Posted on by The Daily Shot Editor: Lev Borodovsky

Market-based inflation expectations continue to sink with oil prices

The Daily Shot: 11-Sep-24
• The United States
• The United Kingdom
• The Eurozone
• Europe
• Japan
• China
• Emerging Markets
• Cryptocurrency
• Commodities
• Energy
• Equities
• Credit
• Global Developments
• Food for Thought

 

The United States

1. The NFIB Small Business Optimism Index registered a sharp decline in August, …
 

 
… amid increased uncertainty.
 

 
• More firms have been reporting slower sales and lowered sales expectations.
 

 
• The NFIB earnings index hit its lowest level since the GFC.
 

 
• Here is the employment index.
 

 
• More firms expect to boost CapEx.
 

 
As a reminder, the NFIB survey is not adjusted for political affiliation and tends to be sensitive to election-related events in the US.

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2. Next, we have some additional data on inflation.
 
• Market-based inflation expectations continue to sink with oil prices.
 

 
• August saw a significant drop in online grocery prices.
 
Source: @economics   Read full article  
 
• BofA’s internal data shows slower growth in rent payments.
 
Source: Bank of America Institute  
 
• The Oxford Economics supply-chain stress tracker has been rising.
 
Source: Oxford Economics  
 
• Nomura anticipates a slowdown in Owners’ Equivalent Rent CPI for August.
 
Source: Nomura Securities  
 
But supercore inflation is expected to be higher.
 
Source: Nomura Securities  

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3. Treasury yields continue to sink (2 charts).
 

 

 
• The market now expects the Fed to lower the fed funds rate to 2.7% before halting rate cuts, …
 

 
… pricing in 116 bps of rate reductions this year and 142 bps in 2025.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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4. 42% of institutional investors expect a mild recession in the next 12 months, according to S&P Global.
 
Source: S&P Global PMI  
 
5. Construction spending on projects subsidized by the CHIPS Act and IRA is starting to slow.
 
Source: BCA Research  
 
6. This chart depicts income and spending across different income quintiles.
 
Source: Jack Ablin, Cresset Wealth Advisors  
 
• Deposit balances remain above pre-COVID levels.
 
Source: Bank of America Institute  
 
• Higher-income US households had the greatest transaction growth in Japan over the summer months, based on BofA customer data.
 
Source: Bank of America Institute  

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The United Kingdom

1. UK GDP remained flat for the second consecutive month in July. We’ll provide further details on the monthly GDP report tomorrow.
 

 
2. The unemployment rate declined further in July.
 

 
However, youth unemployment hit the highest level since the COVID shock.
 

 
Source: The Guardian   Read full article  
 
• UK payroll growth has decelerated at a faster pace than in the US.
 
Source: Nomura Securities  
 
• Wage growth continues to slow.
 

 
Source: Reuters   Read full article  

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3. A BoE rate cut is fully priced in for November.
 

 
• Gilt yields continue to move lower.
 

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The Eurozone

1. The Taylor rule suggests that further ECB rate cuts are appropriate.
 
Source: @JeffreyKleintop  
 
• Bund yields continue to move lower.
 

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2. As mentioned earlier, German and French factory output declined in July. Spain and Italy likewise experienced weaker manufacturing production.
 

 
3. Germany’s automotive industry is facing challenges amid increased competition from China.
 
Source: Nomura Securities  

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Europe

1. Sweden’s monthly GDP index unexpectedly declined in July.
 

 
• Services output eased, …
 

 
… but industrial production improved.
 

 
• Household consumption strengthened.
 

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2. Norway’s industrial production retreated from its June peak but stayed at a high level.
 

 
Inflation continues to ease.
 

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3. Here is a look at the employment rates of recent graduates across European countries.
 
Source: Eurostat   Read full article  

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Japan

1. The yen continues to strengthen.
 

 
2. Japan’s machine tool orders dipped below 2023 levels last month.
 

 
3. The private sector is stepping up JGB purchases as the BoJ steps back.
 
Source: @markets   Read full article  

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China

1. The rotation from stocks to bonds continues (2 charts).
 

 

 
• Government bond yields have decoupled from policy anchor rates.
 
Source: TS Lombard  
 
• China’s stock market is increasingly lagging behind its global counterparts.
 
Source: @markets   Read full article  

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2. Delaying the retirement age in China could help soften the impact of a declining labor force.
 
Source: Eric Zhu   Read full article  
 
Source: @WSJ   Read full article  

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3. Business sentiment has been deteriorating.
 
Source: The Economist   Read full article  
 
4. China’s aging demographics are still better than Japan’s.
 
Source: Torsten Slok, Apollo  
 
5. China dominates global battery production.
 
Source: PGM Global  

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Emerging Markets

1. Chile’s trade surplus was lower than expected last month.
 

 
But copper exports remain robust.
 

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2. Brazil’s inflation eased last month.
 

 
3. Turkey’s industrial production edged higher in July.
 

 
4. Here is a look at India’s GDP trends by sector.
 
Source: Capital Economics  
 
5. Earnings growth is improving relative to developed markets.
 
Source: MRB Partners  

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Cryptocurrency

1. Stablecoin market cap is at a record high.
 
Source: CoinMarketCap  
 
• The total crypto market cap is about $2 trillion. Here are the key contributions.
 
Source: CoinMarketCap  
 
• Bitcoin dominance has been increasing.
 
Source: CoinMarketCap  

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2. Bitcoin declined during the US presidential debate.
 

 
Source: @crypto   Read full article  

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Commodities

1. Bloomberg’s broad commodity index dropped to its lowest point since 2021, dragged down by falling oil prices.
 

 
2. Battery commodity prices have been trending lower.
 
Source: PGM Global  
 
3. Here is a look at the growth in India’s commodity demand.
 
Source: Capital Economics  
 
• This chart shows India’s commodity consumption as a share of global consumption.
 
Source: Capital Economics  

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Energy

1. Brent crude dipped below $70/bbl.
 

 
Source: Reuters   Read full article  
 
The curve has flattened sharply over the past month.
 

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2. Prices at the pump will keep moving lower in the US.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
3. Energy stocks are under pressure from lower oil prices.
 

 
4. Here is a look at aggregate oil and refined products positioning by money managers.
 
Source: Goldman Sachs; @AyeshaTariq  

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Equities

1. Mid-cap valuations appear attractive both relative to their historical levels and compared to large caps.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
• Mid-caps tend to outperform after the first Fed rate cut.
 
Source: Goldman Sachs; @MikeZaccardi  
 
• Mid-cap and small-cap stocks are expected to deliver stronger EPS growth next year compared to large caps (2 charts).
 
Source: Goldman Sachs; @MikeZaccardi  
 
Source: Goldman Sachs; @MikeZaccardi  

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2. The US stock/bond price ratio is testing support, although momentum has significantly weakened.
 

 
3. S&P Global’s risk appetite indicator fell further this month, reflecting a deteriorating outlook for US equities.
 
Source: S&P Global PMI  
 
• What are the drivers of US equity returns over the next 30 days? Here are the results from S&P Global’s survey.
 
Source: S&P Global PMI  
 
• This chart shows investors’ sector outlook.
 
Source: S&P Global PMI  

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4. Bank shares struggled on Tuesday.
 

 
Source: @business   Read full article  

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5. Many post-IPO stocks have been underperforming.
 

 
6. Equity strategists have been chasing the market higher.
 
Source: @markets   Read full article  
 
7. Here is a look at R&D and CapEx spending by sector.
 
Source: J.P. Morgan Asset Management  

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Credit

1. Falling Treasury yields should ease banks’ unrealized losses on securities holdings.
 
Source: FDIC  
 
2. US corporate bankruptcies remain elevated.
 
Source: S&P Global Market Intelligence  

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Global Developments

1. The breadth of OECD leading indicators remains firm.
 
Source: TS Lombard  
 
2. China targets “connector” countries to boost exports amid geopolitical fragmentation.
 
Source: @financialtimes   Read full article  
 
3. Here is a look at the shifts in US greenfield investments amid elevated geopolitical tensions.
 
Source: @financialtimes   Read full article  
 
4. The Suez Canal remains largely closed to container traffic.
 
Source: Goldman Sachs; @AyeshaTariq  

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Food for Thought

1. Heavier vehicles decrease driver risk but increase fatality risk for others.
 
Source: The Economist   Read full article  
 
2. US five-year survival rates by cancer type:
 
Source: @financialtimes   Read full article  
 
3. Changes in mosquito season length:
 
Source: The Washington Post   Read full article  
 
4. US 2024 presidential election probabilities in the betting markets (Predictit and Polymarket).
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
• The polling impact of the first presidential debate over the years:
 
Source: MUFG Securities  

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5. Diversification of survey methods as the number of US public pollsters increases:
 
Source: Pew Research Center   Read full article  
 
6. Snap’s user growth and FY 2023 operating performance:
 
Source: @chartrdaily  
 
7. Ridership of popular Amtrak routes:
 
Source: @WSJ   Read full article  
 

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