The Daily Shot: 08-Jul-22
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Europe
• Japan
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Rates
• Global Developments
• Food for Thought
The United States
1. Let’s begin with the labor market.
• Initial jobless claims are still very low for this time of the year (below 2019 levels). The job market remains tight (for now).
• Layoffs have picked up, but most workers are finding jobs quickly.
Source: @axios Read full article
• There is room for labor force participation to recover further.
Source: Oxford Economics
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2. Next, let’s take a look at housing.
• Mortgage applications ticked up going into the holiday weekend but are still some 17% below last year’s levels.
• The decline in mortgage applications and higher mortgage rates point to much slower home price appreciation in the months ahead (3 charts).
Source: Pantheon Macroeconomics
Source: Piper Sandler
Source: Desjardins
• Home price gains have been slowing but are still positive.
Source: Black Knight McDash
• Will we see real home price declines at the national level?
Source: Numera Analytics
• More sellers have been cutting prices.
Source: Redfin
• Purchase contract cancellations are surging in Denver.
Source: @AliWolfEcon
• Demand for vacation homes has been falling.
Source: Redfin
• Homebuilder sales continue to deteriorate.
Source: Evercore ISI Research
• US mortgage delinquency rates hit a record low.
Source: Black Knight McDash
• This chart shows rate lock distribution by purpose.
Source: Black Knight McDash
• Home values and equities have become roughly equal portions of household wealth.
Source: Desjardins
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3. Manufacturing “onshoring” has been picking up momentum.
Source: Piper Sandler
However, slowing demand could dampen companies’ willingness to keep investing in domestic production (2 charts).
Source: MarketDesk Research
Source: @TheTerminal, Bloomberg Finance L.P.
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4. It’s hard to see US utilities lowering prices even if natural gas prices don’t rebound.
Source: @RenMacLLC
5. And so it begins. The Fed’s securities portfolio saw its first meaningful reduction in recent days (quantitative tightening).
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Canada
1. The Ivey PMI report showed robust growth in business activity last month.
2. CapEx plans remain strong.
Source: Scotiabank Economics
3. As we saw yesterday, inflation expectations continue to climb.
Source: @RichardDias_CFA
4. Could the BoC push Canada’s economy into recession if inflation remains stubbornly high?
Source: Oxford Economics
Here is what could happen to the unemployment rate, according to Oxford Economics.
Source: Oxford Economics
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The United Kingdom
The pound strengthened substantially vs. the euro after the news of Boris Johnson’s resignation.
Who will replace Johnson?
Source: YouGov
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The Eurozone
1. The euro remains under pressure.
2. There are some concerns about the ECB’s defragmentation effort getting delayed.
Source: @financialtimes Read full article
Italian spreads widened.
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3. Euro-area retail sales are not crashing despite deteriorating sentiment.
4. European natural gas prices continue to surge as Russia tightens supplies.
As a result, one-year electricity contract prices are hitting record highs.
• France:
• Germany:
Source: S&P Dow Jones Indices
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5. HSBC expects inflation in France to ease as the government prevents the full pass-through of energy price rises, rather than subsidizing income.
Source: HSBC Global Research
6. German shares have been underperforming.
Source: PGM Global
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Europe
1. Poland’s latest rate hike was a bit more cautious. Markets expected to see a 75 bps increase.
2. Which countries extended their debt maturities since 2010?
Source: @RobinBrooksIIF
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Japan
Shinzo Abe, Japan’s longest-serving prime minister, has been shot and is in “grave condition.”
Source: Reuters Read full article
The yen strengthened (chart shows the dollar falling against the yen – the title should say “USD/JPY”).
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China
1. FX reserves declined again, surprising the markets.
Hong Kong’s FX reserves are also falling.
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2. China is considering a massive stimulus package to focus on infrastructure. Copper prices perked up in response.
Source: Bloomberg Read full article
This effort will delay China’s shift toward services, a more productive part of the economy. As a result, the nation will have a difficult time realizing its full economic potential.
Source: @CFR_org Read full article
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3. Service sector employment growth has been slowing.
Source: TS Lombard
4. China has lost most of its wage advantage vs. the US.
Source: @financialtimes Read full article
5. Average funding costs remain relatively low.
Source: Fitch Ratings
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Emerging Markets
1. Let’s begin with Mexico.
• Is inflation about to peak?
• Loan growth reached 10%.
• Manufacturing growth accelerated last month.
Source: S&P Global PMI
• Mexico hasn’t benefitted much from the US-China trade war.
Source: @financialtimes Read full article
• Remittances continue to surge.
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2. Chile’s trade swung into deficit earlier than usual …
… due to high imports.
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3. India’s business activity remained robust last month (2 charts).
Source: S&P Global PMI
India’s foreign direct investment outflows have accelerated.
Source: @acemaxx, @FT Read full article
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4. Turkey’s PMI report shows output declines picking up momentum.
Source: S&P Global PMI
5. Malaysia’s central bank hiked rates again.
6. Historically, EM equities have outperformed the following six and 12 months after initial Fed rate hikes.
Source: Mirae Asset Read full article
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Cryptocurrency
1. Cryptos bounced with stocks …
… amid extreme bearishness.
Source: @Callum_Thomas
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2. The supply of Tether remains elevated.
Source: @sidcoins, @emilyjnicolle Read full article
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Commodities
1. At times, gold’s drawdowns have coincided with large equity declines.
Source: PGM Global
• Gold is usually sensitive to real yields, …
Source: PGM Global
… making it vulnerable in this environment.
Source: @beursanalist
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2. US coal exports are expected to surge.
Source: S&P Global Commodity Insights
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Energy
1. Crude oil markets remain tight (elevated backwardation).
2. US gasoline and diesel demand was firmer last week ahead of the 4th of July weekend.
Source: Princeton Energy Advisors
Source: Princeton Energy Advisors
Here is the inventory data (somewhat distorted by the holiday weekend).
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3. Crude oil futures open interest has been deteriorating.
Source: @LizAnnSonders
4. US natural gas surged as last week’s inventories were tighter than expected – despite the Freeport LNG outage.
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5. Coal prices are climbing due to tight natural gas supplies globally.
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Equities
1. Earnings forecast downgrades continue to outpace upgrades as equity analysts attempt to catch up with the market.
2. Meme stocks outperformed this week as Gamestop announced a 4-for-1 stock split.
But the median stock price is lagging the S&P 500.
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3. Corporate margin expansion forecasts look too optimistic.
Source: Goldman Sachs; @MaverickBogdan
Economic data point to falling margins ahead.
Source: Pantheon Macroeconomics
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4. We are in for a rough earnings season.
Source: Piper Sandler
5. The S&P 500 experienced a cluster of 2% intraday losses in the past 50 sessions, which is rare. Previous instances occurred near market troughs.
Source: SentimenTrader
6. The ratio of cyclical stocks to defensive stocks has decoupled from real yields.
Source: PGM Global
The same is true for value vs. growth and their earnings multiples.
Source: MarketDesk Research
Source: MarketDesk Research
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7. Global equities have discounted a lot of bad news.
Source: MRB Partners
8. Dividend yields on non-US (vs. US) equities have been much higher than usual.
Source: J.P. Morgan Asset Management
9. Dividend aristocrats have massively outperformed the S&P 500 in recent decades.
Source: Citi Private Bank
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Rates
Rates implied volatility remains very high, especially at shorter maturities.
Source: @TheTerminal, Bloomberg Finance L.P.
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Global Developments
1. Annual inflation averages are reaching multi-decade highs, with the exception of China and Japan.
Source: Barclays Research
2. Here is the breakdown of inflation across G7 economies.
Source: OECD Read full article
3. Price changes become correlated across DM economies in high-inflation regimes.
Source: TS Lombard
4. South Korea’s exports slowdown points to weaker global trade ahead.
Source: Pantheon Macroeconomics
5. Historically, peaks in the global stock/bond ratio have coincided with US recessions.
Source: MRB Partners
6. Despite the headwinds, global manufacturing activity held up relatively well last month.
Source: S&P Global PMI
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Food for Thought
1. How do financial advisors get new clients?
Source: Natixis Investment Managers
2. Energy consumption in the US since 1776:
Source: @EIAgov
3. Tesla deliveries:
Source: @chartrdaily
4. US inflation-adjusted stock market returns:
Source: BofA Global Research
5. Global grain production:
Source: The Economist Read full article
6. LGBT identification by generation:
Source: Wells Fargo Securities
7. US wildfires by day of the year:
Source: @chartrdaily
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Have a great weekend!
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