The Daily Shot: 14-Aug-24
• The United States
• The United Kingdom
• The Eurozone
• Asia-Pacific
• China
• Emerging Markets
• Commodities
• Energy
• Equities
• Credit
• Food for Thought
The United States
1. The PPI report came in softer than expected, …
… with core PPI slightly negative in July.
• The weakness was driven by trade services, a measure of business markups, suggesting that companies’ pricing power has diminished as end users resist high prices.
Source: Reuters Read full article
It’s worth noting that outside of the tech mega-caps, margin expectations have been trending lower.
• On the other hand, the core PPI excluding trade services came in stronger than expected.
The PPI diffusion index climbed.
Source: Simon White, Bloomberg Markets Live Blog
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2. Stocks and bonds rallied in response to softer producer price increases (2 charts).
The US dollar declined.
• The market is still pricing in the possibility of one or more 50 bps rate cuts this year, …
… with a total of 110 bps of rate reductions anticipated.
Source: @TheTerminal, Bloomberg Finance L.P.
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3. Here is a look at the drivers of core CPI growth since the start of COVID.
Source: @AnnaEconomist, @TheTerminal Read full article
4. The NFIB small business sentiment index surprised to the upside, climbing to its highest level in nearly 2.5 years. Small business outlook improved sharply in July (2nd panel). It should be noted that this indicator tends to be sensitive to US political events.
Source: Reuters Read full article
• More firms reported declining sales.
• The index of hiring plans has been holding steady for three months in a row.
• The indicators of compensation and compensation plans declined last month.
• Fewer firms plan to raise prices.
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The United Kingdom
1. The UK unemployment rate declined in recent months, surprising to the downside.
• Employment increased (2 charts).
• The size of the UK workforce has diverged from its pre-COVID trend.
Source: Pantheon Macroeconomics
• Job vacancies edged lower in July.
• Wage growth eased further.
Source: The Guardian Read full article
• Labor shortages have moderated.
Source: ING
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2. The pound strengthened in response to the jobs report.
The market is pricing in 46 bps of BoE rate cuts before the end of the year.
Source: @TheTerminal, Bloomberg Finance L.P.
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3. The July inflation report was softer than expected. We will have more details tomorrow.
4. Economists continue to upgrade their estimates for the 2024 GDP growth.
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The Eurozone
1. Germany’s ZEW Expectations of Economic Growth index tumbled this month, surprising to the downside.
Source: RTT News Read full article
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2. Here is an overview of the euro-area current account balances, broken down by country and economic sector.
Source: IMF Read full article
3. EUR/USD is testing resistance at 1.10.
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Asia-Pacific
1. Japan’s retail traders have been bullish on the yen.
Source: @markets Read full article
2. South Korea’s unemployment rate is near multi-decade lows.
• South Korea’s export price gains have accelerated.
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3. Australian consumer confidence is gradually recovering.
• Gains in labor costs have been slowing.
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4. The RBNZ delivered its first rate cut since the start of COVID, responding to slowing growth. This was a bit of a surprise for the markets.
The central bank sharply lowered its forecasted rate trajectory.
Source: @economics Read full article
In previous rate-cutting cycles, the RBNZ underestimated the level of accommodation it ultimately provided.
Source: Capital Economics
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• The Kiwi dollar tumbled (2 charts).
• Bond yields dropped.
• New Zealand’s stocks rallied.
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China
1. Despite Beijing’s efforts to cool the bond market, investors continue to find ways to purchase China’s government debt. Bond yields declined again.
Source: @markets Read full article
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2. Loan growth turned negative for the first time in years.
Source: @markets Read full article
• Households’ leverage is no longer growing (2 charts).
Source: @markets Read full article
• Here are China’s credit trends by sector.
Source: Pantheon Macroeconomics
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3. Stock prices continue to sink.
4. Given this week’s gains in the yuan, will the yen strengthen further? The two currencies have been correlated this year.
Source: @TheTerminal, Bloomberg Finance L.P.
5. China’s trade surplus with the US has declined, although it was offset by other trading partners.
Source: Morgan Stanley Research
6. The service sector accounts for the greatest share of employment, which drives consumption.
Source: Pantheon Macroeconomics
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Emerging Markets
1. Brazil’s service sector has been performing well.
2. A third of South Africa’s labor force is currently unemployed.
• South Africa’s mining output declined in June.
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3. Emerging market countries are increasingly exporting to other emerging markets rather than to advanced economies.
Source: HSBC
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Commodities
1. Weak demand in China is pressuring iron ore and steel prices (3 charts).
Source: Reuters Read full article
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2. Prices of US high-protein wheat, used for bread making, have hit their lowest level since 2020.
3. Global sugar futures are entering a seasonally choppy period before advancing into Q4.
Source: Damanick Dantes; Bloomberg
4. The Bloomberg Commodity Index typically experiences a minor seasonal advance before weakness continues in Q4.
Source: Damanick Dantes; Bloomberg
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Energy
1. The IEA is projecting softer crude oil demand, largely driven by weakening consumption in China.
Source: IEA; @HFI_Research
Source: @WSJ Read full article
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2. Bearish positioning could be a tailwind for oil prices.
Source: Goldman Sachs; @MikeZaccardi
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Equities
1. It’s been a strong four days for US stocks.
• The S&P 500 is testing resistance at the 50-day moving average.
The same is true for the S&P mid-cap index.
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2. VIX is back below 20, …
… but the front end of the vol curve is sharply inverted ahead of the CPI report.
Source: @TheTerminal, Bloomberg Finance L.P.
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3. CTAs have reduced their exposure to stocks.
Source: Deutsche Bank Research
• Investor risk appetite is down sharply, according to S&P Global.
Source: S&P Global PMI
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4. What will drive US equity returns over the next 30 days?
Source: S&P Global PMI
5. Correlations among stocks in the S&P 500 and Nasdaq 100 have increased but are not at extreme levels.
6. It’s been a while since the Russell 2000 reached a record high.
h/t @KevRGordon
7. Investors are once again focused on corporate balance sheets.
Source: BofA Global Research
8. Margins for US mega-cap tech stocks have peaked.
Source: TS Lombard
9. It appears that utilities are no longer just a defensive sector; they have also become an indirect play on AI.
Source: Reuters Read full article
Investors agree (2 charts).
Source: Deutsche Bank Research
Source: BofA Global Research
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Credit
1. DM country debt service ratios are relatively low compared with previous cycles. (2 charts)
Source: TS Lombard
Source: TS Lombard
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2. CMBS debt trades cheap to corporate credit.
Source: Deutsche Bank Research
3. Commercial paper rates have been falling as the market prices in Fed rate cuts.
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Food for Thought
1. Power outages:
Source: @WSJ Read full article
2. The average length of heat waves:
Source: Bank of America Institute
3. Selected US states’ net population gains from other states:
Source: @WSJ Read full article
4. Disparity between female prevalence in medical conditions and their representation in clinical trials:
Source: @financialtimes Read full article
5. US population without health insurance:
Source: @axios Read full article
6. Voter trust in handling the US economy:
Source: @financialtimes Read full article
7. The most trafficked animals (based on seizure records):
Source: Statista
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