Business and consumer spending intentions have diverged

The Daily Shot: 28-Jun-22
The United States
Canada
The Eurozone
Europe
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. US durable goods orders topped expectations, with business investment holding up well despite the headwinds (note that these figures are not adjusted for inflation).
 

 
Source: Pantheon Macroeconomics  
 
Inventory growth has been outpacing orders.
 
Source: ¬†Peter Essele, Commonwealth Financial Network  
 
The Citi Economic Surprise Index bounced from the lows after the durable goods orders report.
 

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2. Business and consumer spending intentions have diverged.
 
Source: @ANZ_Research  
 
3. The Dallas Fed’s regional manufacturing index tumbled this month, …
 

 
… as demand slumped …
 

 
… and outlook collapsed.
 

 
Manufacturers expect supply stress to ease with falling demand.
 

 
Order backlogs have melted away.
 

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4. Pending home sales were better than expected last month but are still down 12% vs. last year.
 

 
The upside surprise was driven by stronger sales in the Northeast.
 

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5. Next, we have some updates on inflation.
 
This chart shows the median CPI at the start of the past 13 hiking cycles (over the past 70 years) and where inflation was at the first rate cut.
 
Source: Deutsche Bank Research  
 
Here is the CPI at the start of the first hike vs. the amount of tightening in the first year.
 
Source: Deutsche Bank Research  
 
Market-based inflation expectations have been drifting lower.
 

 
Here is the Evercore ISI’s estimate of the Fed’s Index of Common Inflation Expectations.
 
Source: Evercore ISI Research  
 
The CPI is now at its long-term downtrend resistance.
 
Source: @NautilusCap  
 
Inflation has been increasingly correlated to consumption, making price changes more vulnerable to demand shocks.
 
Source: TS Lombard  
 
The surge in US business markups helped fuel inflation.
 
Source: Mike Konczal, Niko Lusiani   Read full article  
 
Hospital inflation could accelerate in the months ahead as labor costs surge.
 
Source: Deutsche Bank Research  
 
Shelter CPI has more room to rise.
 
Source: Citi Private Bank  


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Canada

1. Consumer confidence continues to sink.
 

 
2. Inflation has been accelerating across the board.
 
Source: Desjardins  
 
Surging inflation continues to surprise the BoC.
 
Source: Scotiabank Economics  

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3. The mortgage debt service ratio is near peak levels and sharply higher than the US.
 
Source: MRB Partners  


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The Eurozone

1. Let’s begin with Germany.
 
Consumer sentiment hit a record low.
 

 
Survey data weakness signals a GDP contraction in Germany.
 
Source: Pantheon Macroeconomics  
 
Germany is experiencing wage pressures.
 
Source: Deutsche Bank Research  
 
German firms’ selling price expectations remain high.
 
Source: Deutsche Bank Research  

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2. Tighter liquidity points to deteriorating business activity in the Eurozone.
 
Source: Pantheon Macroeconomics  


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Europe

1. Czech consumer confidence hit a record low.
 

 
2. Here is a look at job vacancy rates in the EU.
 
Source: Eurostat   Read full article  
 
3. And this chart shows EU electricity production by source.
 
Source: @WSJ   Read full article  


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China

1. The Shanghai Shenzhen CSI 300 Index is entering overbought territory.
 

 
2. Hong Kong’s exports eased in May but remain elevated.
 


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Emerging Markets

1. The Indian rupee hit a record low as oil prices climb.
 

 
Source: Reuters   Read full article  

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2. Mexico’s trade deficit was wider than expected in May.
 

 
3. JP Morgan’s LatAm currency index is at support.
 

 
4. EM ex-China economies continue to see non-resident outflows.
 
Source: @SergiLanauIIF  
 
5. Which countries risk social unrest?
 
Source: Barclays Research  


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Cryptocurrency

1. Crypto investment products saw massive outflows totaling $423 million last week.
 
Source: CoinShares   Read full article  
 
Bitcoin-focused products saw the most outflows, while Ethereum-focused funds and short-bitcoin funds saw inflows.
 
Source: CoinShares   Read full article  

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2. XRP has been outperforming.
 

 
3. Ether has been holding support at the 200-week moving average.
 
h/t Joanna Ossinger  
 
4. A significant number of bitcoin holders are facing unrealized losses, similar to what occurred near previous bear market lows.
 
Source: @cryptoquant_com  
 
5. Weaker economic indicators pose downside risks for bitcoin.
 
Source: Stifel  


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Commodities

1. Platinum is testing support at $900/oz.
 
Source: barchart.com  
 
2. The inverse correlation between gold and real yields turned positive in recent months.
 
Source: Aazan Habib; Paradigm Capital  
 
3. Fitch Solutions expects steel prices to remain elevated because of the Russia/Ukraine war and renewed stimulus targeting China’s infrastructure. Still, over the coming decade, demand could slow as China prioritizes services over heavy industry.
 
Source: Fitch Solutions Macro Research  
 
4. Most commodities, especially base metals, are in a bear market.
 
Source: @granthawkridge  
 
5. Historically, sharp rises in commodity prices have preceded or coincided with recessions. As the momentum surge peaks, however, commodities have struggled over the next few months, according to SentimenTrader.
 
Source: SentimenTrader  


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Energy

1. OPEC output is near capacity, and Europe is asking the US to step up.
 
Source: @ShellenbergerMD  
 
US energy CapEx has been soft.
 
Source: BofA Global Research; @SamRo  
 
And global investment in fuels is still below pre-COVID levels.
 
Source: IEA   Read full article  

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2. Oil is rebounding.
 

 
The market remains very tight. Here is the spread between the August and the September Brent futures (backwardation).
 

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3. This chart shows oil consumption shortfall (deviation from the pre-pandemic path) by region.
 
Source: Numera Analytics  
 
4. Russian refinery inputs are declining as sanctions affected both exports and domestic demand, but also due to maintenance, according to OIES (2 charts).
 
Source: Oxford Institute for Energy Studies  
 
Source: Oxford Institute for Energy Studies  


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Equities

1. Stocks have been firmer in anticipation of rate cuts, which the market expects to start in the first half of next year. The assumption here is that the Fed will be comfortable with its progress in battling inflation by then. Perhaps.
 
Source: Piper Sandler¬†  
 

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2. Elevated profitability is a risk for stocks.
 
Source: MRB Partners  
 
Earnings forecasts have been trending higher …
 
Source: PGM Global  
 
… even as economists continue to downgrade GDP growth projections.
 

 
A number of leading indicators continue to signal a deterioration in earnings growth (2 charts).
 
Source: Alpine Macro  
 
Source: Longview Economics  
 
Equity analysts have been “behind the curve” and are now trying to catch up. Earnings downgrades are increasingly outpacing upgrades.
 

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3. There is plenty of room for valuations to adjust lower.
 
Source: FAURBY CAPITAL  
 
4. The dispersion in interest rate sensitivities across sectors and style factors was muted until about 2012.
 
Source: D.E. Shaw Group   Read full article  
 
Source: D.E. Shaw Group   Read full article  
 
This table shows how sector returns are affected when adjusting for equity and Treasury betas over the past decade.
 
Source: D.E. Shaw Group   Read full article  

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5. Market breadth has improved.
 
Source: @Lvieweconomics  
 
6. Skew indicators point to limited demand for downside protection.
 
Source: @ANZ_Research  


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Credit

1. The pace of global corporate defaults has slowed so far this year compared to the previous five years.
 
Source: S&P Global Ratings  
 
Corporate defaults in the US are currently much lower than in previous years.
 
Source: S&P Global Ratings  

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2. The share of stressed EUR HY debt remains well above pre-COVID levels.
 
Source: S&P Global Ratings   Read full article  
 
3. A lot of bond deals got pulled this month.
 
Source: Jacqueline Poh, @TheTerminal, Bloomberg Finance L.P.   Read full article  
 
4. The corporate funding strength of US life, property, and casualty insurance companies is substantial relative to public pension systems.
 
Source: Moody’s Investors Service  
 
US public pension systems have shifted away from fixed-income securities as interest rates fell.
 
Source: Moody’s Investors Service  
 
US public pension systems are increasingly relying on private equity and private credit in pursuit of higher returns (with higher risk). The chart shows aggregated investment allocation of the top 10 largest pension systems.
 
Source: Moody’s Investors Service  


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Rates

1. Short-term rates volatility has been massive.
 
2yr Treasury futures realized vol:
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Implied vol on 2yr rates, 6-months forward:
 
Source: Deutsche Bank Research  
 
Implied vol for the one-month option on the 5-year Treasury futures contract:
 
Source: FHN Financial  

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2. Here is the distribution of Fed rate changes since 1971.
 
Source: @ANZ_Research  
 
3. MBS convexity is gone as mortgage refi activity grinds to a halt (the prepay option is now too deep out-of-the-money). Durations are higher.
 
Source: Goldman Sachs; III Capital Management  


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Global Developments

1. Google search activity for “recession” has been surging.
 
Source: Alpine Macro  
 
2. Here is the share of inflation components with prices climbing by more than 5%.
 
Source: @WSJ   Read full article  
 
3. Cross-border liabilities continue to rise.
 
Source: IMF   Read full article  


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Food for Thought

1. Avoiding the news:
 
Source: Statista  
 
2. Politics on Twitter:
 
Source: Pew Research Center   Read full article  
 
3. Belief in God in the US:
 
Source: Gallup   Read full article  
 
4. Foreign-born population by country:
 
Source: Statista  
 
5. Favorite destinations of Russian private jets:
 
Source: The New York Times   Read full article  
 
6. Cocaine seizures in Europe
 
Source: Statista  
 
7. Training the immune system to attack cancer cells with personalized vaccines:
 
Source: @financialtimes   Read full article  

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