May 1, 2024May 1, 2024 by The Daily Shot Editor: Lev Borodovsky

Growth in US labor costs accelerated last quarter

The Daily Shot: 01-May-24
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Europe
• Japan
• Asia-Pacific
• Emerging Markets
• Commodities
• Energy
• Equities
• Credit
• Rates
• Global Developments
• Food for Thought

The United States

1. The employment cost index (ECI) showed that growth in US labor costs accelerated in the first quarter, topping expectations (2 charts).

Source: Nomura Securities

• Declining job openings and quits point to a moderation in the ECI in the months ahead.

Source: BCA Research

• The FOMC is likely to revise its wage growth projections upward.

Source: Nomura Securities

——————–

2. Market expectations for Fed rate cuts this year were further curtailed following the ECI report. Less than 30 basis points of rate reductions is now priced in for 2024.

The fed funds rate trajectory has been repriced sharply higher in recent days.

• The 2-year note yield climbed above 5%.

Here is the yield curve.

• Real yields have been rising as well.

• The US dollar climbed with Treasury yields.

• Stocks retreated.

• Commodities sold off.

– Gold:

– Copper:

• Bitcoin dipped blow $60k.

——————–

3. The Chicago PMI dropped to the lowest level since the COVID shock, …

… likely driven by weakness at Boeing. The Chicago PMI’s divergence from the ISM Manufacturing PMI (at the national level) is correlated to aircraft orders.

Source: Pantheon Macroeconomics

——————–

4. The Conference Board’s Consumer Confidence Index revealed further deterioration this month, …

… with higher-income consumers becoming more pessimistic.

• The labor differential declined, indicating reduced confidence in the job market.

• Income expectations dropped as well.

• Fewer consumers are interested in buying an appliance.

• The spread between consumer expectations and current conditions remains in recession territory.

Source: @TheTerminal, Bloomberg Finance L.P.

Canada

GDP growth was lower than expected in February, with estimates indicating stalled growth in March.

Consequently, the Q1 GDP growth may have fallen below the Bank of Canada’s forecast.

The United Kingdom

1. Consumer credit experienced solid growth in March.

However, mortgage lending was softer than expected.

This chart shows mortgage approvals.

——————–

2. The broad money supply growth is rebounding.

3. Here is what tipped the scales in the 2016 EU Referendum.

Source: @financialtimes Read full article

The Eurozone

1. The euro area pulled out of recession in the first quarter, with all the GDP reports surprising to the upside (as we showed with the French GDP yesterday).

Source: Reuters Read full article

– The Eurozone:

– Germany:

– Italy:

– Spain:

– Portugal:

• GDP summary:

Source: Pantheon Macroeconomics

• GDP levels (note Germany’s persistent underperformance):

Source: Capital Economics

——————–

2. Inflation has been moderating, but services CPI remains sticky.

– Eurozone:

– France (higher than expected):

By the way, here is the French PPI.

– Italy:

– The Netherlands:

– Portugal:

• Services CPI (month-over-month and 3-month changes):

Source: Nomura Securities

– Year-over-year changes:

Source: Capital Economics

• The euro-area CPI has converged with the US equivalent inflation index.

——————–

3. Germany’s unemployment continues to climb.

Source: Reuters Read full article

Europe

1. The Swedish krona has been under pressure.

2. Central European economies are also seeing a rebound in growth.

3. Here is a look at road safety in the EU.

Source: Eurostat Read full article

Japan

1. And there you have it, folks.

Source: @markets Read full article

• Previous FX interventions preceded significant yen appreciation, especially when bearish speculative positioning was stretched.

Source: Numera Analytics (@NumeraAnalytics)

——————–

2. Japan’s housing starts have deteriorated.

3. Wage hikes are expected to slow after a sharp uptick this year, according to Capital Economics.

Source: Capital Economics

Asia-Pacific

1. Growth in South Korea’s exports for April was slower than expected.

2. Taiwan’s economic growth has picked up momentum.

3. Home price appreciation in Australia remains strong.

• Rents are increasingly unaffordable. (2 charts)

Source: CoreLogic Australia

Source: CoreLogic Australia

——————–

4. New Zealand’s labor market shows signs of weakness.

• Employment (job losses in Q1):

• The unemployment rate:

• Labor force participation:

• Wage growth:

Emerging Markets

1. Let’s begin with some updates on Chile.

• Economists have sharply raised their GDP growth estimates for 2024.

• Manufacturing production hit a multi-year low (for March).

• Copper output was at 2023 levels in March.

• Retail sales were slightly above last year’s levels.

——————–

2. Brazil’s formal job creation reached a new high, topping forecasts.

3. Economists see Argentina sinking deeper into recession this year.

4. Colombia’s central bank cut rates again.

5. Mexico’s GDP growth was lower than expected on a year-over-year basis (2nd panel).

• The government continues its spending spree ahead of the elections.

——————–

6. South Africa’s credit growth accelerated in March.

7. Vietnam’s trade surplus dipped well below last year’s level in April.

8. How correlated are EM equities to the US economic cycle and US real rates?

Source: Goldman Sachs; @dailychartbook

• EM equity discount to the US is near record lows.

Source: @markets Read full article

——————–

9. EM rate cuts are slowing.

Source: BofA Global Research

10. Finally, we have some performance data for April.

• Currencies:

• Bond yields:

• Equity ETFs:

Commodities

1. April was a good month for copper.

2. Precious metals saw a sharp pullback after the US employment cost index report, which boosted Treasury yields and the dollar.

3. The rally in coffee futures has been fading.

4. Commodity ETFs registered robust inflows in April.

Source: @markets Read full article

5. Next, we have some performance data for April.

Energy

1. WTI crude dipped below its 50-day moving average.

Source: @TheTerminal, Bloomberg Finance L.P.

Source: CNBC Read full article

——————–

2. Iran’s oil exports have been growing.

Source: @financialtimes Read full article

3. Next, we have some updates on natural gas.

• US natural gas futures are experiencing improving momentum amid bearish speculative positioning. Could we see a breakout?

Source: Aazan Habib, Paradigm Capital

• US LNG supply dipped well below the cumulative trend for the month.

Source: BloombergNEF Read full article

– China’s LNG demand remains robust.

Source: BloombergNEF Read full article

Equities

1. April was a challenging month for US stocks.

2. These charts show the quarterly performance attribution for the S&P 500 and S&P 600 (small caps).

3. Major US indices held resistance at the 50-day moving average.

4. Next, let’s take a look at the latest Q1 earnings data from Deutsche Bank.

• Earnings beats have been above the historical average.

Source: Deutsche Bank Research

Here are the Q1 beats by sector.

Source: Deutsche Bank Research

• Below is a look at sales and margin beats.

Source: Deutsche Bank Research

Source: Deutsche Bank Research

• Earnings growth accelerated, with the seasonally adjusted S&P 500 EPS reaching a record high.

Source: Deutsche Bank Research

——————–

4. Asset managers remain bullish on US equity futures.

Source: JP Morgan Research; @dailychartbook

5. Quality stock valuations seem to be rich.

Source: Goldman Sachs; @dailychartbook

6. The S&P 500 valuation appears too high, given the recent 6-month move in Treasury yields.

Source: Morgan Stanley Research; @dailychartbook

7. Tech mega-caps are becoming more sensitive to rates, pushing up the S&P 500’s correlation with Treasuries.

8. Tuesday was a good day for cannabis stocks.

Source: @business Read full article

——————–

9. Finally, we have some performance data for April.

• Sectors:

• Equity factors/styles:

• Macro basket pairs’ relative performance:

• Thematic ETFs:

• Largest US tech firms:

Credit

Here is the performance across key credit markets for April.

Rates

1. Let’s start with the attribution of changes in Treasury yields for April and year-to-date.

2. Dealer inventories of Treasuries are elevated as we head into a period of increased supply.

Source: Goldman Sachs; @WallStJesus

• Treasury note and bond issuance is picking up on a duration-adjusted basis.

Source: Simon White, Bloomberg Markets Live Blog

——————–

3. The largest TIPS ETF continues to see outflows.

Global Developments

1. The IMF expects less downside risk to global growth as financial stability concerns have faded.

Source: IMF

2. This chart shows the global GDP share by leading economies from 2006 to 2024.

Source: @WSJ Read full article

3. The US dollar rally appears to be stretched.

Source: Barclays Research; @WallStJesus

4. Global money market flows turned negative in March but remain historically typical relative to risky assets. (2 charts)

Source: Morningstar Direct

Source: Morningstar Direct

——————–

5. Next, we have some performance data for April.

• Currencies:

• Bond yields:

• Equities:

——————–

Food for Thought

1. Generative AI fundraising:

Source: @financialtimes Read full article

2. Metaverse vs. AI on Meta’s earnings calls:

Source: @chartrdaily

3. Norway’s sovereign wealth fund’s public equity investments:

Source: @chartrdaily

4. Financing rate for new vehicles in the US:

Source: BofA Global Research; @MikeZaccardi

5. Population growth by state:

Source: Statista

• Population growth rates for the largest US metro areas:

Source: Brookings Read full article

• Population growth trends in US metropolitan and non-metropolitan areas:

Source: Brookings Read full article

——————–

6. Decadal increase in obesity rates across the US:

Source: Tema

7. Effectiveness of weight loss medications and lifestyle changes in obesity management:

Source: Tema

• Forecasted market share of obesity drug sales by company:

Source: Tema

——————–

8. UFO sightings:

Source: The Economist Read full article

——————–