Market trims expected Fed rate cuts amid stronger manufacturing data

The Daily Shot: 02-Apr-24
The United States
Canada
The United Kingdom
The Eurozone
Japan
Asia-Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Credit
Global Developments
Food for Thought



 

The United States

1. The ISM Manufacturing PMI finally returned to growth in March, topping expectations.
 

 

 
Source: @economics   Read full article  
 
Here are the contributions to the PMI.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
The index of production surged, …
 

 
… but employment remained soft.
 

 
As a result, we could see improvements in labor productivity.
 
Source: @RenMacLLC  
 
Companies increasingly see customers’ inventories as too low.
 

 
Input prices are rising again.
 

 
The ratio of cyclical-to-defensive equity sectors continues to signal stronger factory activity ahead.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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2. In response to the robust ISM PMI report, the market scaled back the anticipated Fed rate cuts for this year (2 charts).
 

 

 
Source: @markets   Read full article  

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3. Construction spending unexpectedly declined in February, …
 

 
Source: Reuters   Read full article  
 
… amid softer private nonresidential construction …
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
… and weaker public construction expenditures.
 

 
Year-over-year, total private construction spending has increased.
 

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4. This year’s gains in the Citi Economic Surprise Index have been driven by soft data (surveys).
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
5. Retail inventories continue to climb.
 

 
6. More Americans are flying this year (2 charts).
 

 
Source: @sonusvarghese  


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Canada

1. The manufacturing PMI shows factory activity stabilizing, but growth remains elusive.
 

 
Fewer factories are boosting prices.
 

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2. The BoC’s first-quarter business survey report was lackluster, with sales growth expectations stalling.
 

 
Labor shortages are less of a problem.
 

 
The CapEx index deteriorated.
 

 
Fewer firms expect high inflation ahead.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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3. Capital Economics expects an increase in residential investment, although it will be below the historical trend.
 
Source: Capital Economics  


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The United Kingdom

1. Shop price gains continue to slow.
 

 
2. Here is a look at Britain’s migration trends.
 
Source: The Economist   Read full article  
 
This chart shows the foreign-born population by country of birth.
 
Source: The Economist   Read full article  


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The Eurozone

1. Household perceptions of the labor market remain robust, except in Germany.
 
Source: Deutsche Bank Research  
 
2. Eurozone total factor productivity remains weak.
 
Source: Longview Economics  
 
3. Deutsche Bank expects the ECB policy rate to drop to 2% by mid-2025.
 
Source: Deutsche Bank Research  


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Japan

1. The year-over-year headline CPI figure for Tokyo increased slightly in March, while core inflation shows signs of deceleration.
 

 
Here is food inflation.
 

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2. The unemployment rate increased in February, while the jobs-to-applicants ratio continues to trend lower.
 

 
3. Housing starts are at multi-year lows.
 

 
4. Investors continue channeling capital into Japan-focused equity funds.
 
Source: BofA Global Research  
 
BofA’s private clients also love Japanese stocks.
 
Source: BofA Global Research  

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5. Resistance is holding.
 


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Asia-Pacific

1. South Korea’s industrial production picked up momentum in February.
 

 
However, the manufacturing PMI is back in contraction territory.
 
Source: S&P Global PMI  
 
The headline inflation is holding above 3%, but the core CPI continues to moderate.
 

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2. Taiwan’s factory activity is stabilizing.
 
Source: S&P Global PMI  
 
3. New Zealand’s consumer confidence declined sharply in March.
 

 
4. Next, we have some updates on Australia.
 
The Melbourne Institute inflation tracker continues to ease.
 

 
Home prices keep rising.
 

 
Job openings remain elevated relative to pre-COVID levels.
 


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China

1. Property sales continue to soften.
 
Source: @economics   Read full article  
 
2. Banks are experiencing shrinking margins as nonperforming loans continue to rise.
 
Source: @markets   Read full article  
 
3. China is a dominant player in the global solar power supply chain. (2 charts)
 
Source: TS Lombard  
 
Source: TS Lombard  

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4. Here is a look at Macau casino revenues.
 


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Emerging Markets

1. Let’s run through the March manufacturing PMI data.
 
{*) Asia:
 
ASEAN (accelerating):
 
Source: S&P Global PMI  
 
Indonesia (very strong):
 
Source: S&P Global PMI  
 
The Philippines (modest growth):
 
Source: S&P Global PMI  
 
Thailand (stabilizing):
 

 
Vietnam (growth stalled):
 
Source: S&P Global PMI  
 
Turkey (no growth):
 

 
LatAm:
 
Brazil (strong expansion):
 
Source: S&P Global PMI  
 
Mexico (holding up well):
 
Source: S&P Global PMI  
 
Colombia (growth stalling):
 
Source: S&P Global PMI  

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2. This chart shows the rate differentials (vs. USD) and implied volatility for select EM currencies.
 

 
3. Next, we have some market performance data for Q1.
 
Currencies:
 

 
Bond yields:
 

 
Equity ETFs:
 


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Cryptocurrency

1. Cryptos had a solid Q1 with Bitcoin Cash (BCH – a modified version of bitcoin that runs on its own blockchain), significantly outperforming while XRP lagged top peers.
 
Source: FinViz  
 

 
But cryptos are under pressure this morning, …
 

 
… with bitcoin testing the uptrend support.
 

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2. Bitcoin cash’s halving has contributed to bullish sentiment.
 
Source: Decrypt   Read full article  
 
Separately, this table shows bitcoin’s forward returns after previous halving events.
 
Source: @StocktonKatie  

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3. BTC/USD is closely tracking the 2018-2021 cycle.
 
Source: @glassnode  
 
4. Bitcoin’s intraday price volatility is advancing from historically low levels.
 
Source: @KaikoData  
 
Bitcoin’s realized volatility has surpassed ether’s since February.
 
Source: @KaikoData  


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Commodities

1. Chicago cattle futures are selling off.
 

 
Source: Drovers   Read full article  

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2. Cocoa futures are trading above $10k per ton.
 

 
3. Here is gold vs. the S&P 500 over the past six months (relative performance).
 


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Energy

1. Brent crude is testing resistance.
 

 
Source: @markets   Read full article  

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2. Uranium mining shares are climbing again.
 


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Equities

1. Stocks tend to rise following the tax filing deadline.
 

 
2. Here is a look at the year-to-date performance across dividend strategies.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
3. Below, we have detailed year-to-date performance across equity factors.
 
Source: CornerCap Institutional  
 
4. Outside of the US, multiple expansion has been driving stock gains year-to-date.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
5. Earnings growth for the “Magnificent 7” is expected to slow coming off a period of high performance dispersion within the group.
 
Source: J.P. Morgan Asset Management  
 
6. Productivity growth is improving, which is supporting margins.
 
Source: Longview Economics  
 
7. Investment advisors say go all in …
 
Source: BofA Global Research  
 
… and don’t bother with defensive sectors.
 
Source: @topdowncharts   Read full article  

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8. Next, we have forward earnings yields and implied volatility (“expected performance” vs. “perceived risk”).
 
Factors:
 

 
Sectors:
 

 
International indices:
 


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Credit

1. The single-B – BB corporate spreads continue to tighten, singling increased risk appetite.
 

 
2. It was a good quarter for IG bond sales.
 
Source: @markets   Read full article  


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Global Developments

1. The dollar index (DXY) is testing resistance at 105.
 

 
A wider US budget deficit could be a catalyst for weakness in the dollar.
 
Source: Aazan Habib, Paradigm Capital  

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2. Debt servicing ratios in developed markets have remained low compared with past cycles. (2 charts)
 
Source: TS Lombard  
 
Source: TS Lombard  


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Food for Thought

1. The evolution of US TV consumption and current costs:
 
Source: @WSJ   Read full article  
 
2. US households’ financial asset allocation:
 
Source: Goldman Sachs; @MikeZaccardi  
 
3. US consumer spending expectations across various services over the next six months:
 
Source: The Conference Board  
 
4. Population changes by county:
 
Source: Census Bureau   Read full article  
 
5. Fentanyl seizures:
 
Source: The Economist   Read full article  
 
Fentanyl overdose deaths:
 
Source: The Economist   Read full article  

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6. Violent crime in the US:
 
Source: FBI   Further reading  
 
7. Changes in the number of local governments:
 
Source: Federal Reserve Bank of St. Louis   Read full article  
 

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