Posted on by The Daily Shot Editor: Lev Borodovsky

The decline in job openings is too slow for the Fed

The Daily Shot: 04-Oct-22
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Europe
• Japan
• Asia – Pacific
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought

 

The United States

1. The ISM manufacturing PMI showed stalling growth in US factory activity.
 

 
Orders and employment are now a drag on the PMI index.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
• New orders are shrinking (2 charts).
 

 

 
• Hiring has stopped.
 

 
• The backlog of orders is not growing.
 

 
• Customer inventories are rebounding.
 

 
• Supply pressures continue to ease.
 

 
• Input price gains keep slowing, …
 

 
… which points to moderating inflation.
 
– The headline CPI vs. the ISM input price index:
 
Source: @macro_daily  
 
– Goods CPI:
 
Source: Oxford Economics  
 
• The combination of faster supplier deliveries and shrinking order backlogs points to tighter corporate margins and lower PPI.
 
Source: Pantheon Macroeconomics  
 
• The stock market suggests that we will see further declines in the ISM Manufacturing PMI. Here is the ratio of cyclical to defensive sectors vs. the ISM PMI.
 

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2. Treasury yields are moving lower.
 

 
3. Construction spending declined again in August …
 

 
… driven by single-family housing (2 charts).
 
Source: Chart and data provided by Macrobond  
 
Source: Wells Fargo Securities  

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4. Auto sales edged higher in September.
 

 
GM sales picked up in Q3.
 
Source: CNBC   Read full article  

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5. Job postings on Indeed continue to drift lower, but this rate of decline is not fast enough for the Fed. The goal is to get job openings to pre-COVID levels.
 

 
The decline in high-income postings has accelerated.
 
Source: @indeed  

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6. What are the drivers of tighter financial conditions?
 
Source: Morgan Stanley Research  
 
Will this tightening be enough to tip the economy into a recession? Here is a model from Morgan Stanley.
 
Source: Morgan Stanley Research  

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Canada

1. Consumer confidence remains depressed.
 

 
2. Job postings on Indeed continue to trend lower.
 

 
3. The PMI report shows no growth in factory activity.
 
Source: S&P Global PMI  
 
4. Canada’s pandemic-era slump in services spending has been deeper than in the US.
 
Source: Marc Ercolao; Scotiabank Economics  

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The United Kingdom

1. The volatility in long-term gilts has been extreme.
 

 
2. Here is a look at government spending and revenue throughout history.
 
Source: Deutsche Bank Research  

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The Eurozone

1. The September manufacturing PMI report points to a recession in the Eurozone …
 
Source: S&P Global PMI  
 
… as manufacturing orders slump.
 

 
2. Energy-intensive sectors are in trouble.
 
Source: Pantheon Macroeconomics  
 
3. An inflection point in export order growth could eventually signal a rebound in EUR/USD.
 
Source: Deutsche Bank Research  

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Europe

1. The Swiss central bank tightened monetary policy by sharply reducing liquidity last month.
 

 
Source: Reuters   Read full article  

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2. This chart shows natural gas consumption in the EU by sector.
 
Source: BCA Research  
 
3. Czech Republic’s manufacturing sector is in a recession.
 
Source: S&P Global PMI  
 
4. The spread between PMI indices of orders and inventories points to further economic pain in Europe.
 
Source: @RobinBrooksIIF  

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Japan

1. The Tokyo core CPI continued to climb in September.
 

 
At the national level, inflation still lags behind peers markedly.
 
Source: Deutsche Bank Research  

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2. The BoJ has been conducting “stealth” tightening as the monetary base declines sharply.
 

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Asia – Pacific

1. Let’s begin with Australia.
 
• The RBA surprised the markets with a lower-than-expected rate hike (25 bps rather than 50 bps).
 

 
The dovish shift sent the Aussie dollar lower, …
 

 
… while bonds rallied.
 

 
• Mortgage approvals were down again in August.
 

 
• Building approvals rebounded.
 

 
• The labor market remains tight.
 
Source: @ANZ_Research  

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2. Singapore appears to be entering a recession.
 

 
3. South Korea’s manufacturing contraction has accelerated.
 
Source: S&P Global PMI  

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Emerging Markets

1. Let’s begin with Brazil.
 
• The unemployment rate keeps moving lower.
 

 
• Growth in factory activity has slowed.
 
Source: S&P Global PMI  
 
• The debt-to-GDP ratio edged higher in August.
 

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2. Next, we have some updates on Chile.
 
• Manufacturing output (some improvement from July):
 

 
• Copper production (a disaster):
 

 
• Economic activity (higher in August):
 

 
• Business confidence (an improvement in September):
 

 
• Retail sales (below last year’s level but holding up):
 

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3. South Africa’s manufacturing is back in contraction territory.
 

 
4. Turkey’s manufacturing decline accelerated last month.
 

 
The nation’s core CPI is now above 68%. Let’s cut rates some more and see what happens.
 

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5. PMI data suggests that EM price pressures are receding.
 
Source: Capital Economics  

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Cryptocurrency

1. Bitcoin has traded in a tight range this summer.
 
Source: Glassnode   Read full article  
 
2. Bitcoin mining conditions are starting to improve as competition increases. So far, BTC’s price has not provided an incentive to miners this cycle.
 
Source: Glassnode   Read full article  
 
Here are some estimated production costs for BTC mining operations.
 
Source: Glassnode   Read full article  

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3. The Crypto Fear & Greed Index remains stuck in extreme fear mode.
 
Source: Alternative.me  
 
4. Crypto funds saw minor inflows last week led by Bitcoin and Ethereum-focused products.
 
Source: CoinShares   Read full article  
 
Switzerland and the US accounted for most fund inflows last week.
 
Source: CoinShares   Read full article  

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5. The Grayscale Bitcoin Trust’s (GBTC) discount to NAV reached an all-time low.
 
Source: @Delphi_Digital  

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Commodities

1. Precious metals jumped on Monday as the dollar and Treasury yields moved lower. Silver surged (3 charts).
 

 
Source: @TaviCosta  
 

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2. Softs are under pressure.
 

 
Here is sugar.
 

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Energy

1. European natural gas prices keep falling despite Russia’s attempts to squeeze the market.
 

 
2. OPEC’s production has diverged sharply from targets.
 
Source: Bloomberg   Read full article  

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Equities

1. Stocks jumped as the dollar and Treasury yields moved lower. Hedge funds and institutions are short or massively underinvested.
 

 
The energy sector outperformed on Monday.
 

——————–

 
2. The S&P 500 held support at the 200-week moving average.
 

 
3. The Russell 2000 (IWM) has been testing support.
 

 
4. Last week, the percent of NYSE Composite stocks above their 200-day moving average reached the lowest level since the 2020 pandemic crash.
 
Source: Aazan Habib, Paradigm Capital  
 
5. We’ve had a lot of risk-off days this year.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
6. The S&P 500 2023 earnings estimates continue to decline.
 
Source: @MichaelMOTTCM  
 
7. How did large-cap indices around the world perform last month?
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
8. Dividend ETFs continue to see inflows.
 
Source: SPDR Americas Research, @mattbartolini  
 
9. US households remain heavily exposed to stocks.
 
Source: Goldman Sachs; @carlquintanilla  

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Credit

Increased market volatility suggests that corporate bond spreads should be wider.
 
• Investment grade:
 
Source: Deutsche Bank Research  
 
• High yield:
 
Source: Deutsche Bank Research  

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Rates

1. Flows into short-term Treasury funds surged in recent weeks.
 
Source: @WSJ   Read full article  
 
Investment fund demand for short and intermediate-term Treasuries at auction rose to new highs this year.
 
Source: Deutsche Bank Research  

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2. The fed funds rate is expected to peak at the end of 2023, according to Alpine Macro.
 
Source: Alpine Macro  

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Global Developments

1. Global manufacturing growth has stalled.
 
Source: S&P Global PMI  
 
Here are the PMI indicators by country (PMI < 50 means contraction).
 
Source: S&P Global PMI  

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2. This chart shows the percentage of funds that saw inflows in September.
 
Source: SPDR Americas Research, @mattbartolini  
 
3. In previous recessions, the low in equities occurred alongside a peak in the dollar.
 
Source: Deutsche Bank Research  
 
4. Nominal sovereign bond yields remained well below nominal GDP growth during the post-WWII deleveraging period, and debt funding is still relatively cheap today. Deutsche Bank expects yields to move closer to parity with GDP next year.
 
Source: Deutsche Bank Research  
 
5. Government bonds look attractive.
 
Source: Alpine Macro  
 
6. Will the cargo ship sector face overcapacity in the years ahead?
 
Source: @WSJ   Read full article  

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Food for Thought

1. Health spending per capita:
 
Source: Gavekal Research  
 
2. Getting the latest COVID booster:
 
Source: @CivicScience   Read full article  
 
3. Corporate CFOs’ areas of focus:
 
Source: Grant Thornton   Read full article  
 
4. The EU’s aging population:
 
Source: Visual Capitalist   Read full article  
 
5. Increasing importance of natural gas in global energy consumption:
 
Source: Deutsche Bank Research  
 
6. How Hispanic and Latino Americans describe their identity:
 
Source: Pew Research Center   Read full article  
 
7. The best food cities:
 
Source: @chartrdaily  

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