 inflation forecasts to keep up with the “situation on the ground.”
 

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2. Eurozone and UK households expect inflation to fall over the next year.
 
Source: Capital Economics  
 
3. Options bets against the SPDR Euro Stoxx 50 ETF have been surging.
 
Source: Chris Murphy, Susquehanna International Group  

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Japan

1. Is dollar-yen about break above its long-term resistance?
 

 
2. Japan isn’t getting many foreign visitors these days.
 
Source: @AndreasSteno  

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Asia – Pacific

1. The Taiwan dollar has been under pressure.
 

 
2. South Korea’s consumer inflation has accelerated.
 
Source: Scotiabank Economics  
 
Source: @ANZ_Research  
 
And wage gains have broadened.
 
Source: @ANZ_Research  

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China

1. The Q1 GDP growth topped expectations (although some economists are skeptical).
 

 
• March industrial production surprised to the upside.
 

 
• But retail sales contracted (relative to last year).
 

 

 
• According to a government survey, the unemployment rate jumped in March.
 

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2. The PBoC announced a modest cut to reserve requirements but left rates unchanged. The market was hoping for a more aggressive easing action.
 
Source: Reuters   Read full article  
 

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3. On a year-over-year basis, home price appreciation is about to turn negative.
 

 
4. The authorities continue to struggle in their quest to contain the omicron surge.
 
Source: Our World in Data  
 
Lockdowns/restrictions are spreading.
 
Source: Reuters   Read full article  
 
Source: Gavekal Research  
 
5. Roughly three-quarters of China’s exports are sent by regions experiencing local outbreaks of COVID-19, which has impacted supply chains.
 
Source: Capital Economics  
 
Port congestion has increased, albeit still below levels seen during the Delta wave last year.
 
Source: Capital Economics  

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6. China’s coal production has been surging.
 

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Emerging Markets

1. Let’s begin with last week’s performance data.
 
• Equity ETFs:
 

 
• EM currencies:
 

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2. EM stocks tend to perform well after the first Fed rate hike.
 
Source: MarketDesk Research  
 
3. Russia’s F/X reserves have stabilized.
 

 
4. South Africa’s mining output has been deteriorating.
 

 
5. Turkey’s home sales hit a multi-year high for this time of the year.
 

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Cryptocurrency

Cryptos are weaker this morning as bitcoin dips below $40k again.
 

 

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Commodities

1. Fitch revised its copper price forecast higher as low inventories leave the metal highly sensitive to sentiment and external factors (2 charts).
 
Source: Fitch Solutions Macro Research  
 
Source: Fitch Solutions Macro Research  
 
Current tightness in copper inventories should ease slightly in the coming months, driven by greater output from Latin America.
 
Source: Fitch Solutions Macro Research  

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2. Corn futures have been surging.
 

 
Source: Reuters   Read full article  

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3. US cotton futures are at multi-year highs amid higher demand from India.
 

 
Source: Reuters   Read full article  

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3. Weaker Chinese imports pose downside risks for commodities.
 
Source: Hamburg Institute of Intl Economics  

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Energy

1. Brent crude has rebounded in recent days.
 

 
2. Russian oil discount to Brent keeps widening.
 
Source: Neste  
 
Source: Yahoo!   Read full article  

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2. Energy (commodity) ETF flows have been negative over the past five weeks.
 

 
3. Crack spreads remain elevated, supporting refinery margins.
 

 
4. Coal prices are holding near multi-year highs.
 

 
This chart shows the sources of coal imports in the EU.
 
Source: Bruegel   Read full article  

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5. The energy complex outperformed other commodities last week, with US natural gas leading the way.
 

 
US gas futures hit the highest level since 2008.
 

 
Source: Natural Gas Intelligence   Read full article  
 
Here is the natural gas storage situation.
 
Source: EIA   Read full article  

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6. UK natural gas was down sharply last week.
 

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Equities

1. Growth stocks continue to lead the market lower (3 charts), …
 

 

 

 
… as US real rates climb.
 

 
• Tech shares underperformed last week.
 

 
Will further underperformance follow?
 
Source: BofA Global Research; @Marlin_Capital  
 
Here is last week’s performance of the largest US tech companies.
 

 
• Semiconductor stocks have been struggling …
 

 
… despite a rebound in semiconductor prices.
 

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2. Cyclicals continue to underperform defensive sectors.
 

 
The trend is particularly acute in Europe.
 
Source: Goldman Sachs; @Mayhem4Markets  

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3. According to AAII, the percentage of bullish investors is now the lowest in some 30 years.
 

 
Here is the bull-bear spread.
 

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4. S&P 500 equity risk premium keeps drifting lower as Treasury yields climb.
 

 
5. Next, we have some ETF flow data.
 
• Small-caps ($4 billion of outflows this year):
 

 
• Healthcare:
 

 
• Financials:
 

 
• Consumer Discretionary:
 

 
By the way, the SPDR Consumer Discretionary ETF (XLY) is testing support relative to the SPDR Consumer Staples ETF (XLP).
 
Source: Dantes Outlook  

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5. Cannabis shares tumbled last week.
 

 
It’s been a rough few quarters for the sector.
 

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Credit

Here is last week’s performance across credit asset classes.
 

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Rates

1. Foreigners have been buying Treasury notes and bonds.
 

 
2. According to a model from Alpine Macro, Treasuries are oversold.
 
Source: Alpine Macro  
 
3. Market expectations for the “terminal rate” have been rising.
 

 
4. Near-term fed funds rate expectations are in restrictive territory.
 
Source: @acemaxx, @KarstenJunius  

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Global Developments

1. The total global bond market value has been tumbling.
 

 
2. Below are a couple of performance charts (for last week).
 
• DM bond yields:
 

 
• Trade-weighted currency indices:
 

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3. Global defense budgets will likely rise.
 
Source: Moody’s Investors Service  

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Food for Thought

1. Preference for remote and hybrid work:
 
Source: Morning Consult  
 
• Decreasing willingness to return to the office:
 
Source: Morning Consult  

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2. Wage growth vs. inflation:
 
Source: The Washington Post   Read full article  
 
3. The global semiconductor market:
 
Source: McKinsey & Company   Read full article  
 
4. US non-Orthodox rabbinic seminary enrollment:
 
Source: The Forward   Read full article  
 
5. Sustainable packaging:
 
Source: McKinsey & Company   Read full article  
 
6. Investing in AI for drug development:
 
Source: @financialtimes   Read full article  
 
7. Tax refunds and consumer spending:
 
Source: Earnest Research  
 
8. Lengthy IPO regulatory disclosures:
 
Source: Aswath Damodaran   Read full article  
 
9. The top 10 cities for vegans and vegetarians:
 
Source: YorkTest    Read full article  

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