Posted on by The Daily Shot Editor: Lev Borodovsky

The stock market signals a rebound in US factory activity

The Daily Shot: 18-Jul-23
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Asia-Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Rates
• Food for Thought

 

The United States

1. The NY Fed’s manufacturing index, the first regional report of the month, held in positive territory in July.
 

 
• Factories are hiring again, …
 

 
… and no longer cutting workers’ hours.
 

 
• Price gains continue to slow.
 

 
• CapEx plans remain soft.
 

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2. The stock market continues to signal a rebound in US manufacturing activity.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
This chart shows Deutsche Bank’s discretionary investors’ equity positioning versus the ISM Manufacturing PMI.
 
Source: Deutsche Bank Research  

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3. The proportion of higher-income households worried about making debt payments is rising.
 
Source: Torsten Slok, Apollo  
 
4. Here are the CPI forecasts based on the WSJ survey.
 
Source: @WSJ   Read full article  
 
Morgan Stanley sees core inflation running below the Fed’s forecast this year.
 
Source: Morgan Stanley Research  

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5. The drop in federal government receipts looks recessionary.
 
Source: Piper Sandler   
 
However, the recession “can” keeps getting kicked down the road.
 
Source: BCA Research  

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6. Goods consumption remains above trend relative to services consumption.
 
Source: BCA Research  
 
7. The chart illustrates the four-decade decline in corporate inventories as a percentage of GDP, underscoring their diminishing role in economic activity.
 
Source: UBS Research  

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Canada

1. Wholesale trade jumped in May.
 

 
2. Home prices are rising again.
 
Source: @WSJ   Read full article  
 
• Housing shortages remain a persistent problem, especially for newcomers.
 
Source: PGM Global  
 
• The rental market is also tight.
 
Source: PGM Global  

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The United Kingdom

1. The probability of a recession in the next 12 months is at 60%, according to the latest Bloomberg survey.
 

 
Economists downgraded their forecasts for next year’s GDP growth.
 

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2. Durable goods inflation has been rising despite a higher inventory-to-sales ratio.
 
Source: ING  

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The Eurozone

1. The gap between the euro-area and US economic surprises hit extreme levels.
 
Source: BCA Research  
 
2. Economists are downgrading their projections for Germany’s economic growth.
 

 

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3. This chart shows the changes in house prices in Q1 by country.
 
Source: ING  
 
4. How “green” is household energy consumption across the Eurozone?
 
Source: ING  
 
5. This is a mistake …
 
Source: IEA  

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Asia-Pacific

1. Nikkei 225 futures activity spiked as Japanese equities experienced a multi-decade high in Q2. 75% of trades occurred outside of Tokyo cash hours, according to CME Group.
 
Source: CME Group  
 
Equity fund flows surged.
 
Source: Morningstar  

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2. Integrated circuit exports remain depressed.
 
Source: S&P Global Market Intelligence  

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China

1. The post-lockdown economic rebound has been lackluster.
 

 
Source: @economics   Read full article  
 
• Most investors don’t expect economic growth to accelerate.
 
Source: BofA Global Research  

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2. June industrial production growth was higher than expected.
 

 
3. Although the year-over-year growth in retail sales has decelerated, it comes off a high baseline.
 

 
Here is a seasonally-adjusted index of retail sales.
 
Source: Commerzbank Research  

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4. Property investment remains weak.
 

 
This chart shows China’s residential construction starts.
 
Source: Arcano Economics  
 
And here are residential real estate transactions.
 
Source: Arcano Economics  

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5. Youth unemployment continues to climb.
 

 
6. Households remain cautious.
 
Source: Nordea Markets  
 
7. China’s equities continue to lag global peers, …
 
Source: Capital Economics  
 
… trading at substantial discounts.
 
Source: Capital Economics  
 
But the rise in excess liquidity could support equities, assuming monetary stimulus is absorbed by the real economy.
 
Source: Variant Perception  

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Emerging Markets

1. Brazil’s economic activity dropped sharply in May.
 

 
2. Is Peru in recession?
 

 
3. Colombia’s manufacturing output bounced in May.
 

 
The Colombian peso is surging.
 

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4. Nigeria’s CPI keeps rising.
 

 
5. Next, let’s take a look at ASEAN’s economic relationship with China and the US.
 
• ASEAN map:
 

 
• Foreign direct investment:
 
Source: Gavekal Research  
 
• The Economic Influence Index:
 
Source: Gavekal Research  
 
• China’s infrastructure investment:
 
Source: Gavekal Research  

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Cryptocurrency

1. Bitcoin is testing support at 30k.
 

 
• Bitcoin continues to trade with relatively low volatility.
 
Source: @glassnode  

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2. Crypto funds continued to see inflows last week. According to CoinShares, this has been the largest run of inflows since late-2021.
 
Source: CoinShares   Read full article  
 
Long-bitcoin funds accounted for most inflows last week, while investors exited short-bitcoin products.
 
Source: CoinShares   Read full article  

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3. XRP’s trading volume spiked over the past week.
 
Source: @KaikoData  

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Commodities

1. Fund managers are underweight commodities.
 
Source: BofA Global Research  
 
2. North American steel prices have diverged from the ISM manufacturing PMI.
 
Source: PGM Global  
 
3. The gold/silver price ratio appears extended.
 
Source: BCA Research  
 
• Silver demand has exceeded supply by a large margin.
 
Source: BCA Research  
 
• CTAs have been boosting their exposure to gold.
 
Source: Deutsche Bank Research  

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4. China’s pork output continues to climb.
 
Source: Reuters   Read full article  
 
Nonetheless, US pork belly prices are surging.
 

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5. Arabica coffee futures hit the lowest level since January.
 

 
6. How does El Niño impact wheat production?
 
Source: Capital Economics  
 
How about corn output?
 
Source: Capital Economics  

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Energy

1. Money managers boosted their exposure to crude oil and refined products last week.
 
Source: @JKempEnergy  
 
2. Oxford Economics lowered its forecast for Brent prices …
 
Source: Oxford Economics  
 
… on weaker expected demand.
 
Source: Oxford Economics  

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3. A significant global expansion of utility-scale battery installations is slated for the upcoming years.
 
Source: The Economist   Read full article  

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Equities

1. According to BofA’s fund manager survey, the disparity in sentiment between institutional and retail investors has reached unprecedented levels.
 
Source: BofA Global Research  
 
• JP Morgan’s clients are bearish.
 
Source: JP Morgan Research; @WallStJesus  

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2. Equity positioning is stretched, according to Goldman.
 
Source: Goldman Sachs; h/t @dailychartbook  
 
3. Poor breadth does not necessarily portend weak returns over the following year.
 
Source: Goldman Sachs  
 
• Market participation tends to widen.
 
Source: Goldman Sachs  
 
This chart illustrates this year’s improvement in breadth.
 
Source: S&P Dow Jones Indices  
 
• The equal-weight index tends to rebound after tech concentration peaks.
 
Source: S&P Dow Jones Indices  

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4. US small-cap growth stocks are improving after a period of low volatility.
 
Source: Aazan Habib, Paradigm Capital  
 
5. Corporate sales growth historically slows as inflation eases, creating potential margin pressure.
 
Source: MarketDesk Research  
 
6. Next, we have some sector trends.
 
• Telecoms (under pressure):
 

 
Source: Yahoo Finance   Read full article  
 
• Deutsche Bank’s positioning indicator:
 
Source: Deutsche Bank Research  
 
• Fund flows:
 
Source: Deutsche Bank Research  
 
• Which sectors had the strongest earnings guidance?
 
Source: BofA Global Research; h/t @dailychartbook  
 
• Weak ISM manufacturing PMIs typically precede higher returns for US industrial stocks only when valuations are low.
 
Source: MarketDesk Research  

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7. The one-day implied volatility index hit a new low.
 

.
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Rates

1. Market-based real short-term rates show that the Fed’s policy is restrictive.
 
• 2yr TIPS yield:
 

 
• Real 1yr OIS:
 

 
The market is now expecting steeper Fed rate cuts ahead.
 

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2. Higher US rates have led to a strong influx of Treasury purchases.
 
Source: BCA Research  
 
3. Options traders are betting on a rally in long-term Treasuries.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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Food for Thought

1. Risk-averse CFOs:
 
Source: @axios   Read full article  
 
2. Some famous asset bubbles:
 
Source: @genuine_impact  
 
3. Students’ perception of US public schools:
 
Source: Gallup   Read full article  
 
4. China’s exports of semi trucks to Russia:
 
Source: @jakluge  
 
5. Changes in Russia’s population:
 
Source: @WSJ   Read full article  
 
6. Medications too expensive to take:
 
Source: @TheDailyShot  
 
7. US youth suicide and homicide rates:
 
Source: @axios   Read full article  
 
8. DACA recipients:
 
Source: @axios   Read full article  
 
9. Successful Everest ascents:
 
Source: @chartrdaily  
 

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