Posted on by The Daily Shot Editor: Lev Borodovsky

Fed’s presumably final hike triggers dollar decline

The Daily Shot: 27-Jul-23
• The United States
• The United Kingdom
• The Eurozone
• Europe
• Japan
• Asia-Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Global Developments
• Food for Thought

 

The United States

1. The Fed raised rates as expected and signaled readiness for additional increases.
 

 
Source: @economics   Read full article  
 
• Most economists now think this was the last increase of the cycle. ANZ’s adjusted Taylor Rule suggests that the current fed funds rate is optimal.
 
Source: @ANZ_Research  
 
• Market reaction was muted, viewing the Fed’s action as marginally dovish. The implied terminal rate edged lower, …
 

 
… and bond yields declined.
 

 
• The dollar sold off …
 

 
… sending commodity prices higher.
 

 

——————–

 
2. Mortgage application softened last week, …
 

 
… as did the rate lock count.
 
Source: AEI Housing Center  

——————–

 
3. While new home sales saw a pullback in June, …
 

 
… they are still up 25% versus last year.
 

 
• Measured in months of supply, new home inventories climbed.
 

 
• This chart shows the median price of new houses sold.
 
Source: Chart and data provided by Macrobond  
 
And here is the distribution of sales by price range.
 
Source: Calculated Risk  
 
• The number of homes sold but not started increased in June.
 
Source: Wells Fargo Securities  
 
• The gap between houses sold and those under construction is narrowing.
 
Source: Chart and data provided by Macrobond  

——————–

 
4. This chart shows the drivers of non-residential investment in structures.
 
Source: Nomura Securities  
 
5. Finally, here are the destinations for US companies relocating activity out of China.
 
Source: Oxford Economics  

Back to Index

 

The United Kingdom

1. This graphic shows ING’s scenarios for the BoE decision this week.
 
Source: ING  
 
2. Housing affordability continues to deteriorate.
 
Source: Longview Economics  
 
• House prices face significant downside risks as net demand slumps. “New buyer enquiries” is a proxy for buyers entering the market, and “vendor instructions” indicate sellers entering the market.
 
Source: Longview Economics  

Back to Index

 

The Eurozone

1. Loan growth continues to slow, …
 

 
Source: @WSJ   Read full article  
 
…. amid the recent spike in rates …
 
Source: Capital Economics  
 
… and tighter bank lending standards.
 
Source: ECB  
 
• Liquidity is deteriorating rapidly, …
 

 
… pointing to further weakness in business activity.
 
Source: Pantheon Macroeconomics  

——————–

 
2. Households’ overnight deposits are falling, …
 
h/t Pantheon Macroeconomics  
 
… partially due to the shift to term deposits (to get higher yields).
 
Source: Capital Economics  

——————–

 
3. French consumer confidence held steady this month.
 

Back to Index

 

Europe

1. USD/CHF is near the lowest levels since the 2015 cap removal.
 

 
2. This chart shows the main components of industrial production in the EU.
 
Source: Eurostat   Read full article  
 
3. Water supplies are dwindling.
 
Source: The Economist   Read full article  

Back to Index

 

Japan

1. Foreigners dumped JGBs last week.
 

 
2. The JGB implied volatility continues its ascent as uncertainty surrounding BoJ policy lingers.
 

Back to Index

 

Asia-Pacific

1. Singapore’s industrial production increased last month.
 

 
2. Rising exports in South Korea could bode well for earnings. (2 charts)
 
Source: PGM Global  
 
Source: PGM Global  

Back to Index

 

China

1. The real estate sector underwent forced deleveraging in recent years. According to Gavekal, this is mainly because of tighter financial regulation, although private developers have accumulated non-debt liabilities via pre-sales. (2 charts)
 
Source: Gavekal Research  
 
Source: Gavekal Research  
 
2. This chart shows developers’ completions versus starts.
 
Source: @ANZ_Research  
 
3. This figure compares China’s household leverage to that of the US in the run-up to the GFC.
 
Source: Barclays Research  

Back to Index

 

Emerging Markets

1. Brazil’s FDI has been dropping.
 

 
2. India’s business activity remained in growth mode this month, according to the World Economics SMI report.
 
Source: World Economics  
 
3. EM valuations are slightly above average, although many countries remain relatively cheap. (2 charts)
 
Source: TS Lombard  
 
Source: TS Lombard  

Back to Index

 

Cryptocurrency

1. Bitcoin’s correlation with the S&P 500 continues to decline.
 
Source: @KaikoData  
 
2. Each BTC rally and correction since the FTX fallout has seen an uptick in short-term holder profit or loss. This suggests that positions established in recent months experienced rapid price swings around the average cost basis.
 
Source: @glassnode  
 
3. BTC’s put/call ratio ticked higher over the past week.
 
Source: The Block Research  

Back to Index

 

Commodities

1. Cocoa prices are surging due to concerns about future production amid tight inventories.
 

 
Source: Reuters   Read full article  

——————–

 
2. Orange juice futures hit another record high.
 

 
Source: Markets Insider   Read full article  

Back to Index

 

Energy

US gasoline inventories are rising.
 

Back to Index

 

Equities

1. Profit margins are at pre-COVID levels and headed lower.
 
Source: FactSet   Read full article  
 
2. The share of unprofitable Russell 2000 companies remains elevated.
 
Source: Merrill Lynch  
 
3. Retail investors are boosting their share of call option buying.
 
Source: Barclays Research  
 
4. The recent market action does not look like a bear-market rally.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
5. US value stock valuations are still below their long-term average relative to growth.
 
Source: J.P. Morgan Asset Management  
 
6. Hedge funds’ stock picks have been outperforming since May.
 

 
7. The Dow’s winning streak takes us back to 1987, a few months before Black Friday.
 

 
8. This chart shows cumulative fund flows by sector.
 
Source: Deutsche Bank Research  

Back to Index

 

Credit

1. Prime money market funds experience inflows during rate hike cycles, while government funds face outflows. However, in March of this year, government money market funds became a haven for depositors.
 
Source: Deutsche Bank Research  
 
2. This chart shows cumulative Fed rate hikes versus changes in bank deposit rates.
 
Source: Nomura Securities  
 
3. As a share of profits, corporate interest costs have been falling despite the recent surge in interest rates.
 
Source: @albertedwards99   Read full article  

Back to Index

 

Global Developments

1. Retail sales have generally been weak in developed markets outside of the US over the past year.
 
Source: Capital Economics  
 
2. Which countries are most dependent on exports to China?
 
Source: Wells Fargo Securities  
 
3. How much could AI adoption boost productivity over the next decade?
 
Source: Goldman Sachs  

——————–

Back to Index

 

Food for Thought

1. 13-year-old students reading for fun:
 
Source: @chartrdaily  
 
2. Student loan borrowers by age group:
 
Source: Wells Fargo Securities  
 
3. Trade school or a 4-year college?
 
Source: @CivicScience   Read full article  
 
4. Annual childcare costs in the US:
 
Source: @TheDailyShot  
 
5. North Korea’s trading partners:
 
Source: Statista  
 
6. A survey of OBGYNs:
 
Source: Statista  
 
7. Nuclear reactors under construction:
 
Source: The Economist   Read full article  
 
8. GOP presidential candidates’ primary polls:
 
Source: FiveThirtyEight  
 
• Betting markets’ nomination probabilities:
 
Source: @PredictIt  
 
• Small-dollar donations:
 
Source: @axios   Read full article  
 
• Candidates who qualified for the first round of RNC debates:
 
Source: Statista  

——————–

 
9. Tipping in US – Americans vs. foreigners:
 
Source: @TheDailyShot  

——————–

Back to Index