The US terminal rate is pushing toward 5.5%

The Daily Shot: 30-Jun-23
The United States
Canada
The United Kingdom
The Eurozone
Europe
Japan
Asia-Pacific
China
Emerging Markets
Cryptocurrency
Energy
Equities
Alternatives
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. The Q1 GDP growth was revised sharply higher, …
 

 
… boosted by trade and consumer spending.
 

 
Here are the contributions to GDP growth.
 

 
This chart shows the growth in real final sales to private domestic purchasers (the “core” GDP).
 

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2. Initial jobless claims unexpectedly declined last week. Some analysts suggested the drop was just noise and that unemployment applications will rebound in the weeks ahead.
 

 

 
Layoff indicators keep trending higher.
 
Source: Pantheon Macroeconomics  
 
This chart shows continuing claims.
 

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3. Pending home sales were lower than expected last month, …
 

 
… pointing to softer existing home sales in June.
 
Source: Pantheon Macroeconomics  
 
Mortgage rates near 7% …
 
Source: Mortgage News Daily  
 
… as well as depressed inventories remain a headwind for the housing market.
 
Source: Redfin  

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4. The Citi Economic Surprise Index surged this week.
 

 
5. Fed officials are talking about two more rate hikes.
 
Source: @Jonnelle  
 
July looks like a done deal. Could we see another increase in September or November?
 

 
The terminal rate is pushing toward 5.5%.
 

 

 
The 2-year Treasury yield is nearing 5% again.
 

 
The yield curve inversion has been deepening (2 charts).
 

 

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6. Recession expectations have been pushed back, according to an investor survey by Deutsche Bank.
 
Source: Deutsche Bank Research  
 
Most expect a somewhat shallow recession.
 
Source: Deutsche Bank Research  


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Canada

The CFIB small and medium-sized business sentiment index declined this month.
 

 
Below are the CFIB levels by sector …
 

 
… and the changes since May.
 


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The United Kingdom

1. Consumer credit softened in May.
 

 
But mortgage approvals have stabilized.
 

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2. The broad money supply is now flat year-over-year (2 charts).
 

 

 
Excess savings are gone on an inflation-adjusted basis.
 
Source: Pantheon Macroeconomics  

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2. Home prices edged higher this month (relative to May), according to Nationwide. Year-over-year, prices are down 3.5%.
 

 
3. The Lloyds Bank business sentiment indicator has been rebounding.
 

 
4. Rate hike expectations continue to climb.
 

 
The market pricing for February of next year hit 6.21%.
 


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The Eurozone

1. Let’s begin with some inflation data.
Germany’s CPI edged higher this month.
 

 
Import prices were down 9.1% (year-over-year) in May.
 

 
Spain’s CPI dipped below 2%.
 

 
Source: @CraigStirling, @economics   Read full article  
 
But core inflation remains elevated (well above forecasts).
 

 
Dutch inflation was lower than expected.
 

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2. Manufacturing confidence deteriorated in June.
 

 
Services sentiment was better than expected.
 

 
Price expectations are moderating.
 

 
Here is the combined economic sentiment index, which includes consumer confidence.
 

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3. Will the ECB accelerate QT?
 
Source: @WeberAlexander, @jrandow, @economics   Read full article  
 
Source: TS Lombard  

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4. Similar to the US, European equities are back near pre-ECB hiking levels.
 
Source: SOM Macro Strategies  


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Europe

1. Let’s begin with Sweden.
 
Riksbank increased rates by 25 bps, as expected. The central bank signaled more hikes ahead.
 

 
Source: @WSJ   Read full article  
 
Here are the projected policy rates.
 
Source: ING  
 
Nordea sees Riksbank cutting rates next year.
 
Source: Nordea Markets  
 
Riksbank is accelerating QT.
 
Source: Nordea Markets  
 
Consumer confidence edged higher this month.
 

 
Manufacturing sentiment has leveled off.
 

 
Sweden’s retail sales were back above pre-COVID levels in May.
 

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2. Here is a look at the EU’s trading partners.
 
Source: Eurostat   Read full article  


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Japan

1. The June Tokyo CPI was below economists’ forecasts. Inflation has been broadening this year.
 

 
2. Industrial production declined in May as manufacturing output softened (2nd panel).
 

 
Source: Nippon   Read full article  

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3. The unemployment rate held steady, but the jobs-to-applicants ratio edged lower.
 

 
4. Consumer confidence ticked up this month.
 

 
5. Equity fund inflows have been robust.
 
Source: BofA Global Research  
 
6. Dollar-yen looks overbought.
 

 
Here is the history of Japan’s F/X market interventions.
 
Source: Deutsche Bank Research  


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Asia-Pacific

1. South Korea’s industrial production jumped in May.
 

 
2. Australian bond yields climbed today, with e 5-year yield hitting the highest level since late 2011.
 


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China

1. China could face deflation in the months ahead.
 
Source: BCA Research  
 
2. Consumption is improving as households utilize savings.
 
Source: MRB Partners  
 
3. The brief boost in property developer funding is starting to fade.
 
Source: Pantheon Macroeconomics  
 
4. Local governments’ land sales have been soft.
 
Source: @WSJ   Read full article  
 
5. Foreigners are issuing a lot of CNY-denominated bonds.
 
Source: @markets   Read full article  
 
6. China’s consumers are increasingly willing to boycott foreign brands.
 
Source: Morning Consult   Read full article  
 
This chart shows last year’s changes in foreign carmakers’ sales.
 
Source: @financialtimes   Read full article  


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Emerging Markets

1. Let’s begin with Brazil.
 
Here is Brazil’s broad price index covering wholesale, consumer, and construction price trends (year-over-year):
 

 
Personal loan delinquencies keep climbing.
 

 
Formal job creation surprised to the downside.
 

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2. Chile’s unemployment rate was lower than expected in May.
 

 
3. Argentina’s consumer confidence is rebounding.
 

 
4. LatAm stocks have outperformed year-to-date.
 
Source: Capital Economics  
 
5. Indian equities have outperformed in recent years, although relative valuations are still above average. (2 charts)
 
Source: PGM Global  
 
Source: PGM Global  

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6. The Russian ruble remains under pressure.
 

 
7. How much will EM central banks cut rates this year and in 2024? Here is a forecast from Capital Economics.
 
Source: Capital Economics  


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Cryptocurrency

1. Bitcoin Cash (BCH) has significantly outperformed crypto peers this week.
 
Source: FinViz  
 
BCH was one of the lucky few tokens chosen to trade on the new EDX exchange, which triggered the rally.
 
Source: Decrypt   Read full article  
 
BCH’s cumulative return over the past week is far ahead of popular tokens.
 
Source: @TheTieIO  
 
Recent gains only place BCH back near 2020 price levels, trading in the shadow of BTC.
 
Source: @TheTieIO  

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2. Fidelity refiled for a spot-bitcoin ETF.
 
Source: CoinDesk   Read full article  
 
3. Next, we have bitcoin’s correlation to semiconductor stocks.
 
Source: FTSE Russell  
 
4. Here is the status of central bank-issued digital currencies.
 
Source: Statista  


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Energy

1. This chart shows Russian LNG exports by destination.
 
Source: Bruegel   Read full article  
 
2. Uranium demand is expected to surge.
 
Source: @WSJ   Read full article  


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Equities

1. Retail investors remain bullish.
 
Source: Yardeni Research  
 
This chart shows retail positioning (a big component of this is Tesla).
 
Source: Vanda Research  

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2. US equities are back near pre-rate-hike levels and have recently diverged from rising yields.
 
Source: SOM Macro Strategies  
 
3. The S&P 500 risk premium is nearing the 2007 lows. This trend does not bode well for the market’s longer-term performance.
 

 
4. The equal-weight S&P 500 index is having one of the weakest bear market recoveries on record.
 
Source: @3F_Research  
 
Has the equal-weight index underperformance bottomed? Will the rally broaden?
 

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5. The NYSE Composite Index exhibits positive breadth.
 
Source: @McClellanOsc  
 
6. The S&P 500’s six-month performance is near the top quintile, which typically precedes further gains over the next six months.
 
Source: @Todd_Sohn  
 
7. Finally, we have portfolio holdings of some high-profile managers.
 
Source: Visual Capitalist   Read full article  


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Alternatives

1. VC deals are increasingly investor-friendly.
 
Source: PitchBook  
 
2. Middle-market private equity share of fundraising surged this year.
 
Source: PitchBook; @theleadleft  
 
3. Total Q1 investment in the space economy was concentrated in growth-stage (series B&C) companies.
 
Source: Space Capital  
 
Investments in launch and satellites have been driven by late-stage rounds, highlighting the capital nature of these industries.
 
Source: Space Capital  


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Credit

1. Default risks ticked up in several sectors, according to S&P Global.
 
Source: S&P Global Market Intelligence  
 
2. High-yield borrowers’ leverage has been trending lower.
 
Source: JP Morgan Research; III Capital Management  
 
3. Tigher liquidity points to wider high-yield spreads ahead, …
 
Source: Pantheon Macroeconomics  
 
… and so do rising bankruptcies.
 
Source: Simon White, Bloomberg Markets Live Blog  

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4. 30% of Russell 2000 companies’ debt is floating.
 
Source: Goldman Sachs; @dailychartbook  


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Rates

1. Inflation-linked Treasury (TIPS) funds have been seeing persistent outflows (2 charts).
 

 
Source: BofA Global Research  
 
With demand for these securities falling, the 5-year TIPS yield hit the highest level since 2008. This trend is a headwind for growth equities.
 

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2. Soft manufacturing activity points to downside risks for Treasury yields.
 
Source: JP Morgan Research; @dailychartbook  


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Global Developments

1. Global real goods trade declined over the past nine months.
 
Source: Capital Economics  
 
2. This chart shows food inflation around the world.
 
Source: Scotiabank Economics  
 
3. Next, we have the harmonized inflation trends in advanced economies.
 
Source: The White House   Read full article  
 
4. This scatterplot shows inflation and GDP growth forecasts.
 
Source: TS Lombard  
 
5. The gradual erosion of the US dollar’s reserve status is being offset by the increasing prominence of its allies’ currencies.
 
Source: Alpine Macro  


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Food for Thought

1. US workers on strike:
 
Source: @axios   Read full article  
 
2. Job postings in occupations with high vs. low remote-work share:
 
Source: Indeed  
 
3. Women’s right to vote (globally):
 
Source: @IAmClintMurphy  
 
4. Transgender people targeted in crimes:
 
Source: Statista  
 
5. US public support for national spending:
 
Source: @GSS_NORC  
 
6. US and UK consumption of and trust in news by source:
 
Source: @financialtimes   Read full article  
 
7. The rebound in foreign-born population growth across advanced economies:
 
Source: The Economist   Read full article  
 
8. COVID-related test score declines in reading and math:
 
Source: @TheDailyShot  
 
9. US births and deaths:
 
Source: @WSJ   Read full article  
 
US fertility rate:
 
Source: @WSJ   Read full article  

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10. Doughnut shop brands:
 
Source: @alyssafowers   Read full article  
 
Doughnut shop density:
 
Source: @alyssafowers   Read full article  
 
Doughnut shop variety and density:
 
Source: The Washington Post   Read full article  
 

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Have a great weekend!


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