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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