Posted on by The Daily Shot Editor: Lev Borodovsky

Car insurance costs boosted supercore CPI

The Daily Shot: 14-Jun-23
• The United States
• The United Kingdom
• Europe
• Asia-Pacific
• China
• Emerging Markets
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought

 

The United States

1. The CPI report was roughly in line with expectations, …
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
… with core inflation remaining stubbornly high.
 

 
Below is the year-over-year trend.
 

 
• Once again, used car prices gave the CPI a boost.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 

 
• The supercore CPI (core services ex housing) increased in May, …
 

 
… with gains driven by car insurance costs, which saw the biggest increase since 2020.
 

 
– The good news is that car insurance inflation tends to follow new vehicle prices with a lag.
 
Source: Pantheon Macroeconomics  
 
And new car prices declined again.
 

 
• Housing inflation is still running well above pre-COVID levels.
 

 
• Here are some additional CPI trends.
 
– Core goods and services:
 

 
– Airline fares:
 

 
– Hospital services:
 

 
– Nursing homes:
 

 
We will have more data on the CPI report tomorrow.

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2. With no major surprises from the CPI report, the Fed is expected to keep rates unchanged today.
 

 
But Treasury yields climbed, …
 

 
… as the market moderated its expectations for rate cuts next year.
 

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3. Real hourly wage growth moved back into positive territory.
 

 
4. The NFIB Small Business Optimism Index edged higher in May, but sentiment remains depressed.
 

 
This survey often displays a lack of internal consistency because the NFIB is dominated by very small businesses. As a result, certain sections of the report closely resemble consumer sentiment measures rather than traditional business indicators.
 
– Sales expectations keep falling.
 

 
– Businesses are increasingly concerned about future credit conditions.
 

 
– And yet hiring and CapEx plans jumped.
 

 

 
This chart summarises the divergence.
 
Source: NFIB   Read full article  

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The United Kingdom

1. Labor force inactivity is declining amid rising cost of living.
 
Source: ING  
 
• Job vacancies continue to trend lower.
 

 
• Surveys point to slower wage growth ahead.
 
Source: Pantheon Macroeconomics  

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2. The UK-US 2-year yield differential is back in positive territory.
 

 
3. UK real rates are expected to keep rising.
 
Source: Simon White, Bloomberg Markets Live Blog  

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Europe

1. Germany’s ZEW expectations index unexpectedly edged higher this month.
 

 
But the current situation index declined sharply.
 

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2. This chart shows the percentage of businesses conducting remote meetings across the EU.
 
Source: Eurostat   Read full article  

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Asia-Pacific

1. Japan’s share prices continue to surge.
 

 
Separately, the yen appears deeply undervalued.
 
Source: MRB Partners  

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2. South Korea’s unemployment rate hit a record low.
 

 
Source: Nikkei Asia   Read full article  
 
• South Korea’s export prices are down sharply on a year-over-year basis.
 

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China

1. Credit expansion surprised to the downside.
 
• CNY loans:
 

 
• Aggregate financing:
 

 
Money supply growth has been slowing.
 

 
Source: Reuters   Read full article  

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2. Beijing is introducing new stimulus, …
 
Source: @economics   Read full article  
 
…starting with a rate cut.
 

 
Source: @WSJ   Read full article  

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3. Local governments experienced large declines in tax revenue and land-use right sales last year.
 
Source: Gavekal Research  
 
A large volume of local government financing vehicle bonds (LGFV) are coming due this year, raising the need for refinancing.
 
Source: Gavekal Research  

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Emerging Markets

1. South Africa’s mining output is rebounding.
 

 
2. Egypt’s core inflation is back above 40%.
 

 
3. Vietnam’s domestic vehicle sales have been declining.
 

 
4. This chart shows Morgan Stanley’s projection for central bank policy trajectories.
 
Source: Morgan Stanley Research  

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Commodities

1. Gold is outperforming the US equity risk premium and its typical inverse correlation with the dollar.
 
Source: Alpine Macro  
 
2. Here is a look at top lithium producers.
 
Source: Visual Capitalist   Read full article  

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Energy

1. Oil market implied volatility has been falling.
 

 
2. Analysts expect a deficit in oil markets.
 
Source: Numera Analytics (@NumeraAnalytics)  
 
3. Fund managers have soured on energy stocks.
 
Source: BofA Global Research  

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Equities

1. The Fed’s RRP (reverse repo) balances are rolling over, which should boost bank deposits and reserves.
 

 
The extra liquidity in the private sector tends to be a tailwind for stocks (2 charts).
 
Source: MUFG Securities  
 
Source: Deutsche Bank Research  

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2. The Nasdaq 100 valuation continues to diverge from real rates.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
3. S&P 500 earnings estimates for 2023 have been stable.
 
Source: Yardeni Research  
 
4. According to Morgan Stanley, “the gap between reported earnings and cash flow remains the widest in ~25 yrs, driven by excess inventory, inflation and capitalized costs that have yet to flow thru the P&L.”
 
Source: Morgan Stanley Research  
 
5. Demand for call options on mega-cap shares keeps rising.
 
Source: TS Lombard  
 
6. US early cyclicals have outperformed defensive stocks, taking leadership from energy.
 
Source: Alpine Macro  
 
7. So far, the S&P 500 growth/value ratio remains in an uptrend despite its sharp correction.
 
Source: Alpine Macro  
 
8. Insiders have been buying.
 
Source: @thomsonreuters  

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Credit

1. Let’s start with some updates on commercial real estate (CRE).
 
• Aggregate commercial property year-over-year price changes (stabilizing?):
 

 
• CRE credit supply and demand:
 
Source: Wells Fargo Securities  
 
• CRE lending (a surprise bounce):
 
Source: Capital Economics  
 
• Office visits (still about 40% below 2019 levels):
 
Source: Placer.ai  
 
Source: Placer.ai  
 
• Origin of capital going into CRE:
 
Source: Wells Fargo Securities  

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2. Next, we have some updates on private corporate credit.
 
• Direct lending market vs. the leverage finance market in Q1:
 
Source: Deutsche Bank Research  
 
• Private credit growth:
 
Source: Goldman Sachs  
 
• Private credit loan interest:
 
Source: Goldman Sachs  

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Rates

1. US real yields are surging again, which tends to be a headwind for growth stocks.
 

 
2. Treasury futures positioning remains extraordinarily bearish.
 
Source: Deutsche Bank Research  

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Global Developments

1. According to Bridgewater, the US, Europe, and UK economies have veered away from equilibrium, with risk premiums on assets falling relative to cash.
 
Source: Bridgewater Associates   Read full article  
 
2. The Fed is priced to cut far more than other G10 central banks.
 
Source: Morgan Stanley Research  
 
3. Positive corporate earnings revisions signal a rebound in global manufacturing.
 
Source: TS Lombard  

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Food for Thought

1. Airline satisfaction survey:
 
Source: J.D.Power  
 
2. Amounts wagered on sports events since June 2018 by state:
 
Source: @axios   Read full article  
 
3. Category leaders:
 
Source: @genuine_impact  
 
4. Cloud infrastructure market share:
 
Source: Statista  
 
5. Components of gasoline and diesel prices at the pump:
 
Source: @EIAgov  
 
6. The CBO’s latest projections of federal government deficit and debt:
 
Source: CBO  
 
7. Share of working-age Americans in the total population over time:
 
Source: @axios   Read full article  
 
8. Focus on domestic vs. international issues:
 
Source: Pew Research Center   Read full article  
 
9. Peak superheroes?
 
Source: @chartrdaily  

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