After the recent surge, consumer spending will hit a speed bump

The Daily Shot: 01-Sep-23
The United States
The Eurozone
Europe
Japan
Asia-Pacific
China
Emerging Markets
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. Consumer spending jumped in July, topping expectations.
 

 

 
Most sectors registered an increase in consumption (2 charts).
 
Source: Oxford Economics  
 
Source: Chart and data provided by Macrobond  
 
Income growth slowed, with a lower-than-expected gain in July.
 

 
This chart shows real disposable income.
 

 
Increased expenditures, coupled with sluggish income growth, have reduced the savings rate (3 charts).
 
Source: ING  
 

 

 
With student debt payments kicking in shortly, …
 
Source: Morgan Stanley Research  
 
… we are likely to see a sharp pullback in spending in the fourth quarter.
 
Source: Morgan Stanley Research  

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2. The core PCE inflation increased by 0.2% in July, the same as in June.
 

 
But core services inflation accelerated.
 

 
Here is the supercore PCE inflation, a measure closely tracked by the Fed.
 

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3. Initial jobless claims eased last week.
 

 
However, continuing claims keep diverging from their historical pattern.
 

 
This deviation clearly shows a softening in the labor market.
 

 
Job cut announcements increased in August.
 

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4. The Chicago PMI surprised to the upside, …
 

 
… boosted by Boeing’s orders.
 
Source: Pantheon Macroeconomics  
 
Leading indicators point to some strengthening in US factory activity in August.
 
The stock market:
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
The Philly Fed’s manufacturing index:
 
Source: @TheTerminal, Bloomberg Finance L.P.  


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The Eurozone

1. French inflation accelerated in August, boosted by higher energy prices.
 

 
Source: @economics   Read full article  
 
Dutch and Italian inflation continued to ease.
 

 

 
At the Eurozone level, the CPI topped expectations, …
 

 
… as services inflation remains elevated.
 

 
Source: @economics   Read full article  
 
Here is the core CPI.
 

 
Survey data point to easing services inflation.
 
Source: Nordea Markets  

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2. Germany’s retail sales declined in July.
 

 
But French household spending on goods continued to increase.
 

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3. Let’s take a look at some labor market trends.
 
Germany’s unemployment rate (steady):
 

 
Italian unemployment rate (unexpected increase in July):
 

 
Eurozone unemployment rate (steady):
 

 
Labor constraints continue to limit production for many firms.
 
Source: ECB  

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4. Will the 10-year Bund yield hold the uptrend support?
 
Source: @TheTerminal, Bloomberg Finance L.P.  


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Europe

1. Sweden’s sentiment indicators softened in August.
 

 
The GDP has been running below Riksbank’s forecasts.
 
Source: Nordea Markets  

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2. This chart shows how some European currencies performed against the euro in August.
 

 
3. EU car registrations are following the 2021 trend.
 

 
4. A shortfall in European natural gas supply remains a risk.
 
Source: Alpine Macro  


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Japan

1. Business investment slowed in Q2.
 

 
Source: @economics   Read full article  

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2. Housing starts hit a multi-year low in July.
 

 
3. Japanese stocks continue to outperform Asian peers.
 
h/t Sungwoo Park, Bloomberg  


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Asia-Pacific

1. South Korea’s manufacturing activity remains sluggish.
 
Source: S&P GlobalĀ PMI  
 
Taiwan’s manufacturing contraction continues.
 
Source: S&P GlobalĀ PMI  

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2. New Zealand’s home prices continue to fall.
 

 
3. Australia’s housing prices were up again in August.
 

 
Source: ABC News   Read full article  


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China

1. The manufacturing PMI from S&P Global showed factory activity expanding in August, topping forecasts.
 

 
Source: MarketWatch   Read full article  
 
Hiring in the manufacturing sector accelerated.
 

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2. Beijing cut the forex reserve ratio, …
 
Source: @markets   Read full article  
 
… boosting the renminbi.
 


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Emerging Markets

1. Let’s run through Asian manufacturing PMI trends.
 
Indonesia (faster growth):
 
Source: S&P GlobalĀ PMI  
 
Malaysia (sluggish):
 
Source: S&P GlobalĀ PMI  
 
Thailand (sudden contraction):
 
Source: S&P GlobalĀ PMI  
 
The Philippines (also contracting):
 
Source: S&P GlobalĀ PMI  

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2. India’s GDP growth picked up in Q2.
 

 
Source: Business Standard   Read full article  
 
Core industries’ output remains robust.
 

 
Source: Business Standard   Read full article  

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3. The ruble remains under pressure.
 

 
4. The Mexican peso’s rally is over.
 
Source: barchart.com  
 
5. Next, we have some performance data for August.
 
Currencies:
 

 
Bond yields:
 

 
Equity ETFs:
 


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Commodities

1. A triple top for gold?
 

 
2. Here is last month’s performance across key commodity markets.
 


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Energy

1. Brent is nearing resistance again.
 

 
2. On a five-year smoothed basis, capex among oil producers turned positive for the first time since 2015.
 
Source: The Crude Chronicles   Read full article  
 
3. US natural gas in storage is rising slower than usual for this time of the year.
 


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Equities

1. S&P 500 earnings expectations for the next 12 months continue to climb.
 

 
Here are the quarterly trends for 2024.
 
Source: Yardeni Research  

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2. Retail investors were unprepared for the market rebound.
 
Source: @TheTerminal, Bloomberg Finance L.P.; h/t @themarketear  
 
3. Breadth in global stocks has been narrowing for years.
 
Source: BofA Global Research  
 
But short-term breadth is improving among NYSE-listed stocks.
 
Source: Aazan Habib, Paradigm Capital  

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4. The SPY/TLT price ratio (stock/bond ratio) appears extended, although, for now, momentum is still positive.
 

 
But higher energy-driven inflation could place upward pressure on yields, resulting in a positive correlation between US equity and bond returns – a potential headwind for both assets.
 
Source: PGM Global  
 
A depressed risk premium points to a pullback in the stock/bond ratio.
 
Source: Variant Perception  

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5. Housing and retail stocks have diverged.
 
Source: BofA Global Research  
 
6. Next, let’s take a look at quarterly performance attribution.
 
S&P 500 (this quarter’s gains have been driven by earnings expectations):
 

 
S&P 600 (small caps are almost flat QTD):
 

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7. Finally, here are some performance metrics for August.
 
Sectors:
 

 
Equity factors:
 

 
Macro basket pairs’ relative performance:
 

 
Thematic ETFs:
 

 
Largest US tech firms:
 


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Credit

1. MBS spreads are elevated relative to corporate bonds.
 
Source: @markets   Read full article  
 
2. Here is last month’s performance across credit asset classes.
 


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Rates

1. Variant Perception’s model shows the 10-year Treasury yield at a short-term peak, which coincides with extremes in the stock/bond ratio.
 
Source: Variant Perception  
 
Technicals suggest the 10-year Treasury note is oversold.
 
Source: PGM Global  

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2. BofA’s private clients are dumping inflation-linked Treasuries again.
 
Source: BofA Global Research  
 
3. Here is the attribution of Treasury yield changes in August.
 


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Global Developments

1. What do central bankers fear most?
 
Source: ING  
 
2. Here is last month’s market performance across advanced economies.
 
Currencies:
 

 
Bond yields:
 

 
Equities:
 


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Food for Thought

1. US credit card usage:
 
Source: LendingTree   Read full article  
 
2. Days lost to strike action:
 
Source: ING  
 
3. According to S&P Global, “retailers are preparing for Halloween sales earlier than ever.”
 
Source: S&P Global Market Intelligence  
 
4. Growth in digitally-delivered service exports:
 
Source: @WSJ   Read full article  
 
5. Music popularity by genre:
 
Source: @chartrdaily  
 
6. Proportion of women born in 1970 who are childless:
 
Source: @bbgequality   Read full article  
 
7. Average monthly payment on student debt:
 
Source: Truist Advisory Services  
 
8. Changes in spending and enrollment at public universities:
 
Source: @WSJ   Read full article  
 
9. Golf course popularity:
 

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The next Daily Shot will be published on Tuesday.
Have a great weekend!


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