The Daily Shot: 06-Sep-24
• The United States
• Canada
• The United Kingdom
• Europe
• Japan
• Asia-Pacific
• China
• Emerging Markets
• Energy
• Equities
• Rates
• Global Developments
• Food for Thought
The United States
1. Let’s begin with the labor markets.
• The ADP private employment report revealed the smallest gain in August since 2021.
Source: CNBC Read full article
– Seven out of ten sectors registered gains last month.
The ADP diffusion index.edged higher.
• Initial jobless claims remain relatively stable, …
… while continuing claims have been easing.
Here are the seasonally adjusted indices.
Source: @TheTerminal, Bloomberg Finance L.P.
Source: Reuters Read full article
• Layoff announcements increased last month.
• The nation’s labor force participation rate is projected to fall in the coming years due to the US aging population.
Source: @economics Read full article
• What should we expect from today’s jobs report?
– Economists see a good portion of the July temporary layoffs reversing in August.
Source: Goldman Sachs; @MikeZaccardi
– Here are the signals from leading indicators.
Source: Goldman Sachs; @MikeZaccardi
Below are some estimates for last month’s job gains.
– BofA (200k):
Source: BofA Global Research; @MikeZaccardi
– Morgan Stanley (185k):
Source: Morgan Stanley Research
– The Kalshi betting market (171k):
Source: Kalshi
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2. Q2 unit labor costs were revised downward, marking the slowest growth in over a decade.
3. The ISM Services PMI held steady in August, indicating modest growth.
• Demand was stronger than expected.
• The employment index showed slowing hiring activity.
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4. US auto sales declined last month, coming in below expectations.
Here is the share of domestically produced vehicles.
Source: Oxford Economics
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5. Treasury yields continue to fall.
6. Mortgage applications strengthened last week, …
… as mortgage rates ease further.
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7. The Redbook index of same-store sales has been rebounding.
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Canada
1. The services PMI remained in contraction mode last month as demand weakens.
2. Labor productivity continues to decline.
3. Canadian equities are trading at a valuation discount vs. the US, and price momentum is starting to improve on a relative basis. (2 charts)
Source: Aazan Habib, Paradigm Capital
Source: Aazan Habib, Paradigm Capital
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The United Kingdom
1. Construction activity continued to expand last month.
2. New car sales dipped below last year’s levels.
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Europe
1. Germany’s construction sector continues to be mired in a deep slump.
2. Euro-area retail sales are showing almost no growth.
Source: ING Read full article
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3. More firms are decreasing their earnings forecasts.
Source: PGM Global
4. This chart shows the shift in fuel sources for electricity production in the EU.
Source: Eurostat Read full article
5. Here is a look at youth unemployment rates.
Source: Eurostat Read full article
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Japan
1. Household spending was softer than expected in July (roughly unchanged from 2023).
2. The US-Japan rate differentials have been supporting the yen rally.
Source: @TheTerminal, Bloomberg Finance L.P.
3. BofA’s private clients have been selling Japanese stocks.
Source: BofA Global Research
4. Hedging costs remain high for Japanese investors buying Treasuries.
Source: Torsten Slok, Apollo
5. Electricity inflation could fall sharply in the coming months due to the resumption of public subsidies.
Source: Capital Economics
• Capital Economics does not expect any more policy tightening next year, driven by a stronger yen and lower inflation.
Source: Capital Economics
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Asia-Pacific
1. South Korean household debt has risen partly due to a rapid rise in home loans.
Source: Pantheon Macroeconomics
2. Australia’s trade surplus topped expectations.
• Mortgage lending has picked up momentum.
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China
1. Excess supply has weighed on manufactured goods prices.
Source: Pantheon Macroeconomics
2. Here is a look at outstanding mortgage balances over time.
Source: @business Read full article
3. China’s steel prices continue to sink.
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Emerging Markets
1. Let’s begin with Mexico.
• Unemployment remains at multi-year lows.
• CapEx spending dipped below 2023 levels in June.
• Mexico’s fiscal budget continues to deteriorate.
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2. Brazil’s trade surplus declined more than expected last month.
Source: Reuters Read full article
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3. South Africa’s electricity output has rebounded sharply this year, which should support economic growth.
4. Vietnam’s inflation eased last month.
• The trade surplus was higher than expected.
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Energy
1. As we saw yesterday, US crude oil inventories declined sharply last week. Gasoline inventories unexpectedly edged higher.
Here are the inventory levels.
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2. US gasoline futures are now trading below $2/gal.
• Crack spreads have deteriorated in recent weeks.
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3. Here is the options-implied distribution for WTI futures at the end of the year. The probability of US crude prices climbing above $80/bbl is below 13%.
4. Natural gas inventories increased less than expected last week, …
… now well inside the 5-year range.
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5. Energy funds are seeing substantial outflows.
Source: BofA Global Research
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Equities
1. How do stocks perform after the Treasury curve disinverts?
Source: Goldman Sachs; @MikeZaccardi
2. The relative performance of stocks versus bonds has diverged from US economic fundamentals, as reflected by the ISM PMI.
Source: BofA Global Research
3. Here is another look at valuations relative to the 20-year average.
Source: Truist Advisory Services
4. This chart shows stocks’ relative performance after deletion from major indices.
Source: @financialtimes Read full article
5. US equity funds registered their first outflow since June.
Source: BofA Global Research
6. The S&P 500 at 6000 by year-end?
Source: Barron’s Read full article
The options market sees a higher chance of the S&P 500 ending the year below 5000.
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7. Here is a look at corporate cash levels by sector.
Source: J.P. Morgan Asset Management
8. Next, let’s take a look at earnings yields and implied volatility (expected performance vs. perceived risk).
• Sectors:
• Equity factors:
• International markets:
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9. International firms are trading at increasingly larger discounts compared to their US peers.
Source: J.P. Morgan Asset Management
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Rates
1. There has been a significant increase in the supply of T-bills.
Source: Torsten Slok, Apollo
As a result, the T-bill-OIS spread is elevated.
• Typically, the Treasury issues a lot of T-bills during recessions.
Source: Torsten Slok, Apollo
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2. There is ongoing debate about how low the Fed will set its policy rate during this easing cycle.
Source: @economics Read full article
Source: @economics Read full article
The market now sees the terminal rate at just below 2.9%.
• The Fed’s rate cuts are anticipated to be steeper than those of the ECB and BoE.
Source: J.P. Morgan Asset Management
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3. Typically, the Treasury curve disinversion aligns with the onset of recessions.
Source: @TheTerminal, Bloomberg Finance L.P.
4. QT has been less effective in tightening reserves due to factors like the Fed’s RRP facility, the Treasury’s balances with the central bank, and the Fed’s support for regional banks.
Source: Simon White, Bloomberg Markets Live Blog
5. Treasury funds registered some outflows (2 charts).
Source: BofA Global Research
Source: BofA Global Research
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6. US rate implied volatility has been significantly higher than that of the Eurozone.
Source: @markets Read full article
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Global Developments
1. Global factory activity is contracting again.
Source: S&P Global PMI
• Here are the manufacturing PMIs by country/region.
Source: S&P Global PMI
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2. Real household incomes in advanced economies are set to grow at a solid pace.
Source: Oxford Economics
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Food for Thought
1. State gasoline tax rate changes in 2024:
Source: @EIAgov Read full article
2. Year-over-year growth in the number of households paying for streaming services:
Source: Bank of America Institute
3. Field of study regret among college graduates:
Source: The Washington Post Read full article
4. How Russia circumvents Western sanctions:
Source: BofA Global Research
5. Focus areas of oncology clinical trials:
Source: @financialtimes Read full article
6. Migrant encounters at the US-Canada border:
Source: The Economist Read full article
7. Beer taxes:
Source: Tax Foundation Read full article
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Have a great weekend!
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