Consumer spending remains robust

The Daily Shot: 02-Dec-22
The United States
The United Kingdom
The Eurozone
Japan
Asia – Pacific
China
Emerging Markets
Commodities
Equities
Rates
Global Developments
Food for Thought



 

The United States

1. Let’s begin with some updates on the US consumer.
 
Consumer spending remains robust despite elevated prices, …
 

 
Source: @WSJ   Read full article  
 
… supporting economic growth.
 
Source: BCA Research  
 
Goods still dominate spending (2 charts).
 
Source: Chart and data provided by Macrobond  
 
Source: @WhiteHouseCEA  
 
Here is the breakdown by category for October (nominal).
 
Source: Oxford Economics  
 
Consumer savings continue to slow (2 charts).
 

 
Source: @jasonfurman  
 
Savings are expected to keep falling as consumers spend their cash pile. JP Morgan sees excess savings depleted by mid-2023.
 
Source: JP Morgan Research; @carlquintanilla  
 
Here is a forecast from Deutsche Bank.
 
Source: Deutsche Bank Research  
 
Real incomes (ex. government payments) continue to climb.
 

 
Credit card debt has risen sharply this year (which has generated a lot of hype in the media), …
 

 
… but it remains well below pre-COVID levels as a share of disposable income.
 

 
Households are better positioned to withstand higher rates.
 
Source: Mizuho Securities USA  
 
Households reallocated a large portion of their liquid assets into cash/checking accounts since the start of the pandemic (from money market funds, etc.).
 
Source: Nancy Vanden Houten, Oxford Economics  

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2. Next, we have some updates on inflation.
 
The October PCE inflation measure was a bit lower than expected. But inflation remains elevated.
 
Source: @axios   Read full article  
 

 
Below is the core PCE index.
 

 
Here is the core PCE breakdown.
 
Source: The Real Economy Blog   Read full article  
 
This is a forecast from Pantheon Macroeconomics.
 
Source: Pantheon Macroeconomics  
 
And here is Goldman’s forecast for the core PCE inflation.
 
Source: Goldman Sachs  
 
Easing supply constraints should alleviate inflationary pressures.
 
Source: Goldman Sachs  
 
Lower freight prices point to softer goods inflation.
 
Source: @AndreasSteno  
 
Rent inflation continues to moderate.
 
Source: Apartment List  
 
Food inflation should ease over the next few months.
 
Source: Piper Sandler   
 
Healthcare and housing weight differences created a substantial gap between the CPI and PCE inflation measures (2 charts).
 
Source: @markets, @readep, @boes_   Read full article  
 
Source: Gavekal Research  
 
Near-term inflation expectations remain elevated.
 

 
The focus in the November payrolls report will be on wages.
 
Source: BofA Global Research  

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3. Jobless claims declined again, showing persistent strength in the labor market.
 

 

 
However, job cuts jumped in November.
 

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4. The ISM manufacturing PMI dipped into contraction territory for the first time since early 2020.
 

 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
The ISM index has now almost converged with this stock market indicator.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Demand is falling.
 

 
Hiring has stalled.
 

 
Customer inventories are stabilizing.
 

 
Costs are now falling, …
 

 
… which should help ease goods inflation (2 charts).
 
Source: Oxford Economics  
 
Source: Pantheon Macroeconomics  

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5. A rate hike of 50 basis points is priced in for this month and roughly another 50 bps for next year.
 
Source: @ANZ_Research  


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The United Kingdom

1. Home prices declined sharply in November.
 

 
2. How will households change their spending patterns in response to surging prices (by income)?
 
Source: @bankofengland   Read full article  
 
3. This chart shows UK energy spending.
 
Source: Longview Economics  
 
4. It’s “make or break” time for the pound.
 
GBP/USD:
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
EUR/GBP:
 
Source: @TheTerminal, Bloomberg Finance L.P.  


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The Eurozone

1. Let’s begin with some updates on Germany.
 
Retail sales tumbled in October.
 

 
Retailers continue to face supply problems.
 
Source: ifo Institute  
 
German consumer saving intentions continue to rise as the business cycle contracts.
 
Source: Deutsche Bank Research  
 
How much support has been provided for the household sector?
 
Source: Deutsche Bank Research  
 
German pension funds are massively underfunded, and returns have fallen sharply below real economic growth.
 
Source: Gavekal Research  
 
German property prices remain under pressure, although new building prices have ticked up.
 
Source: Commerzbank Research  
 
Housing is increasingly unaffordable in Germany because of much higher financing costs.
 
Source: Commerzbank Research  
 
Commerzbank expects the German 10-year mortgage rate to settle at 4.5%.
 
Source: Commerzbank Research  

——————–

 
2. The euro-area unemployment rate hit a record low in October. Is this the bottom?
 

 
Here is Italy’s unemployment rate.
 

——————–

 
3. Dutch manufacturing contraction accelerated in November.
 
Source: S&P Global PMI  
 
4. The euro remains correlated with the stock market.
 


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Japan

1. The Q3 CapEx growth surprised to the upside.
 

 
2. Vehicle sales are back down to last year’s levels.
 

 
3. Dollar-yen is at the 200-day moving average.
 
Source: @TheTerminal, Bloomberg Finance L.P.  


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Asia – Pacific

1. South Korea’s core CPI remains stubbornly high.
 

 
South Korea’s weakening exports signal falling global demand (2 charts).
 
Source: ING  
 
Source: Pantheon Macroeconomics  

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2. Australia’s lithium exports accelerated as prices surged.
 
Source: @ANZ_Research  


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China

1. The downward pressure on the renminbi is over.
 

 
2. The Hong Kong dollar continues to climb as foreign capital flows back in.
 

 
3. China’s COVID-19 policy is the most stringent in the world.
 
Source: BCA Research  
 
4. This chart shows property developer defaults and debt maturity extensions.
 
Source: Gavekal Research  
 
5. Chinese stocks appear cheap, but not as much compared to 2008.
 
Source: BCA Research  
 
The stock/bond ratio has been declining.
 
Source: BCA Research  


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Emerging Markets

1. Brazil’s manufacturing activity is tumbling.
 
Source: S&P Global PMI  
 
The Q3 GDP growth was below expectations but still strong.
 

 
The trade surplus is very high for this time of the year.
 

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2. Next, we have some updates on Chile.
 
Economic activity is below last year’s levels but still robust.
 

 
Manufacturing output is down 9% vs. last year.
 

 
Copper production is recovering.
 

 
Retail sales bounced in October.
 

 
Business sentiment remains soft.
 

——————–

 
3. Mexican manufacturing activity is still not growing.
 
Source: S&P Global PMI  
 
Remittances hit a record high.
 

——————–

 
4. Colombia’s manufacturing sector is struggling.
 
Source: S&P Global PMI  
 
5. Turkey’s manufacturing is in recession as demand sinks.
 

 
6. South Africa’s bond yields jumped amid political uncertainty.
 

 
Manufacturing is back in growth mode.
 

 
Vehicle sales surged last month.
 


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Commodities

1. Gold and silver broke through key levels. (2 charts)
 
Source: Aazan Habib, Paradigm Capital  
 
Source: Aazan Habib, Paradigm Capital  
 
But gold hit resistance at another key level.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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2. US wheat futures are at support.
 

 
3. US lumber prices are back at pre-COVID levels as the housing market slumps.
 


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Equities

1. JP Morgan sees much lower earnings next year than the consensus estimate.
 
Source: JP Morgan Research; @carlquintanilla  
 
2. Market forecasters haven’t been this uncertain since 2009.
 
Source: @markets, @luwangnyc   Read full article  
 
3. This chart shows global large-cap market returns in November.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
4. Bloomberg’s World Index is increasingly dominated by US shares.
 
Source: Evercore ISI Research  
 
5. BofA private clients have been moving into income assets and defensives.
 
Source: BofA Global Research  
 
6. Growth stocks have underperformed massively on a year-over-year basis.
 
h/t @_rob_anderson, @NDR_Research  
 
7. Cyclical stocks are holding support relative to defensives.
 
Source: Alpine Macro  
 
But cyclical stocks are more vulnerable to downward EPS revisions during recessions.
 
Source: Citi Private Bank  

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8. Energy, materials, and industrials have strong odds of outperformance after manufacturing indicators are in contraction, likely pricing in a recovery phase.
 
Source: Denise Chisholm; Fidelity Investments   
 
And supportive valuations could offer strong alpha potential.
 
Source: Denise Chisholm; Fidelity Investments   

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9. Trading volumes have rebounded.
 
Source: Chris Murphy, Susquehanna International Group  
 
10. VIX is below 20.
 

 
11. What returns should we expect over the next decade, given current valuations?
 
Source: Merrill Lynch  


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Rates

1. The 10-year Treasury yield hit support at 3.5%.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
2. The 10-year yield is now firmly below the fed funds rate.
 
Source: Tradeweb  


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Global Developments

1. The dollar index dipped below the 200-day moving average.
 

 
2. Here is a look at November and year-to-date performance across assets. It was a rebound month, except for oil.
 
Source: Deutsche Bank Research  
 
3. Global manufacturing activity is firmly in contraction territory.
 
Source: S&P Global PMI  
 
Here are the PMI indicators by country.
 
Source: S&P Global PMI  


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Food for Thought

1. Tesla’s financials at IPO and now:
 
Source: Visual Capitalist   Read full article  
 
2. E-commerce companies’ revenues:
 
Source: Genuine Impact  
 
3. Sam Bankman-Fried companies’ relationships:
 
Source: @BBGVisualData   Read full article  
 
4. Global household wealth:
 
Source: Visual Capitalist   Read full article  
 
5. Russia selling stolen Ukrainian grain to global buyers:
 
Source: @WSJ   Read full article  
 
6. How will climate change impact crop yields?
 
Source: The Economist   Read full article  
 
7. US voting frequency:
 
Source: @CivicScience  
 
8. World Cup 2022 match durations:
 
Source: @OpenAxisHQ   Read full article  

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Have a great weekend!


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