Posted on by The Daily Shot Editor: Lev Borodovsky

The Fed’s Beige Book signals slowing economic growth

The Daily Shot: 30-Nov-23
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Europe
• Japan
• Asia-Pacific
• China
• Emerging Markets
• Commodities
• Energy
• Equities
• Credit
• Global Developments
• Food for Thought

 

The United States

1. Let’s begin with the November Beige Book report from the Federal Reserve.
 
– Economic activity was softer, with mixed regional reports. The overall economic outlook has become less optimistic.
 
– Labor demand eased, with most districts reporting flat to modest employment gains. The job market saw improved applicant availability and better retention rates. Despite some instances of layoffs and a greater willingness to release underperforming staff, the labor market overall remained tight, especially for skilled labor.
 
– Most districts reported easing wage pressures.
 
– Price increases subsided across districts but remained elevated.
 
– Consumers displayed greater price sensitivity, notably in their spending on discretionary and durable goods. This shift points to a cautious consumer environment shaped by broader economic factors.
 
– Key economic concerns raised include geopolitical instability, the impact of high interest rates, and looming risks of a recession.
 
• The Oxford Economics Beige Book Activity Index dipped into negative territory for the first time since the COVID shock.
 
Source: Oxford Economics  
 
• Inflation concerns continue to moderate.
 
Source: Oxford Economics  
 
Source: MarketWatch   Read full article  

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2. The market is now pricing in 120 bps of Fed rate cuts next year.
 

 
• Here is what’s priced in for each FOMC meeting.
 

 
• Is the market too “dovish”? Goldman expects the Fed to cut rates in Q4 of next year and then continue toward a neutral rate of 3.5%-3.75%, which is higher than the previous cycle.
 
Source: Goldman Sachs  

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3. The third-quarter GDP growth was revised higher.
 

 

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4. Next, we have some updates on the housing market.
 
• Mortgage applications are holding at multi-year lows.
 

 
• Mortgage rates are down substantially from the peak.
 
Source: Mortgage News Daily  
 
• Distressed sales remain relatively low.
 
Source: Arcano Economics  
 
• Will we see a pullback in US real-estate brokerage commissions after the NAR verdict?
 
Source: @WSJ   Read full article  

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5. The rise in retail inventories paused last month.
 

 
6. The trade deficit in goods widened in October as exports declined.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
7. Generative AI is expected to boost labor productivity, especially after a significant reduction in development costs and continuous product upgrades in recent years.
 
Source: Global X ETFs   Read full article  

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Canada

1. The current account remained in deficit last quarter.
 

 
2. The sales-to-new listings ratio is lower than it was in 2022, when home prices dropped by nearly 16%.
 
Source: Capital Economics  
 
• Capital Economics expects a decline in government bond yields to trigger a dip in mortgage rates, although still well above pre-pandemic levels.
 
Source: Capital Economics  

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The United Kingdom

1. Consumer credit growth slowed in October, …
 

 
… but mortgage approvals increased.
 

 
2. The broad money supply is down substantially relative to last year, …
 

 
… as retail deposits and money market fund balances decline.
 

 

 
Households have been rotating into longer-term deposits that offer much higher yields.
 

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3. The Lloyds Bank business sentiment indicator has been surprising to the upside.
 

 
More businesses are planning for price increases.
 


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The Eurozone

1. Inflation continues to surprise to the downside.
 
• Germany:
 

 
Source: @economics   Read full article  
 
• France:
 

 
• Spain:
 

 

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2. With inflation falling, the market is pricing in faster ECB rate cuts (2 charts).
 

 

 
Short-term yields are down sharply.
 

 
Here is the Bund curve.
 

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3. The revised French GDP unexpectedly showed a contraction last quarter.
 

 
4. Sentiment indicators were mixed this month.
 
• Manufacturing:
 

 
• Services (an increase):
 

 
• Economic sentiment (which includes consumer confidence):
 

 
• Below are the indicators for Italy.
 

Back to Index

 

Europe

1. Here are some updates on Sweden.
 
• The GDP contracted again last quarter.
 

 
Source: Reuters   Read full article  
 
• Retail sales improved last month.
 

 
• Construction investment has been soft.
 
Source: @DanielKral1, @OxfordEconomics  
 
• The aggregate sentiment indicator remains soft.
 

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2. The monetary pass-through to mortgages depends on the percentage of flexible-rate loans.
 
Source: IMF   Read full article  
 
Below is the overall impact of rate hikes on households (2 charts).
 
Source: Gavekal Research  
 
Source: @JeffreyKleintop  

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3. Here is a look at median disposable income.
 
Source: Eurostat   Read full article  

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Japan

1. Manufacturing output climbed in October, …
 

 
… boosted by autos and electronics.
 

 
2. Retail sales declined sharply.
 

 
3. Dollar-yen is holding the uptrend support.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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Asia-Pacific

1. South Korea’s industrial production eased last month.
 

 
2. New Zealand’s business confidence continues to improve.
 

 
3. Next, we have some updates on Australia.
 
• Residential building approvals (showing some improvements):
 

 
• Credit growth (slowing):
 

 
• CapEx:
 

Back to Index

 

China

1. The official manufacturing PMI showed an ongoing contraction.
 

 
Growth in services is stalling.
 

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2. The corporate profit cycle is starting to improve.
 
Source: Gavekal Research  
 
3. Here is a look at announced stimulus measures, ranked by the level of economic impact.
 
Source: Lazard   Read full article  

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Emerging Markets

1. Brazil’s inflation edged lower this month.
 

 
Job creation is back above last year’s levels.
 

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2. Chile’s unemployment is holding well above 2022 levels.
 

 
3. Mexican bond yields are following Treasuries lower.
 

 
4. South Africa’s credit expansion has slowed sharply.
 

 

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5. The earnings outlook for EM ex-China equities is improving.
 
Source: MRB Partners  

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Commodities

1. Dry bulk shipping costs (for cargo such as iron ore) have been surging due to the Panama Canal delays. The bottleneck is most acute for capesize vessels.
 

 
Source: FreightWaves   Read full article  
 
Source: FreightWaves   Read full article  

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2. The rally in cocoa prices appears stretched.
 
Source: BCA Research  

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Energy

1. Oil is higher ahead of OPEC.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
2. Last week’s US inventory data is mostly bearish.
 
• Crude oil:
 
– Weekly change:
 

 
– Level:
 

 
– Days of supply:
 

 
• Gasoline:
 

 
• Distillates:
 

 
3. Refinery runs and utilization jumped last week.
 

 

 
4. Gasoline demand is holding near last year’s levels.
 

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Equities

1. The Russell 2000 is testing resistance at the 200-day moving average.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
2. Hedge funds have tilted their exposure toward momentum stocks.
 
Source: BofA Global Research; @dailychartbook  
 
• Hedge funds’ long picks have been outperforming in recent days.
 
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3. Mutual funds’ top picks (overweight) have been underperforming their underweight positions.
 

 
4. Long volatility bets look attractive for next year.
 
Source: Goldman Sachs; @WallStJesus  
 
• The Nasdaq 100 5% out-of-the-money puts look cheap.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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5. S&P 500 futures liquidity continues to improve.
 
Source: Deutsche Bank Research  
 
6. Oxford Economics expects declines in global corporate earnings due to slowing revenue growth and falling margins.
 
Source: Oxford Economics  

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Credit

1. Mid-cap companies have more stable leverage levels than small caps.
 
Source: BCA Research  
 
2. European bank CoCos are back.
 

 
Source: @markets   Read full article  

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3. US high-yield maturity walls two and three years out are well above historical averages as a percent of debt outstanding.
 
Source: Deutsche Bank Research  

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Global Developments

1. Global bond markets are having a good month.
 

 
2. Real yields of core assets are close to pre-financial crisis averages (2005-2007).
 
Source: Goldman Sachs  
 
3. Below is the OECD’s forecast for policy rates in select economies.
 
Source: OECD  
 
4. Inflation has fallen sharply across developed and emerging markets, now in the vicinity of central bank target levels.
 
Source: Goldman Sachs  

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Food for Thought

1. Airline passenger count:
 
Source: Visual Capitalist   Read full article  
 
2. Traffic fatalities during holidays:
 
Source: Statista  
 
3. Battery prices:
 
Source: Goldman Sachs  
 
4. Gender and racial makeup of US STEM students:
 
Source: BayView Analytics   Read full article  
 
5. Global chickpea exports:
 
Source: USDA   Read full article  

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