US terminal rate highest since March ahead of Jackson Hole

The Daily Shot: 25-Aug-23
The United States
The United Kingdom
The Eurozone
Europe
Japan
Asia-Pacific
China
Emerging Markets
Cryptocurrency
Energy
Equities
Rates
Global Developments
Food for Thought



 

The United States

1. The market-implied terminal rate, which represents the maximum expected fed funds rate for the current cycle, reached its highest level since March ahead of the Jackson Hole meeting.
 

 
The market currently anticipates slightly more than a 50% chance of another Fed rate hike before shifting to a holding pattern.
 

 
The dollar continues to climb.
 

——————–

 
2. Initial jobless claims eased over the past couple of weeks.
 

 
However, continuing jobless claims are still diverging from the usual seasonal pattern.
 

 
The trend is clear.
 

 
The percentage of states with substantial increases in unemployment claims has been rising.
 
Source: Simon White, Bloomberg Markets Live Blog  

——————–

 
2. Durable goods orders dropped sharply last month, …
 

 
… driven by aircraft sales, which tend to be lumpy.
 

 
Excluding transportation, orders rose more than expected.
 

 
Core capital goods orders edged higher.
 

 
However, adjusted for inflation, capital goods orders continue to decline, suggesting that business investment is softening.
 

 
This chart shows the monthly changes in real capital goods shipments.
 
Source: FHN Financial  

——————–

 
3. The Kansas City Fed’s regional manufacturing survey showed factory activity stabilizing this month. Production jumped.
 

 
More firms plan to boost business investment.
 

——————–

 
4. Business investment in manufacturing structures soared in Q2, which boosted GDP. (2 charts)
 
Source: Global X ETFs   Read full article  
 
Source: Global X ETFs   Read full article  

——————–

 
5. The Atlanta Fed’s GDPNow model is tracking the Q3 growth at nearly 6% (annualized). This measure is in sharp contrast with the PMI indicators.
 
Source: Federal Reserve Bank of Atlanta  
 
6. Elevated real rates suggest that the spending shift from goods to services will continue.
 
Source: Numera Analytics (@NumeraAnalytics)  
 
7. Consumption keeps growing as a share of US GDP.
 
Source: Alpine Macro  


Back to Index

 

The United Kingdom

1. The CBI report showed deteriorating retail sales this month.
 

 
Source: Reuters   Read full article  

——————–

 
2. Consumer confidence unexpectedly improved in August.
 

 
3. Inflation expectations are declining, although rates could peak at 6% and remain at elevated levels for some time. (2 charts)
 
Source: BCA Research  
 
Source: BCA Research  

——————–

 
4. Construction sector insolvencies remain elevated.
 
Source: @financialtimes   Read full article  
 
5. The manufacturing PMI weakness (see chart) signals downside risks for the pound.
 
Source: Capital Economics  
 
6. How does the pound respond to election surprises?
 
Source: Pantheon Macroeconomics  


Back to Index

 

The Eurozone

1. The euro dipped below its 200-day moving average, …
 

 
… as markets downshifted ECB rate hike expectations after the disappointing August PMI report (see chart).
 

——————–

 
2. French manufacturing confidence surprised to the downside this month.
 

 
3. The Bund curve inversion signals headwinds for Germany’s industrial production.
 
Source: Numera Analytics (@NumeraAnalytics)  
 
4. Euro-area services inflation will likely decline over the coming months.
 
Source: BCA Research  


Back to Index

 

Europe

1. The Swiss franc trade-weighted index continues to surge.
 

 
2. Czech consumer confidence edged lower this month, …
 

 
… but Poland’s sentiment keeps rising.
 


Back to Index

 

Japan

1. The Tokyo CPI continued to ease in August.
 

 
However, core inflation remains sticky.
 

 
Here are a couple of examples.
 

——————–

 
2. According to Variant Perception, a mix of elevated inflation and labor market data raises the chance of a BoJ hiking cycle.
 
Source: Variant Perception  
 
Could a BoJ rate hike trigger a yen short-squeeze? The Invesco CurrencyShares Japanese Yen ETF (FXY) is oversold and near long-term support.
 
Source: Symbolik  


Back to Index

 

Asia-Pacific

1. Asian imports have been soft, pressuring global manufacturing demand.
 
Source: BofA Global Research  
 
2. Next, we have some updates on South Korea.
 
The BoK maintains its hawkish stance as core inflation and inflation expectations remain sticky.
 
Source: @ANZ_Research  
 
Household loan balances are turning higher.
 
Source: @ANZ_Research  
 
South Korean corporate earnings are improving relative to China.
 
Source: MRB Partners  
 
Variant Perception’s model forecasts further upside for CNH/KRW, possibly indicating a more dovish Bank of Korea.
 
Source: Variant Perception  


Back to Index

 

China

1. Let’s begin with some data on local government debt.
 
Local governments are heavily leveraged:
 
Source: @financialtimes   Read full article  
 
Many LGFVs are behind on their debt payments, …
 
Source: @markets   Read full article  
 
… and bleeding cash.
 
Source: @markets   Read full article  

——————–

 
2. Consumers are leveraged, …
 
Source: @WSJ   Read full article  
 
… and remain cautious.
 
Source: @WSJ   Read full article  
 
Households’ borrowing has slowed.
 
Source: @WSJ   Read full article  

——————–

 
3. Goldman expects only moderate policy easing – a stark contrast from previous economic downturns.
 
Source: Goldman Sachs  


Back to Index

 

Emerging Markets

1. Turkey’s central bank surprised with a 750 bps rate hike, as Hafize Gaye Erkan pursues a more traditional monetary policy.
 

 
Source: CNBC   Read full article  
 
The lira surged but is reversing some of the gains today.
 

 
The yield curve shifted sharply higher.
 

——————–

 
2. Mexico’s inflation continues to ease.
 

 
3. LatAm yield curves remain inverted.
 
Source: Gavekal Research  
 
4. EM debt funds registered sharp outflows in recent days.
 
Source: BofA Global Research  


Back to Index

 

Cryptocurrency

1. The Crypto Fear & Greed Index dipped into “fear” territory during last week’s sell-off.
 
Source: Alternative.me  
 
2. Coinbase and Kraken captured nearly all of the market share that Binance US lost in the past three months.
 
Source: @KaikoData  
 
3. Trading volume among altcoins remains very low, struggling to reach levels from earlier this year.
 
Source: @KaikoData  
 
4. Bitcoin’s market cap relative to the total crypto market cap (dominance ratio) continues to fade from resistance.
 

 
5. Still, only one-third of the top 50 altcoins outperformed BTC over the past 90 days.
 
Source: Blockchain Center  


Back to Index

 

Energy

1. USO, the largest oil ETF, is seeing substantial outflows.
 
Source: Chris Murphy, Susquehanna International Group  
 
2. NYMEX gasoline crack spreads remain elevated.
 
Source: @EIAgov  


Back to Index

 

Equities

1. The S&P 500 hit resistance near 4450.
 

 
2. Here is how the S&P 500 performed around Jackson Hole events.
 
Source: Reuters   Read full article  
 
3. Stock prices have diverged from central bank liquidity trends (2 charts).
 
Source: BofA Global Research  
 
Source: @TheTerminal, Bloomberg Finance L.P.  

——————–

 
4. Retail investors have been slowing their stock purchases.
 
Source: Vanda Research  
 
Despite this year’s rally, retail portfolios remain in the red.
 
Source: Vanda Research  

——————–

 
5. After an impressive earnings beat, Nvidia is testing resistance along its long-term uptrend.
 
Source: @NautilusCap  
 
6. Meme stocks are under pressure, …
 
Source: The ETF Shelf  
 
… although the Reddit crowd remains active.
 
Source: The ETF Shelf  

——————–

 
7. Elevated real rates remain a drag on stock prices.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
8. Next, we have some sector updates.
 
Let’s start with three performance trends over the past five business days.
 
Retail:
 

 
Metals & Mining:
 

 
Aerospace & Defense:
 

 
Tech inflows remain robust.
 
Source: BofA Global Research  
 
XHB, the largest housing ETF, held resistance at 85.
 


Back to Index

 

Rates

1. At the Jackson Hole meeting, there’s likely to be significant discussion about the long-run interest rate and whether the current US monetary policy is sufficiently tight.
 
Source: Barron’s   Read full article  
 
Here are some estimates (real rates).
 
Source: Nomura Securities  
 
Markets place the nominal long-term rate at approximately 3.3%. Given this, the current rate set by the Federal Reserve might be fairly restrictive.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

——————–

 
2. Flows into Treasury bond funds continue.
 
Source: BofA Global Research  
 
3. Who owns US Treasury securities?
 
Source: Torsten Slok,¬†Apollo  


Back to Index

 

Global Developments

1. Bond yield differentials have been driving DM currency moves, except for the Swiss franc.
 
Source: Capital Economics  
 
2. Have real asset prices bottomed relative to financial assets?
 
Source: BofA Global Research  
 
3. What does it cost to run a family office?
 
Source: Citi Private Bank   Read full article  


——————–

Back to Index

 

Food for Thought

1. The AI gold rush:
 
Source: @WSJ   Read full article  
 
2. Small US firms trying ChatGPT:
 
Source: Alignable   Read full article  
 
3. Slower hiring at startups:
 
Source: The Economist   Read full article  
 
4. Share of US population with disabilities:
 
Source: Capital Economics  
 
5. State revenues from federal grants:
 
Source: USAFacts  
 
6. Betting market probabilities for the 2024 Republican presidential nomination:
 
Source: @PredictIt  
 
7. California fires:
 
Source: @jeffsparshott, @greg_ip, @JamesHookway  
 
8. A warm August globally:
 
Source: Climate Reanalyzer   Read full article  
 
9. The number of US breweries over time:
 
Source: @chartrdaily  
 

——————–

 
Have a great weekend!


Back to Index