Have US households depleted their pandemic-era excess savings?

The Daily Shot: 06-Jun-24
The United States
Canada
The Eurozone
Japan
China
Emerging Markets
Commodities
Energy
Equities
Credit
Global Developments
Food for Thought


Apologies for the delay this morning; we had some technical issues.


 

The United States

1. The May ADP private payrolls report was softer than expected.
 

 
Source: @economics   Read full article  
 
The following sectors continued to see robust job gains.
 
Retail and logistics:
 

 
Healthcare:
 

 
Financial services:
 

 
Construction:
 

 
But there was notable weakness in several other areas.
 
Business services:
 

 
Hotels and restaurants (much slower gains):
 

 
Manufacturing:
 

 
Small businesses saw staff reductions in May.
 

 
Here is the ADP diffusion index.
 

 
2. Wage growth among job leavers has moderated, while it remained steady among those who stayed at their jobs.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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3. The ISM services PMI jumped last month, signaling stronger business activity.
 

 
Source: Reuters   Read full article  
 
This acceleration is consistent with the PMI indicators published by S&P Global (2 charts).
 
Source: S&P Global PMI  
 
Source: Arcano Economics  
 
The ISM employment indicator remains soft.
 

 
Price gains eased slightly in May.
 

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4. The market is settling on two Fed rate cuts this year.
 

 
5. Mortgage applications remain at multi-year lows.
 

 
The proportion of mortgages carrying interest rates above 6% has been increasing.
 
Source: Goldman Sachs; @MikeZaccardi  

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6. Some argue that household excess savings have been depleted, …
 
Source: MUFG Securities  
 
… while others believe there remains significant spending capacity.
 
Source: Barclays Research  
 
The outcome depends on the assumptions about the pre-COVID trend.
 
Source: TS Lombard  


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Canada

1. The Bank of Canada has initiated a cycle of monetary easing.
 

 
Source: Reuters   Read full article  
 
Another rate cut in July looks increasingly likely.
 

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2. The loonie dropped after the rate cut announcement but rebounded shortly after.
 

 
Bond yields are sharply lower, with the 2-year rate dipping below 4%.
 

 
Here is the yield curve.
 

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3. Canada’s services PMI is back in growth territory.
 

 
Service firms increased their hiring last month.
 

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4. Labor productivity declined more than expected in the first quarter.
 


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The Eurozone

1. Services PMIs indicated robust growth in Germany, Italy, and Spain last month, …
 

 

 

 
… with France being the exception.
 

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2. French manufacturing output increased in April.
 

 
3. The ECB’s debt roll-off is generally proportional to the public debt levels of Eurozone member states.
 
Source: @DanielKral1  
 
Source: @DanielKral1  

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4. Real estate funds with unrealized losses face liquidity mismatches. According to the ECB, rising redemptions could lead to forced sales and wider financial stress.
 
Source: ECB  


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Japan

1. Import prices point to further easing in Japan’s core goods CPI.
 
Source: Capital Economics  
 
2. Nominal base pay gains have accelerated.
 
Source: @economics   Read full article  


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China

1. Sales revenue has improved in manufacturing and real estate (especially construction), while other sectors remain weak. (2 charts)
 
Source: China Beige Book  
 
Source: China Beige Book  

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2. The A-shares/H-shares premium is testing support. A reversal is possible if authorities become more inclined to support the onshore stock market.
 
Source: BCA Research  
 
3. So far, China’s steep decline in housing starts has been similar to Spain’s property crisis.
 
Source: Reuters   Read full article  


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Emerging Markets

1. Brazil’s industrial production declined in April.
 

 
The services PMI shows accelerating growth in May.
 

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2. Argentina’s economic downturn has been severe.
 
Manufacturing production:
 

 
Construction activity:
 

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3. Mexico’s formal job creation turned negative last month.
 

 
Consumer confidence eased ahead of the elections.
 

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4. Next, we have some updates on South Africa.
 
The economy unexpectedly contracted in Q1.
 

 
Business confidence improved this quarter.
 

 
Vehicle sales are down 14% from last year.
 

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5. Indonesia’s CPI is rising again.
 


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Commodities

1. Platinum has been outperforming palladium over the past couple of years.
 

 
2. Copper inventories have risen alongside the recent rally.
 
Source: BCA Research  


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Energy

1. US crude oil inventories unexpectedly increased last week. Refined product stockpiles were higher as well.
 

 
Source: Reuters   Read full article  
 
Here are the inventory levels.
 

 
Refineries have been busy.
 

 
But gasoline demand has been lackluster.
 

 
This chart compares gasoline demand with refinery runs.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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2. Brent oil is trading $10/bbl below fair value, according to Numera Analytics.
 
Source: Numera Analytics (@NumeraAnalytics)  
 
3. Here is a look at US oil & gas M&A activity.
 
Source: @financialtimes   Read full article  


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Equities

1. Key us indices hit record highs.
 

 
The Magnificent 7 market capitalization climbed above $15 trillion, …
 

 
… boosted by Nvidia.
 
Source: @markets   Read full article  
 
Will Nvidia’s rally continue? The options market sees a 14% probability of the share price exceeding $1600 by late September and 19% by the end of the year (current price is $1224).
 
Source: @MadsEberhardt  

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2. The S&P 500 equal-weight index continues to widen its underperformance.
 

 
Mid-cap and small-cap shares continue to lag.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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3. The equal-weight index discount to the S&P 500 keeps widening.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Larger firms consistently trade at a premium to smaller ones.
 
Source: @WSJ   Read full article  
 
Here is a look at valuations relative to the last couple of decades.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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3. Below are some equity factor trends.
 
Growth vs. value:
 

 
High-dividend shares:
 

 
Quality:
 

 
Momentum:
 

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4. The overall retail sentiment (based on buying activity) remains subdued.
 
Source: Vanda Research  
 
But retail investors love leveraged single-stock ETFs.
 
Source: Vanda Research  

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5. Market concentration measures continue to rise.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
The technology sector’s contribution to the S&P 500’s one-month returns dispersion is near an all-time high and surpasses its peak during the tech bubble. This elevated contribution is primarily driven by increasing market cap concentration within the tech sector, as shown by the higher dispersion in the market cap-weighted index compared to the more moderate rise in the equally weighted index.
 
Source: BofA Global Research; @dailychartbook  

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6. Global ETF assets have ballooned in recent years with strong growth in active products
 
Source: The ETF Shelf  


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Credit

1. US CLO issuance has been strong this year.
 
Source: JP Morgan Research; @GunjanJS  
 
Retail investors now have access to the CLO asset class, and they can’t get enough.
 
Source: BofA Global Research; III Capital Management  

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2. Munis are trading rich relative to the past decade.
 
Source: @TheTerminal, Bloomberg Finance L.P.  


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Global Developments

1. Central banks stepped up rate cuts in May.
 
Source: Truist Advisory Services  
 
2. May was a strong month for precious metals, while equities held up. Sovereign bonds dipped as yields rose and energy narrowed losses.
 
Source: Deutsche Bank Research  
 
3. There has been a rise in global trade restrictions in recent years (2 charts).
 
Source: Merrill Lynch  
 
Source: @bpolitics   Read full article  

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4. Global factory activity strengthened further in May.
 
Source: S&P Global PMI  
 
Here are the PMIs by country/region.
 
Source: S&P Global PMI  


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Food for Thought

1. AI adoption rates:
 
Source: Goldman Sachs  
 
2. The neurotech device market:
 
Source: Yahoo Finance   Read full article  
 
3. Private-label goods gain market share over national brands.
 
Source: @WSJ   Read full article  
 
4. US fetal mortality rates by race and Hispanic origin:
 
Source: KFF   Read full article  
 
5. Types of property crime:
 
Source: USAFacts  
 
6. Commercial property insurance inflation in Florida:
 
Source: @climate   Read full article  
 
7. D-Day invasion forces and equipment overview:
 
Source: BBC  
 

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