The Daily Shot: 07-Jul-23
• Administrative Update
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Asia-Pacific
• China
• Emerging Markets
• Cryptocurrency
• Energy
• Equities
• Rates
• Global Developments
• Food for Thought
Administrative Update
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The United States
1. The June ADP private payrolls report was remarkably strong, suggesting that the labor market has withstood the Fed’s rate hikes with limited impact.
– Hotels and restaurants have accelerated hiring.
– While factories continue to reduce staff, construction, healthcare, and logistics sectors boosted hiring in June.
– Small and mid-size businesses accelerated hiring.
– Northeast job gains were particularly strong.
• While the ADP index is not well correlated to the official nonfarm payrolls (Establishment Survey) on a monthly basis, the trends tend to converge over time.
Source: Oxford Economics
• Treasury yields surged as the Fed struggles to loosen the labor market, with the 2-year rising above 5%.
The terminal rate is nearing 5.5%, and the expected pace of rate cuts eased further.
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2. Adding fuel to the fire, the job openings report continues to show labor market tightness.
This chart shows the drivers of the June decline in job openings.
Source: @TheTerminal, Bloomberg Finance L.P.
• Here are some vacancy trends by sector. Job openings in logistics (transportation/warehousing) increased again. Government job openings hit a record high, exacerbating competition for labor.
• Voluntary resignations jumped, suggesting that workers are confident in the labor market strength.
• A separate report shows a sharp decline in job cut announcements.
This chart shows quit and layoff rates.
• We are still looking at 1.6 job openings per unemployed worker, which signals persistent labor market imbalances.
– The factors contributing to labor shortages during the COVID era, like increased retirement rates and restricted immigration, remain unresolved.
Source: Deutsche Bank Research
• Here is the Beveridge curve.
Source: @TheTerminal, Bloomberg Finance L.P.
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3. Initial jobless claims increased last week.
This chart shows the number of Americans receiving unemployment benefits.
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4. The ISM Services PMI surged last month, indicating a brisk uptick in service sector activity
Source: @gutavsaraiva, @economics Read full article
Here are the contributions to the ISM index.
Source: @TheTerminal, Bloomberg Finance L.P.
• The ISM figure was well above forecasts.
Source: Mizuho Securities USA
• The divergence between manufacturing and services continues to widen, which is a global phenomenon.
Source: FHN Financial
• New orders and hiring accelerated.
• Service-sector input price inflation continues to moderate, …
… pointing to slower wage gains ahead.
Source: Pantheon Macroeconomics
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5. Mortgage applications increased last week, …
… but we are likely to see those gains reversing as mortgage rates surge past 7%.
Source: Mortgage News Daily
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Canada
1. The trade balance unexpectedly swung into deficit amid lower commodity prices.
Source: @rtkwrites, @economics Read full article
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2. Hosueholds’ cash balances remain elevated relative to the pre-COVID trend.
Source: Oxford Economics
Here is the breakdown of excess cash balances by income quintile.
Source: Oxford Economics
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3. Here is a look at Canada’s aging population.
Source: Scotiabank Economics
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The United Kingdom
1. The 2-year gilt yield hit 5.5% for the first time since 2008.
• Rate hike expectations surged as inflation continues to top expectations.
Source: @financialtimes Read full article
• The correlation between bank shares and the 2-year yield has broken down.
Source: BofA Global Research
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2. Realized inflation has been much higher than inflation expectations.
Source: ING
3. Net mortgage lending was negative for two straight months.
Source: Barclays Research
4. Construction activity moved back into contraction territory last month, driven by residential sector performance.
5. Will the debt-to-GDP ratio keep rising?
Source: TS Lombard
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The Eurozone
1. Germany’s manufacturing orders jumped in May, topping expectations.
Source: @WindSonja, @economics Read full article
However, excluding some volatile transportation items, the gain was less impressive.
Source: Commerzbank Research
– Industrial production eased, but manufacturing output edged higher.
• Germany’s construction activity continues to deteriorate.
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2. Euro-area retail sales were flat in May.
3. Private sector deposits are now below the pre-COVID trend.
Source: Pantheon Macroeconomics
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Asia-Pacific
1. Japan’s wages jumped in May, but real wages are still down year-over-year.
Japan’s household spending was 4% below 2022 levels.
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2. South Korea’s goods trade balance is back in surplus.
3. Taiwan’s core inflation remains elevated.
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China
1. So far, fiscal support has been weak this year.
Source: China Beige Book
2. This chart illustrates the convergence of Chinese and US unit labor costs.
Source: TS Lombard
3. Nominal domestic tourism spending dipped slightly below pre-pandemic levels during the recent Dragon Boat Festival.
Source: Capital Economics
4. Deflation has been pressuring corporate profits.
Source: BCA Research
5. China’s scientific and technical publications have accelerated over the past 20 years, far outnumbering other major economies.
Source: @ANZ_Research
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Emerging Markets
1. The rally in LatAm currencies appears to be over.
Source: @TheTerminal, Bloomberg Finance L.P.
Will the MXN/JPY carry trade see some unwinding?
Source: BofA Global Research
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2. Next, we have some updates on Chile.
• Economic activity:
• Industrial production (year-over-year):
• Copper production (multi-year lows):
• Business confidence:
• Retail sales (well below last year):
• Wage growth (peaking):
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3. EM bonds have been outperforming Treasuries.
Source: Gavekal Research
4. EM equities typically outperform after US recessions.
Source: Global X ETFs Read full article
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Cryptocurrency
1. It has been a tough week for cryptos, with Litecoin (LTC) underperforming and Bitcoin Cash (BCH) outperforming peers.
Source: FinViz
2. Implied volatility in bitcoin and ether options stabilized around historically low levels. (2 charts)
Source: The Block Research
Source: The Block Research
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3. BTC and ETH’s put/call ratios ticked lower over the past week.
Source: The Block Research
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Energy
1. US refined product inventories tightened further last week.
– Gasoline (weekly changes):
– Distillates:
• Here are the inventory levels in barrels.
Source: @EIAgov
• Gasoline demand jumped going into the July 4th weekend.
In terms of days of supply, gasoline inventories hit a multi-year low.
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2. US refinery inputs continue to ease.
Here is refinery utilization.
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3. Shares of uranium producers are under pressure.
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Equities
1. Growth stock valuations are inconsistent with surging real yields.
2. Does the ISM manufacturing PMI signal further deterioration in earnings growth?
Source: iA Global Asset Management
3. Q2 earnings downgrades have been following a typical trajectory.
Source: Deutsche Bank Research
Here are the changes in Q2 earnings estimates by sector.
Source: Deutsche Bank Research
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4. Q3 and Q4 earnings estimates are inconsistent with US GDP forecasts.
Source: Truist Advisory Services
However, earnings estimates are not as upbeat in real terms.
Source: BofA Global Research
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5. This chart shows US index valuations relative to 20-year averages.
Source: Truist Advisory Services
6. Large-cap funds continue to see inflows.
Source: BofA Global Research
7. Value tends to outperform growth when profit growth accelerates.
Source: Richard Bernstein Advisors Read full article
And large-cap growth outperforms value and quality when profit growth wanes.
Source: Richard Bernstein Advisors Read full article
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8. Retail investors have been aggressively buying stocks and ETFs.
Source: Vanda Research
9. International shares continue to underperform the S&P 500.
Source: Truist Advisory Services
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Rates
1. The 10-year Treasury yield broke above the downtrend resistance.
Source: @TheTerminal, Bloomberg Finance L.P.
2. On average, the 2s10s Treasury yield curve re-steepens from its most inverted level six months before a recession starts.
Source: Deutsche Bank Research
3. TIPS (inflation-linked Treasuries) continue to see outflows (2 charts), …
Source: BofA Global Research
… pushing TIPS yields to multi-year highs.
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Global Developments
1. The global bond index yield hit the highest level since 2008.
2. Container freight costs from China are running at pre-COVID levels.
Source: Arcano Economics
3. Interest rate differentials are at the highest levels since pre-financial crisis, which supports FX carry returns, particularly among high yielders. (2 charts)
Source: Deutsche Bank Research
Source: Deutsche Bank Research
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4. The global stock/bond ratio has been climbing as G7 real policy rates still have room to rise.
Source: MRB Partners
5. What drove the neutral rate declines in the largest economies?
Source: Alpine Macro
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Food for Thought
1. War budgets:
Source: The Economist Read full article
2. Changes in Russian and Ukrainian heavy weapons since the start of the war:
Source: @MarcChampion1, @bpolitics Read full article
3. The US population age distribution over time:
Source: @WSJ Read full article
4. Retirement ages in G20 countries:
Source: @genuine_impact
5. Preferred way to order from fast-food restaurants:
Source: @CivicScience Read full article
6. Spending at Target vs. Walmart (year-over-year growth):
Source: Earnest
7. US college enrollment rates:
Source: @WSJ Read full article
8. Number of Grand Slam singles titles won:
Source: Statista
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Have a great weekend!
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