The Daily Shot: 02-Aug-24
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Europe
• Japan
• Asia-Pacific
• China
• Emerging Markets
• Energy
• Equities
• Alternatives
• Credit
• Global Developments
• Food for Thought
The United States
1. Let’s begin with the labor markets.
• Jobless claims have risen over the past few weeks, significantly exceeding the average of recent years (ex COVID shock).
– Continuing claims keep moving higher.
– Here are the seasonally adjusted indices.
Source: @TheTerminal, Bloomberg Finance L.P.
• Layoffs remain low.
• What should we expect from the July payrolls report?
– Estimates based on leading indicators:
Source: Goldman Sachs; @MikeZaccardi
– Oxford Economics (190 k):
Source: Oxford Economics
– Morgan Stanley (195 k):
Source: Morgan Stanley Research
Morgan Stanley sees the unemployment rate holding steady at 4.1%.
Source: Morgan Stanley Research
– Here is Goldman’s forecast for the rest of the year (running near the 150k breakeven rate).
Source: Goldman Sachs; @MikeZaccardi
– Nomura expected to see slower wage growth.
Source: Nomura Securities
• According to Pantheon Macroeconomics, small business hiring intentions point to lower payroll gains ahead.
Source: Pantheon Macroeconomics
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2. Labor productivity improved in the second quarter.
• Growth in unit labor costs eased below 1% and is running at 0.5% on a year-over-year basis (2nd panel).
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3. The ISM Manufacturing PMI surprised to the downside, pointing to a faster contraction in the manufacturing sector in July.
Source: @TheTerminal, Bloomberg Finance L.P.
• Demand slowed.
• Factories are cutting staff at the fastest pace since the COVID shock.
• The ISM index has diverged from a similar PMI measure reported by S&P Global.
Source: @TheTerminal, Bloomberg Finance L.P.
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4. Construction spending declined for the second month in a row in June.
Private residential and non-residential construction spending has been gradually decreasing recently.
Source: @TheTerminal, Bloomberg Finance L.P.
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5. Vehicle sales improved in July but were below estimates.
6. Softer economic data and slower gains in labor costs have driven Treasury yields lower again, …
… with the 10-year Treasury dipping below 4%.
• Here is the yield curve.
• It has been a favorable few days for Treasuries. (2 charts).
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7. The market is now pricing in 3.5 rate cuts (25 bps each) this year.
November is now in play, with a chance of a 50 bps rate reduction in either September, November, or December.
The implied probabilities for the Fed’s target rate at the end of the year.have shifted rapidly.
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Canada
1. Factory activity contraction intensified in July, …
… as demand deteriorated.
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2. Canada’s R&D investment has significantly lagged behind that of the US.
Source: Capital Economics
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The United Kingdom
1. The BoE cut rates for the first time since the COVID shock.
It was a close call, with 5 out of 9 MPC members voting to lower rates.
• The market-implied rate trajectory has shifted sharply lower in recent days.
Another rate cut in November or December is on the table.
• The pound and gilt yields tumbled.
Further reading
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2. Companies continue to lower their estimates of output price gains.
• Inflation expectations are easing.
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3. The final PMI report confirmed accelerating growth in factory activity in July.
Source: S&P Global PMI
4. The decline in services employment PMI points to a slowdown in wage growth.
Source: TS Lombard
5. Home prices increased for the third month in a row in July.
6. UK economic surprises are running well above those of the US and the Eurozone.
Source: @TheTerminal, Bloomberg Finance L.P.
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The Eurozone
1. The unemployment rate ticked higher in June.
• Hiring expectations point to further increases in euro-area unemployment.
Source: @DanielKral1, @OxfordEconomics
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2. Italy’s factory activity remained in contraction last month, …
Source: S&P Global PMI
… while Spain’s manufacturing growth slowed.
Source: S&P Global PMI
• At the Eurozone level, the PMI output index points to further declines in industrial production.
Source: S&P Global PMI
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3. Dutch retail sales slowed in July.
4. Here is a look at government interest payments by country.
Source: @DanielKral1
• This chart shows the pandemic-era changes in government debt.
Source: @DanielKral1
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Europe
1. Sweden’s manufacturing activity unexpectedly dipped into contraction territory in July.
2. The Czech central bank slowed the pace of rate cuts.
3. Central European manufacturing hubs continue to report weakening factory activity.
Source: S&P Global PMI
4. Here is a look at hospital and long-term care beds in EU countries.
Source: Eurostat Read full article
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Japan
1. Japanese shares plummeted as the yen strengthened.
Source: S&P Global PMI
Source: @financialtimes Read full article
• Foreign investors have been pulling capital from Japan’s stocks.
Source: @markets Read full article
• BofA’s private clients are facing significant losses after heavily investing in Japanese shares.
Source: BofA Global Research
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2. Dollar-yen has been converging with the yield differentials.
Source: @TheTerminal, Bloomberg Finance L.P.
• This chart shows Capital Economics’ projections for the hedged and unhedged US-Japan yield differentials.
Source: Capital Economics
• Japan’s life insurers have been caught flat-footed as they reduced currency hedges on foreign assets in recent years.
Source: Simon White, Bloomberg Markets Live Blog
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Asia-Pacific
1. South Korea’s CPI report topped expectations, suggesting that the BoK will remain on hold for now.
Source: Reuters Read full article
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2. Australia’s real retail sales have been trending lower since 2022.
• Private sector credit climbed in June.
Here is the trend in mortgage lending.
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3. Asian export growth is expected to slow in the second half of the year.
Source: BofA Global Research
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China
1. The 10-year yield continues to hit record lows.
2. Weak consumption has been a drag on economic growth.
Source: @markets Read full article
3. Here is the annual count of new Chinese unicorn startups.
Source: The Economist Read full article
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Emerging Markets
1. Let’s begin with some July PMI reports.
• Brazil (robust growth amid stronger demand):
• Mexico (a sudden shift into contraction territory):
• Turkey (intensifying contraction):
• South Africa (back in growth territory but very volatile):
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2. South Africa’s vehicle sales were up in July on a year-over-year basis.
• Electricity output is rebounding.
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3. In dollar terms, Turkish equities have moved broadly in line with Eurozone banks.
Source: Longview Economics
4. Thai business confidence has been deteriorating.
5. India’s tightening of restrictions on unsecured lending is likely to weigh on household consumption, according to Capital Economics.
Source: Capital Economics
6. Here is a look at GDP-per-capita growth.
Source: @financialtimes Read full article
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Energy
1. Demand for Brent call options surged this week.
Source: @markets Read full article
2. US natural gas futures dipped below $2/mmbtu on Thursday.
3. US residential electricity prices have been rising rapidly in recent years.
Source: @WSJ Read full article
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Equities
1. The market reversed Wednesday’s gains, with futures down sharply ahead of the July employment report.
Some disappointing tech earnings reports are contributing to the pullback.
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2. Implied volatility indicators are surging.
Source: @TheTerminal, Bloomberg Finance L.P.
Here is the one-day volatility index.
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2. On Thursday, cyclicals registered their biggest decline vs. defensive sectors since the initial COVID shock.
• More weakness ahead for cyclicals?
Source: @TheTerminal, Bloomberg Finance L.P.
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3. Declining reserves (due to the Fed’s QT) are now a headwind for stocks.
Source: @TheTerminal, Bloomberg Finance L.P.
4. Softer US economic activity could become a drag on earnings.
Source: @TheTerminal, Bloomberg Finance L.P.
• BofA’s model shows global earnings growth slowing in the months ahead.
Source: BofA Global Research
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5. Flows into the largest small-cap ETFs surged in July.
6. Retail purchases have been relatively subdued.
Source: Vanda Research
7. The S&P 500 typically does well in August during election years.
Source: @RyanDetrick
8. The S&P 500 put/call ratio is reversing off the lows from July 2023.
Source: Aazan Habib, Paradigm Capital
9. Roughly 64% of the MSCI ACWI’s (global index) year-to-date return is attributable to the top 10 contributors.
Source: Morgan Stanley Investment Management Read full article
10. Finally, here is a look at valuations relative to the past decade.
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Alternatives
1. Let’s start with some data on hedge funds from Bloomberg.
• Funds in the market:
Source: @TheTerminal, Bloomberg Finance L.P. Read full article
• Hedge fund launches:
– by region:
Source: @TheTerminal, Bloomberg Finance L.P. Read full article
– by strategy (2 charts):
Source: @TheTerminal, Bloomberg Finance L.P. Read full article
Source: @TheTerminal, Bloomberg Finance L.P. Read full article
• AUM by strategy:
Source: @TheTerminal, Bloomberg Finance L.P. Read full article
• Performance by region:
Source: @TheTerminal, Bloomberg Finance L.P. Read full article
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2. US VCs are calling a bit more capital to potentially invest in startups in the coming quarters.
Source: Carta
3. This chart shows venture-backed fusion energy companies.
Source: @wealth Read full article
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Credit
1. High-yield bond issuance has been strong this year.
Source: BofA Global Research
2. Investment-grade debt trading activity surged in 2024.
Source: @markets Read full article
3. Relative price changes of US high-yield bonds have diverged from small-cap stocks.
Source: BofA Global Research
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Global Developments
1. July was a volatile month as rate cut expectations boosted sovereign bonds and gold, while some risk assets struggled toward the second half of the month. Copper, oil, and agriculture declined.
Source: Deutsche Bank Research
2. Central banks have accelerated rate cuts.
Source: BofA Global Research
3. The global manufacturing PMI dipped back into contraction territory in July.
Source: S&P Global PMI
4. Car insurance prices have surged in the US and Europe.
Source: TS Lombard
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Food for Thought
1. Global wealth allocations:
Source: Bain & Company
2. Declines in teen births:
Source: @axios Read full article
3. US population growth by region:
Source: The Economist Read full article
4. US major party presidential and vice-presidential nominees by region:
Source: The Economist Read full article
5. Age of US presidents during their terms:
Source: @axios Read full article
6. COVID-19 in wastewater:
Source: @axios Read full article
7. Olympic sports with the highest injury rates:
Source: Casinority
8. The most American-made cars (based on the 2024 Cars.com American-Made Index):
Source: cars.com Read full article
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Have a great weekend!
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