Recent soft patches in inflation all gave way to renewed acceleration

The Daily Shot: 11-Jul-24
The United States
The United Kingdom
The Eurozone
Europe
Japan
Asia-Pacific
Emerging Markets
Commodities
Energy
Equities
Credit
Rates
Food for Thought



 

The United States

1. Mortgage applications remained at multi-year lows last week.
 

 
Here is a look at homeownership rates by age and the changes since 2016.
 
Source: Torsten Slok, Apollo  

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2. The Atlanta Fed’s GDPNow second-quarter growth estimate is steady at 2% (annualized).
 
Source: Federal Reserve Bank of Atlanta  
 
Here are the contributions.
 
Source: Arcano Economics  
 
The market expects to see 2.9% growth.
 

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3. Next, we have some updates on inflation.
 
We could see another decline in airline fares in June.
 
Source: Deutsche Bank Research  
 
Rising shipping costs pose upside inflation risks for goods.
 
Source: Deutsche Bank Research  
 
We’ve observed soft patches in inflation since 2020, followed by rebounds over the subsequent months. This is why the Fed remains cautious. Here is a comment from Scotiabank Economics.

[The chart] shows average m/m core PCE inflation during soft patches since the pandemic unfolded and then what happened over ensuing months. Five soft patches for core PCE inflation all gave way to renewed acceleration each and every time during the pandemic era, including earlier this year. The soft patches have been of varying lengths as have the periods of renewed acceleration. The FOMC cannot overreact to just one soft core PCE print in May. Or even two if tomorrow’s core CPI reading hints at a soft core PCE reading later in the month despite potential upside pressures.

Source: Scotiabank Economics  

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4. The job switching rate has declined, albeit above the pre-pandemic average.
 
Source: Bank of America Institute  
 
Job change growth for high-income groups has surpassed that of lower-income groups based on BofA customer data.
 
Source: Bank of America Institute  


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The United Kingdom

1. The May GDP report surprised to the upside.
 

 
Here is the GDP level.
 
Source: Pantheon Macroeconomics  
 
Except for construction, all contributions to UK output increased over the three-month period ending in May.
 
Source: Pantheon Macroeconomics  

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2. The RICS house price balance remained in negative territory in June.
 

 
But sales expectations are rebounding.
 

 
Source: BNN   Read full article  


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The Eurozone

1. Italy’s industrial production edged higher in May.
 

 
Dutch manufacturing output eased.
 

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2. Analysts have become increasingly pessimistic about French corporate earnings over the next 12 months compared to their European peers.
 
h/t Michael Msika  
 
3. This chart shows used car prices in Germany.
 
Source: Bloomberg Law   Read full article  
 
4. Here is the composition of the ECB (Eurosystem) balance sheet.
 
Source: Arcano Economics  


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Europe

1. We are seeing more downside inflation surprises in Europe.
 
Norway’s underlying CPI was below forecasts.
 

 
Source: @economics   Read full article  
 
The Norwegian krone slumped.
 

 
Bond yields shifted lower (2 charts).
 

 

 
The Czech Republic’s CPI was also below estimates.
 

 
The Czech koruna and bond yields dropped (3 charts).
 

 

 

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2. This chart shows pension expenditures by country.
 
Source: Eurostat   Read full article  
 
3. Here is a look at investment in environmental protection.
 
Source: Eurostat   Read full article  
 
4. Defense spending is rising across Europe.
 
Source: BCA Research  


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Japan

1. Dollar-yen is trading near 162.
 

 
Asset managers and hedge funds remain very bearish on the yen.
 

 
Some traders are watching the 107 level in USD/JPY.
 
Source: @markets   Read full article  
 
Source: @markets   Read full article  
 
Below is the options-based probability of dollar-yen breaching 170 over the next three and six months.
 

 
Will the BoJ intervention work this time? Here is a look at recent BoJ interventions in the currency markets.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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2. Core machine orders surprised to the downside in May.
 

 
3. Tokyo office vacancies are moderating.
 


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Asia-Pacific

1. South Korea’s central bank left rates unchanged, but there is increasing talk of potential rate cuts.
 

 
Source: @markets   Read full article  
 
Bond yields declined.
 

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2. Australia’s inflation expectations eased this month.
 

 
Underlying inflation is proving more persistent than expected by the RBA.
 
Source: Coolabah Capital   


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Emerging Markets

1. Brazil’s inflation surprised to the downside.
 

 
2. Argentina is officially in recession.
 
Source: @economics   Read full article  
 
3. Turkey’s manufacturing output is holding up well.
 

 
4. The iShares Emerging Markets ETF (EEM) is approaching initial resistance, although long-term momentum is improving.
 

 
The EM/DM price ratio broke above its 40-week moving average, indicating a pause/potential reversal of its cyclical downtrend.
 


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Commodities

1. Soybean futures continue to sink.
 

 
2. US orange juice prices are surging again.
 
Source: Bloomberg
 
3. Wheat stockpiles have been trending lower.
 
Source: @markets   Read full article  
 
4. Central banks continue to buy a lot of gold.
 
Source: @mikemcglone11  


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Energy

1. US crude oil inventories declined again last week. Gasoline stockpiles were lower as well, but diesel inventories surged.
 

 

 
Source: OilPrice.com   Read full article  
 
WTI crude oil futures are consolidating within a wide price range. Support is intact at its 40-week moving average, with resistance at $85/bbl and then $97/bbl.
 

 
Gasoline demand remains robust.
 

 
This chart shows gasoline inventories measured in days of supply.
 

 
Refineries have been busy,
 

 
US crude oil production is near the highs, but we may see a pullback this week.
 

 
Source: Reuters   Read full article  

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2. A slight deficit in the global crude oil market could keep prices elevated.
 
Source: Numera Analytics (@NumeraAnalytics)  
 
3. Crack spreads declined on Wednesday.
 

 
4. Here is a look at Germany’s energy mix.
 
Source: @business   Read full article  


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Equities

1. The market sees strong earnings growth ahead.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
This chart shows the Q2 consensus earnings trajectories by sector.
 
Source: Deutsche Bank Research  
 
Elevated positioning indicates a limited upside in this earnings season.
 
Source: Deutsche Bank Research  

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2. The S&P 500 dividend yield continues to sink.
 

 
3. The market is overlooking signs of a softening US economy.
 
Source: @BloombergTV, Bloomberg Finance L.P.  
 
Here is a similar chart for the Nasdaq 100.
 
Source: @KevRGordon  

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4. The valuation divergence between the S&P 500 and its average member continues to widen.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
5. This chart shows the year-to-date return attribution by sector.
 
Source: Barclays Research; @dailychartbook  
 
6. The momentum factor continues to outperform.
 

 
7. The S&P 500 melted up at the end of the day on Wednesday, but VIX also increased.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
VIX remains well above the S&P 500 realized volatility.
 

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8. It’s been a good few years for semiconductor stocks.
 


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Credit

1. The long-dated credit spread to T-bills is near this cycle’s flattest point. This means investors are paid close to the smallest amount in history to take both credit and duration risk relative to cash, according to Deutsche Bank.
 
Source: Deutsche Bank Research  
 
2. CLO issuance has been robust in recent months.
 
Source: @TheTerminal, Bloomberg Finance L.P.   Read full article  


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Rates

1. Treasury yields should be lower, given the softening of the US economy.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
2. Foreign demand for Treasuries has been robust.
 
Source: Truist Advisory Services  


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Food for Thought

1. The US divorce rate over time:
 
Source: Forbes Advisor   Read full article  
 
US industries with the highest and lowest divorce rates:
 
Source: Forbes Advisor   Read full article  

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2. The effect of the Taliban power grab on opium production:
 
Source: Statista  
 
3. Ukrainian refugees across Europe:
 
Source: Eurostat   Read full article  
 
4. Melanoma cases:
 
Source: @axios   Read full article  
 
5. Change in fire weather days:
 
Source: @axios   Read full article  
 
6. States with the highest increase in cooling costs this summer:
 
Source: Texas Electricity Ratings  
 
7. US presidential election probabilities in the betting markets:
 
Source: @TheTerminal, Bloomberg Finance L.P.  
Source: @bpolitics   Read full article  

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8. Spam call topics:
 
Source: QR Code Generator  
 

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