Manufacturing orders are shrinking around the world

The Daily Shot: 24-Jun-22
The United States
Canada
The United Kingdom
The Eurozone
Europe
Japan
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Energy
Equities
Credit
Rates
Food for Thought



 

The United States

1. The S&P Global PMI report showed a marked deceleration in business activity this month, with headline figures coming in well below forecasts.
 
Manufacturing output shifted into contraction mode.
 

 
New orders slumped as demand deteriorates. This trend is not unique to the US. The June PMI data also showed new orders falling in the UK, Germany, France, and Japan.
 

 
Last year’s massive backlog of work is no more.
 

 
The services PMI was also lower than expected, …
 

 
… with incoming new business entering contraction territory.
 

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2. The Kansas City Fed’s regional manufacturing index held up a bit better than expected this month.
 

 
Under the hood, however, the report was not as rosy.
 
Production:
 

 
New orders:
 

 
Backlogs are melting away with falling demand.
 
Supplier delivery times:
 

 
Backlog of orders:
 

 
The region’s manufacturers still feel they have pricing power.
 

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3. Tight financial conditions point to further weakness in business activity ahead.
 
Source: Nordea Markets  
 
4. Next, we have some updates on the labor market.
 
If there is a soft patch in the labor market, it’s yet to show up in the unemployment applications data.
 

 
Here is one reason for recent US labor shortages.
 
Source: Giovanni Peri and Reem Zaiour; h/t III Capital Management   Read full article  
 
Will labor force participation continue to rebound?
 
Source: BCA Research  
 
GDP growth will mostly rely on productivity improvements, as US labor force expansion stalls.
 
Source: CBO   Read full article  
 
According to a model from the Fed, the probability of a significant jump in unemployment over the next couple of years has risen substantially.
 
Source: Board of Governors of the Federal Reserve System  

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5. Will the CPI peak above 9%? Here is a forecast from Nordea Markets.
 
Source: Nordea Markets  
 
6. With recession risks rising, the market sent the belly of the Treasury curve lower this week.
 

 
7. The terminal rate is now just above 3.5%, as the market expects the Fed to begin cutting rates as soon as the first half of next year.
 

 
The probability of a rate hike in February of next year has collapsed.
 

 
The market sees the Fed cutting rates by nearly 60 bps between Q1 of next year and Q1 of 2024.
 


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Canada

Canadian shares have widened their underperformance vs. the US.
 

 
Source: @markets   Read full article  
 
Here is the put option volume on the iShares MSCI Canada ETF.
 
Source: @danny_kirsch  


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The United Kingdom

1. The UK PMI report showed more resilience this month than what we see in the Eurozone.
 
Manufacturing growth is slowing but remains positive.
 

 
However, factory orders are starting to contract.
 

 
The output price index points to a pullback in the PPI.
 
Source: Pantheon Macroeconomics  
 
Services PMI topped expectations.
 

 
Services hiring remains robust.
 

 
Price increases slowed again this month.
 

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2. The GFK Consumer Confidence index hit a new low.
 

 
Source: @financialtimes   Read full article  
 
3. Retail sales were soft this month.
 

 
Source: Reuters   Read full article  

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4. Government borrowing was higher than expected in May.
 

 
5. Inflation-linked gilts slumped this year.
 
Source: S&P Dow Jones Indices  


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The Eurozone

1. Manufacturing output is contracting for the first time since the initial COVID shock in 2020.
 

 
Headline PMI figures were below forecasts.
 
France:
 

 
Germany:
 

 
New orders are slumping.
 
France:
 

 
By the way, a separate report showed French manufacturing confidence holding up well.
 

 
Germany:
 

 
Here are a couple of additional indicators.
 
The backlog of work in France:
 

 
Outlook on future output in Germany:
 

 
Manufacturers’ troubles are shifting from supply-chain stress to concerns about falling demand.
 

 
2. Services PMI reports were also softer than expected.
 
France:
 

 
Germany:
 

 
German service firms are reporting a decline in new business.
 

 
Cost pressures remain extreme.
 

 

——————–

 
3. The Citi Economic Surprise Index dipped into negative territory in response to the PMI miss.
 

 
4. Bond yields tumbled on recession concerns.
 

 
5. This chart shows each country’s share of natural gas imports relative to overall energy consumption.
 
Source: ECB   Read full article  


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Europe

1. Norway’s central bank hiked rates by 50 bps, the largest increase in 20 years.
 

 
The projected path of rate hikes has steepened sharply.
 
Source: Nordea Markets  

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2. Poland’s consumer confidence slumped to multi-decade lows as prices soar.
 

 
3. Here are the drivers of the equity market dip into bear-market territory
 
Source: Numera Analytics  


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Japan

1. The core CPI held steady in May.
 

 
But the services PPI continues to climb. Service sector margins are coming under pressure.
 

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2. Manufacturing orders are in contraction territory.
 

 
3. Department store sales held up relatively well in May.
 

 
4. Foreigners have been dumping Japan’s stocks …
 

 
… and bonds.
 


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Asia – Pacific

1. Taiwan’s industrial production was a bit stronger than expected last month.
 

 
2. Singapore’s inflation continues to climb.
 
Source: ING  
 
3. Australia’s residential land values seem to be in bubble territory.
 
Source: @Haymaker_0  


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China

1. Stocks continue to rebound.
 

 
2. Housing inventories have been rising.
 
Source: Barclays Research  


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Emerging Markets

1. Let’s begin with Mexico.
Banxico followed the Fed with a 75 bps rate hike, …
 

 
… as inflation surges.
 

 
Retail sales were strong in April.
 

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2. The Philippine central bank boosted rates for the second time.
 

 
3. This chart shows policy rate projections from Barclays.
 
Source: Barclays Research  


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Cryptocurrency

1. Cryptos are starting to stabilize, with litecoin (LTC) leading among the top tokens.
 
Source: FinViz  
 
2. The Grayscale Bitcoin Trust (GBTC) trading volume hit a seven-month high.
 
Source: @CoinbaseInsto  
 
3. GBTC’s discount has narrowed over the past week.
 
Source: @CoinbaseInsto  
 
4. Bitcoin miner revenue has fallen to the lowest level since October 2020, as measured by the hashprice.
 
Source: CryptoQuant   Read full article  
 
Miners have been moving more BTC on exchanges (possibly to sell) amid the profit squeeze.
 
Source: CryptoQuant   Read full article  


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Energy

1. The front end of the Brent curve moved deeper into backwardation (inverted curve) as supply concerns persist.
 

 
2. US natural gas prices have been tumbling, …
 

 
… driven by the disruption in LNG exports, …
 

 
… and a larger than expected inventory build.
 
Source: NGI   Read full article  
 

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3. About 20% of the energy generated in the United States came from renewables in 2020, up from 10% a decade ago.
 
Source: Wells Fargo Securities  
 
4. This chart shows CO2 emissions by energy source.
 
Source: Global X ETFs   Read full article  


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Equities

1. Speculative stocks bounced over the past few days.
 

 
2. Retail investors continue to buy the dip.
 
Source: Vanda Research  
 
But they have been scaling down equity purchases.
 
Source: Vanda Research  

——————–

 
3. S&P 500 earnings estimates are up 7.5% year-to-date, just as the forward P/E ratio is down some 28%.
 
Source: Trahan Macro Research  
 
Here is the forward P/E ratio for the Russell 3000 index (combined large caps and small caps).
 

 
But analysts are now chipping away at earnings forecasts, with downgrades exceeding upgrades.
 

 
And margins could be under pressure.
 
Source: Pantheon Macroeconomics  

——————–

 
4. Another 24% to go?
 
Source: Societe Generale; @markets   Read full article  
 
5. New lows continue to exceed new highs.
 
Source: @allstarcharts, @WillieDelwiche  
 
6. Next, we have some sector updates.
 
Bank shares slumped this week.
 

 
Will the stress test results help?
 
Source: Barron’s   Read full article  
 
The SPDR S&P Biotech ETF is testing initial resistance but is improving relative to the overall market.
 
Source: Aazan Habib; Paradigm Capital  
 
Forward earnings of the health care sector have recently turned lower, reflecting the expected contraction in next year’s profits.
 
Source: MRB Partners  
 
Still, MRB Partners expects forward earnings to eventually reverse as health care companies deliver strong results relative to the broader market.
 
Source: MRB Partners  
 
Here are the buy/sell recommendations by sector.
 
Source: @FactSet   Read full article  


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Credit

1. Bonds continue to see outflows, driven by credit.
 
Source: BofA Global Research  
 
2. This chart shows asset-backed and mortgage securities outstanding.
 
Source: SIFMA  


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Rates

1. Rates implied volatility remains elevated.
 

 
Realized volatility has been severe at the short end of the curve.
 
Source: Bloomberg

——————–

 
2. Bond yields have moved lower globally.
 
Source: @jnordvig, @ExanteData  


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Food for Thought

1. Visits to US workplaces:
 
Source: @WSJ   Read full article  
 
2. Share of global GDP:
 
Source: World Economics  
 
3. Government spending (% of GDP) vs. population aged 65 and above:
 
Source: Trahan Macro Research  
 
4. Immigrants in the 117th US Congress:
 
Source: Statista  
 
5. COVID reinfections in England:
 
Source: @Jean__Fisch  
 
6. Can you see the panda bear?
 
Source: Ilja Klemencov  

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Have a great weekend!


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