Posted on by The Daily Shot Editor: Lev Borodovsky

Fed focuses on the labor market

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

 

The United States

1. As expected, the Fed left rates unchanged, but Chair Powell hinted at a possible rate cut in September. Neither the FOMC statement nor Powell’s comments were particularly dovish, but the US central bank is increasingly focusing on the loosening of the labor market.
 
• Statement (changes redlined):
 

 
• Chair Powell’s comments:

– The downside risks to the employment mandate are real now. … The time is coming when it will be appropriate to dial back that level of restriction so that we can address both mandates.
 
– It’s going to be inflation data, it’s going to be the employment data, it’s going to be the balance of risks as we see it – it’s going to be the totality of all of that … It’s just a question of seeing more good data.

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2. The market now anticipates nearly three 25 bps rate reductions before the end of the year, …
 

 
… with some possibility of a 50 bps reduction in September or December.
 

 
• Treasury yields declined sharply.
 

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3. Truflation’s real-time inflation rate declined to 1.5% year-over-year.
 
Source: Truflation  
 
4. The July ADP private payrolls report was weaker than expected.
 

 
Here is the ADP diffusion index.
 

 
• While the construction and trade/transportation sectors saw robust gains, …
 

 

 
… the business services sector experienced job losses.
 

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5. The employment cost index (ECI) increased less than expected in the second quarter, though labor cost growth remains elevated.
 

 
• Here are the trends in wages and benefits costs.
 

 
Source: Reuters   Read full article  
 
• The rapidly falling quits rate points to further ECI easing.
 
Source: @RenMacLLC  

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6. Next, we have some updates on the housing market.
 
• Pending home sales remained at multi-year lows in June. While the media highlighted the month-over-month gain in the index, it should be attributed to NAR’s seasonal adjustments rather than actual improvements.
 

 
• Mortgage applications remain well below last year’s levels.
 

 
However, the 30-year mortgage rate dipped below 6.75% as Treasury yields dropped, …
 
Source: Mortgage News Daily  
 
… which could lead to a pickup in housing activity.
 
Source: @RenMacLLC  
 
• Metro areas with lagging housing markets up to the recent peak have been experiencing stronger home price appreciation.
 
Source: AEI Housing Center  

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Canada

1. May GDP growth was stronger than expected, but estimates indicate a slower expansion in June.
 

 
• Here are the trends in contributions to growth from goods-producing and services sectors.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Source: @economics   Read full article  
 
• The gap between Canada’s real GDP per capita and that of the US has widened since the 1980s and, more recently, since the pandemic.
 
Source: Capital Economics  

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2. The TSX Composite Index hit a record high within its long-term uptrend, boosted by financials and energy stocks.
 

 
• Breadth has expanded but is not yet extreme relative to prior price peaks.
 

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3. Remote work has become more of a permanent feature in Canada versus other developed countries.
 
Source: Capital Economics  

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The United Kingdom

1. Structural inflation remains elevated.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
• The CPI leading index has turned lower.
 
Source: Simon White, Bloomberg Markets Live Blog  

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2. Here is a comparison of weekly earnings trends in the private vs. public sectors.
 


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The Eurozone

1. The July Eurozone CPI surprised to the upside.
 

 
Source: @WSJ   Read full article  
 
• Services inflation remains elevated, …
 
Source: Capital Economics  
 
… exacerbated by labor shortages.
 
Source: @DanielKral1, @OxfordEconomics  
 
• Here is Italy’s CPI.
 

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2. French household spending on goods remains well below pre-COVID levels.
 

 
3. Germany faces some demographic headwinds.
 
Source: @financialtimes   Read full article  

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Europe

1. The Swiss franc has been strengthening against the euro, …
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
… outperforming other European currencies.
 

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2. Here is a look at environmental tax distribution by payer and revenue trends.
 
Source: Eurostat   Read full article  
 
3. This map shows the submarine cables in Europe.
 
Source: The Economist   Read full article  

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Japan

1. USD/JPY dipped below 150 after breaking support at the 200-day moving average. The yen rally looks very stretched now (2nd panel).
 

 
• Here are the monthly changes in USD/JPY.
 

 
• The USD/JPY options volume surged on Wednesday.
 
h/t Simon White, Bloomberg Markets Live Blog  
 
• The options market is pricing in nearly a 30% probability of USD/JPY ending below 140 by year-end.
 

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2. Consumer confidence improved in July.
 

 
3. The May bounce in housing starts was a blip.
 

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Asia-Pacific

1. Taiwan’s GDP growth was firmer than expected last quarter.
 

 
Source: @economics   Read full article  
 
• The PMI index shows the manufacturing sector continuing to grow.
 
Source: S&P Global PMI  

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2. South Korea’s factory activity also remains in growth territory.
 
Source: S&P Global PMI  
 
3. New Zealand’s business confidence improved in July.
 

 
• Building permits continue to crash.
 

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4. Australia’s trade surplus topped expectations.
 

 
• Housing prices continue to rise.
 

 
• Building approvals have been soft.
 

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China

1. The Manufacturing PMI from S&P Global dipped into contraction territory in July, confirming the official PMI data.
 

 
Source: South China Morning Post   Read full article  

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2. Companies are still unwilling to invest despite improving financial conditions. Meanwhile, consumer sentiment remains weak.
 
Source: Alpine Macro  
 
3. Hong Kong’s Q2 GDP growth surprised to the upside.
 

 
Source: @economics   Read full article  

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Emerging Markets

1. Let’s run through Asian manufacturing PMIs for July.
 
• ASEAN (growth holding up well):
 
Source: S&P Global PMI  
 
• Indonesia (contracting):
 
Source: S&P Global PMI  
 
• Malaysia (treading water):
 
Source: S&P Global PMI  
 
• Thailand (accelerating):
 
Source: S&P Global PMI  
 
• The Philippines (modest growth):
 
Source: S&P Global PMI  
 
• Vietnam (robust expansion):
 
Source: S&P Global PMI  

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2. India’s key industries’ growth slowed in June.
 

 
3. South Africa’s trade surplus was stronger than expected.
 

 
4. Next, we have some data on EM markets’ performance in July.
 
• Currencies:
 

 
• Bond yields:
 

 
• Equity ETFs:
 

Back to Index

 

Cryptocurrency

1. So far, Bitcoin has underperformed top cryptos this week, while Bitcoin Cash (BCH) and XRP are outperforming.
 
Source: FinViz  
 
• XRP has outperformed top cryptos in July, while Ether (ETH) and Litecoin (LTC) underperformed.
 
Source: FinViz  
 

 
Source: CoinDesk   Read full article  

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2. The Crypto Fear & Greed Index declined into “neutral” territory.
 
Source: Alternative.me  

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Commodities

1. Funds have been trimming their bets on copper.
 
Source: @markets   Read full article  
 
2. Corn prices are down more than 50% from the peak.
 

 
Here is Bloomberg’s grains index.
 

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3. Finally, we have commodity markets’ performance in July.
 

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Energy

1. US crude oil inventories have dropped for five weeks in a row. Cushing, OK stockpiles have been declining quickly as well.
 

 
• Here are the inventory levels.
 

 
• Brent crude is trading above $81/bbl.
 

 
• US refinery utilization is at the lowest level since 2020.
 

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2. US electricity demand has been rising.
 
Source: @business   Read full article  

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Equities

1. Wednesday was a good day for key stock indices, …
 

 
… as the AI trade returns. The market’s bet on three Fed rate cuts this year also helped.
 
Source: @technology   Read full article  
 
• By the way, Nvidia’s price action closely mirrors Cisco’s run-up to its 2000 peak.
 
Source: Deutsche Bank Research  

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2. The S&P 500 held its uptrend support.
 

 
3. Here is the market’s historical performance following the Fed’s first rate cut.
 
Source: @Mayhem4Markets  
 
• Rate cuts could support US cyclical sectors so long as earnings continue to beat expectations
 
Source: Numera Analytics (@NumeraAnalytics)  

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4. Is the S&P 500 rally done for the year?
 
Source: @markets   Read full article  
 
Below are the options market implied probabilities of a 10% move by the end of December.
 

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5. The S&P 500 index price has decoupled from market breadth.
 

 
• NYSE shares have shown broad participation in the market rally.
 

 
But that hasn’t been the case for Nasdaq stocks.
 

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6. August tends to be a choppy month for stocks.
 

 
7. So far, VIX is holding below downtrend resistance, although long-term technicals suggest the low-vol regime is wearing thin.
 

 
8. US small-cap earnings forecasts have continued to decline.
 
Source: MRB Partners  
 
9. Next, we have some performance data for the month of July.
 
• Sectors:
 

 
• Equity factors:
 

 
• Macro basket pairs’ relative performance:
 

 
• Thematic ETFs:
 

 
• Largest US tech shares:
 

Back to Index

 

Credit

Here is last month’s performance.
 

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Rates

1. The US real policy rate continues to climb as inflation eases.
 

 
• The market-implied long-run fed funds rate also shows that the Fed’s policy is quite restrictive.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
2. Here is a look at previous Fed easing cycles.
 
Source: @GregDaco, @EY_Parthenon  

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Global Developments

1. The US dollar appears stretched and could be challenged by negative growth differentials.
 
Source: MRB Partners  
 
2. DM central banks face a difficult balancing act of cutting rates to avoid an economic downturn without risking a second wave of inflation.
 
Source: TS Lombard  
 
3. Finally, we have some performance data for July.
 
• Currencies:
 

 
• Bond yields:
 

 
• Equities:
 

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Back to Index

 

Food for Thought

1. Number of data centers by country:
 
Source: Merrill Lynch  
 
2. Rising AI costs:
 
Source: Deutsche Bank Research  
 
3. Global trends in installed capacity additions for power plants:
 
Source: Canary Media   Read full article  
 
4. Retention rates of international students in the US after graduating:
 
Source: EIG   Read full article  
 
5. Voter likelihood to participate in the November 2024 election following President Biden’s decision not to run:
 
Source: @bpolitics   Read full article  
 
6. Olympic medal bonuses:
 

 

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