Tight financial conditions are yet to impact the labor market

The Daily Shot: 11-Oct-22
The United States
Canada
The United Kingdom
The Eurozone
Europe
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. The September jobs report was stronger than expected, delivering another confirmation that the labor market remains tight.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Here are the contributions by sector.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
The unemployment rate dipped back to pre-COVID lows. To see a meaningfully lower rate, one has to go back to 1969.
 

 
Next, we have the drivers of the unemployment rate.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
The contribution to the unemployment rate from job losses is at the lowest level in over two decades.
 

 
The unemployment rate remains well below the Natural Rate of Unemployment (an indication of tight labor markets).
 

 
Underemployment is also very low.
 

 
The participation rate edged down, which adds to the concerns about the labor market’s imbalance. The Fed would like to see more people reentering the labor force.
 
Source: Chart and data provided by Macrobond  
 
Tight financial conditions have taken a toll on financial assets but are yet to visibly impact the labor market.
 
Source: Quill Intelligence  
 
Wage growth ticked lower but remains elevated.
 

 
The Household Survey payrolls figure was lower than the Establishment Survey (above).
 

 
Here is the Atlanta Fed’s labor market spider chart.
 
Source: @AtlantaFed  

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2. Stocks tumbled on the payrolls upside surprise (which removes the hopes of a near-term “Fed pivot”).
 

 
The US dollar is rallying.
 

 
The 30-year Treasury yield is nearing 4%.
 

 
The inverted yield curve has been signaling a recession ahead.
 
Source: BofA Global Research  

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3. The market expects the Fed to hike rates by 75 bps in November, 50 bps in December, and 25 bps in February.
 
Source: @ANZ_Research  
 
How long will the Fed hold rates at elevated levels?
 
Source: @VPatelFX  

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4. Consumer credit increased more than expected in August, driven by credit cards. Households continue to spend.
 

 
Nonrevolving debt growth (auto loans and student debt) continues to outpace the pre-COVID trend.
 

 
Much of the recent consumer credit growth came from credit card debt.
 

 
Many consumers have been reporting difficulties paying bills.
 
Source: BofA Global Research  
 
However, excess savings remain elevated.
 
Source: BCA Research  

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5. Vehicles’ inventories-to-sales ratio is now above pre-COVID levels as shortages ease.
 


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Canada

1. The September employment report was in line with expectations.
 

 
The unemployment rate moved lower.
 

 
Labor force participation continues to soften.
 

 
Wage growth edged down.
 

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2. The interest coverage ratio among nonfinancial firms is near record highs.
 
Source: Scotiabank Economics  


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The United Kingdom

1. Gilt yields are nearing the recent highs.
 

 
The gilt market is dislocated relative to rate expectations.
 
Source: Pantheon Macroeconomics  
 
In addition to the recent debt purchase announcement, the BoE now plans to buy inflation-linked bonds.
 
Source: Reuters   Read full article  

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2. UK large-cap companies have been buying back shares.
 
Source: Bloomberg   Read full article  


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The Eurozone

1. The Sentix investor confidence index tumbled this month, …
 

 
… signaling further economic pain ahead.
 
Source: @CavaggioniMario  

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2. The EUR/USD implied volatility has been surging.
 

 
3. How long will extreme inflation linger?
 
Source: Danske Bank  
 
4. Germany’s effort to ease the energy burden should cut inflation.
 
Source: Reuters   Read full article  
 
Source: Commerzbank Research  

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5. The French trade deficit hit another record.
 

 
6. Will Italy succeed in its attempts to recapitalize Monte dei Paschi with private capital?
 
Source: Reuters   Read full article  
 


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Europe

1. Swiss FX reserves tumbled in recent months as the central bank tightens policy.
 

 
2. Denmark’s CPI hit 10%.
 

 
3. Norway’s industrial production has been surging due to the nation’s energy output. Manufacturing has been relatively flat (on average).
 

 
4. Czech industrial production has been strengthening.
 

 
5. European value stocks are trading at a discount relative to global peers.
 
Source: @johnauthers, @opinion   Read full article  
 
European corporate profits face significant headwinds.
 
Source: BCA Research  


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Asia – Pacific

1. Japan’s trade deficit reached a new record.
 

 
2. Taiwan’s exports are softening rapidly.
 

 
The US semiconductor restrictions on sales to China will be painful. Stocks are down.
 

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3. Next, we have some updates on Australia.
 
Business confidence eased last month, …
 

 
… diverging from current conditions.
 
Source: @ANZ_Research  
 
Household spending intentions remain robust.
 

 
Wage growth has been strong.
 
Source: Scotiabank Economics  


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China

1. The US semiconductor sales curbs are putting pressure on the chip sector.
 
Source: Reuters   Read full article  
 
Tech stocks in Hong Kong continue to fall.
 

 
China’s key equity index is also sharply lower.
 

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2. The S&P Global China Services PMI surprised to the downside, unexpectedly showing a contraction last month.
 

 
Services employment is shrinking.
 
Source: S&P GlobalĀ PMI  

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3. The downturn in property investment continues.
 
Source: Barclays Research  
 
4. China is facing deteriorating demographics.
 
Source: BCA Research  
 
5. Hong Kong’s FX reserves continue to sink.
 


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Emerging Markets

1. Let’s begin with Mexico.
 
The CPI has been surging, but we should see a peak soon.
 

 

 
Vehicle production softened last month but is holding above last year’s levels.
 

 
Business investment has been slowing over the summer.
 

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2. Thai FX reserves are tumbling amid capital outflows.
 

 
3. The Philippine trade deficit hit a new record.
 

 
4. Egypt’s CPI continues to climb.
 

 
5. Next, we have some month-to-date performance data.
 
Currencies:
 

 
Bond yields:
 

 
Equity ETFs:
 


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Cryptocurrency

1. Crypto funds saw minor outflows last week, mostly in short-Bitcoin products.
 
Source: CoinShares   Read full article  
 
Funds in Canada and Sweden continued to see outflows last week.
 
Source: CoinShares   Read full article  

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2. There has been a notable slowdown in bitcoin miner treasury growth over the past few months.
 
Source: @glassnode  
 
3. The rise in bitcoin’s hash rate, a measure of mining difficulty, increases the cost of production. Miners could face financial stress without a subsequent rise in price.
 
Source: @glassnode  


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Commodities

1. Gold funds continue to see outflows.
 
Source: BofA Global Research  
 
2. The US Midwest drought is taking a toll on the Mississippi River navigation. The cost to ship grain via barge has been surging.
 

 
Source: Reuters   Read full article  

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3. US soybean inventories are falling.
 
Source: @Hedgeye  
 
4. Here is the month-to-date performance across key commodity markets.
 


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Energy

1. With OPEC+ production running well below caps, the massive quota reduction will not have an immediate impact on output (2 charts).
 
Source: BofA Global Research; @johnauthers, @opinion   Read full article  
 
Source: Barclays Research  

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2. US net crude imports are at multi-year lows.
 
Source: Princeton Energy Advisors  
 
3. The US Strategic Petroleum Reserve is now below the nation’s commercial inventories.
 
Source: @johnauthers, @opinion   Read full article  


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Equities

1. The stock market is extremely sensitive to real rates, …
 
Source: Deutsche Bank Research  
 
… which continue to surge.
 

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2. The Nasdaq 100 has underperformed …
 

 
… as chip stocks tumble.
 
Source: Reuters   Read full article  
 

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3. Many high-dividend defensive stocks have been under pressure as bond yields surge.
 
Utilities:
 

 
REITs:
 

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4. Put option buying activity surged in recent weeks.
 
Source: SentimenTrader; @markets   Read full article  
 
But bullish option strategies are not getting much love.
 
Source: Deutsche Bank Research  

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5. Too early to talk about capitulation?
 
Source: BCA Research  
 
This chart shows bear-market rallies going back to 1956.
 
Source: Citi Private Bank  

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6. Deutsche Bank sees modest earnings beats (on average) in this earnings season.
 
Source: Deutsche Bank Research  
 
Q3 (and Q4) earnings expectations have been downgraded sharply.
 
Source: Bernstein; @themarketear  
 
Source: Deutsche Bank Research  

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7. The momentum factor has been outperforming in recent weeks.
 

 
8. Finally, we have some month-to-date performance data.
 
Sectors:
 

 
Equity factors:
 

 
Thematic ETFs:
 

 
The largest US tech companies:
 


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Credit

1. Downgrades to B- have been outpacing upgrades in recent months.
 
Source: S&P Global Ratings  
 
2. Credit has been driving bond fund outflows.
 
Source: BofA Global Research  
 
3. This chart shows month-to-date performance by credit asset class.
 


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Rates

1. Long-term Treasuries have seen unprecedented losses this year.
 

 
2. Economic momentum points to lower Treasury yields.
 
Source: BCA Research  
 
3. Speculative bets against Treasuries are at extreme levels.
 
Source: Deutsche Bank Research  
 
4. The 10-year Treasury yield has historically peaked within four months of the last Fed rate hike during tightening cycles.
 
Source: BCA Research  


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Global Developments

1. Global growth continues to slow amid elevated inflation and rising interest rates.
 
Source: MRB Partners  
 
2. It’s been an ugly year for government bonds.
 
Source: BofA Global Research  
 
3. Next, we have some month-to-date performance data.
 
Trade-weighted currency indices:
 

 
Bond yields:
 


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Food for Thought

1. Casino economics:
 
Source: @chartrdaily  
 
2. Grocery shopping at dollar stores:
 
Source: @CivicScience  
 
3. Consumers are underestimating the total cost of their subscriptions (streaming video/music, news services, coffee shops, software, razor subscriptions, etc.).
 
Source: @chartrdaily  
 
4. Home price trends in select cities:
 
Source: ING  
 
5. Share of the population aged 65 and older:
 
Source: Statista  
 
6. Russian weapons captured by Ukraine:
 
Source: @WSJ   Read full article  
 
7. Most abundant elements on earth:
 
Source: @OpenAxisHQ  

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