Tighter credit conditions typically precede labor market weakness

The Daily Shot: 29-Jun-23
The United States
The United Kingdom
The Eurozone
Europe
Japan
Asia-Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Global Developments
Food for Thought



 

The United States

1. Let’s begin with some updates on the labor market.
 
The slowdown in job openings has been concentrated in rate-sensitive sectors.
 
Source: TS Lombard  
 
Tighter credit conditions typically precede labor market weakness.
 
Source: J.P. Morgan Asset Management  
 
According to Morgan Stanley, elevated GDP per worker relative to the pre-COVID trend suggests understaffing.
 
Source: Morgan Stanley Research  

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2. Coincident economic indicators have not followed leading indicators lower. Resilient consumption and employment conditions have stalled a recession.
 
Source: Yardeni Research  
 
3. Financial conditions may be more restrictive than high-frequency indicators suggest as banks tighten lending standards.
 
Source: Oxford Economics  
 
4. Mortgage applications have stabilized at multi-year lows.
 

 
The market is bullish on construction activity as S&P 500 construction material stocks make fresh highs.
 
Source: @meanstoatrend  

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5. Nomura expects a slow downward drift in rent inflation.
 
Source: Nomura Securities  
 
6. Retail inventories increased more than expected in May.
 

 
This chart shows nominal and real retail inventories.
 

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7. US trade balance in goods narrowed last month.
 

 
Both imports and exports declined.
 
Source: @TheTerminal, Bloomberg Finance L.P.  


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The United Kingdom

1. The pound has underperformed the rate differential with the US.
 
Source: Pantheon Macroeconomics  
 
2. Who should run these services?
 
Source: @YouGov   Read full article  


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The Eurozone

1. Let’s begin with Italy.
 
The June CPI report suggests a continued moderation of inflation.
 

 
Here are the CPI components for the national CPI index.
 
Source: ISTAT   Read full article  
 
The PPI moved deeper into negative territory in May.
 

 
Industrial sales are now down on a year-over-year basis.
 

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2. Next, we have some updates on Germany.
 
Consumer confidence unexpectedly declined this month.
 

 
The Bund curve hasn’t been this inverted in decades.
 

 

 
A lot of Germans have left the country, emigrating mainly to Switzerland, Austria, and the US.
 
Source: @Schuldensuehner  

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3. French consumer confidence shows signs of improvement.
 

 
4. Spain’s retail sales keep strengthening.
 

 
5. Euro-area loan growth continues to slow.
 

 
Liquidity conditions are tightening. This chart shows the growth rate in the broad (M3) and narrow (M1) money supply metrics.
 

 
Here are the M3 growth components.
 
Source: ECB   Read full article  
 
Deteriorating liquidity doesn’t bode well for economic activity.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
Tight financial conditions signal further weakness in the Eurozone credit impulse.
 
Source: Capital Economics  

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5. As the ECB interest rates shifted into the positive range, the necessity to retain physical bank notes lessened substantially.

John Paul Koning: – European banks slowly moved into banknotes when the ECB cut rates below 0% in 2014, and then raced out of cash when it hiked back up to 0% in 2022.

Source: @jp_koning  


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Europe

1. Sweden’s household lending growth has been slowing rapidly.
 

 
The nation’s PPI is back in negative territory.
 

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2. Next, we have some data on asylum applications in the EU.
 
Source: Eurostat   Read full article  


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Japan

1. The yen continues to weaken.
 

 
2. Japan’s stocks keep outperforming amid robust capital inflows.
 
Source: Capital Economics  
 
3. Retail sales growth has been strengthening.
 


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Asia-Pacific

1. South Korea faces demographic headwinds.
 
Source: @WSJ   Read full article  
 
2. A substantial majority of Taiwan’s populace self-identifies with a distinct Taiwanese identity.
 
Source: TS Lombard  
 
3. Australia’s job vacancies remain elevated.
 

 
Underlying inflation is tracking above RBA forecasts, which could encourage more rate hikes.
 
Source: Coolabah Capital   Read full article  


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China

1. The PBoC is getting more aggressive in steering the renminbi higher.
 

 
For now, it’s not working.
 

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2. Beijing wants to bring back foreign capital.
 
Source: Xinhua   Read full article  
 
Source: @bpolitics   Read full article  

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3. Low capacity utilization typically coincides with falling PPI.
 
Source: Pantheon Macroeconomics  
 
4. This chart shows state banks’ market share.
 
Source: Fitch Ratings  


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Emerging Markets

1. Asian currencies have been moving lower.
 
Source: Reuters   Read full article  
 

 
Here is the Thai baht.
 

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2. India’s shares are surging, with the Sensex index hitting a record high.
 

 
3. Next, we have some economic data from the Russian government.
 
Industrial production:
 

 
Retail sales:
 

 
The unemployment rate:
 

 
Real wages:
 

 
Construction:
 

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4. This chart shows EM vs. DM equity market capitalization forecasts from Goldman.
 
Source: Goldman Sachs  


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Cryptocurrency

1. Here is an overview of how staking works.
 
Source: Global X ETFs   Read full article  
 
2. Bitcoin and ether’s put/call ratios ticked higher this month.
 
Source: The Block Research  
 
Bitcoin’s implied volatility also increased this month, recovering from historical lows.
 
Source: The Block Research  


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Commodities

1. US grains are reversing the recent surge.
 
Source: Reuters   Read full article  
 
Soybeans:
 

 
Corn:
 

 
Bloomberg’s grains index:
 

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2. Coffee futures are falling in response to anticipated increases in production from Colombia and Brazil.
 

 
3. Dividend yields are at multi-decade highs among material and energy stocks.
 
Source: PGM Global  


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Energy

1. US oil inventories declined more than expected last week.
 
Source: Reuters   Read full article  
 

 
The charts below show US crude oil and product inventories.
 
{-] Barrels:
 

 
Days of supply:
 

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2. US refinery runs have been slowing.
 

 
3. The front end of the Brent curve is in contango, signaling softer demand.
 

 
Here is the six-month calendar spread.
 
Source: @JKempEnergy  

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4. Brent has been trading at a discount to Dubai, which is unusual.
 

 
5. Iran’s oil exports have been trending higher.
 


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Equities

1. Valuation spreads are near historical extremes within US small caps, which typically precedes outperformance. (2 charts)
 
Source: Fidelity Investments   Read full article  
 
Source: Fidelity Investments   Read full article  
 
Goldman sees further gains for small caps.
 
Source: Goldman Sachs; @carlquintanilla  

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2. The Russell 2000 has been much more volatile than the S&P 500 recently.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
3. It’s been a good six months for the Nasdaq Composite.
 
Source: @WSJ   Read full article  
 
4. US bank stock prices have significantly undershot their 12-month forward earnings trend.
 
Source: MRB Partners  
 
Diversified bank earnings have been more resilient.
 
Source: MRB Partners  
 
Are US bank stocks fully priced for a recession?
 
Source: MRB Partners  

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5. The market is becoming less concerned about labor costs eating into profit margins. Companies with high labor costs have been outperforming.
 

 
6. The S&P 500 implied correlation is at multi-year lows, which is a good sign for stock pickers.
 


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Global Developments

1. JPMorgan Asset Management expects global economic divergence, with the US slowing and the rest of the world improving.
 
Source: J.P. Morgan Asset Management  
 
2. The US and Sweden are the only G10 economies to run down excess savings.
 
Source: Deutsche Bank Research  
 
3. How much will DM central banks cut rates in 2024? Here is a forecast from Capital Economics.
 
Source: Capital Economics  
 
4. This chart shows government revenues as a share of GDP.
 
Source: Alpine Macro  


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Food for Thought

1. Airbnb revenues in US cities over the past year:
 
Source: @nickgerli1  
 
2. US federal government mandatory spending:
 
Source: CBO  
 
3. Married and unmarried couple households:
 
Source: Census Bureau   Read full article  
 
4. Global literacy rates:
 
Source: @IAmClintMurphy  
 
5. US hospitals are back in the black:
 
Source: Kaufman Hall  
 
6. Air quality index:
 
Source: @axios   Read full article  
 
7. Emissions per capita:
 
Source: Barclays Research  
 
8. Views on issues by political affiliation in the US and UK:
 
Source: @financialtimes   Read full article  
 
9. The most common blood types:
 
Source: Statista  
 

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