Economists continue to boost their forecasts for US core inflation

The Daily Shot: 26-Jun-23
The United States
The United Kingdom
The Eurozone
Europe
Japan
Asia-Pacific
China
Emerging Markets
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. Initial jobless claims remain elevated compared to pre-COVID levels as well as 2022.
 

 

 
Source: @economics   Read full article  
 
Here are the continuing jobless claims.
 

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2. Existing home sales remain depressed but were slightly above forecasts last month.
 

 
Absolue inventories hit a multi-year low (first panel below). The second panel shows the months of supply, which remains above last year’s levels due to sluggish sales.
 

 
Prices continue to ease.
 
Source: @WSJ   Read full article  
 
Source: Reuters   Read full article  

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3. US manufacturing activity deteriorated this month, according to S&P Global PMI. Factories are reporting falling orders.
 

 
Price pressures have been easing.
 

 
Service firms continue to report expansion, …
 

 
… with business expectations rebounding.
 

 
Service companies still face strong inflationary pressures, but fewer firms boosted prices this month.
 

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4. The Kansas City Fed’s regional manufacturing report was awful, …
 

 
… with factories reducing their workforce.
 

 
Outlook deteriorated.
 

 
However, CapEx expectations improved.
 

 
Price indices tumbled this month.
 

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5. The Conference Board’s index of leading indicators declined again in May.
 

 
This chart depicts the six-month changes in the leading index.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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6. Economists continue to boost their forecasts for US core inflation.
 


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The United Kingdom

1. The BoE hiked rates by 50 bps last week as core inflation surges.
 

 
Source: Reuters   Read full article  
 
The market sees further rate increases ahead, with another 50 bps hike a possibility in August and/or September.
 

 
Short-term gilt yields continue to surge …
 

 
… as the yield curve inverts further.
 

 
A policy error?
 
Source: BCA Research  

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2. Manufacturing activity sagged this month.
 

 
But service-sector growth is holding up (similar to the US).
 

 
Both input and output manufacturing prices are now falling.
 

 
But service-sector price indices remain elevated.
 

 
Nonetheless, the “prices charged” index signals slower services CPI.
 
Source: Pantheon Macroeconomics  

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3. Retail sales unexpectedly increased in May.
 

 
4. Consumer sentiment is improving.
 

 
5. On average, GBP/USD weakened around BoE policy meetings during the current hiking cycle.
 
Source: Convera  


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The Eurozone

1. The June flash PMI report looks recessionary, with activity indicators surprising to the downside.
 
Germany manufacturing PMI:
 

 
France manufacturing PMI:
 

 
By the way, the INSEE indicator of French manufacturing sentiment improved this month.
 

 
Germany services PMI (still in growth mode but below forecasts):
 

 
France services PMI (back in contraction territory):
 

 
The composite PMI at the euro-area level (stalling growth).
 

 
The money supply contraction signals further weakness ahead.
 
Source: Pantheon Macroeconomics  
 
Price pressures continue to ease.
 

 
Manufacturers have been slow at passing on falling input costs, while services firms have increased their margins. (2 charts)
 
Source: Deutsche Bank Research  
 
Source: Deutsche Bank Research  
 
Expectations among service firms have deteriorated, especially in France.
 
Source: Deutsche Bank Research  

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2. The weak PMI report sent the Citi Economic Surprise Index tumbling to the lowest level since the initial COVID shock.
 

 
3. Consumer confidence is rebounding.
 


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Europe

1. In addition to BoE, two other European central banks hiked rates.
 
The SNB:
 

 
Source: Reuters   Read full article  
 
Norway’s Norges Bank (the market expected 25 bps):
 

 
Source: Reuters   Read full article  
 
The Norwegian krone underperformed last week.
 

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2. Poland’s retail sales have been softening.
 

 
3. This chart shows the distribution of energy consumption by EU households.
 
Source: @TheDailyShot  


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Japan

1. Inflation remains elevated, …
 

 
… as food price climb.
 

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2. The yen has been under pressure.
 

 
3. Manufacturing activity dipped back into contraction this month…
 

 
… while service firms continue to report growth.
 


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Asia-Pacific

1. Singapore’s inflation is starting to moderate.
 

 
2. The S&P Global PMI report shows stalling growth in Australia’s business sector.
 
Source: S&P Global¬†PMI  


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China

1. China’s currency and stocks are down as the market reopens after the holidays.
 

 

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2. Households’ savings growth remains elevated (2 charts).
 
Source: @ANZ_Research  
 
Source: BCA Research  

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3. Industrial-related capex growth slowed over the past two months.
 
Source: China Beige Book  


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Emerging Markets

1. Under the new management, the Turkish central bank hiked rates to 15% (a 6.5% increase).
 

 
However, the market expected a bolder move from the central bank, with forecasts pointing to 20% (instead of 15%).
 

 
The lira plummeted.
 
Source: Reuters   Read full article  
 

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2. The Russian ruble continues to weaken and is now well below pre-war levels.
 

 
3. Mexico’s inflation continues to moderate.
 

 
4. EM central banks are pivoting to rate cuts.
 
Source: BofA Global Research  
 
5. EM stocks are already discounting an earnings recovery.
 
Source: MRB Partners  
 
6. Finally, we have some performance data from last week.
 
Currencies:
 

 
Bond yields:
 

 
Equity ETFs:
 


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Commodities

1. The rise in renewable electricity generation could substantially boost demand for copper. (2 charts)
 
Source: Alpine Macro  
 
Source: Alpine Macro  
 
Copper inventories are already very low.
 
Source: Alpine Macro  
 
The front-month copper futures contract is holding support above its 40-week moving average, reacting to oversold conditions last month.
 
Source: Symbolik  
 
2. Palladium prices hit the lowest level since 2019.
 

 
3. Here is last week’s performance across key commodity markets.
 

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Energy

1. Brent crude remains in a trading range.
 

 
Stabilizing supplies point to firmer prices ahead.
 
Source: Simon White, Bloomberg Markets Live Blog  

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2. US oil rig count continues to fall.
 

 
3. Next, let’s take a look at US petroleum inventories.
 
Crude oil (barrels):
 

 
Days of supply:
 

 
Gasoline inventories:
 

 

 
Distillates inventories:
 

 
4. Gasoline demand is holding above last year’s levels.
 

 
This chart shows US refinery runs.
 

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5. Oil usually performs well in recessions.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
6. The S&P 500 energy sector has been more friendly to shareholders this cycle. (2 charts)
 
Source: @_rob_anderson  
 
Source: @_rob_anderson  


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Equities

1. Last week’s market pullback was consistent with historical patterns.
 
Source: @RyanDetrick  
 
Equities tend to see a pullback one month after an extreme high in the stock/bond ratio (current situation), …
 
Source: Variant Perception  
 
… although performance improves three months onward.
 
Source: Variant Perception  
 
The S&P 500 typically trades sideways during the summer.
 
Source: SentimenTrader  

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2. Tech funds saw some outflows …
 
Source: BofA Global Research  
 
… while financials gained capital.
 
Source: BofA Global Research  

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3. The S&P 500’s cumulative advance/decline line reached an all-time high, reflecting improving breadth.
 
Source: SentimenTrader  
 
4. Small caps widened their underperformance last week.
 

 
5. The Nasdaq 100 valuation continues to diverge from real yields. Something has to give.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
6. The VIX/S&P 500 correlation surged in recent days.
 
Source: Goldman Sachs; @dailychartbook  
 
7. Next, we have some performance updates from last week.
 
Sectors:
 

 
Equity factors:
 

 
Macro basket pairs’ relative performance:
 

 
Thematic ETFs:
 

 
Largest US tech firms:
 


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Credit

1. Investment-grade bond funds continue to see inflows.
 
Source: BofA Global Research  
 
2. Here is last week’s performance by asset class.
 


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Rates

1. Almost 90% of the Treasury curve is inverted.
 
Source: Chart and data provided by Macrobond  
 
Source: @WSJ   Read full article  

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2. The 10-year Treasury yield is testing downtrend resistance.
 
Source: Symbolik  
 
3. While the median FOMC projection for the long-run fed funds rate has been stable in recent years, the central tendency measure points to a higher long-run forecast.
 
Source: @ANZ_Research  
 
4. Investment fund allotments for 2-year and 7-year Treasury auctions have risen strongly.
 
Source: Deutsche Bank Research  


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Global Developments

1. Employment conditions are improving among developed markets.
 
Source: MRB Partners  
 
2. Fund flows into risky assets are still outpacing safe assets.
 
Source: Goldman Sachs  
 
3. Here is a look at labor productivity and innovation.
 
Source: Alpine Macro  
 
4. Supply-chain stress has mostly dissipated.
 
Source: The Economist   Read full article  
 
5. The WFH shift is not going away.
 
Source: Torsten Slok,¬†Apollo  
 
6. Finally, we have some DM performance data from last week.
 
Currency indices:
 

 
Bond yields:
 

 
Large-cap equity indices:
 


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Food for Thought

1. S&P 500 top 20 stocks’ weight and returns:
 
Source: Visual Capitalist   Read full article  
 
2. Big Oil profits:
 
Source: Visual Capitalist   Read full article  
 
3. Declining demand for pizza delivery:
 
Source: @CivicScience   Read full article  
 
4. Indoor farming startups:
 
Source: @WSJ   Read full article  
 
5. Poultry exporters’ market share:
 
Source: Semafor  
 
6. Top steel-producing nations:
 
Source: Visual Capitalist   Read full article  
 
7. Relationship status by gender and educational attainment:
 
Source: IFS Institute   Read full article  
 
8. Cannabis legality by state:
 
Source: Global X ETFs   Read full article  
 
9. Close calls on airport runways:
 
Source: @WSJ   Read full article  
 
10. Taking a break from Twitter:
 
Source: Pew Research Center   Read full article  
 
11. Suicide rates:
 
Source: The Economist   Read full article  
 
12. The number of years to get to 30 teams in major sports leagues in North America:
 
Source: @axios   Read full article  
 

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