Rising bankruptcies hint GDI better reflects US growth than GDP

The Daily Shot: 29-Sep-23
The United States
Canada
The United Kingdom
The Eurozone
Japan
Australia
Emerging Markets
Energy
Equities
Credit
Rates
Food for Thought



 

The United States

1. Second-quarter consumer spending growth was revised lower.
 
SAAR
 
Nonetheless, real final sales to private domestic purchasers (“core GDP”) registered a notable increase.
 

 
The GDP-GDI divergence (see definition) remains a concern.
 

 
Compared to the GDP, the GDI measure signals slower US growth, aligning more closely with the observed rise in corporate bankruptcies.
 
Source: Capital Economics  
 
Is the drag on growth from tighter credit conditions starting to ease?
 
Source: Goldman Sachs; @MikeZaccardi  

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2. Households’ cash balances remain elevated.
 
Source: @WSJ   Read full article  
 
And consumers seem to have plenty of borrowing capacity.
 
Source: @RyanDetrick, @sonusvarghese  

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3. Initial jobless claims remain low.
 

 

 
However, the number of Americans receiving unemployment benefits is elevated relative to recent years (30% above last year’s level).
 

 

 

 
Most economists believe it is likely that unemployment could stay below 5% if inflation sustainably falls toward the 2% target, according to a survey by FT and Chicago Booth.
 
Source: FT/Chicago Booth  

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4. Pending home sales remain at multi-year lows, down about 19% from 2022.
 

 

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5. The Kansas City Fed’s regional manufacturing report signaled a contraction this month.
 

 
However, employee hours have stabilized.
 


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Canada

For the first time since the initial impact of COVID, the CFIB index, which measures business sentiment for small and medium-sized businesses, has fallen into contraction territory.
 

 
Here is a look at CFIB levels and changes by sector.
 


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The United Kingdom

UK stocks and bonds have been highly correlated.
 


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The Eurozone

1. Inflation reports from Germany and Spain were softer than expected.
 

 


 
This chart shows the headline and core inflation forecast from the ECB.
 
Source: ECB  

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2. Sentiment indicators were a touch stronger than expected.
 
Manufacturing:
 

 
Services:
 

 
Italian manufacturing sentiment dipped below pre-COVID levels.
 

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3. Spain’s real retail sales continue to climb.
 

 
4. The rapid money-supply contraction signals weaker economic activity ahead.
 
Source: Pantheon Macroeconomics  


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Japan

1. The September Tokyo CPI report showed core inflation peaking.
 
Headline:
 

 
Core:
 

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2. Industrial production was a bit stronger than expected in August.
 
Yea-over-year:
 

 
Level:
 

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3. Retail sales remain robust.
 

 
4. Labor market metrics held steady in August.
 


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Australia

1. Credit expansion continues to slow.
 

 
2. Retail sales growth has been moderating.
 

 
Source: @economics   Read full article  

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3. Job openings are still elevated.
 

 
4. Consumer confidence is not rebounding.
 
Source: @ANZ_Research  


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Emerging Markets

1. Banxico is holding rates steady, …
 

 
… amid robust economic activity. Mexico’s unemployment rate is at multi-year lows.
 

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2. South Africa’s PPI accelerated in August.
 

 
3. Next, we have some updates on Vietnam.
 
Exports (back above 2022 levels):
 

 
GDP growth (strengthening):
 

 
Inflation (rebounding):
 


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Energy

1. US gasoline futures fell further on Thursday.
 

 
2. China’s refining activity has been rising.
 
Source: Capital Economics  
 
3. Here is a look at EU energy imports.
 
Source: Eurostat   Read full article  


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Equities

1. Sentiment has soured among retail and institutional investors alike.
 
AAII bull-bear spread:
 

 
Changes in the AAII Bear index:
 
Source: Goldman Sachs; @dailychartbook  
 
Investment managers:
 
Source: NAAIM  
 
JP Morgan’s clients:
 
Source: JP Morgan Research; @dailychartbook  

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2. With a P/E multiple of under 15x on the S&P 500’s equal weight index, the average stock valuation appears to be quite reasonable.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Small-cap multiples are just over 13x.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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3. Tight financial conditions suggest that dividend yields should be higher.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
4. Asset manager positioning in the S&P 500 futures has been bullish.
 

 
5. Shares of defense contractors are under pressure as the government shutdown looms (2 charts).
 

 
Source: @bpolitics   Read full article  

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6. Dealers’ short gamma positioning (see chart) increases the risk of higher volatility ahead.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
7. A wide equity risk premium gap exists between the US and international equities.
 
Source: MRB Partners  
 
8. The S&P 500 has made lower price lows for almost two straight weeks, which is typically associated with oversold conditions. (2 charts)
 
Source: @jasongoepfert  
 
Source: @jasongoepfert  
 
Roughly 38% of S&P 500 stocks have a bullish divergence between momentum and price (slowing downtrends), which could precede an improvement in market breadth from oversold levels.
 
Source: @AndrewThrasher  
 
The S&P 500 has deviated far from its 50-day moving average – another oversold signal.
 
Source: @bespokeinvest  
 
The S&P 500 is holding short-term support but is not yet oversold on the weekly chart.
 

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9. This chart shows the Smart Money Flow Index (see definition).
 


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Credit

1. Let’s look at some performance data over the past twelve months.
 
Leveraged loans have been outperforming high-yield bonds.
 

 
Investment-grade bonds have been dragged lower by Treasuries.
 

 
But IG spreads have held up well relative to high yield.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
BDCs have been surging.
 

 
It’s been a rough month for high-yield munis.
 

 
This chart compares IG corporate bonds with mortgage-backed securities.
 

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2. Many companies locked in exceptionally low rates that were available immediately after the COVID shock.
 
Source: BCA Research  


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Rates

1. The 20+ Year Treasury ETF (TLT) continues to see inflows despite significant price drawdowns.
 
Source: @KoyfinCharts  
 
2. Elevated inflation expectations could boost Treasury term premium.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
3. Is Powell poised to maintain rates higher for longer than Volker?
 
Source: Quill Intelligence  


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Food for Thought

1. Views on the UAW strike:
 
Source: @CivicScience   Read full article  
 
2. Rising costs of US federal elections:
 
Source: @chartrdaily  
 
3. ChatGPT exam performance:
 
Source: Jack Ablin, Cresset Wealth Advisors  
 
4. Immigrant founders of unicorn companies in the US:
 
Source: @TheDailyShot  
 
5. Funding for antibiotics development (red) vs. oncology investment (blue):
 
Source: @financialtimes   Read full article  
 
6. US vs. China navies:
 
Source: TS Lombard  
 
7. Battle-related fires suggest that the Ukraine-Russia fighting is intensifying.
 
Source: The Economist   Read full article  
 
8. Downtown traffic in big and small cities:
 
Source: @financialtimes   Read full article  
 
9. Talking to dead relatives:
 
Source: Pew Research Center   Read full article  
 

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Have a great weekend!


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