Federal government’s interest payments surge

The Daily Shot: 02-May-23
The United States
Canada
The Eurozone
Europe
Japan
Asia-Pacific
China
Cryptocurrency
Commodities
Equities
Credit
Rates
Food for Thought



 

The United States

1. US manufacturing activity continued to contract in April, but the pace of declines eased slightly.
 

 
Source: Reuters   Read full article  
 
Demand keeps weakening.
 

 
Manufacturing employment stabilized last month.
 

 
Manufacturers now perceive customers’ inventory levels as increasing.
 

 
Costs are rising again.
 

 
Here are the contributions to the ISM level (1st panel) and monthly changes (2nd panel).
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
The stock market points to improvements ahead for US manufacturing.
 
Source: Chris Murphy, Susquehanna International Group  

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2. After three months of declines, construction spending increased in March.
 

 
Private nonresidential construction spending continues to grind higher as residential expenditures slow.
 
Source: Chart and data provided by Macrobond  
 
Architecture billings have stabilized.
 
Source: Wells Fargo Securities  

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3. Listings of homes for sale are falling quickly and may soon dip below last year’s levels.
 
Source: Redfin  
 
New listings are down 22.4% vs. 2022.
 
Source: Redfin  
 
The median price is currently only 2.8% lower than what we observed in 2022.
 
Source: Redfin  

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4. The fiscal policy drag that has been slowing the economy is about to disappear.
 
Source: Brookings   Read full article  
 
5. The federal government missed out on locking in low long-term rates in recent years, causing interest payments to surge.
 
Source: Gavekal Research  
 
6. A 25 bps Fed rate hike this week is baked in. The US central bank is likely to pause from there until the debt ceiling situation is resolved.
 

 
The expected terminal rate continues to grind higher, with the peak fed funds rate now firmly above 5%.
 


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Canada

1. Factory activity stabilized in April, showing modest growth.
 

 
2. Consumer confidence is rebounding, …
 

 
… boosted by improved housing market sentiment.
 
Source: @ErikHertzberg, @economics   Read full article  

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3. Financial conditions are still restrictive.
 
Source: The Real Economy Blog   Read full article  
 
4. The housing market remains tight. (2 charts)
 
Source: Scotiabank Economics  
 
Source: Scotiabank Economics  
 
Mortgage interest costs have accelerated along with rising rent and insurance rates.
 
Source: Scotiabank Economics  


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The Eurozone

1. Germany’s unemployment rate held steady in April.
 

 
2. French consumer spending on goods has been weakening, with the March print below expectations.
 

 
3. Italian wage growth hit a multi-year high.
 

 
Separately, higher yields from new loan originations could help Italian bank earnings.
 
Source: SOM Macro Strategies  

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4. This summer, substantial TLTRO repayments are due, which could be viewed as a type of quantitative tightening.
 
Source: Macrobond  
 
5. Are the PMI indicators signaling a GDP rebound?
 
Source: Pantheon Macroeconomics  


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Europe

1. The market sees a 25 bps BoE rate hike this month and potentially another increase in June.
 

 
2. There is a wide relative performance gap between European real estate and US REITs.
 
Source: Capital Economics  
 
3. This chart shows European meat production over time.
 
Source: @financialtimes   Read full article  


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Japan

1. Consumer confidence is rebounding rapidly.
 

 
2. The BoJ’s balance sheet as a share of GDP is now the largest among major central banks.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
3. The yen is cheap relative to the Swiss franc.
 
Source: BofA Global Research  


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Asia-Pacific

1. South Korea’s core inflation has finally peaked.
 

 
Factory activity continues to contract.
 
Source: S&P GlobalĀ PMI  

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2. Taiwan’s manufacturing activity weakened in April.
 
Source: S&P GlobalĀ PMI  
 
3. Investors’ inflation expectations for Asia hit an eight-year low, according to a survey by BofA.
 
Source: BofA Global Research  


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China

1. USD/CNH (offshore yuan) is at the 200-day moving average resistance (CNH is weakening against the dollar).
 
Source: barchart.com  
 
2. Easing financial conditions could benefit earnings growth.
 
Source: BofA Global Research  
 
3. Chinese consumers have been shopping.
 
Source: Macrobond  


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Cryptocurrency

1. Bitcoin’s daily transaction counts are approaching all-time highs.
 
Source: @glassnode  
 
2. Short-term bitcoin holders experienced some of the most profitable days on record during the latest crypto rally.
 
Source: @glassnode  
 
3. Demand for Tether’s USDT stablecoin on Turkish markets spiked.
 
Source: @KaikoData  
 
4. Crypto exchange web traffic has declined since last summer, although India remained active.
 
Source: @K33Research  


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Commodities

1. Central banks in Turkey, China, and India were the top buyers of gold in January and February.
 
Source: @ANZ_Research  
 
2. New York sugar futures fell from an 11-year high on Monday.
 

 
3. Wheat prices remain under pressure.
 

 
Source: barchart.com   Read full article  

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4. This chart shows the drivers of US corn demand.
 
Source: @SusanNOBULL, @Barchart   Read full article  


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Equities

1. Banks getting snuffed out of existence in a single weekend is putting pressure on the regional banking sector.
 

 
But the largest banks are performing well.
 

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2. Apple’s and Microsoft’s combined weight in the S&P 500 hit a record high.
 
Source: @Subrat_Patnaik, @technology   Read full article  
 
3. Stocks with the highest interest coverage are increasingly dominant in the S&P 500.
 
Source: Piper SandlerĀ   
 
4. Consumer Staples shares held up well over the past couple of years.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
5. Declining correlation among S&P 500 members lowered the overall index volatility.
 

 
6. Equity implied volatility is too low, given elevated credit spreads.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
7. Market breadth has deteriorated.
 
Source: Goldman Sachs; @carlquintanilla  
 
8. Valuation multiples are likely to contract in a recession.
 
Source: BCA Research  
 
9. The breadth as well as the size of earnings beats bounced in the current earnings season.
 
Source: Deutsche Bank Research  
 
The 12-month forward earnings expectations jumped.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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10. Retail investors seem to have capitulated (bought high and sold low.)
 
Source: Goldman Sachs; @SethCL, h/t @chartrdaily  


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Credit

1. Let’s start with the chart of US bank failures.
 
Source: The New York Times   Read full article  
 
2. Rejections of credit applications spiked last month, according to NACM.
 
Source: NACM  
 
3. More companies are talking about credit on earnings calls.
 
Source: @ncallanan, @markets   Read full article  
 
4. The money supply continues to shrink.
 
Source: @ncallanan, @markets   Read full article  


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Rates

1. The Treasury bill curve remains distorted amid the debt ceiling “game of chicken.”
 

 
Source: @WSJ   Read full article  

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2. Bets on long-term Treasuries jumped before the FOMC meeting.
 
Source: @WSJ   Read full article  
 
3. JP Morgan’s clients are increasingly bullish on Treasuries.
 


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Food for Thought

1. AI-related publications in the US and China:
 
Source: @business   Read full article  
 
2. China’s exports to Russia:
 
Source: Yardeni Research  
 
3. Ukraine’s reconstruction costs:
 
Source: Statista  
 
4. Religious affiliations in Northern Ireland:
 
Source: Statista  
 
5. Emotional support from friends:
 
Source: Survey Center on American Life   Read full article  
 
6. Drug overdoses among young Americans (mostly due to fentanyl):
 
Source: @financialtimes   Read full article  
 
7. Teens who rarely meet with friends:
 
Source: @financialtimes   Read full article  
 
8. Working-age immigrant population:
 
Source: Torsten Slok,Ā Apollo  
 
9. US tea imports:
 
Source: Statista  
 

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