The Daily Shot: 22-Aug-24
• The United States
• The United Kingdom
• The Eurozone
• Asia-Pacific
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Global Developments
• Food for Thought
The United States
1. The FOMC minutes reveal a readiness to start cutting rates as concerns over employment outweigh inflation uncertainty.
The vast majority observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting. Many participants commented that monetary policy continued to be restrictive, although they expressed a range of views about the degree of restrictiveness, and a few participants noted that ongoing disinflation, with no change in the nominal target range for the policy rate, by itself results in a tightening in monetary policy. …
… A majority of participants remarked that the risks to the employment goal had increased, and many participants noted that the risks to the inflation goal had decreased. Some participants noted the risk that a further gradual easing in labor market conditions could transition to a more serious deterioration. Many participants noted that reducing policy restraint too late or too little could risk unduly weakening economic activity or employment.
The word count trends below illustrate the shift in sentiment.
Source: Oxford Economics
• Adjusted for inflation, the fed funds rate is now above 2% as the monetary policy continues to tighten.
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2. The widely anticipated downward revision to payrolls was substantial.
Source: @economics Read full article
Source: CNBC Read full article
Here is the breakdown by sector.
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3. After the employment revision and dovish FOMC minutes, the market now expects 105 bps of Fed rate cuts this year, …
Source: @TheTerminal, Bloomberg Finance L.P.
… with a substantial chance of at least one 50 bps cut.
This chart illustrates the probability distribution of Fed target rate outcomes, comparing last week’s projections to current expectations (based on the CME model).
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4. The Canadian rail strike could significantly impact US agriculture and industry. We will provide further updates as the situation develops.
Source: @WSJ Read full article
5. Next, we have some updates on the housing market.
• Mortgage applications registered a pullback last week.
Refi activity also eased.
However, we should see an improvement this week as mortgage rates move back below 6.5%.
Source: Mortgage News Daily
• The U. Michigan’s index of buying conditions for houses remains at record lows.
However, realtors are starting to see some improvement in demand.
Source: @johnburnsjbrec
• The median size of new single-family homes has been trending lower.
Source: @axios Read full article
• Depressed Home Depot sales indicate that home improvement activity has been soft.
Source: @business Read full article
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The United Kingdom
1. Government borrowing was higher than expected in July (above economists’ estimates and the OBR forecast).
Source: Pantheon Macroeconomics
Source: @financialtimes Read full article
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2. The pound continues to move higher.
3. UK oil & gas development CapEx has collapsed.
Source: The Economist Read full article
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The Eurozone
1. Business activity in the euro area showed some improvement this month.
However, export orders continue to contract, …
… marking 30 consecutive months of declines (PMI < 50).
• Germany’s rebound in business activity was fleeting, with the composite PMI now firmly in contraction territory. Demand has been deteriorating.
Source: Reuters Read full article
• French business activity rebounded this month, boosted by the Paris Olympics.
Source: Reuters Read full article
However, hiring has stalled again. We will have more data from the PMI report tomorrow.
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2. Options traders are pricing in upside risk for the euro ahead of Powell’s Jackson Hole speech.
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Asia-Pacific
1. Japan’s business activity showed some improvement, with a slower contraction in manufacturing and robust growth in services.
2. Australia’s PMI report showed a similar trend to what we see in Japan.
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China
1. The mainland’s stock market remains under pressure as tech shares hit the lowest level since February.
2. Despite Beijing’s efforts to limit the decline in bond yields-viewed by authorities as signaling weaker economic conditions-the 10-year rate continues to fall.
3. Here is a look at monthly property sales and real estate investment relative to the 2015-2023 period.
4. The downtrend in stocks could lead to lower pay at securities firms.
Source: Gavekal Research
Average employee pay at securities firms has substantially lagged revenue and profits in recent years (also due to government pressure).
Source: Gavekal Research
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Emerging Markets
1. Carry traders have been frustrated by the Mexican peso’s weakness.
Source: @markets Read full article
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2. Argentina’s economic activity declined again in June.
3. South Africa’s CPI report surprised to the downside, …
… as goods inflation tumbles.
Bond yields have been falling.
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Cryptocurrency
Bitcoin is back above $60k, encountering resistance at its 50-day moving average.
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Commodities
1. The selloff in wheat prices continues in both the US …
… and Europe.
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2. Orange juice prices are surging as Brazilian growers estimate this year’s harvest will be much lower than earlier predictions due to drought conditions.
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Energy
1. US crude oil and refined product inventories declined last week, surprising to the downside.
Here are the inventory levels.
However, oil bulls remain frustrated as prices continue to move lower.
Source: Reuters Read full article
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2. US crude oil production is holding at record highs.
3. US gasoline futures are pushing pump prices lower, …
Source: @TheTerminal, Bloomberg Finance L.P.
… with a significant portion of the country now seeing gasoline prices below $3 per gallon.
Source: @MikeZaccardi, @GasBuddyGuy Read full article
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Equities
1. The Nasdaq 100 is now up almost 11% over the past ten days.
2. The S&P 500 equal weight index hit a record high.
3. The short end of the volatility curve illustrates the market’s focus on Powell’s speech at Jackson Hole.
Source: @TheTerminal, Bloomberg Finance L.P.
4. The correlation between the S&P 500 equal weight index (RSP) and long-term Treasuries (TLT) has moved deeper into negative territory as market focus shifts from inflation to growth concerns.
5. The Magnificent Seven stocks are headed for the first quarter of underperformance in almost two years.
6. The market has been rewarding companies known for returning cash (via dividends and buybacks), with firms focused on CapEx underperforming.
7. Target’s results suggest that consumers haven’t retreated for now.
8. The financial sector’s weight in the S&P 500 index has risen from 2020 lows, while tech’s weight is approaching the dot-com peak. (2 charts)
Source: Aazan Habib, Paradigm Capital
Source: Aazan Habib, Paradigm Capital
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9. The S&P 500’s rebound has decoupled from the FX carry index.
Source: Deutsche Bank Research
10. While money market fund assets are at record levels, they remain low relative to the S&P 500 market cap, indicating that cash levels on the sidelines are limited.
Source: @KevRGordon
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Global Developments
1. The combined shift in relative rates plus the carry unwind explains sharp FX moves over the past few weeks.
Source: Deutsche Bank Research
2. DM government debt is at historical highs.
Source: Deutsche Bank Research
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Food for Thought
1. Alphabet’s Q2 performance:
Source: @genuine_impact
2. Seafood from aquaculture vs. wild catch:
Source: Our World in Data
3. Passenger vehicles per capita:
Source: Codera Analytics
4. Differences between female and male life expectancy:
Source: Our World in Data
5. US homicide rate:
Source: John Roman Read full article
6. Trends in traffic stop volume in US cities:
Source: The New York Times Read full article
7. Comparison of bite force among various animals:
Source: Visual Capitalist Read full article
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