Posted on by The Daily Shot Editor: Lev Borodovsky

US small businesses have been driving recent job growth

The Daily Shot: 03-Aug-23
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Europe
• Asia-Pacific
• China
• Emerging Markets
• Commodities
• Energy
• Equities
• Global Developments
• Food for Thought

 

The United States

1. The ADP private payrolls index topped expectations – again.
 

 
• This upside surprise doesn’t say much about the official payrolls report this Friday.
 
Source: Pantheon Macroeconomics  
 
• Here are some trends by sector.
 
– Manufacturing (job losses continue):
 

 
– Professional & Business Services (first increase in six months):
 

 
– Leisure & Hospitality:
 

 
• Job gains have been uneven across US regions.
 

 
• Small businesses have been driving recent job growth.
 

 
Source: Reuters   Read full article  

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2. Longer-dated Treasury yields continue to climb, with the long bond reaching 4.2%.
 

 

 
3. Next, we have some updates on the housing market.
 
• Mortgage rates have been climbing with Treasury yields.
 
Source: Mortgage News Daily  
 
Source: Mortgage News Daily   Read full article  
 
• As a result, mortgage applications fell further.
 

 
• Rental vacancies are up this year, but homeowner vacancies hit a record low. The homeowner vacancy rate is defined as a proportion of homes that are for sale and vacant as a percentage of the total homeowner inventory.
 

 
Source: realtor.com   Read full article  
 
• The total housing inventory per household continues to trend lower.
 

 
• International investors have reduced their acquisitions in the US residential real estate market.
 
Source: @WSJ   Read full article  

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4. Here is a look at inflation trends.
 
• Single-family rent inflation is slowing.
 
Source: CoreLogic  
 
• Logistics bottlenecks continue to ease.
 
Source: Logistics Managers’ Index  
 
• Historically, when inflation crosses 8%, it takes years, not months, before it falls back below 2%.
 
Source: Research Affiliates   Read full article  
 
• Core inflation tends to be sticky following its peak.
 
Source: Capital Economics  
 
• The drop in US inflation has been faster than in other developed countries.
 
Source: BCA Research  
 
• Small business wage growth is still elevated.
 
Source: Paychex, IHS Markit  

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5. Tight credit conditions point to downside risks for the economy, …
 
Source: Deutsche Bank Research  
 
… and so do state and local tax receipts.
 

 
Nonetheless, BofA no longer sees a recession ahead (consistent with the FOMC).
 
Source: BofA Global Research; @mikezaccardi  

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6. The last time the Fed’s monetary policy was this restrictive was in 2007.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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Canada

1. Oxford Economics sees Canada’s unemployment surging over the next few quarters, …
 
Source: Oxford Economics  
 
… and wage growth slowing.
 
Source: Oxford Economics  

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2. The rise in the sales-to-new listings ratio points to higher home prices.
 
Source: Capital Economics  
 
Capital Economics expects the pace of home price growth to slow as economic expansion eases and high mortgage rates take a toll.
 
Source: Capital Economics  

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The United Kingdom

1. Home prices declined again last month.
 

 
2. UK exporters face headwinds from the pound’s strength.
 
Source: Pantheon Macroeconomics  

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The Eurozone

1. Germany’s import price declines haven’t been this severe since the GFC.
 

 
2. Next, we have a couple of updates on Italy.
 
– Employment and labor force participation rates vs. EU peers:
 
Source: IMF   Read full article  
 
– Current and projected population pyramids:
 
Source: IMF   Read full article  

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3. This chart shows the drivers of collapsing business loan demand.
 
Source: BCA Research  
 
4. Finally, we have the distribution of intermediate goods imports by source.
 
Source: ECB   Read full article  

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Europe

1. Sweden’s manufacturing contraction slowed last month.
 

 
2. Norway’s factory activity surged in July.
 

 
3. Poland’s manufacturing sector continued to weaken, mirroring the significant downturn in Germany’s factories.
 
Source: ING  
 
Factories in the Czech Republic are also struggling.
 
Source: S&P Global PMI  
 
4. Swiss manufacturing contraction accelerated in July, with the PMI index hitting the lowest level since the GFC.
 

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5. Unlike the US, Europe’s share of China’s exports has been stable.
 
Source: Gavekal Research  
 
• Here is a look at the EU’s dependence on China for key raw materials.
 
Source: The Economist Intelligence Unit  

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Asia-Pacific

1. JGB yields continue to climb.
 

 
2. Australia’s trade surplus topped expectations.
 

 
Source: @economics   Read full article  

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China

1. Growth in China’s service sector remains robust, with the PMI report topping expectations.
 

 
Hong Kong’s business sector is back in contraction mode.
 

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2. China’s stock/bond ratio is trending lower.
 
Source: BCA Research  
 
3. The nation is facing deflationary pressures.
 
Source: Alpine Macro  
 
4. Here is a look at housing starts …
 
Source: @economics   Read full article  
 
… and residential pre-sales.
 
Source: Arcano Economics  

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5. Finally, we have seasonally-adjusted retail sales relative to the pre-COVID trend.
 
Source: @economics   Read full article  

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Emerging Markets

1. Brazil’s central bank cut the benchmark rate by 50 bps (the market was looking for 25 bps).
 

 
Separately, Brazil’s vehicle sales are rebounding.
 

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2. Next, we have some updates on Chile.
 
• Economic activity (an uptick in June):
 

 
• Manufacturing output (very soft):
 

 
• Copper production (a rebound):
 

 
• Retail sales (well below last year’s levels):
 

 
• Unemployment:
 

 
• Business confidence:
 

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3. Here are some updates on Argentina.
 
• Argentina faces a deepening economic crisis. Will elections improve the country’s growth outlook?
 
Source: Alpine Macro  
 
• The peso’s devaluation has accelerated.
 

 
• The current account deficit widened further in H1.
 
Source: Oxford Economics  
 
• Consumer confidence is rebounding.
 

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4. LatAm equities are improving relative to global equities.
 
Source: Alpine Macro  
 
5. Next, we have some economic data from Russia. Please note that this rosy picture is brought to you by Russia’s Federal Service of State Statistics and should be taken with a pinch of salt.
 
• Industrial production:
 

 
• Cargo shipments:
 

 
• Retail sales:
 

 
• The unemployment rate:
 

 
The ruble remains under pressure.
 

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6. Thailand’s central bank hiked rates again.
 

 
• Industrial production has been soft.
 

 
Manufacturing growth is stalling.
 
Source: S&P Global PMI  

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7. EM currencies are selling off as global sentiment shifts to risk-off.
 

 
• USD/INR is at resistance.
 

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8. Dollar-denominated bonds have been outperforming local-currency debt (in dollar terms).
 

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Commodities

1. The iron ore rally is fading.
 

 
2. The commodity market rebound has stalled, with Bloomberg’s broad commodity index getting stopped at the 200-day moving average.
.
Source: @TheTerminal, Bloomberg Finance L.P.  
 
3. Wheat prices tumbled despite another Russian attack on Ukrainian grain infrastructure.
 

 

 
Source: @bpolitics   Read full article  

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Energy

1. US oil inventories plummeted last week.
 

 
Source: @markets   Read full article  
 
Gasoline inventories climbed …
 

 

 
… due to softer demand.
 

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2. US retail gasoline prices surged in recent weeks.
 

 
Source: @axios   Read full article  

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3. Russian oil discount to Brent has tightened.
 

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Equities

1. Time for a pause in the equity rally? Here is the share of S&P stocks above their 50-day moving average.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
2. The stock-bond correlation surged in recent weeks.
 
h/t @lisaabramowicz1  
 
3. The S&P 500 equal-weight index has been correlated with the Treasury market implied vol (MOVE).
 
Source: Deutsche Bank Research  
 
4. Companies with high operating leverage continue to widen their underperformance.
 

 
5. US small caps are improving relative to large caps – a sign of expanding breadth.
 
Source: Aazan Habib, Paradigm Capital  
 
6. Value and small-cap stocks are holding up in equity markets outside of the US.
 
Source: MRB Partners  
 
7. The Invesco S&P 500 High-Beta/Low-Vol (SPHB/SPLV) ratio is testing resistance.
 

 
• The SPDR Consumer Discretionary/Consumer Staples (XLY/XLP) ratio is also testing resistance.
 

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8. Retail investors have been embracing bullish options trades once again.
 
Source: Deutsche Bank Research  
 
9. Finally, we have equity factor relative performance in July.
 
Source: CornerCap Institutional  

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Global Developments

1. July was another good month for risk assets, including a bounce in oil prices and emerging market equities.
 
Source: Deutsche Bank Research  
 
2. Countries with higher debt-to-GDP ratios tend to have lower bond yields.
 
Source: Alpine Macro  
 
3. Where do businesses see global threats over the medium term?
 
Source: Oxford Economics  

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Food for Thought

1. Key considerations when choosing a job:
 
Source: @CivicScience   Read full article  
 
2. Church attendance:
 
Source: Gallup   Read full article  
 
3. Betting market probabilities on which party wins the 2024 US presidential election:
 
Source: @PredictIt  
 
4. Interest in voting for a “Unity Ticket”:
 
Source: @CivicScience   Read full article  
 
5. The healthiest and unhealthiest countries:
 
Source: Statista   Read full article  
 
6. Suicide rates:
 
Source: The Economist   Read full article  
 
7. Air temperature in the northern hemisphere:
 
Source: Climate Reanalyzer   Further reading  
 
8. Midweek golf:
 
Source: @chartrdaily  
 

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