Full-time workers’ real wage growth has turned positive

The Daily Shot: 25-Jan-23
The United States
Canada
The United Kingdom
The Eurozone
Europe
Australia
China
Emerging Markets
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. US business activity continued to contract in January, according to S&P Global. The pace of declines slowed slightly.
 
Source: S&P Global PMI  
 
The US is now underperforming other advanced economies.
 
Source: Capital Economics  
 
Below are some trends from the PMI report.
 
Manufacturing PMI:
 

 
Manufacturing employment (in contraction territory for the first time since 2020):
 

 
Future output (more upbeat):
 

 
Services PMI (below consensus):
 

 
Price indicators rose this month.
 
Manufacturing:
 

 
Services:
 

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2. The Richmond Fed’s regional manufacturing index hit the lowest level since 2020.
 

 
Factories are shedding jobs, …
 

 
… while wage pressures persist.
 

 
Price gains are moderating.
 

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3. The Philly Fed’s regional services report showed some improvement.
 
The headline index:
 

 
New orders:
 

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4. Markets are becoming less concerned about recession risks.
 
Source: @denitsa_tsekova, @markets   Read full article  
 
Here is the ratio of cyclical-to-defensive stocks versus the ISM manufacturing PMI.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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5. Full-time workers’ real wage growth has turned positive.
 

 
6. According to Deutsche Bank, the X-date (when the Treasury uses up all of its resources) will be here in late August.
 
Source: Deutsche Bank Research  


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Canada

1. The BoC’s business survey indicator of future sales signals a sharp economic downturn ahead, …
 
Source: Capital Economics  
 
… and so is the Ivey PMI.
 
Source: Capital Economics  

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2. The BoC is more likely to surprise the markets than Fed.
 
Source: Desjardins  


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The United Kingdom

1. The PMI report signals a recession.
 
Manufacturing:
 

 
Services:
 

 
Composite:
 
Source: World Economics  
 
The UK’s business activity is underperforming the Eurozone.
 
Source: @jeffsparshott  
 
Price pressures continue to ease.
 
Manufacturing:
 

 
Services:
 

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2. The CBI industrial orders index deteriorated further this month.
 

 
Inventories are rising.
 

 
Price pressures are easing but still elevated.
 

 
The CBI services survey also weakened.
 
Source: Longview Economics  

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3. Government borrowing surged over the past couple of months.
 

 
Source: @financialtimes   Read full article  
 
Here is the cumulative year-to-date chart.
 

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4. Pantheon Macroeconomics expects fiscal consolidation and job cuts this year, which will weigh on economic growth. (2 charts)
 
Source: Pantheon Macroeconomics  
 
Source: Pantheon Macroeconomics  


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The Eurozone

1. The composite PMI climbed above 50, signaling a return to growth.
 

 
Source: Reuters   Read full article  
 
Below are some details from the report, showing mixed results.
 
Manufacturing:
 
France:
 

 
Germany:
 

 
Services:
 
France:
 

 
Germany:
 

 
French factory employment is expanding again.
 

 
Here is the employment index at the Eurozone level (firmly in growth territory).
 
Source: TS Lombard  
 
Manufacturing price pressures are easing.
 
France:
 

 
Germany:
 

 
But service-sector price pressures persist.
 

 
Nonetheless, input price indicators are signaling lower inflation ahead.
 
Source: Pantheon Macroeconomics  

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2. French business confidence has been roughly stable.
 

 
Inflationary pressures persist.
 
Source: TS Lombard  

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3. Germany’s consumer sentiment is rebounding from extreme lows.
 

 
Source: Reuters   Read full article  

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4. The euro-area Citi Economic Surprise Index continues to outperform the US.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Here is part of the explanation.
 
Source: Capital Economics  


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Europe

1. EU capital goods sector valuations are trading at a premium amid rising recessionary risks. (2 charts)
 
Source: Deutsche Bank Research  
 
Source: Deutsche Bank Research  
 
Revenue growth for the capital goods sector is strongly tied to IFO manufacturing expectations.
 
Source: Deutsche Bank Research  

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2. The SNB is selling some of its massive foreign currency holdings.
 
Source: @bbenrath, @economics   Read full article  
 
3. Ukraine has been Europe’s bread basket.
 
Source: European Commission   Read full article  


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Australia

1. Inflation remains hot, with the Q4 report surprising to the upside.
 
Source: 9News   Read full article  
 
Year-over-year:
 

 
Quarter-over-quarter:
 

 
Core inflation remains stubbornly high.
 

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2. The Aussie dollar and bond yields jumped on the CPI report.
 

 

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3. Both services and manufacturing PMI indices are now in contraction territory.
 
Source: S&P Global PMI  
 
4. This chart shows housing projects yet to be completed vs. housing investment.
 
Source: Capital Economics  


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China

1. USD/CNH (offshore yuan) is holding resistance at 6.8.
 

 
2. The reopening-driven economic rebound has been unusually quick.
 
Source: Alpine Macro  
 
Transportation indicators show unleashed pent-up demand (2 charts).
 
Source: Alpine Macro  
 
Source: The Economist   Read full article  

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3. EV sales hit a record high.
 
Source: @ANZ_Research  


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Emerging Markets

1. The decline in Brazil’s CPI is stalling.
 

 
2. Mexico’s inflation surprised to the upside.
 

 
3. This chart shows LatAm nominal and real policy rates. The second panel is a comparison to other economies.
 
Source: Scotiabank Economics  
 
4. Thailand’s exports are tumbling.
 

 
5. Here are some long-term GDP projections for select economies (from Goldman).
 
Source: Goldman Sachs  


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Commodities

1. US lumber futures are rebounding.
 

 
2. Uranium supply has been insufficient to meet annual reactor requirements. The deficit is expected to continue over the coming years, which could raise the price of uranium.
 
Source: Goldman Sachs  
 
The Global X Uranium ETF is attempting to break above a year-long downtrend.
 

 
URA’s decade-long downtrend relative to the Invesco Commodity Index Tracking Fund (DBC) has stabilized.
 


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Energy

1. The recovery in US oil rigs has stalled.
 

 
2. Money managers jumped back into long oil and refined product bets.
 
Source: Reuters   Read full article   Further reading  
 
3. Analysts expect crude markets to be in deficit this year (2 charts).
 
Source: BCA Research  
 
Source: @WSJ   Read full article  

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4. US natural gas prices continue to sink.
 

 
5. The EU has won its energy battle against Russia.
 
Source: Deutsche Bank Research  
 
6. Valuations of US Master Limited Partnerships (MLPs) are still relatively low, although returns tend to be volatile.
 
Source: Goldman Sachs  
 
7. Energy shares continue to outperform crude oil.
 
  Further reading  


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Equities

1. According to Goldman, “tech saw the largest 1-day notional short covering since June.”
 
Source: Goldman Sachs; @carlquintanilla  
 
Here are the most shorted tech stocks.
 

 
Post-IPO shares have also been outperforming.
 

 
Semiconductor stocks are breaking above a year-long downtrend, although resistance is nearby, especially relative to consumer staples.
 
Source: Aazan Habib, Paradigm Capital  

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2. Will US shares continue to lag global markets?
 

 
3. Stock prices have diverged from margin debt levels.
 
Source: @t1alpha  
 
4. Short interest across stocks and ETFs remains low.
 
Source: Deutsche Bank Research  
 
5. The S&P 500’s equity risk premium compressed significantly relative to credit spreads.
 
Source: III Capital Management  
 
6. US equities have been the most effective hedge against inflation relative to other asset classes over any period between one and 20 years. According to Goldman, commodities have not been a good hedge, based on their risk/return profile in long-term portfolios.
 
Source: Goldman Sachs  
 
7. The correlation between stocks and bonds has varied over time, which has no bearing on the viability of traditional 60/40 stock/bond portfolios, according to Goldman.
 
Source: Goldman Sachs  


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Credit

1. Global credit downgrades accelerated at the end of last year.
 
Source: S&P Global Ratings  
 
2. CLO spreads have tightened recently.
 
Source: Deutsche Bank Research  


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Rates

1. Bond-market implied volatility remains elevated
 

 
2. This chart shows Bloomberg’s attribution of the recent decline in the 10-year Treasury yield.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
3. The San Francisco Fed’s proxy policy rate suggests that monetary tightening has been more extreme than the fed funds target rate suggests.
 
Source: Mizuho Securities USA  
 
4. What is the expected longer-term impact of Fed rate hikes on inflation? Here is an estimate from BCA Research.
 
Source: BCA Research  


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Global Developments

1. This chart shows the components of the S&P Global Supply Chain Volatility Index.
 
Source: S&P Global PMI  
 
2. Next, we have some long-term GDP projections from Goldman.
 
Source: Goldman Sachs  


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Food for Thought

1. ChatGPT in the workplace:
 
Source: @_constantjo, @thefuture   Read full article  
 
2. Digital ad spending in the US:
 
Source: Bloomberg Law   Read full article  
 
3. Tesla production and deliveries:
 
Source: @chartrdaily  
 
4. Most innovative countries:
 
Source: Visual Capitalist   Read full article  
 
5. US defense capital goods shipments:
 
Source: @WSJ   Read full article  
 
6. The Morning Consult 2024 GOP primary tracker:
 
Source: Morning Consult   Read full article  
 
Trump and DeSantis vs. Biden in a hypothetical matchup:
 
Source: Morning Consult   Read full article  

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7. Church attendance:
 
Source: Gallup   Read full article  
 
8. Finding what you are looking for in a store:
 
Source: @CivicScience   Read full article  

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