The pullback in “non-necessary” spending

The Daily Shot: 25-Aug-22
The United States
Canada
The United Kingdom
The Eurozone
Asia – Pacific
China
Emerging Markets
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. The July report on durable goods orders was a bit stronger than expected.
 

 
Capital goods orders and shipments growth (a proxy for business investment) remained robust (2 charts).
 

 
Source: Mizuho Securities USA  
 
However, as we saw yesterday, the situation isn’t as rosy when we adjust for inflation.

Reuters: – Higher prices are making it harder to get a clean read of the equipment spending data, which is not adjusted for inflation. There is also uncertainty over which price index the government will use to adjust the data for inflation.

Source: Wells Fargo Securities  
 
This chart shows nominal and real unfilled orders for capital goods. The backlog is easing.
 
Source: Wells Fargo Securities  
 
Moreover, the S&P Global Manufacturing PMI (chart) suggests that durable goods orders face headwinds going forward.
 
Source: Capital Economics  

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2. Next, we have some updates on the housing market.
 
Mortgage applications are running just above 2015 levels, down more than 20% from last year.
 

 
Rate locks are moving lower as well.
 
Source: AEI Center on Housing Markets and Finance  
 
Pending home sales hit a multi-year low for this time of the year, down 22.5% vs. 2021.
 

 
There are a lot of apartment buildings under construction in the US (2 charts).
 

 
Source: Calculated Risk  
 
Here is a look at housing shortages as a percent of total housing stock across states.
 
Source: SOM Macro Strategies  

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3. Now, let’s take a look at some trends in the labor market.
 
Half of the firms surveyed by PwC are planning layoffs.
 
Source: Bloomberg   Read full article  
 
Labor market churn has been elevated.
 
Source: BCA Research  
 
This chart shows job switching by generation.
 
Source: MagnifyMoney   Read full article  
 
The COVID-era employment recovery for those without a college degree remains incomplete.
 
Source: SOM Macro Strategies  
 
Unemployment duration continues to move lower (workers who lost jobs find new employment quickly).
 
Source: @WSJ   Read full article  
 
The median number of weeks on unemployment is now below pre-COVID levels.
 

 
Rapidly rising wages haven’t lifted labor force participation.
 
Source: Numera Analytics  

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4. Spending on “non-necessary” items is down this year relative to 2021. In the chart below, bars show year-to-date spending relative to the same period last year (by income quintiles). Dots indicate spending in recent weeks relative to 2021.
 
Source: AEI Center on Housing Markets and Finance  
 
Here is another way of looking at this trend.
 
Source: Citi Private Bank  
 
The gaming market is an example of this pullback in “non-necessary” spending.
 
Source: CNBC   Read full article  
 
Here is Nvidia’s share price after the close.
 


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Canada

1. Retail sales were stronger than expected in June, driven by vehicle purchases.
 

 
2. The housing market is facing headwinds.
 
Source: Variant Perception  
 
3. According to Scotiabank, Canada’s depressed labor productivity will make it more challenging to ease supply constraints. As a result, the BoC will be forced to hammer demand more than other central banks to get inflation under control, making a recession more likely.
 
Source: Scotiabank Economics  


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The United Kingdom

1. UK natural gas futures hit a record high.
 

 
2. Gilt yields continue to surge.
 

 
3. FTSE 250 (mid-cap) valuations have dropped but remain elevated relative to history.
 
Source: Barclays Research  
 
Barclays expects the FTSE 250 index to gain more than the FTSE 100 if the planned rise in corporate tax is scrapped.
 
Source: Barclays Research  


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The Eurozone

1. Let’s begin with Germany.
Private consumption increased more than expected in Q2.
 

 
Government spending has been accelerating.
 

 
German stocks continue to underperform.
 
Source: PGM Global  
 
Germany will be ready for winter, albeit at a high cost.
 
Source: @JeffreyKleintop  
 
German export orders face more headwinds.
 
Source: Variant Perception  

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2. French business confidence held up well this month.
 

 
3. Italy will likely end up with a right-wing coalition.
 
Source: Pantheon Macroeconomics  
 
4. Portugal’s economy is expected to outperform.
 
Source: PGM Global  
 
5. European stocks are cheap relative to the US.
 

 
6. Next, we have some updates on inflation.
 
Market-based inflation expectations beyond one year remain “anchored.”
 
Source: Natixis  
 
JP Morgan sees euro-area inflation hitting new highs, even as US and EM inflation slows.
 
Source: JP Morgan Research; @carlquintanilla  
 
Here is the reason.
 


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Asia – Pacific

1. Rising energy import prices in Japan will keep lifting consumer electricity costs well into next year.
 
Source: Capital Economics  
 
2. South Korea’s central bank hiked rates (as expected).
 

 
3. Housing prices in Sydney, Melbourne, and Brisbane continue to tumble.
 
Source: Coolabah Capital   Read full article  


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China

1. China boosted its stimulus package to reinvigorate the economy after lockdowns.
 
Source: @markets   Read full article  
 
2. More rate cuts and lower bond yields ahead for China?
 
Source: Capital Economics  
 
3. Sentiment remains depressed, leading to weak demand for credit.
 
Source: BCA Research  
 
4. Hong Kong continues to register net negative migration.
 
Source: Macrobond  


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Emerging Markets

1. Brazil’s inflation is moderating.
 

 
2. Inflation in Mexico continues to surge.
 

 
Source: Reuters   Read full article  

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3. Argentines keep withdrawing their dollar deposits.
 
Source: Bloomberg   Read full article  
 
4. South Africa’s inflation continues to climb.
 

 
5. Indian stocks look expensive.
 
Source: Numera Analytics  
 
6. Which currencies are over/undervalued?
 
Source: Oxford Economics  


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Commodities

1. Coffee futures are surging in New York amid concerns about Vietnam’s inventories.
 

 
2. Bloomberg’s commodity index is too heavily weighted in natural gas after this year’s rally.
 
Source: @Ole_S_Hansen  


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Energy

1. US crude oil and refined product exports hit a new high.
 

 
2. US crude oil and product inventories edged lower last week (and remain tight).
 

 
3. US Gasoline demand is still well below last year’s level.
 

 
4. NYMEX unleaded gasoline futures are in a seasonally weak period.
 
Source: SentimenTrader  
 
5. US refined product consumption is now well below pre-COVID levels.
 
Source: Princeton Energy Advisors  
 
6. Open interest in NYMEX crude oil futures continues to fall.
 
Source: @WSJ   Read full article  
 
7. US natural gas volatility has been unusually high this year.
 
Source: @EIAgov   Read full article  


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Equities

1. The market is concerned about discretionary spending once again.
 

 
2. The small-cap growth/value ratio started to decline before the S&P 500’s latest pullback.
 
Source: @dlundgren3333  
 
3. Here is the number of consecutive days without reaching a new all-time high in the S&P 500.
 
Source: @LizAnnSonders  
 
4. When are retail investors most active throughout the year? September is not a very popular month.
 
Source: Vanda Research  
 
5. Interest in meme stocks is fading again.
 
Source: Vanda Research  
 
6. Too many equity factors out there?
 
Source: Campbell Harvey   Read full article   Further reading  


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Credit

1. Crdit agencies have been downgrading high-yield debt.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
2. Retail sector bunkruptcies have been low this year.
 
Source: S&P Global Market Intelligence  


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Rates

1. Asset manager positions in the 10-year and ultra T-Bond contracts have grown to multi-year highs.
 
Source: Deutsche Bank Research  
 
2. Hedge funds are positioned for a hawkish surprise at Jackson Hole.
 

 
Source: Bloomberg   Read full article  


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Global Developments

1. The trough in equities coincided with the peak in commodity prices, which is driving the disinflation narrative.
 
Source: Barclays Research  
 
2. This scatterplot shows core inflation vs. the headline CPI.
 
Source: Barclays Research  
 
3. The G7 countries’ aggregate liquidity continues to tighten.
 
Source: @Lvieweconomics  
 
4. A stronger US dollar is a headwind for global trade.
 
Source: Simon White, Bloomberg Markets Live Blog  


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Food for Thought

1. Streaming subscribers who watch, cancel, and go:
 
Source: @WSJ   Read full article  
 
2. US agricultural exports:
 
Source: Wells Fargo Securities  
 
3. Back-to-school spending:
 
Source: Bank of America Institute  
 
4. Life expectancy of audio storage media:
 
Source: Statista  
 
5. Most dangerous countries:
 
Source: @OpenAxisHQ  
 
6. Pressured to attend costly wedding or pre-wedding events?
 
Source: LendingTree   Read full article  
 

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