The Daily Shot: 25-Jul-22
• The United States
• The United Kingdom
• The Eurozone
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought
The United States
1. The S&P Global Composite PMI moved into contraction territory this month (PMI < 50), signaling a pullback in business activity.
The weakness was driven by services.
Source: Barclays Research
Separately, regional Fed indices point to a contraction in the ISM Manufacturing PMI (at the national level).
Source: Yardeni Research
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2. The Citi US Economic Surprise Index is falling again, …
… pulled lower by “soft data” (surveys). Soft data indicators tend to provide a more timely signal.
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3. Bloomberg’s recession probability index keeps climbing.
Barclays Research doesn’t see a recession – just very slow growth.
Source: Barclays Research
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4. The Bain Consumer Health Index has been flat over the past four weeks, but there was a pullback among upper-income households.
Source: Bain & Company
• Credit card data continues to show robust spending.
Source: @WSJ Read full article
Source: @business Read full article
• Separately, there hasn’t been a pullback in securities-based borrowing among wealthy investors.
Source: @WSJ Read full article
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5. Container shipping costs continue to moderate.
6. Liquidity has been decreasing as the Fed reverses quantitative easing. It’s a headwind for economic growth.
• Reserves:
• Broad money supply:
Source: Merrill Lynch
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7. The market expects the Fed to hike rates by 75 bps this week and 50 bps in September.
The fed funds rate trajectory is no longer expected to reach 3.5%.
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The United Kingdom
1. The PMI report was in line with expectations, outperforming the Eurozone.
But the orders-to-inventory ratio doesn’t look promising (2 charts).
Source: @RobinBrooksIIF
Source: Pantheon Macroeconomics
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2. Retail sales surprised to the upside.
3. Liz Truss maintains a substantial lead over Rishi Sunak in the betting markets.
Source: @PredictIt
Who will make a good PM?
Source: @OpiniumResearch, @ObserverUK
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The Eurozone
1. The July PMI report looks recessionary, coming in well below consensus estimates.
• Manufacturing:
– Eurozone:
Source: S&P Global PMI
– France:
– Germany (3 charts):
• Services:
– France:
– Germany:
• Eurozone composite PMI:
– Composite PMI new orders:
– More pain ahead?
Source: Pantheon Macroeconomics
• Supply chain stress is easing.
Source: TS Lombard
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2. The Citi Economic Surprise Index deteriorated further due to the PMI miss.
3. Recession probabilities as rising.
• Forecasters have been downgrading next year’s growth, …
… while boosting CPI projections.
Source: ECB
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4. Weak global growth points to further declines in EUR/USD.
Source: Deutsche Bank Research
5. Spanish short-term bond yields have been falling.
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China
1. Property shares have stabilized as Bejing plans a massive bailout.
Source: Reuters Read full article
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2. The credit impulse remains weak, especially relative to previous cycles (2 charts).
Source: Gavekal Research
Source: MRB Partners
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3. Companies are focusing on financial investments rather than capital expenditures, similar to the 2014-2016 property market downturn.
Source: Gavekal Research
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Emerging Markets
1. Financial risks deepen in Argentina.
Source: Reuters Read full article
• The gap between the official and unofficial peso exchange rate has blown out (higher value = weaker peso).
Source: Blue Dollar
• Bond price:
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2. The Indian central bank drew a line in the sand, defending the rupee from depreciating beyond 80 to the dollar.
Source: Reuters Read full article
Source: barchart.com
India’s business activity is back in contraction territory, according to the World Economics SMI report.
Source: World Economics
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3. Russia’s central bank cut rates again.
4. The Turkish lira continues to weaken, nearing 18 to the dollar.
5. Next, we have some performance data from last week.
• Currencies:
• Equity ETFs:
• Local-currency bond yields:
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6. EM financial conditions continue to tighten.
Source: Oxford Economics
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Cryptocurrency
1. Cryptos are under pressure again.
Bitcoin is at support.
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2. Coinbase breaks above its 50-day moving average.
Source: Longview Economics
3. This map shows the status of central bank-issued digital currencies.
Source: Statista
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Commodities
1. Hedge funds are now betting against precious metals.
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2. Wheat sank on Friday in response to the Ukraine news. Too much optimism about supply improvements?
Source: @WSJ Read full article
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3. This chart shows last week’s performance across key commodity markets.
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Energy
1. US natural gas futures continue to climb.
2. Analysts expect Gazprom’s natural gas production to deteriorate this month.
Source: UBS; Syz Group
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Equities
1. Let’s begin with some updates on earnings.
• S&P 500 2023 earnings expectations continue to moderate.
Earnings expectations ex-energy are down substantially.
Source: @MrBlonde_macro
• So far, earnings downgrades for Q2 are not extreme, even when excluding energy.
Source: Deutsche Bank Research
Large earnings upgrades for energy stocks have been offset by cuts elsewhere.
Source: Deutsche Bank Research
• The early part of the earnings season tends to be more supportive of equities.
Source: @MrBlonde_macro
• A strong US dollar tends to result in more downside sales surprises.
Source: Goldman Sachs; @SamRo
• Small-cap earnings guidance is outpacing large caps.
Source: BofA Global Research
• There is a large divergence between US and global ex-US earnings.
Source: Deutsche Bank Research
• As we mentioned previously, softer economic activity points to weaker earnings growth ahead.
Source: MarketDesk Research
• The market has been very forgiving with the Q2 earnings misses.
Source: @WSJ Read full article
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2. Last week’s rally is consistent with bearish positioning ahead of the earnings season.
Source: Deutsche Bank Research
3. The S&P 500 has experienced a lot of whipsaws lately.
Source: SentimenTrader
4. Financials held their long-term support.
Source: @allstarcharts
5. Next, we have some performance data from last week.
• Sectors:
• Factors:
• Thematic ETFs:
• Largest US tech firms:
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Credit
1. Financial fragility of households and corporations is rising, although still well below the historical average.
Source: S&P Global Ratings
2. Here is last week’s performance by asset class.
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Rates
1. Treasury yields dropped sharply last week, with the 30-year dipping below 3%.
Source: barchart.com
• Real yields were down as well.
• Most fund managers see lower yields ahead.
Source: BofA Global Research
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2. The inflation curve is becoming more inverted (the market is pricing steeper inflation declines ahead).
Source: Alpine Macro
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3. Periods of high inflation tend to see flatter yield curves relative to those with low inflation.
Source: Desjardins
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Global Developments
1. So far, the performance of commodities, equities, and fixed income have been in line with performance seen during previous high growth and inflation environments.
Source: Desjardins
2. Here is a look at the sector composition across global equity markets.
Source: MRB Partners
3. Fund managers’ economic growth optimism is below 2008 lows.
Source: BofA Global Research
4. Next, we have last week’s performance data for advanced economies.
• Trade-weighted currency indices:
• Bond yields:
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Food for Thought
1. Younger Democrats are less wedded to the party than older Democrats.
Source: The Economist Read full article
2. Views on policies surrounding transgender individuals by religious group:
Source: Pew Research Center Read full article
3. Interest in delivery by drone:
Source: @MorningConsult Read full article
4. Maternal mortality rates:
Source: The Economist Read full article
5. China’s imports from Russia:
Source: Gavekal Research
6. Boeing airplane deliveries:
Source: @chartrdaily
7. Cocaine slang terms, according to the DEA:
Source: @PotResearch Read full article
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