The Daily Shot: 12-Aug-22
• The United States
• The Eurozone
• Taiwan
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Equities
• Rates
• Global Developments
• Food for Thought
The United States
1. Let’s begin with some updates on inflation.
• The headline PPI index unexpectedly declined in July, …
… driven mostly by lower wholesale gasoline prices.
Source: @TheTerminal, Bloomberg Finance L.P.
The core PPI was also softer than expected.
– There was a substantial decline in upstream prices.
Source: Mizuho Securities USA
– Trade services price gains (business markups) were softer as well.
– The year-over-year PPI changes appear to have peaked.
• The combination of the PPI and CPI components points to a much smaller gain in the core PCE inflation measure, the Fed’s preferred indicator.
Source: Nomura Securities
• Food inflation continues to surge, …
Source: @WSJ Read full article
… with gains in grocery costs massively outpacing restaurant prices.
And consumers shouldn’t expect food price gains to slow in the near future. Wholesale food price inflation (the PPI) is nearing 16%.
• Here are some additional updates on consumer inflation.
– Alternative measures of core CPI:
– Online prices (year-over-year):
Source: Adobe
– The NY Fed’s UIG inflation tracker:
Source: Federal Reserve Bank of New York Read full article
– Airline CPI (monthly changes):
Source: Nomura Securities
– Core goods prices (3-month changes) vs. supplier delivery times (index):
Source: Nomura Securities
– The CPI index (price level) relative to the 2% target:
Source: Mizuho Securities USA
– Inflation on everyday items vs. the core CPI:
Source: TS Lombard
– Price gains on discretionary vs. nondiscretionary items:
Source: Quill Intelligence
– Equity market responses to the monthly CPI report:
Source: Numera Analytics
• Now, let’s take a look at some CPI forecasts.
– Capital Economics (core inflation to stay elevated):
Source: Capital Economics
– ING:
Source: ING
– BofA:
Source: BofA Global Research
– Deutsche Bank:
Source: Deutsche Bank Research
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2. Next, we have some updates on the labor market.
• Initial jobless claims remain elevated relative to the pre-COVID levels (2 charts).
Continuing claims are still very low.
• Moderating state tax withholdings may point to a labor market slowdown.
Source: Quill Intelligence
• For now, it’s challenging to find areas of weakness in the US labor market.
Source: @AtlantaFed
• The COVID-era employment drawdown has been massive.
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
• Has wage growth peaked?
Source: Economics and Strategy Group, National Bank of Canada
• Slower growth in the nation’s foreign-born working-age population contributes to labor shortages.
Source: Deutsche Bank Research
• These charts show the demographics of labor force participation changes since the start of the pandemic.
Source: BCA Research
Source: Morgan Stanley Research
• A recession would likely mean substantial job losses:
Source: Capital Economics
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3. US average retail gasoline price dipped below $4.0/gal.
4. The Chicago Fed’s business activity report shows severe deterioration in the Midwest region (as of July). This report usually doesn’t get much attention because it comes out after the ISM PMI (national) report, but there is clearly a problem here.
Source: Chicago Fed Further reading
This is the Chicago Fed’s district.
Source: Chicago Fed
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The Eurozone
1. Electricity prices continue to hit record highs.
• Germany:
• France:
2. This chart shows energy imports from Russia.
Source: Pantheon Macroeconomics
3. The Eurozone’s energy share of the CPI is much higher than in the US.
Source: @pietphc
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Taiwan
1. USD/TWD is holding resistance at 30.
2. Taiwan’s demographics are worsening.
Source: Alpine Macro
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China
1. Passenger vehicle sales continue to rise above seasonal trends despite supply bottlenecks.
Source: Fitch Ratings
Profitability among domestic automakers remains weak, driven by cost pressures. However, Fitch expects a recovery this year as production normalizes.
Source: Fitch Ratings
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2. Housing pre-sales are a key source of financing for developers.
Source: BCA Research
This year’s total drop in property sales is expected to be severe.
Source: Gavekal Research
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3. China’s steel output decline is expected to be the largest in decades.
Source: @ANZ_Research
4. Robotics production has been surging.
Source: PGM Global
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Emerging Markets
1. Let’s begin with Mexico.
• Banxico hiked rates by 75 bps again, following the Fed.
• Factory output has been expanding (contradicting the S&P Global’s PMI indicator).
• Job creation is slowing.
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2. Brazil’s service sector output continues to climb.
3. Argentina’s core CPI breached 70%.
4. South Africa’s industrial production continues to weaken, with both manufacturing and mining output trending lower.
Here is gold production.
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5. This chart shows current account balances in select economies.
Source: Capital Economics
6. Next, we have sovereign bond spreads vs. ratings.
Source: Oxford Economics
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Cryptocurrency
1. It’s been a good week for cryptos, with ether (ETH) outperforming large-cap tokens.
Source: FinViz
2. Ether’s option skew, or the implied volatility of calls minus puts, flipped positive over the past month. However, the skew has weakened over the past week.
Source: Block Scholes, Deribit Read full article
Ether’s short-term implied option vols have been stable while long-term vols have ticked higher.
Source: Block Scholes, Deribit Read full article
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3. The ETH/BTC price ratio broke above a six-month downtrend but could face strong resistance.
4. Bitcoin’s market cap relative to the total crypto market cap (dominance ratio) continues to decline as altcoins outperform. However, support is nearby, which could pause the risk-on tone in cryptos.
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Commodities
1. Options traders have been boosting their bets against copper. This chart shows LME open interest in put options by strike (the current price is near $8,200).
Source: Reuters Read full article
Separately, clean energy spending will have a small impact on global copper demand, according to BCA Research.
Source: BCA Research
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2. Gold could face additional declines in real terms based on the level implied by real US rates and the dollar, according to BCA Research.
Source: BCA Research
3. Here is a look at mineral demand across transport and power sectors.
Source: @ANZ_Research
4. US natural gas is testing resistance at $9.0/MMBtu.
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Equities
1. Earnings downgrades have slowed relative to upgrades.
2. Market intraday swings have been trending lower.
Mega-caps’ implied volatility indices have declined sharply.
Source: @themarketear
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3. Looking at a longer-term trend, the S&P 500 held support at the three-year moving average.
Source: BCA Research
4. The most expensive quartile of the market remains very expensive.
Source: @WSJ Read full article
5. The G5 (France, Germany, Japan, the UK, and the US) credit impulse suggests that stocks may underperform bonds.
Source: @MacroAlf
6. Sectors tied to economic growth have a higher correlation to oil prices and Treasury yields than defensive sectors.
Source: Global X ETFs Read full article
7. The optimal weight of equities in a balanced portfolio has varied over time.
Source: Goldman Sachs Read full article
8. Next, we have some updates on small-cap shares.
• IWM (Russell 2000 ETF) hit resistance at the 200-day moving average.
• Trading volume among the Russell 2000 members has been surging.
Source: Chris Murphy, Susquehanna International Group
• The revenue-weighted S&P 600 (small-cap) index has been outperforming the S&P 600.
h/t PGM Global
• Fund flows into IWM (Russell 2000 ETF) tend to follow the copper/gold ratio (a measure of economic strength).
Source: PGM Global
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Rates
1. Typically, an above benchmark duration stance performs well when there is a dovish surprise from the Fed.
Source: BCA Research
However, in a non-recessionary scenario, long maturity bonds are vulnerable to losses when inflation expectations are below the prevailing rate of potential economic growth, according to BCA Research. That can occur despite the lack of hawkish surprises from the Fed.
Source: BCA Research
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2. These charts show influences on intermediate and long-term Treasury yields (2 charts).
Source: FHN Financial
Source: FHN Financial
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3. Treasuries are becoming less attractive when hedged into yen.
Source: Nordea Markets
As a result, we could see further declines in Treasury holdings by Japanese investors.
Source: Nordea Markets
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4. Deutsche Bank’s measure of the effective (shadow) fed funds rate hit 4%. US monetary conditions are tighter than the Fed’s policy would suggest.
Source: Deutsche Bank Research
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Global Developments
1. Flows into safe assets continue to outpace flows into risky assets.
Source: Goldman Sachs; @WallStJesus
2. No soft landing for the G5 economies?
Source: @MacroAlf
3. The share of global freight on stationary ships remains elevated.
Source: Commerzbank Research
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Food for Thought
1. Changes in US spending by household type:
Source: Bain & Company
2. Store visits relative to last year:
Source: Placer.ai
3. Global EV sales:
Source: Visual Capitalist Read full article
4. US old-age dependency ratio:
Source: Mizuho Securities USA
5. Bloomberg’s US Election Risk Index:
Source: Bloomberg Read full article
6. Plastic waste production per person:
Source: Barclays Research
7. Changing beer drinking habits:
Source: Statista
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Have a great weekend!
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