When will excess savings run out?

The Daily Shot: 06-Jun-23
The United States
Canada
The United Kingdom
The Eurozone
Europe
Japan
Australia
Emerging Markets
Cryptocurrency
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. The ISM Services PMI signals stalled business activity growth in May.
 

 
Source: MarketWatch   Read full article  
 
Here are the contributions to the ISM index.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
The employment index shows staff reductions last month.
 

 
Companies faced significant challenges in managing the influx of new orders last year, but now it seems like a distant memory.
 

 
Service-sector cost increases continue to slow, …
 

 
… which points to softer inflation ahead, …
 
Source: Yardeni Research  
 
… as well as moderating wage growth.
 
Source: Pantheon Macroeconomics  

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2. A separate survey from S&P Global PMI shows improvements in US tech, consumer services, and financials in May.
 
Source: S&P Global PMI  
 
3. Next, we have some updates on consumer spending.
 
There is some debate regarding the extent of excess household savings and the point at which this buffer is depleted.
 
Source: Deutsche Bank Research  
 
Wells Fargo:
 
Source: Wells Fargo Securities  
 
Fidelity:
 
Source: Fidelity Investments   Read full article  
 
Deutsche Bank expects excess savings to be depleted by year-end…
 
Source: Deutsche Bank Research  
 
…and a later, somewhat deeper recession than consensus.
 
Source: Deutsche Bank Research  
 
Here is Morgan Stanley’s forecast for real consumer spending.
 
Source: Morgan Stanley Research  
 
The Q3 spending dip would lead to only one negative quarter but no recession.
 
Source: Morgan Stanley Research  
 
Nondiscretionary consumer spending will become a larger portion of total expenditures.
 
Source: Morgan Stanley Research  
 
Consumption as a share of labor income has been elevated and will turn lower.
 
Source: Morgan Stanley Research  
 
Credit card data points to weaker spending in May.
 
Source: III Capital Management  
 
Some cohorts are seeing the highest credit card delinquency rates since the GFC.
 
Source: Torsten Slok, Apollo  

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4. A significant amount of private-sector investment has been announced since the passage of the Inflation Reduction Act.
 
Source: Global X ETFs   Read full article  
 
5. This chart shows asset values relative to GDP.
 
Source: McKinsey & Company   Read full article  


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Canada

1. Regional housing data reveal a significant rebound in the market last month.
 
Source: Scotiabank Economics  
 
2. Labor costs have been rising quickly in recent years.
 
Source: Scotiabank Economics  
 
3. Here is Canada’s Beveridge Curve.
 
Source: Scotiabank Economics  


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The United Kingdom

1. Deutsche Bank expects the policy rate to peak at 5.25%, with a shallow easing cycle next year.
 
Source: Deutsche Bank Research  
 
2. Mortgage rates have been rising again.
 
Source: @financialtimes   Read full article  
 
3. New car registrations remain well above last year’s levels.
 


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The Eurozone

1. The Sentix investor sentiment indicator turned lower in June.
 

 
Source: Reuters   Read full article  

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2. The Citi Economic Surprise Index is crashing.
 

 
3. Germany’s April trade surplus topped expectations as terms of trade continued to improve.
 

 
Source: @TheTerminal, Bloomberg Finance L.P.  

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4. The Euro has consolidated its gains versus the dollar and Swiss franc this year, although its short-term uptrend remains intact versus an equal-weighted basket of interest rate-sensitive currencies such as AUD, CAD, and GBP.
 
Source: MRB Partners  
 
5. Popular support for the euro remains strong.
 
Source: BCA Research  


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Europe

1. Swiss core inflation has peaked.
 

 
The PMI trend points to further declines in the CPI.
 
Source: Pantheon Macroeconomics  
 
Switzerland’s housing bubble remains a key risk.
 
Source: MRB Partners  
 
The Swiss franc has held up this year.
 
Source: MRB Partners  
 
CHF/EUR is testing initial resistance. Its uptrend remains vulnerable to risk-on conditions.
 

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2. This chart shows public spending on pensions in select economies.
 
Source: BCA Research  


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Japan

1. Real wages remain well below last year’s levels.
 

 
Source: Nikkei Asia   Read full article  

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2. Household spending in April was below forecasts.
 

 
Source: Nippon   Read full article  

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3. Japan’s stocks have widened the gap with Asian peers.
 

 
Investor-friendly corporate actions continue to be a tailwind for the stock market.
 
Source: Morgan Stanley Research  

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4. This chart shows the contributions to Japan’s population changes.
 
Source: Capital Economics  


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Australia

The RBA caught markets off guard with an unexpected rate hike while also cautioning about further impending increases.
 

 
Source: Reuters   Read full article  
 
The Aussie dollar and bond yields jumped.
 

 

 
Here is the yield curve.
 


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Emerging Markets

1. Let’s begin with Brazil.
 
Bond yields are falling as inflation moderates.
 

 
Auto sales fell back below last year’s levels.
 

 
Industrial production dropped in April.
 
Source: The Brazilian Report   Read full article  
 

 
Service firms continue to report growth.
 
Source: S&P Global PMI  

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2. Mexico’s unemployment rate increased in April.
 

 
Manufacturing growth is stalling again.
 
Source: S&P Global PMI  
 
Business investment continues to trend higher.
 

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3. Here is a look at inflation across LatAm economies.
 
Source: Numera Analytics (@NumeraAnalytics)  
 
4. Next, we have some updates on Russia.
 
Households have been moving cash into foreign banks.
 
Source: @WSJ   Read full article  
 
Amidst sustained military orders, Russia’s manufacturers have reported resilient growth.
 
Source: S&P Global PMI  
 
Economic trends below are reported by the government.
 
Industrial production:
 

 
Retail sales:
 

 
Unemployment:
 

 
Real wages:
 

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5. Turkey’s core inflation unexpectedly accelerated in May.
 

 
6. Inflation is already declining into target ranges in some EM countries.
 
Source: Moody’s Investors Service  


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Cryptocurrency

1. Bitcoin saw a spike in long liquidations on Monday as the crypto’s price fell below $26K. News of the SEC’s lawsuit against Binance and its CEO unsettled crypto markets.
 
Source: Coinglass  
 
Source: @WSJ   Read full article  

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2. For now, the Crypto Fear & Greed Index is stuck in the neutral zone, declining from greed levels earlier this year.
 
Source: Alternative.me  
 
3. Crypto funds saw the seventh-straight week of outflows.
 
Source: CoinShares   Read full article  
 
Funds that focus on Tron, a smart contract platform, saw most outflows totaling $51 million last week. Short-bitcoin focused funds also saw notable outflows, suggesting neutral sentiment among investors.
 
Source: CoinShares   Read full article  


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Energy

1. Despite OPEC production cuts, Brent crude remains range-bound.
 

 
2. Money managers remain cautious on crude oil and refined products.
 
Source: @JKempEnergy  


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Equities

1. Let’s start with this remarkable chart of sector fund flows.
 
Source: Deutsche Bank Research  
 
2. The S&P 500 equal-weighted index held the uptrend support.
 

 
The equal-weighted index is inversely correlated to Treasuries’ implied volatility index (MOVE).
 
Source: Deutsche Bank Research  
 
What are the sector weights of the equal-weighted index?
 
Source: S&P Dow Jones Indices  

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3. Post-IPO stocks have been outperforming.
 

 
4. S&P 500’s price/earnings ratio has fallen toward its 10-year average.
 
Source: Global X ETFs   Read full article  
 
 
5. The high relative market value of tech mega-caps looks stretched, given the level of Treasury yields.
 
Source: BofA Global Research  
 
6. Here is a look at market fear indicators.
 
Source: Morgan Stanley Research  
 
7. The S&P 500 forward PE to VIX ratio signals a growing pullback risk.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
8. International markets have been underperforming the S&P 500.
 
Source: Truist Advisory Services  


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Credit

1. The debt costs of sub-investment-grade firms have soared to their highest level since 2010.
 
Source: Bloomberg Law   Read full article  
 
2. CMBS spreads remain elevated.
 
Source: Truist Advisory Services  


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Rates

1. The inverted yield curve makes the balanced portfolio carry unattractive relative to T-bills.
 
Source: Morgan Stanley Research  
 
2. Treasury futures aggregate positioning remains exceptionally bearish.
 
Source: Deutsche Bank Research  


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Global Developments

1. Moody’s expects policy rates to remain restrictive in the US, Europe, and the UK for most of next year.
 
Source: Moody’s Investors Service  
 
2. The global composite PMI index shows improving economic growth.
 
Source: S&P Global PMI  


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Food for Thought

1. States with high cybercrime-related losses:
 
Source: @TheDailyShot  
 
2. US mortgage originations by age:
 
Source: Federal Reserve Bank of New York  
 
3. US banks’ assets and liabilities:
 
Source: Visual Capitalist   Read full article  
 
4. Concerns about gun violence at school:
 
Source: @TheDailyShot  
 
5. Adverse work outcomes due to menopausal symptoms:
 
Source: Mayo Clinic  
 
6. The most violent cities:
 
Source: @OpenAxisHQ  
 
7. Quantum processors:
 
Source: @financialtimes   Read full article   Further reading  
 
8. Ordering pizza:
 
Source: @CivicScience   Read full article  
 

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