The Daily Shot: 02-Aug-23
• The United States
• Canada
• The Eurozone
• Asia-Pacific
• China
• Emerging Markets
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought
The United States
1. US (and global) factory activity remains depressed. Here is the ISM Manufacturing PMI.
Source: @TheTerminal, Bloomberg Finance L.P.
• The contraction in demand slowed somewhat in July, …
… but tightening credit conditions point to downside risks.
Source: @TheTerminal, Bloomberg Finance L.P.
• Factories are shedding jobs.
• Input prices keep falling (PMI < 50).
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2. Job openings continue to trend lower (slowly).
Source: Reuters Read full article
• Data from Indeed points to a very gradual decline ahead.
Source: Capital Economics
• With 1.6 job openings for every unemployed American, the job market remains tight.
The Beveridge curve illustrates the labor market imbalance.
Source: @TheTerminal, Bloomberg Finance L.P.
• However, the rate of voluntary resignations (quits) is declining.
The plot of quits against the unemployment rate shows that we are back to the pre-COVID relationship.
– The declining quits rate signals slower growth in labor costs.
Source: Capital Economics
• Here are some selected trends in job openings.
– Manufacturing:
– Healthcare:
– Hotels and restaurants:
– Local government:
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3. Construction spending increased again in June, …
… driven by gains in residential investment.
Source: Chart and data provided by Macrobond
Manufacturing construction spending hit a new high.
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4. Automobile sales edged higher in July.
5. The Atlanta Fed’s GDPNow model’s third-quarter growth estimate is at 3.8% (annualized). We should see this measure move lower over time.
Source: Federal Reserve Bank of Atlanta
.
6. The market continues to assign a low probability to a September Fed rate hike.
7. The US federal government’s net interest expense is surging, …
Source: @economics Read full article
… and is expected to exceed all other programs in the next few decades.
Source: Committee for a Responsible Federal Budget
• Fitch downgraded US debt on debt-ceiling impasse risks.
Source: Fitch Ratings Read full article
• The Treasury curve steepened.
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Canada
1. Factory activity remains in contraction mode.
Source: Reuters Read full article
Similar to the US, the PMI report showed factories shedding jobs.
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2. The lack of tech companies in the TSX index contributed to underperformance versus the S&P 500.
Source: Capital Economics
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The Eurozone
1. The PMI reports confirmed ongoing manufacturing contraction.
• Spain:
Source: S&P Global PMI
• Italy:
Source: S&P Global PMI
• The Netherlands:
Source: S&P Global PMI
Greece has been an outlier.
Source: S&P Global PMI
• Euro-area industrial production is headed lower.
Source: S&P Global PMI
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2. Euro-area labor markets remain robust, with unemployment surprising to the downside.
• Germany:
• Italy:
• Spain:
• The Eurozone:
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3. Demand for fixed-investment financing has deteriorated.
Source: TS Lombard
4. The euro is at support.
Source: barchart.com
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Asia-Pacific
1. The Taiwan dollar is under pressure.
2. South Korea’s core inflation is slowing.
3. New Zealand’s unemployment rate climbed last quarter.
But labor-force participation is hitting new highs.
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4. The Aussie dollar is selling off after the RBA left rates unchanged (the market was looking for another hike).
Source: CNBC Read full article
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China
1. The property developer credit crisis continues to fester.
Source: South China Morning Post Read full article
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2. This chart shows fiscal deficit by year.
Source: @economics Read full article
3. Here is the breakdown of government debt.
Source: Commerzbank Research
4. Fixed asset investment growth has been entirely driven by state-owned entities.
Source: Fitch Ratings
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Emerging Markets
1. Here are some updates on Brazil.
• Consensus 2023 GDP growth estimate over time:
• The debt-to-GDP ratio (deteriorating fiscal picture):
• Industrial production:
• Manufacturing PMI (slower contraction):
Source: S&P Global PMI
• Formal job creation:
• The unemployment rate:
• The trade balance (elevated surplus for this time of the year):
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2. EM inflation has been surprising to the downside …
Source: Oxford Economics
… and is back to central bank target ranges, which could pave the way for rate cuts.
Source: MRB Partners
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3. This chart shows the evolution of BRICS’ import tariffs.
Source: Codera Analytics Read full article
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Commodities
1. Copper is holding resistance.
2. News mentions of gold declined in recent months despite prices hovering near all-time highs.
Source: @nicholastreece
Elevated real yields point to downside risks for gold.
Source: @TheTerminal, Bloomberg Finance L.P.
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3. Chile and Argentina account for a growing share of lithium production.
Source: Global X ETFs Read full article
4. Milk prices are tumbling on weak China demand.
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Energy
The rebound in oil prices occurred alongside tighter supplies and improving sentiment. (2 charts)
Source: @ANZ_Research
Source: @ANZ_Research
Prices got a boost from short-covering.
Source: @JKempEnergy
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Equities
1. According to Goldman, the S&P 500 is currently in the optimism phase, which began in October 2022 and could precede a period of relatively low returns in a wide trading range.
Source: Goldman Sachs
2. Growth stock valuations have diverged from real yields.
Source: @TheTerminal, Bloomberg Finance L.P.
3. The Q2 earnings season exhibited little pain for companies that missed estimates but no reward for beating estimates.
Source: Goldman Sachs; @dailychartbook
4. The market tends to perform well after the Fed’s last rate hike.
Source: Simon White, Bloomberg Markets Live Blog
5. The S&P 500’s implied volatility and associated covered call option premiums are trending lower.
Source: Global X ETFs Read full article
6. Stock optimism hasn’t been this strong relative to bonds in decades.
Source: @markets Read full article
7. Margins appear to be rebounding, …
Source: Deutsche Bank Research
… despite the PPI-CPI divergence.
Source: @axios Read full article
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8. Passive fund flows continue to dominate.
Source: Goldman Sachs; @WallStJesus
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Credit
1. Small businesses face a difficult lending environment, which could limit their ability to hire and retain employees.
Source: UBS Research
2. This chart shows US securitized product issuance vs. 2022.
Source: Deutsche Bank Research
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Rates
1. Longer-dated TIPS yields (real rates) are climbing.
2. The amount of T-bills outstanding is surging.
Source: Oxford Economics
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Global Developments
1. The dollar index (DXY) held resistance a the 50-day moving average.
Source: barchart.com
• The dollar remains in a long-term downtrend.
Source: @nicholastreece
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2. According to BCA Research, a more dovish Fed could reverse carry trades that were betting on higher US rates. Carry trade unwinds typically trigger volatility shocks.
Source: BCA Research
3. Global manufacturing activity continues to contract.
Source: S&P Global PMI
Source: Reuters Read full article
Here is the PMI breakdown by country/region.
Source: S&P Global PMI
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Food for Thought
1. Americans aged 80 years and older in the workforce:
Source: @WSJ Read full article
2. Social media platforms as news sources:
Source: @chartrdaily
3. Industrial heat demand by temperature range:
Source: Canary Media Read full article
4. AI mentions on earnings calls:
Source: Reuters Read full article
5. Views on abortion …
Source: FiveThirtyEight Read full article
… by political affiliation:
Source: The Associated Press and NORC
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6. Public confidence in the US Supreme Court:
Source: The Associated Press and NORC
7. Vulnerable Democrats outperforming Biden’s approval rating:
Source: Morning Consult Read full article
8. Student loan borrowers by age group:
Source: Torsten Slok, Apollo
9. French exports of brandy to the US:
Source: S&P Global Market Intelligence
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