The Great Resignation is slowing

The Daily Shot: 09-Mar-23
The United States
Canada
The United Kingdom
The Eurozone
Japan
China
Emerging Markets
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. The February ADP private payrolls index topped expectations.
 

 
We are starting to see some pain in the construction sector.
 

 
Hotels and restaurants/bars continue to add jobs.
 

 
Professional and business services experienced a loss in payrolls for the first time since the COVID shock.
 

 
Factories continue to hire.
 

 
Small businesses have been shedding jobs for five months in a row.
 

 
By the way, the ADP report is not a good predictor of the official payrolls figures.
 
Source: Pantheon Macroeconomics  

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2. Job openings also surprised to the upside, with labor demand remaining robust in January.
 

 
This is not the trend the Federal Reserve wants to see. There were 1.9 job openings per unemployed American. The labor market imbalances persist.
 

 
The Beveridge Curve also points to an imbalance.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
As we saw in the ADP report, the housing market rout is starting to take a toll on construction jobs.
 

 
Real estate services also saw a decline in demand.
 

 
But logistics job openings strengthened.
 

 
Job openings have become bifurcated.
 
Source: @Lvieweconomics  
 
Layoffs remain below pre-COVID levels.
 

 
The Great Resignation is slowing, with the quits rate rolling over (but still above pre-COVID levels).
 

 
Below is the year-over-year change in the resignations level.
 

 
The significant decrease in resignations within professional and business services may indicate potential decreases in resignations in other industries.
 
Source: @RenMacLLC  
 
It’s worth noting that the participation rate in the jobs openings survey has been trending down.
 
Source: Simon White, Bloomberg Markets Live Blog  

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3. Americans are increasingly uneasy about personal finances.
 

 
Source: @atanzi, @wealth   Read full article  

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4. The full impact of Fed’s rate hikes on US industrial output is yet to be felt.
 
Source: Numera Analytics (@NumeraAnalytics)  
 
5. Mortgage applications remain at multi-year lows.
 

 
Here is the rate lock index.
 
Source: AEI Housing Center  


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Canada

1. The loonie is under pressure as the BoC leaves rates unchanged.
 

 
Source: Reuters   Read full article  
 
The market still expects at least one rate hike.
 

 
Here is a forecast from Oxford Economics.
 
Source: Oxford Economics  

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2. The January trade balance topped expectations.
 

 
3. The lower level of business investment in Canada compared to the US is negatively impacting productivity.
 
Source: OECD   Read full article  


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The United Kingdom

1. The RICS housing index shows ongoing price declines.
 

 
2. Business employment plans signal slower job gains ahead.
 
Source: Longview Economics  


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The Eurozone

1. Short-term Bund yields continue to climb, …
 

 
… with the yield curve moving deeper into inversion territory.
 

 
By the way, who owns Bunds?
 
Source: Goldman Sachs  

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2. Q4 was a tough quarter for the Eurozone with both consumer and business spending contracting.
 

 
Slowing imports kept the GDP from bigger declines.
 
Source: ING  
 
This chart shows each country’s GDP compared to pre-COVID levels.
 
Source: Arcano Economics  

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3. The euro has decoupled from sentiment.
 
Source: BCA Research  
 
4. How quickly will Italy’s population decline?
 
Source: Fondata da Mario Arcelli  


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Japan

1. The pressure on the 10-year JGB remains extreme.
 
Rate swaps vs. JGBs:
 

 
The spread between the 10-year and the 9-year JGB yield (the curve is inverted here):
 

 
The BoJ owns roughly half the JGB market.
 
Source: Goldman Sachs  

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2. Rate differentials drive the USD/JPY exchange rate.
 
Source: Goldman Sachs  
 
3. Service-sector workers are showing improved confidence as tourism returns.
 

 
Source: Reuters   Read full article  

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4. The broad money supply growth continues to slow.
 


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China

1. The CPI surprised to the downside.
 

 
Source: Reuters   Read full article  
 
Food inflation declined.
 

 
Below is the core CPI. The spikes are due to the timing of the Lunar New Year.
 

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2. The PPI moved deeper into negative territory. This is good news for inflation in the US.
 

 
Below are some examples of the downward pressure on the PPI.
 

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3. The trade surplus was a touch higher than last year’s levels.
 

 
But exports in the first two months of 2023 showed weaker performance than in the same period of 2022.
 

 
Source: Capital Economics  

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4. Rate differentials with the US pose downside risks for the renminbi.
 
Source: BCA Research  
 
5. The profit cycle could be bottoming.
 
Source: Alpine Macro  


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Emerging Markets

1. Chile’s CPI is starting to roll over.
 

 
2. South Africa’s business confidence is trending down.
 

 
3. EM bonds have outperformed advanced economies.
 
Source: Gavekal Research  
 
Nonetheless, here is the share of emerging economies with distressed public debt.
 
Source: Capital Economics  


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Commodities

1. Rough rice futures have taken a hit in recent days.
 

 
2. US milk futures remain under pressure.
 

 
Source: Farm Journal   Read full article  


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Energy

1. US crude oil inventories edged lower last week (back inside the 5-year range). But there was an increase in the number of days of supply, …
 

 
… as refinery demand remains soft.
 

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2. Refined product inventories are inside the 5-year range.
 

 

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3. US refined product exports have been rising.
 
Source: @EIAgov  
 
4. Refinery margins face downside risks in a recession scenario.
 
Source: Alpine Macro  
 
5. European natural gas prices keep moving lower.
 


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Equities

1. Will peak inflation spark a recovery for the S&P 500?
 
Source: Stifel  
 
2. As of Q4, the S&P 500 revenue growth was in line with the nominal GDP expansion.
 
Source: Yardeni Research  
 
3. The S&P 500 has been underperforming other DM indices.
 
Source: @WSJ   Read full article  
 
4. Mutual funds’ beta to the S&P 500 continues to sink. Many funds have been overweight in defensive shares while maintaining larger-than-normal cash levels.
 
Source: Deutsche Bank Research  
 
5. The bulk of retail options trades result in losses.
 
Source: The Economist   Read full article  
 
6. Here are the most shorted companies last month.
 
Source: S&P Global Market Intelligence  
 
7. BofA’s Global Wealth & Investment Management Survey shows a massive preference for bonds over equities.
 
Source: BofA Global Research; @MikeZaccardi  
 
Moreover, investors are showing a stronger preference for value stocks compared to growth stocks, significantly more so than in previous years.
 
Source: BofA Global Research; @MikeZaccardi  


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Credit

1. Banks’ loan loss provisions are now above pre-COVID levels.
 
Source: Torsten Slok,¬†Apollo  
 
Some banks need more funding, forcing them to pay higher rates on CDs.
 
Source: @CalMutua, @PaigeSmithNews, @business   Read full article  

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2. Merrill Lynch’s private clients have been dumping leveraged finance assets.
 
Source: BofA Global Research  
 
3. This chart shows S&P’s reasons for potential credit downgrades.
 
Source: S&P Global Ratings  
 
Most new potential upgrades in January showed lower leverage and improved operating performance.
 
Source: S&P Global Ratings  


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Rates

1. Deutsche Bank forecasts a sharp decline in front-end Treasury rates and curve steepening in the second half of the year as recession pricing dominates. (2 charts)
 
Source: Deutsche Bank Research  
 
Source: Deutsche Bank Research  

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2. Inflation expectations have driven recent changes in the 5-year Treasury yield.
 
Source: FHN Financial  
 
3. The 10-year Treasury note appears oversold.
 
Source: Longview Economics  


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Global Developments

1. The global stock/bond ratio is edging higher, although the traditional 60/40 stock/bond portfolio remains challenged.
 
Source: MRB Partners  
 
2. Inflation typically remains elevated for a few years after a spike above 8%. (2 charts)
 
Source: Deutsche Bank Research  
 
Source: Deutsche Bank Research  

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3. This chart shows core inflation trends in select economies.
 
Source: @WSJ   Read full article  


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Food for Thought

1. The US faces further labor shortages ahead.
 
Source: TS Lombard  
 
2. Working from home:
 
Source: Torsten Slok,¬†Apollo  
 
3. Jobs posted on the dark web:
 
Source: Kaspersky   Read full article  
 
4. Communicating with friends and family:
 
Source: @CivicScience  
 
5. Battery manufacturing forecasts:
 
Source: Visual Capitalist   Read full article  
 
6. Policing-related expenditures:
 
Source: Statista  
 
7. Support for Trump:
 
Source: The New York Times   Read full article  
 
8. Water from the Colorado River:
 
Source: LA Times   Read full article  
 
9. Favorite Best Picture nominees:
 
Source: @CivicScience   Read full article  
 

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