The Daily Shot: 04-Aug-23
• The United States
• The United Kingdom
• The Eurozone
• Europe
• Asia-Pacific
• China
• Emerging Markets
• Commodities
• Energy
• Equities
• Credit
• Rates
• Food for Thought
The United States
1. According to the ISM PMI report, service sector growth slowed in July.
Source: @TheTerminal, Bloomberg Finance L.P.
• More companies reported paying higher prices.
• Hiring slowed.
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2. The second-quarter labor productivity growth was stronger than expected, …
… returning to the pre-COVID trend.
Unit labor costs eased. Some economists harbor doubts regarding the enduring nature of this deceleration in price pressures.
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3. Job cut announcements slowed again last month and are now well below pre-COVID levels.
• Initial jobless claims show no signs of acceleration.
Continuing claims appear to have stabilized.
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4. Heavy truck sales hit a record high.
5. Business applications are holding well above pre-COVID levels.
Source: Merrill Lynch
6. CapEx has been holding up well even as corporate share buybacks slow.
Source: @markets Read full article
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The United Kingdom
1. The BoE hiked rates by 25 bps.
Source: CNBC Read full article
• The expected rate trajectory shifted lower.
But the market still sees a strong probability of another two rate increases before the peak.
• The MPC’s longer-dated inflation trajectory shifted higher.
Source: Pantheon Macroeconomics
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2. Home prices could decline further as demand slows.
Source: Simon White, Bloomberg Markets Live Blog
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The Eurozone
1. Germany’s factory orders were much stronger than expected in June.
Bund yields jumped in response to the upbeat manufacturing orders report.
• Germany’s trade surplus surged in June, …
… as imports declined further.
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2. Euro-area services growth slowed again in July.
The composite PMI is below 50, indicating a contraction in business activity.
Source: S&P Global PMI
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3. Capital Economics projects that the euro will reach parity with the dollar by the end of the year.
Source: Capital Economics
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Europe
1. Sweden’s service sector returned to growth in July.
2. The Czech central bank left rates unchanged and stopped its support for the koruna. Rate cuts are coming.
Source: Reuters Read full article
The currency tumbled.
Source: barchart.com
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3. Swiss core inflation eased again in July.
Here is a forecast for the policy rate trajectory from Capital Economics.
Source: Capital Economics
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Asia-Pacific
1. Japan’s bond yields climbed further as the BoJ’s policy “adjustment” put pressure on global debt markets.
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2. Australia’s retail trade has been slowing.
Source: @ANZ_Research
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China
1. The spread between Treasuries and China’s government bonds is at multi-year lows.
2. Container freight rates are falling again.
Source: BCA Research
3. Given China’s GDP per capita, its economic growth should be slower.
Source: ING
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Emerging Markets
1. Let’s begin with Brazil.
• The central bank’s aggressive rate cut sent short-term yields and the real lower on Thursday.
Source: @markets Read full article
• Growth in services is stalling.
Source: S&P Global PMI
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2. Next, we have some updates on Mexico.
• The GDP growth held up well in Q2.
• Economists have been rapidly upgrading this year’s growth projections.
• Exports have been strong.
• The manufacturing PMI hit the highest level in years.
Source: S&P Global PMI
• The government budget is deteriorating.
• The massive peso rally appears to be over.
Source: barchart.com
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3. Here are some updates on South Africa.
• The contraction in manufacturing activity has accelerated, according to two independent PMI reports.
Source: S&P Global PMI
• The trade balance unexpectedly swung into deficit in June.
• Protest and riot event levels have increased dramatically over the recent decade and make up the bulk of social unrest events in South Africa.
Source: Codera Analytics Read full article
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4. India’s services growth remains remarkably strong.
Source: S&P Global PMI
• The RBI could take a hawkish stance amid higher food costs and a rebound in oil prices.
Source: @ANZ_Research
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5. Turkey’s core inflation is accelerating again.
6. High-yielding Asian currencies have been a lucrative carry trade this year.
Source: Gavekal Research
7. EM fund flows remain strong.
Source: BofA Global Research
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Commodities
1. The real gold price appears stretched above its long-term average.
Source: MRB Partners
Gold fund outflows continue.
Source: BofA Global Research
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2. US pork belly prices are surging.
Source: Fortune Read full article
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3. The rice market is in deficit, according to Capital Economics.
Source: Capital Economics
Here are the major rice exporters.
Source: Capital Economics
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Energy
1. CTAs remain bullish on oil.
Source: TD Securities; @WallStJesus
2. Global crude supplies are tightening.
Source: @ANZ_Research
3. US Midwest refineries have been busy, boosting the region’s diesel inventories.
4. According to Goldman, significant postponements of energy investment led to a dramatic steepening of the oil cost curve. The incentive price is roughly $80/barrel at 15% hurdle rates.
Source: Goldman Sachs
• The energy industry has about 70 giant projects under development, which is still far below 2014 levels.
Source: Goldman Sachs
• Renewed focus on energy security jumpstarted oil and gas spending commitments.
Source: Goldman Sachs
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5. China’s road traffic levels are easing, suggesting mainland oil demand could retreat.
Source: @ANZ_Research
6. European LNG deliveries are slowing.
Source: @markets Read full article
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Equities
1. Retail investors remain bullish.
• Having missed some of the current rally, retail investors are getting more aggressive (1st panel) and buying the dip (2nd panel).
Source: Vanda Research
• Retail call-option buying has been extreme.
Source: JP Morgan Research; @dailychartbook
• Retail investors have been focused on ETFs.
Source: Vanda Research
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2. Tech flows remain robust.
Source: BofA Global Research
3. The S&P 500’s expected dividend yield is crashing relative to the 10-year Treasury yield.
4. The surge in stock-bond correlation hasn’t been limited to large-caps. This chart shows the correlation of small caps (IWM) to the 7-10yr Treasuries (IEF).
5. The S&P 500 valuation is elevated relative to the 20-year average. That’s not the case for mid-caps and small-caps.
Source: Truist Advisory Services
6. Earnings have diverged across non-US equity markets.
Source: MRB Partners
7. Companies with low free cash flow (FCF) underperformed this week.
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Credit
1. US bankruptcy filings remain elevated.
Source: S&P Global Market Intelligence
2. Leveraged loan yields are still near 10%.
3. The ISM manufacturing PMI continues to point to downside risks for high-yield bonds.
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital
4. Coverage ratios will decline sharply if the Fed keeps rates elevated for a longer period.
Source: BofA Global Research
5. Here is a look at the overall US fixed-income market.
Source: Deutsche Bank Research
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Rates
1. Global bond yields are near multi-year highs, with the latest increase driven by the BoJ’s yield-control policy adjustment.
2. Retail investors are rapidly buying the iShares 20+Year Treasury Bond ETF (TLT).
Source: Vanda Research
3. Longer-dated Treasuries’ (TLT) implied vol surged this week.
4. The 30-year TIPS yield (real rate) hit the highest level since 2011.
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Food for Thought
1. US self-employed individuals have higher job satisfaction than other workers.
Source: Pew Research Center Read full article
2. Access to high-speed internet:
Source: @chartrdaily
3. Views on eating animals:
Source: Statista
4. The racial breakdown of college attendance by admission rate for 2021:
Source: The New York Times Read full article
5. Poverty and children’s height:
Source: The Economist Read full article
6. Views on gun violence and violent crime:
Source: Pew Research Center Read full article
7. Antarctica is missing a lot of ice:
Source: The Economist Read full article
8. Pets are a part of the family:
Source: Pew Research Center Read full article
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