August 15, 2023August 15, 2023 by The Daily Shot Editor: Lev Borodovsky

Beijing attempts to curb the economic downturn

The Daily Shot: 15-Aug-23
• China
• Japan
• Europe
• The United Kingdom
• Canada
• The United States
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Alternatives
• Credit
• Rates
• Global Developments
• Food for Thought

China

1. The PBoC unexpectedly cut its one-year benchmark rate as economic activity slumps, …

Source: Reuters Read full article

… and deflationary pressures push real rates higher.

Source: The Economist Read full article

• Market-based rates slipped further.

• The rate differential with the US keeps moving further into negative territory, which is pressuring the renminbi.

• China’s currency continues to weaken vs. the dollar, …

… even as Beijing attempts to drive it higher.

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2. Economic activity in July was softer than expected.

• Industrial production:

• Retail sales:

• Real estate investment:

China stopped reporting youth unemployment as the indicator created a PR nightmare for Beijing.

Source: @economics Read full article

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3. The credit impulse is rolling over.

Source: Barclays Research

4. The property credit crisis is spreading, with dollar-denominated bonds tumbling.

Source: Reuters Read full article

• Country Garden bond price:

• Gemdale:

• Agile Group:

• Longfor:

Source: @markets Read full article

• Developers’ share prices in Hong Kong:

• Could financial firms be next?

Source: @markets Read full article

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5. The EV price war is back, …

Source: @climate Read full article

… pressuring automotive stocks.

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6. This chart shows forecasts for China’s GDP growth: Capital Economics vs. consensus.

Source: Capital Economics

Japan

1. The GDP growth was shockingly strong in Q2, …

… boosted by net exports.

Source: CNBC Read full article

However, domestic demand softened.

• Business spending:

• Private consumption:

2. Dollar-yen is above 145 as pressure on the yen persists.

Europe

1. Economists have been lowering their unemployment forecasts for the euro area.

2. Projections for German and Italian economic growth in 2024 were revised lower.

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3. This is a nightmare scenario for Germany’s auto manufacturers.

Source: @Brad_Setser

4. The Swiss central bank continues to reduce liquidity.

The United Kingdom

1. Economists keep lowering their projections for next year’s growth.

2. Permanent placements have been slowing, signaling some loosening in the labor market.

Source: REC

3. Wage growth accelerated in recent months.

Source: @economics Read full article

• But leading indicators suggest that wage growth should be easing.

Source: Capital Economics

• Real wages in the UK fell more rapidly for public-sector employees, leading to a surge in strikes.

Source: @resfoundation, @nyecominetti, @hcslaughter_ Read full article

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4. Surveys point to further gains in rental costs.

Source: @financialtimes Read full article

5. All the wealth is in London.

Source: @financialtimes Read full article

Canada

1. Building permits unexpectedly increased in June.

2. New immigrants have not been the driving force behind job gains.

Source: Scotiabank Economics

3. Wages have been rising faster than inflation.

Source: Scotiabank Economics

4. The TSX Composite is stabilizing relative to the S&P 500. Could we see a period of outperformance?

Source: Aazan Habib, Paradigm Capital

The United States

1. Let’s begin with some consumer trends.

• Household deposit balances remain elevated, according to BofA.

Source: BofA Global Research

• Incomes are up, but higher prices are pressuring consumer balance sheets.

Source: Goldman Sachs

• Consumers are starting to feel the impact of higher rates.

Source: TS Lombard

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2. Next, we have some updates on the housing market.

• Consumers are growing more optimistic about the appreciation of home prices.

• This chart shows homeownership rates by age and generation.

Source: @stlouisfed Read full article

• Next, we have the total housing value by generation.

Source: Redfin

– Here are the changes in total home equity.

Source: Redfin

• According to Realtor.com, “more shoppers are looking for homes in areas other than where they live.”

Source: realtor.com

• The share of homes worth at least $1 million is approaching the recent peak.

Source: Redfin

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3. Freight activity is slowing, …

Source: Cass Information Systems

… pressuring freight rates.

Source: Cass Information Systems

Emerging Markets

1. The Russian ruble bounced from the lows as the central bank hiked rates by 350 bps to stabilize the currency.

Source: @financialtimes Read full article

Source: CNBC Read full article

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2. Ukraine’s trade deficit has blown out.

3. India’s exports slowed last month.

Wholesale price deflation eased in July.

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4. Argenitna’s election took an unexpected turn.

Source: Fox News Read full article

Capital outflows kicked in quickly. With insufficient foreign reserves to support the currency, Argentina permitted a significant depreciation of the peso, …

Source: @bpolitics Read full article

Source: @TheTerminal, Bloomberg Finance L.P.

… and hiked rates by 21% to arrest further declines.

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5. Brazil’s economic activity edged higher in June.

6. Colombia’s economic activity is slowing.

• Manufacturing:

• Retail sales:

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7. EM equity fund inflows accelerated in recent days.

Source: BofA Global Research

Cryptocurrency

Bitcoin cumulative fund flows and assets under management have leveled off in recent years.

Source: CoinShares Read full article

Crypto funds saw inflows last week after a three-week run of outflows. Long-bitcoin products attracted the most capital.

Source: CoinShares Read full article

Commodities

1. Wheat prices declined despite the Black Sea tensions.

Source: @markets Read full article

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2. Coffee futures are sharply lower.

Source: barchart.com Read full article

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3. Over the past month, agriculture prices have generally fallen while energy prices rallied.

Source: Capital Economics

4. Falling US production has been putting upward pressure on orange juice futures.

Source: @financialtimes Read full article

5. Global fund managers covered their bets against commodities.

Source: BofA Global Research

6. Diamond prices have been falling.

Source: @WSJ Read full article

Energy

1. Fund managers are boosting their bets on diesel futures.

Source: @JKempEnergy

2. Energy supply risks remain elevated.

Source: TD Securities; @dailychartbook

3. Who is moving Russian crude?

Source: @financialtimes Read full article

Equities

1. The market is pricing in a no-recession scenario.

Source: TS Lombard

2. Rising real rates are a headwind for stock valuations.

Source: @TheTerminal, Bloomberg Finance L.P.

3. The one-month implied correlation between S&P 500 constituents is rising from its lowest level since 2017. This typically occurs during periods of market stress.

Source: Aazan Habib, Paradigm Capital

4. One-day options now make up over 50% of the overall volume.

Source: Nomura Securities; @markets Read full article

• Traders of one-day options have turned increasingly bearish.

Source: Citi; @markets Read full article

• The overall equity call volume dropped sharply in recent days.

Source: Deutsche Bank Research

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5. The equal-weighted S&P 500 has been improving relative to the cap-weighted S&P 500, especially among cyclical value stocks. (2 charts)

Source: Stifel

Source: Stifel

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6. Next, we have some sector trends.

• Banks:

• Semiconductors:

• Metals & Mining:

Source: @WSJ Read full article

• Fund managers have been dumping REITs …

Source: BofA Global Research

… amid concerns about commercial real estate.

Source: BofA Global Research

Alternatives

1. The velocity of US venture capital value creation (VVC) has fallen rapidly across all stages.

Source: PitchBook

2. Sales by private equity (PE) funds have slowed.

Source: @BW Read full article

3. PE deal activity this year has been the slowest since the 2020 COVID shock.

Source: S&P Global Market Intelligence

Credit

1. Leverage loan defaults have been rising.

Source: @lcdnews

2. Single-name CDS volume surged over the past 12 months.

Source: Barclays Research; III Capital Management

3. This chart shows the maturity profile by credit category.

Source: Morgan Stanley Research; @Mayhem4Markets

Rates

1. The 10-year TIPS yield (real rates) hit a multi-year high.

2. The largest long-dated Treasury ETF registered a significant outflow.

Source: @markets Read full article

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3. The market reaction to this year’s US debt downgrade has been quite different from the 2011 event.

Source: LPL Research

Global Developments

1. The dollar is rising against Asian currencies.

2. Fund managers are becoming less concerned about recession risks.

Source: BofA Global Research

3. Housing prices are rebounding in interest-rate-sensitive economies like Canada and Australia.

Source: MRB Partners

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Food for Thought

1. Semiconductor industry value added:

Source: Statista

2. ChatGPT users:

Source: @chartrdaily

3. Generative AI job listings:

Source: @WSJ Read full article

4. US food insecurity on the rise:

Source: Purdue Agriculture Read full article

5. US consumption of spirits over time:

Source: The Washington Post Read full article

6. COVID-era changes in alcohol consumption and alcohol-related deaths:

Source: The Washington Post Read full article

7. Removal of shows from streaming services:

Source: @CivicScience Read full article

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