Demand downturn is now the dominant reason for layoffs

The Daily Shot: 07-Apr-23
The United States
Canada
Europe
Asia – Pacific
Emerging Markets
Energy
Equities
Credit
Food for Thought



 

The United States

1. Let’s begin with the labor market.
 
Initial jobless claims were above last year’s levels but still relatively low. The labor market remains tight for now.
 

 
This chart compares the current level to the average of 2018, 2019, and 2022 (years when the job market was very strong).
 

 
Continuing claims are still diverging from last year’s levels.
 

 
The NFIB small business hiring plans index declined sharply in March.
 

 
Source: @readep, @economics   Read full article  
 
Layoff announcements remain elevated.
 

 
What is driving the recent layoffs? Weaker demand has now become the dominant reason.
 
Source: LPL Research  
 
The Leisure and Hospitality sector should see robust job gains in March, based on the OpenTable data.
 
Source: Scotiabank Economics  
 
The consensus estimate for the March payrolls report is a 230k gain.
 

 
Oxford Economics sees 215k.
 
Source: Oxford Economics  
 
Warm weather boosted employment figures in February.
 
Source: Capital Economics  
 
The ISM report signals weakness for the labor market ahead, …
 
Source: BofA Global Research  
 
… and so do tightening credit conditions.
 
Source: BofA Global Research  
 
Adjusted for the aging population, US labor force participation rates are higher than reported.
 
Source: @NickTimiraos; Federal Reserve Bank of New York   Read full article  
 
Americans are working fewer hours.
 
Source: @RichMiller28, @economics   Read full article  

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2. Credit card spending points to softer consumption in March, according to data from BofA.
 
Source: BofA Global Research  
 
3. When Fed rate cuts begin they tend to progress quickly.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
4. Compared to many other advanced economies, the US housing market has displayed some resilience.
 
Source: BofA Global Research  
 
5. Rental trends for 1-bedroom and 3-bedroom housing units have diverged.
 
Source: Dwellsy  


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Canada

1. The employment report topped expectations.
 

 
Economists have been persistently underestimating Canada’s job growth.
 
Source: Scotiabank Economics  
 
Here are the employment changes by sector and by province.
 
Source: Scotiabank Economics  
 
Source: Oxford Economics  
 
The unemployment rate is holding at 5%.
 

 
Labor force participation edged down.
 

 
Wage growth was lower than expected.
 

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2. Canada’s population surged in March, boosted by immigration. This trend will support stronger GDP growth (and perhaps higher rates).
 
Source: Desjardins  
 
3. The trade surplus was lower than expected.
 

 
4. The Ivey PMI showed improvements in business and public sector activity.
 

 
5. Home prices are stabilizing (which could support higher rates).
 
Source: Capital Economics  
 
6. The decline in liquidity has been unprecedented (driven by the BoC’s policy normalization).
 
Source: Industrial Alliance Investment Management  


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Europe

1. Last month, Germany’s construction PMI fell further into contraction territory.
 

 
German home price declines have been severe.
 
Source: Longview Economics  

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2. The US-Germany bond spreads have been tightening.
 
Source: ING  
 
3. Next, we have some updates on Sweden.
 
Industrial production (robust in February):
 

 
Industrial orders (improvement but still below last year’s level):
 

 
Service sector output:
 

 
Services PMI (still in contraction mode):
 

 
Household consumption (lower in February):
 

 
Home prices (stabilizing?):
 
Source: Simon White, Bloomberg Markets Live Blog  

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4. This chart shows Europe’s direct investment in China.
 
Source: Gavekal Research  


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Asia – Pacific

1. Japan’s nominal wage gains breached the 3% BoJ threshold.
 
Source: Barclays Research  
 
Here are the drivers of Japan’s real wage growth.
 
Source: Barclays Research  

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2. Australia’s trade surplus topped forecasts, …
 

 
… as imports tumbled.
 


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Emerging Markets

1. Let’s begin with Brazil.
 
Trade surplus (very strong):
 

 
Source: Reuters   Read full article  
 
Unemployment (climbing):
 

 
Source: @andrewrosati, @economics   Read full article  
 
Services PMI (back in growth mode):
 
Source: World Economics  
 
Vehicle sales (rebounding):
 

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2. Hungarian retail sales tumbled in February.
 

 
3. Nigeria’s inflation remains elevated, pointing to continued central bank rate hikes.
 
Source: Variant Perception  
 
Nigeria’s oil refining output has declined over the past decade.
 
Source: Variant Perception  

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4. Russia’s vehicle sales remain at multi-year lows (it’s a bit harder to fudge these figures).
 

 
The ruble is back below pre-war levels.
 

 
Source: @WSJ   Read full article  


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Energy

1. Oil market implied volatility continues to ease.
 

 
2. This chart shows oil price spikes and recessions.
 
Source: Jack Ablin, Cresset Wealth Advisors  
 
3. Oil supply cuts are not boosting prices amid recession concerns.
 
Source: BofA Global Research  


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Equities

1. Small caps continue to struggle, …
 

 
… pressured by weakness in regional banks and the economic downturn.
 
Source: Truist Advisory Services  

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2. The market has not fully priced in recession risks.
 
Source: Capital Economics  
 
3. Earnings downgrades have been more severe than average but still inside the historical range.
 
Source: Goldman Sachs; @SamRo  
 
4. Analysts expect corporate sales growth to continue over the next 12 months.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
With margins shrinking, global earnings could decline sharply. Here is BofA’s EPS model.
 
Source: BofA Global Research  

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5. Market upside is limited due to low equity risk premium.
 
Source: Truist Advisory Services  
 
6. These charts show companies issuing negative and positive guidance over time and by sector.
 
Source: @FactSet   Read full article  
 
Source: @FactSet   Read full article  

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7. Below is the percentage of stocks outperforming the S&P 500, by sector.
 
Source: LPL Research  
 
8. Retail investor net market purchases remain well below the surge we saw earlier in the year.
 
Source: Vanda Research  
 
Here are the trends by sector.
 
Source: Vanda Research  


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Credit

1. The Fed’s emergency facility balances continue to rise.
 

 
But those increases are more than offset by the declines in discount-window loans. The total financing for banks is down from $206.6 billion two weeks ago to $167.2 billion this week.
 

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2. The Fed’s RRP facility balances decreased as expected (since we are past the quarter-end). As a result, we should see an increase in total bank deposits.
 

 
3. BlackRock will be selling some $90 billion of MBS securities, which is weighing on the market.
 
Source: @sabrush, @markets   Read full article  
 
MBS ETF:
 

 
MBS spreads:
 

 
Mortgage rate spread to Treasuries:
 
Source: @axios   Read full article  

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4. Money market fund assets continue to climb.
 

 
5. Demand for utility bonds has been robust.
 
Source: Bloomberg Law   Read full article  


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Food for Thought

1. How much prime residential property can $1 million buy?
 
Source: Statista  
 
2. Pfizer’s revenues:
 
Source: @chartrdaily  
 
3. Owners vs. renters by income quintile in the US:
 
Source: US Census Bureau   Read full article  
 
4. Rooms per person in the average home:
 
Source: @WSJ   Read full article  
 
5. Russia’s worsening demographics:
 
Source: The Economist   Read full article  
 
6. US opinion of China:
 
Source: Gallup   Read full article  
 
7. Biggest sources of electricity in Asia:
 
Source: Visual Capitalist   Read full article  
 
8. GOP nomination probabilities in the betting markets:
 
Source: @PredictIt  
 
9. Tooth Fairy payouts:
 
Source: @axios   Read full article  

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Have a great weekend!


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