Recession risks mount

The Daily Shot: 30-Jun-22
The United States
The United Kingdom
The Eurozone
Europe
Japan
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. Mortgage applications to purchase a home dropped sharply last week and are now down 24% vs. last year.
 

 
Banks have been reporting softer demand for mortgages.
 
Source: Alpine Macro  
 
A higher percentage of borrowers have been tapping adjustable-rate mortgages to reduce initial monthly payments.
 
Source: @LizAnnSonders, @DataArbor, @MBAMortgage  

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2. More low-income households surveyed by the Census Bureau are behind on rent as of early June.
 
Source: @atanzi, @markets   Read full article  
 
3. Tight financial conditions will substantially boost recession risks by mid-2023, according to Deutsche Bank.
 
Source: Deutsche Bank Research  
 
A majority of institutional investors expect a recession to occur next year.
 
Source: Deutsche Bank Research  
 
Cyclical cargo railcar loadings are indicating a slowdown.
 
Source: TS Lombard  
 
The spread between the Conference Board’s consumer expectations and current conditions is signaling a recession.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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4. Households are beginning to show concerns about the labor market.
 
Source: Quill Intelligence  
 
Food service job openings growth has slowed.
 
Source: BofA Global Research; @MikeZaccardi  

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5. Real compensation costs are now well below pre-COVID levels.
 
Source: S&P Global Ratings  
 
6. The market is pricing bigger Fed rate cuts starting in the first half of next year.
 

 
7. Market pricing for the real neutral rate reflects deteriorating longer-term potential GDP growth (see comment from Piper Sandler).
 
Source: Piper Sandler   


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The United Kingdom

1. The Lloyds business sentiment index is rolling over.
 

 
2. ANZ Research cut its GDP forecast to 3.6% this year, flattened by base effects. ANZ also sees below potential growth of 1% next year.
 
Source: @ANZ_Research  
 
3. Labor demand is moderating.
 
Source: Pantheon Macroeconomics  
 
4. This trend is unlikely to continue, given higher rates and awful consumer sentiment.
 
Source: @financialtimes   Read full article  


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The Eurozone

1. Bund yields are sharply lower as global recession risks climb.
 

 
DAX is down as well amid risk-off sentiment.
 

 
Market pricing for the ECB rate hikes this year has been moderating in recent days.
 

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2. German inflation came in below forecasts.
 

 

 
But this is no cause for celebration – the decline was due to temporary government relief measures.
 
Source: Bloomberg   Read full article  

Pantheon Macroeconomics: – For some reason, the consensus failed to adequately factor-in two one-off inflation-depressing fiscal measures; the fuel duty cut and the introduction of discounted rail fare-the nine-euro ticket-weighing on both the headline and core.

Spain’s inflation continues to surge, hitting 10% this month.
 

 

 
And here is the Belgian CPI.
 

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3. Generally, business confidence has been holding up well.
 

 
But construction sentiment is rolling over.
 

 
And retailers are reporting weaker conditions.
 

 
Below is the overall economic confidence, which includes consumer sentiment.
 


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Europe

1. Let’s begin with Sweden.
 
Confidence indicators:
 

 
Household inflation expectations:
 
Source: Nordea Markets  
 
Retail sales (2 charts):
 

 
Source: Nordea Markets  

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2. How important is tourism for EU economies?
 
Source: Piper Sandler   


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Japan

1. Consumer confidence continues to weaken.
 

 
2. Industrial production tanked in May due to China’s lockdowns.
 

 
3. Housing starts surprised to the downside.
 


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Asia – Pacific

1. South Korea’s business surveys are softer this month.
 

 
2. New Zealand’s business confidence continues to deteriorate.
 

 
3. Australia’s credit growth surprised to the upside.
 


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China

1. The official PMI report showed business returning to growth.
 
Manufacturing:
 

 
Non-manufacturing:
 

 
Factory input price gains are slowing, …
 

 
… and order backlogs are easing.
 

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2. Diverging monetary policy paths resulted in China’s bonds sharply outperforming Treasuries.
 
Source: Gavekal Research  
 
3. Urban unemployment remains elevated.
 
Source: @ANZ_Research  
 
4. China’s foreign trade growth in high-tech products has been slowing.
 
Source: ING  


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Emerging Markets

1. The Chilean peso continues to sink.
 

 
Chile’s unemployment rate was lower than expected in May.
 

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2. Thai manufacturing production declined on supply shortages due to China’s lockdown.
 

 
3. No equity market capitation yet?
 
Source: BCA Research  


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Cryptocurrency

1. Bitcoin is back below $20k.
 

 
2. Bitcoin miners who have been under income stress lately are in full distribution mode, selling an estimated 3,000-4,000 BTC per month.
 
Source: @glassnode  
 
3. Large bitcoin investors (holding more than 1,000 BTC) have added to their balances during the recent sell-off. These holders account for roughly 45% of total BTC supply and have not yet capitulated.
 
Source: @glassnode  
 
The same is true for smaller bitcoin holders.
 
Source: @glassnode  

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4. Grayscale is planning to sue the SEC after its bid for a spot-based bitcoin ETF was rejected.
 
Source: CoinDesk   Read full article  
 
The Grayscale Bitcoin Trust’s (GBTC) discount has narrowed over the past week.
 
Source: Skew  


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Energy

1. US refinery inputs are firmer.
 

 
And gasoline inventories are starting to recover (2 charts).
 

 

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2. US oil inventories are nearing the 5-year range.
 

 
3. Open interest in Brent and WTI futures hit a 7-year low.
 
Source: @JavierBlas  


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Equities

1. Stock futures are heavy this morning as recession risks mount.
 

 
2. It has been a difficult first half of the year for stocks.
 
Source: S&P Dow Jones Indices  
 
Here are the US equity market value drawdowns as a share of GDP.
 
Source: @strategasasset  

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3. We’ve had a very volatile 5-week period.
 
Source: @sentimentrader, @JasonGoepfert  
 
4. Will the S&P 500 break below the 3-year moving average?
 
Source: BCA Research  
 
5. How extensive can bear market rallies get?
 
Source: Evercore ISI Research  
 
6. Retail investors continue to buy the dip, but it’s not enough to offset institutional sales.
 
Source: Vanda Research  
 
7. Global equity valuations have been linked to US real rates.
 
Source: Capital Economics  
 
8. Sales growth and inflation tend to be correlated.
 
Source: Truist Advisory Services  
 
9. Small and mid-cap shares continue to trade at a substantial discount to large caps.
 
Source: Yardeni Research  
 
The selloff in credit points to downside risks for small caps.
 
Source: BCA Research  

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10. Almost a third of financial industry employees started working after the financial crisis.
 
Source: Trahan Macro Research  


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Credit

1. European high-yield debt markets are struggling.
 

 
2. Airline bonds have been selling off.
 

 
Source: Bloomberg Law   Read full article  

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3. This scatterplot shows the amount of B- debt maturing through the end of 2023 vs. the number of issuers.
 
Source: S&P Global Ratings  


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Rates

1. The copper-to-gold ratio is pricing in slower growth. Will Treasury yields follow?
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
2. This has been the worst start of the year for Treasuries since 1788.
 
Source: Deutsche Bank Research  
 
3. The Treasury curve is rapidly flattening between the 1-year and the 10-year maturities.
 
Source: Tradeweb  
 
Here is another leading indicator: the Fed’s near-term forward spread.
 

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4. The iShares TIPS Bond ETF (TIP) is testing resistance relative to the iShares 7-10 Year Treasury Bond ETF (IEF).
 
Source: Azan Habib; Paradigm Capital  


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Global Developments

1. Commodities and the dollar are up this year. Everything else is down.
 
Source: JP Morgan Research; @Scutty  
 
2. Traders have been boosting bets on the US dollar index futures.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
Historically, the dollar has weakened when the equity market has troughed, typically around the midpoint of a US recession.
 
Source: Deutsche Bank Research  

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3. The June SMI report from World Economics shows global business activity entering contraction territory.
 
Source: World Economics  


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Food for Thought

1. Using a bike as a primary mode of transportation for short trips:
 
Source: @financialtimes   Read full article  
 
2. City liveability rankings by region:
 
Source: The Economist   Read full article  
 
3. Spending on pharmaceuticals:
 
Source: @chartrdaily  
 
4. Medication abortions as a share of total US abortions:
 
Source: @chartrdaily  
 
Google search activity for “medication abortion”:
 

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5. Share of childcare done by men and fertility rates:
 
Source: @financialtimes   Read full article  
 
6. Global emissions by category:
 
Source: Wells Fargo Securities  
 
7. Betting markets’ probabilities for the 2024 Republican presidential nomination:
 
Source: @PredictIt  
 
8. Best UK music act of the last 50 years:
 
Source: @markets   Read full article  

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