Consumer spending is outpacing disposable incomes

The Daily Shot: 09-Jun-23
The United States
Canada
The Eurozone
Japan
Asia-Pacific
China
Emerging Markets
Commodities
Energy
Equities
Alternatives
Credit
Rates
Food for Thought



 

The United States

1. The seasonally-adjusted initial jobless claims jumped last week.
 

 
Source: CNBC   Read full article  
 
Typically, claims decline during Memorial Day week, but we saw an increase this year. Some economists think this is just noise.
 

 

 
Continuing claims remain well above last year’s levels.
 

 
Separately, this chart shows the Kansas City Fed’s Labor Market Conditions Index (a national indicator).
 
Source: Arcano Economics  

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2. Next, we have some updates on inflation.
 
Nomura estimates an increase in the core CPI last month.
 
Source: Nomura Securities  
 
Used vehicles and hotel prices (which tend to be volatile) boosted the core CPI in May. But used vehicle inflation should ease in June (2 charts).
 
Source: Nomura Securities  
 

 
Car sales incentives should lead to lower new vehicle prices.
 
Source: Nomura Securities  
 
The wholesale vehicle inventories-to-sales ratio continues to climb.
 

 
Energy goods inflation dipped below its pre-pandemic average.
 
Source: FHN Financial  
 
Leading indicators continue to signal a drop in services CPI (2 charts).
 
Source: BCA Research  
 
Source: BCA Research  
 
The bond market is pricing rapid inflation “normalization” over the coming months.
 
Source: Alpine Macro  

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3. Household net worth jumped last quarter (2 charts).
 

 
Source: ING  
 
Source: @readep  
 
This chart shows the composition of US household assets.
 
Source: Gavekal Research  

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4. Consumer spending has been outpacing disposable incomes as households draw on their savings (2 charts).
 
Source: Pantheon Macroeconomics  
 
Source: Gavekal Research  

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5. According to a survey by Deutsche Bank, most credit investors expect a recession to start in the first half of next year.
 
Source: Deutsche Bank Research  
 
Recession indicators continue to flash red (2 charts).
 
Source: Simon White, Bloomberg Markets Live Blog  
 
Source: Variant Perception  
 
According to Research Affiliates, the magnitude of the current yield curve inversion far surpasses previous inversions, which could increase the odds of a hard landing.
 
Source: Research Affiliates   Read full article  


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Canada

1. The April trade surplus figure topped expectations.
 

 
2. Wells Fargo sees one more BoC rate hike.
 
Source: Wells Fargo Securities  
 
3. Canada’s labor productivity is lagging behind the US.
 
Source: Scotiabank Economics  
 
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The Eurozone

1. Revised GDP figures show a mild technical recession in the euro area.
 

 
Source: CNBC   Read full article  
 
Below are the GDP components.
 
Source: Pantheon Macroeconomics  

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2. Here is a look at key economic indicators by country.
 
Source: BCA Research  
 
3. Declining inflation differentials could weigh on EUR/JPY.
 
Source: BCA Research  
 
4. The euro-area population has peaked.
 
Source: Barclays Research  


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Japan

1. The Economy Watchers Survey expectations index declined in May but remained above pre-COVID levels.
 

 
2. The yen’s weakness could keep inflation elevated.
 
Source: Alpine Macro  
 
3. This chart shows Japan’s share of patents filed in key technologies.
 
Source: The Economist   Read full article  


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Asia-Pacific

1. The South Korean won is rebounding.
 

 
2. NZD/JPY appears overbought.
 
Source: BCA Research  
 
3. Next, we have Australian banks’ net interest margin over time.
 
Source: Fitch Ratings  


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China

1. The CPI edged higher in May due to an uptick in fresh vegetable prices.
 

 
But core inflation moved lower. Some economists see a risk of deflation ahead.
 

 
2. Producer prices declined faster than expected last month.
 

 
Here are some examples.
 

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3. Debt and leverage at local government financing vehicles have been climbing steadily in recent years.
 
Source: Wikipedia   Read full article  
 
4. China faces shortages of jobs for new college graduates.
 
Source: @WSJ   Read full article  
 
5. The nation’s deteriorating fertility rate is a challenge for Beijing.
 
Source: @WSJ   Read full article  
 
6. Financial linkages with the US are fading.
 
Source: Merrill Lynch  


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Emerging Markets

1. Mexico’s inflation continues to ease.
 

 
2. Chile’s CPI is also moderating.
 

 
Source: @thatsleda, @economics   Read full article  

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3. Argenitna’s vehicle production reached a multi-year high in May.
 

 
4. India’s service-sector activity remains robust.
 
Source: S&P GlobalĀ PMI  
 
5. The Russian ruble is back below pre-war levels.
 

 
6. South Africa’s manufacturing production edged higher in April.
 

 
The IMF forecasts continuing South African primary and overall national and consolidated budget deficits out to 2025/6 and does not project that debt will stabilize.
 
Source: Codera Analytics  

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7. EM unemployment has been running at pre-COVID levels.
 
Source: Capital Economics  
 
8. This chart shows the MSCI equity index sector exposure by country.
 
Source: Oxford Economics  
 
9. EM equity ETFs’ implied vol index hit the lowest level since 2019 (following VIX lower).
 

 
10. Here is a look at currency valuations.
 
Source: Alpine Macro  


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Commodities

1. Iron ore prices have been rebounding.
 

 
2. Here is a look at China’s copper and aluminum demand by sector.
 
Source: @ANZ_Research  
 
3. It’s been a good week for softs.
 
Cocoa:
 

 
Coffee:
 

 
Source: Reuters/Nasdaq   Read full article  

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4. US farm sentiment deteriorated in May due to weak grain prices.
 
Source: Ag Economy Barometer  


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Energy

1. A US-Iran nuclear deal?
 
Source: Middle East Eye   Read full article  
 
Maybe not …
 
Source: Reuters   Read full article  
 
Brent crude remains in a trading range.
 

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2. Here are the drivers of real oil price changes year-to-date, according to Numera Analytics.
 
Source: Numera Analytics (@NumeraAnalytics)  
 
3. Global oil inventories have been trending lower.
 
Source: Goldman Sachs  
 
4. Energy stocks are starting to outperform spot oil, suggesting improving risk appetite within the sector.
 
Source: Aazan Habib, Paradigm Capital  
 
Increasing investment in the energy sector could benefit oil services stocks, although the recovery in spending has been slow.
 
Source: PGM Global  

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5. US real retail gasoline price is holding below the 10-year average.
 

 
6. US propane exports hit a record high.
 
Source: @EIAgov   Read full article  
 
7. This chart shows changes in US installed energy capacity.
 
Source: @joshfromalaska, @cailliflower, @jendlouhyhc, @BW   Read full article  
 
8. Forecasts indicate a steady increase in global biofuels production throughout this decade.
 
Source: Oxford Economics  
 
9. Finally, we have European diesel imports and inventories.
 

 


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Equities

1. Market sentiment indicators have improved markedly in recent days.
 
The AAII bull-bear spread.
 

 
Goldman’s risk appetite index:
 

 
VIX:
 

 
The VIX/MOVE ratio reached its lowest level since 1996, reflecting a stark contrast between stock investors’ calmness and rates investors’ relative unease.
 

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2. Retail investors are back in the market, …
 
Source: Vanda Research  
 
… and loving small caps again.
 
Source: Vanda Research  

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3. The S&P 500 is at resistance.
 

 
4. Forward 12-month earnings estimates have been rising.
 

 
The S&P 500 trailing P/E has been in a wide range after falling from peak levels in early 2021, …
 
Source: Deutsche Bank Research  
 
… but it is still at the upper end of the long-run average.
 
Source: Deutsche Bank Research  

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5. It’s been over two decades since the S&P 500 dividend yield has been this low relative to Treasury bills.
 

 
6. The Nasdaq 100 realized correlation continues to trend lower.
 

 
7. The overweighting of financials in mutual funds’ portfolios proved costly for them.
 


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Alternatives

1. Established funds have been more dominant in this year’s PE fundraising.
 
Source: @theleadleft  
 
2. It’s been a slow year for PE/VC investments so far.
 
Source: S&P Global Market Intelligence  
 
This chart shows the sector distribution of PE deals in 2022 and 2023.
 
Source: S&P Global Market Intelligence  

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3. Private debt fundraising is increasingly dominated by large funds.
 
Source: @theleadleft  


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Credit

1. CMBS yields remain elevated, …
 

 
… as office loan delinquencies rise.
 
Source: @ArroyoNieto, @ScottJourno, @markets   Read full article  
 
However, office REITs jumped this week.
 

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2. Bankruptcy filings hit the highest level since 2010 (year-to-date).
 
Source: S&P Global Market Intelligence  
 
A higher default rate means wider HY spreads ahead.
 
Source: BCA Research  

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3. The aggregate balance of Fed emergency facilities continues to trend lower.
 

 
4. Transitioning from LIBOR picks up speed ahead of the June 30th phase-out.
 
Source: Bloomberg Law   Read full article  
 
This chart shows the SOFR/LIBOR spread.
 
Source: Deutsche Bank Research  


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Rates

1. How much will reserves decline by early next year? Is there a risk of a 2019-style disruption to the repo markets due to tight liquidity?
 
Source: Deutsche Bank Research  
 
2. According to Alpine Macro, the 10-year Treasury is cheap.
 
Source: Alpine Macro  


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Food for Thought

1. Air quality deterioration (2 charts):
 
Source: Oxford Economics  
 
Source: @axios   Read full article  
 
2. Canada’s wildfire area:
 
Source: The Economist   Read full article  
 
3. Global sea surface temperatures:
 
Source: @axios   Read full article  
 
4. Children/teens deaths from motor vehicles and firearms:
 
Source: @axios   Read full article  
 
Children/teens firearm death rates by state:
 
Source: @axios   Read full article  

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5. How organizations explain shortages of cybersecurity staff:
 
Source: (ISC)2  
 
6. Public school teachers’ wage “penalty”:
 
Source: EPI   Read full article  
 
7. Job listings for remote or hybrid work:
 
Source: @financialtimes   Read full article  
 
8. Southwest land border migrant encounters by country of origin:
 
Source: @TheDailyShot  
 
Migrant encounters over time, excluding El Salvador, Guatemala, Honduras, and Mexico.
 
Source: @TheDailyShot  

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9. Flooding following Ukraine’s Kakhovka dam breach:
 
Source: @financialtimes   Read full article  
 
10. Top five Seinfeld episodes:
 
Source: Ranker   Read full article  
 

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Have a great weekend!


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