Growing concerns about the labor market depress consumer confidence

The Daily Shot: 25-Sep-24
• The United States
• The Eurozone
• Europe
• Asia-Pacific
• China
• Emerging Markets
• Commodities
• Energy
• Equities
• Rates
• Food for Thought

The United States

1. The Conference Board’s consumer sentiment index surprised to the downside, reflecting growing concerns about the labor market.

• The index registered its biggest monthly decline since 2021.

• Households are increasingly losing confidence in their ability to find a job, as evidenced by the Conference Board’s Labor Differential (2nd panel), which has dropped significantly below pre-COVID levels.

Source: AP News Read full article

• The spread between the Conference Board’s expectations and current conditions indices is rebounding, a pattern typically seen at the onset of recessions.

Source: @TheTerminal, Bloomberg Finance L.P.

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2. Election uncertainty has weighed on hiring.

Source: Goldman Sachs; @MikeZaccardi

3. The Richmond Fed’s regional manufacturing index fell to its lowest level since the COVID shock.

The region’s employment index fell to its lowest level since the Global Financial Crisis, with hiring expectations also deteriorating sharply.

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4. The divergence between growing sales and declining new orders in the Philly Fed district’s services sector suggests downside risks to future sales, indicating a potential slowdown in business activity if new demand doesn’t rebound.

Source: @TheTerminal, Bloomberg Finance L.P.

5. The market remains confident in additional jumbo Fed rate cuts, driven by uncertainty in the labor market.

– This chart illustrates market expectations for the year-end 2024 and year-end 2025 fed funds rate.

Source: @TheTerminal, Bloomberg Finance L.P.

• The US dollar continues to weaken.

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6. Next, we have some updates on the housing market.

• Home price appreciation was softer than expected in July.

• The Conference Board’s index of home purchase plans jumped this month …

… as mortgage rates declined.

• Housing affordability has improved slightly, but homebuyers still need an income of $115k/year to afford a median-priced home.

Source: Redfin

• More Americans expect to move primary residences over the next 12 months.

Source: John Burns

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The Eurozone

1. Germany’s Ifo index of business sentiment declined once again this month, …

Source: ifo Institute

Source: Reuters Read full article

… a trend that doesn’t bode well for economic growth.

Source: @DanielKral1, @OxfordEconomics

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2. Germans are facing the longest sick leave durations since reunification.

Source: @chrismbryant, @opinion Read full article

3. Dutch home price appreciation continues to accelerate.

4. Economists keep boosting their estimates for the euro-area core CPI at the end of the year, …

… while downgrading forecasts for consumer spending in 2024.

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5. The market sees a steeper path of ECB rate cuts than economists’ forecasts.

Source: @TheTerminal, Bloomberg Finance L.P.

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Europe

1. Container shipping costs from Asia continue to moderate.

Source: @TheTerminal, Bloomberg Finance L.P.

2. Electrification has decelerated in Europe.

Source: ING Read full article

3. Here is a look at nominal wage growth across Europe in Q2 2024.

Source: Eurostat Read full article

4. Poland’s slower wage growth is weighing on retail sales.

Source: ING

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Asia-Pacific

1. Asian currencies are surging, boosted by China’s latest wave of monetary easing.

2. Taiwan’s export orders topped expectations.

Source: Reuters Read full article

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3. Australia’s inflation continues to moderate.

Source: The Guardian Read full article

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China

1. The PBoC implemented its largest rate cut in years on its one-year term lending facility rate as part of a broad-based package of monetary easing measures.

Source: @economics Read full article

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2. Stocks continue to surge.

Source: @TheTerminal, Bloomberg Finance L.P.

• Will this rally be sustained?

Source: @JeffreyKleintop

• The Shanghai Stock Exchange Composite Index is holding long-term support.

• The iShares MSCI China ETF (MCHI) had the best day since early 2022.

The ETF held support with improving momentum.

• The options market is pricing a 16% probability of a 10% gain in MCHI by mid-November.

• Traders are bidding up call options on China-focused ETFs, pushing the volatility skew to multi-year lows.

Source: @TheTerminal, Bloomberg Finance L.P.

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3. The renminbi continues to rally.

4. Will China’s latest stimulus have a positive impact on global money supply?

Source: Simon White, Bloomberg Markets Live Blog

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Emerging Markets

1. Mexico’s biweekly core inflation dipped below 4%.

2. Economists have been lowering their estimates for Saudi GDP growth this year.

3. Hungary’s central bank resumed monetary easing after the Fed and ECB cut rates.

4. Nigeria’s central bank hiked rates again amid currency weakness.

5. The Malaysian ringgit has been surging, outperforming EM peers.

6. India has displaced China to become the largest country in the MSCI EM Index.

Source: Gavekal Research

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Commodities

1. Industrial metals surged following the news of China’s monetary easing.

Metals and mining shares were up sharply.

• Shares of lithium miners surged.

• More upside for gold miners as gold hits record highs?

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2. Coffee prices surge as Brazil faces its worst weather conditions since 1981, with below-average rainfall since April damaging coffee trees during their flowering stage.

• Sugar prices continue to rally.

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Energy

1. Brent crude is holding resistance at $75/bbl.

2. Oil positioning has been exceptionally bearish.

Source: @WarrenPies, @3F_Research

3. Henry Hub Natural Gas reversed roughly half of its summer correction ahead of a seasonally strong period.

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Equities

1. Shares of US companies with substantial exposure to China outperformed after the PBoC announced a broad package of monetary easing.

2. There is a wide variation in global earnings expectations.

Source: MRB Partners

3. This chart illustrates the contributions of earnings expectations and P/E multiples to the year-to-date performance of the S&P 500.

Source: @LizThomasStrat

4. The S&P 500 is at the top of its fair-value range but not extreme.

Source: Deutsche Bank Research

5. Investors have largely overlooked the elevated price-to-sales ratio due to the strength of profit margins.

Source: Gavekal Research

6. The market expects an 18% S&P 500 EPS growth by the end of 2025. Too optimistic?

Source: BofA Global Research

7. The S&P 500 Equal Weight index valuations remain inside the pre-COVID range.

8. The US equity market capitalization is approaching 50% of the global market cap.

h/t @KevRGordon

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Rates

1. The decline in the Fed’s RRP facility has helped prevent a significant drop in reserves despite ongoing QT. Once the RRP balance is depleted, the Fed will likely end QT to avoid disrupting money market operations.

Source: @LizThomasStrat

2. Here is a look at privately held Treasuries by maturity.

Source: Deutsche Bank Research

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Food for Thought

1. AI-related capital spending by company:

Source: @WSJ Read full article

2. US labor force participation rates for Hispanic and non-Hispanic workers:

Source: Wells Fargo Securities

3. Tourism as a share of GDP in select economies:

Source: Semafor

4. US imports and exports of cheese:

Source: @chartrdaily

5. Sources of threats faced by US local election officials in 2024:

Source: @BW Read full article

• Rising turnover in local election leadership roles:

Source: @BW Read full article

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6. The most unreliable airports in the US:

Source: Whitley Law Firm

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