Will US home prices decline over the next year?

The Daily Shot: 05-Aug-20
The United States
Canada
The United Kingdom
The Eurozone
Asia – Pacific
China
Emerging Markets
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. Let’s begin with the housing market.
 
High-frequency indicators point to accelerating home price appreciation in recent weeks.
 
Source: AEI Housing Center  
 
Record low interest rates have made home affordability the best it’s been in four years.
 
Source: Black Knight  
 
Here is the last time housing was this affordable, by state.
 
Source: Black Knight  
 
However, CoreLogic expects home prices to be below current levels next summer.
 
Source: CoreLogic  
 
Weak consumer confidence could weigh on housing-related inflation going forward.
 
Source: BofA Merrill Lynch Global Research  

——————–

 
2. Next, we have some updates on the labor market.
 
July is usually a slow month for payrolls.
 
Source: CIBC Capital Markets  
 
This chart shows unemployment income replacement rates by occupation.
 
Source: Scotiabank Economics  
 
The Paychex/Markit small business employment index fell to new lows last month.
 
Source: Paychex | IHS Markit Small Business Employment Watch   Read full article  
 
However, weekly hours improved further.
 
Source: Paychex | IHS Markit Small Business Employment Watch   Read full article  

——————–

3. Credit card delinquencies have been relatively low in recent months.
 
Source: @WSJ   Read full article  
 
Credit/debit card spending has been flat since mid-June and remains more than 10% below last year’s levels.
 
Source: JP Morgan, @jessefelder   Read full article  

——————–

 
4. Factory orders rose sharply in June, boosted by automobile demand (2nd chart).
 

——————–

 
5. Manufacturers think that customers’ inventories are too low, which could support factory activity in the months ahead.
 
Source: @RenMacLLC  
 
6. Planned capital expenditures are starting to recover.
 
Source: Morgan Stanley Research  
 
7. Goldman’s current activity indicator (CAI) declined last month.
 
Source: Goldman Sachs  
 
8. Unlike the worst quarter of the 2007-09 recession, last quarter’s GDP decline was driven primarily by the unprecedented drop in demand for services, according to Bain.
 
Source: Bain & Company  
 
9. E-commerce sales have risen well above trend.
 
Source: BofA Merrill Lynch Global Research  
 
10. US foreign trade remains depressed.
 
Source: @GregDaco  


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Canada

1. The Canadian dollar has rebounded to pre-crisis levels.
 

 
The rally was driven by US dollar weakness and the rebound in crude oil.
 
Source: CIBC Capital Markets  

——————–

 
2. Consumer confidence is recovering.
 

 
3. The manufacturing sector swang into growth last month.
 


Back to Index

 

The United Kingdom

1. Loan loss provisions spiked this year.
 
Source: @markets   Read full article  
 
2. This chart shows the proportion of employees who have lost work (by age group).
 
Source: Resolution Foundation   Read full article  


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The Eurozone

1. Spain’s unemployment unexpectedly decreased last month.
 

 
2. The fiscal situation in France has been deteriorating.
 
Source: Pantheon Macroeconomics  
 
3. Italy’s 30yr bond yield is nearing record lows.
 

 
4. Germany has provided the most aid to firms compared to other European countries.
 
Source: Pavilion Global Markets  
 
5. The euro-area effective retirement age has been rising this century.
 
Source: ECB   Read full article  


Back to Index

 

Asia – Pacific

1. Japan’s service sector is still in contraction mode (PMI < 50).
 

 
2. Singapore’s business activity (manufacturing & services) is yet to stabilize.
 
Source: IHS Markit   Read full article  
 
3. The inverse correlation between Asian shares and the US dollar is near multi-year highs.
 
h/t Moxy Ying  
 
4. Next, we have some updates on Australia.
 
Service sector activity is expanding at the fastest pace in years.
 

 
Online searches for “unemployment” are moderating.
 
Source: Goldman Sachs  
 
Construction is still weakening but at a slower pace.
 

 
Mortgage financing for owner-occupied housing rebounded sharply in June.
 

——————–

 
5. Finally, here is a look at New Zealand’s employment report.
 
The labor market remained resilient in Q2, helped by government support.
 

 
Remarkably, the unemployment rate declined (economists expected a sharp increase).
 

 
However, hours worked plummetted.
 
Source: Goldman Sachs  
 
Labor force participation fell.
 

 
Labor costs grew at the slowest pace in years.
 

 
The Kiwi dollar jumped in response to the surprisingly strong employment figures.
 


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China

1. The renminbi continues to advance against the dollar (although it has weakened against a basket of currencies – #2 here)
 

 
Widening rate differentials with the US are supporting China’s currency.
 

——————–

 
2. The services PMI unexpectedly declined last month but remains in growth mode.
 

 
3. China was the world’s third-largest source of foreign investment during the 2016-19 period, according to ANZ.
 
Source: ANZ Research  


Back to Index

 

Emerging Markets

1. Let’s begin with LatAm vehicle sales in July.
 
Chile:
 

 
Mexico:
 

 
Brazil:
 

——————–

 
2. Next, we have some additional updates on Brazil.
 
Industrial production (strong rebound):
 

 
Electricity consumption:
 
Source: Morgan Stanley Research  
 
Workplace-visits relative to other LatAm economies:
 
Source: ING  

——————–

 
3. It seems that Argentina has reached a deal on debt restructuring.
 
Source: @WSJ   Read full article  
 
Bond prices climbed.
 

——————–

 
4. Indonesia’s GDP declined more than expected last quarter.
 

 
5. Here are some updates on India.
 
Top-rated firms have access to debt financing at record-low rates.
 
h/t Rahul Satija  
 
RBI’s aggressive rate cuts have not resulted in stronger bank lending.
 
Source: ING  
 
Private equity deal count is rising in India, outpacing both the US and China.
 
Source: DeepMacro  

——————–

 
6. Turkey’s funding markets are under stress, with the overnight borrowing costs soaring.
 
Source: @IceCapGlobal  
 
Sovereign credit default swap spreads are elevated relative to other EM economies.
 
Source: @NancyRLazar1  
 
And the stock market has rolled over.
 

——————–

 
7. EM dollar-denominated bond yields are at multi-year lows.
 
Source: @ISABELNET_SA, @MorganStanley  
 
8. EM fund flows have recovered.
 
Source: Goldman Sachs  


Back to Index

 

Commodities

1. Let’s begin with precious metals.
 
Gold blasted past $2k.
 

 
ETF holdings of gold now exceed Germany’s gold reserves.
 
Source: @markets   Read full article  
 
BofA clients are increasing their holdings of precious metals ETFs.
 
Source: BofA Merrill Lynch Global Research  

——————–

 
2. Corn prices in China have been climbing.
 
Source: @WSJ   Read full article  
 
But that’s not the case in the US – despite higher purchases from China (2nd chart).
 

Source: @WSJ   Read full article  
 
This chart shows the amount of US corn and soybeans sold.
 
Source: @ReutersCommods, @kannbwx   Read full article  
 
The US-China deal review is coming up.
 
Source: Reuters   Read full article  


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Energy

1. Brent is at resistance.
 

 
2. China’s purchases of US energy products have been well below target.
 
Source: Reuters   Read full article  
 
Here is the distribution of US energy products sold to China.
 
Source: Reuters   Read full article  


Back to Index

 

Equities

1. Volatility could rise sharply this year.
 
Source: MarketDesk Research  
 
2. The Nasdaq put/call ratio shows risk appetite at extreme levels.
 
Source: @RunItTwice2  
 
3. Directing order flow from retail investors has been very profitable this year.
 
Source: @jessefelder   Read full article  
 
4. E*TRADE customers sharply reduced their exposure to real estate and consumer staples last month.
 
Source: E*TRADE Financial Corporation  
 
5. The amount of SPAC capital raised this year has been impressive.
 
Source: Goldman Sachs, @tracyalloway  
 
6. Apple’s weight in the S&P 500 is a record for single-stock concentration.
 
Source: @StrategasRP  
 
7. Passive ETFs continue to enjoy massive inflows. That’s not the case for passive mutual funds.
 
Source: @DaveNadig, @EricBalchunas  
 
8. There have been quite a few ETN liquidations this year.
 
Source: Bloomberg Law   Read full article  
 
9. Here is the average performance of a stock after a share split.
 
Source: @StrategasRP  


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Credit

1. European M&A-related high-yield issuance has picked up.
 
Source: @WSJ   Read full article  
 
2. Credit inflows have been robust.
 
Source: BofA Merrill Lynch Global Research  
 
3. Tightening credit standards at banks point to much higher defaults for high-yield debt.
 
Source: Deutsche Bank Research  
 
4. Retailmageddon has accelerated this year.
 
Source: @lisaabramowicz1, @joshfromalaska, @theterminal  


Back to Index

 

Rates

1. Treasury yields keep drifting lower.
 
Source: @TheTerminal  
 
The trading range has been tightening.
 

——————–

 
2. TIPS yields (effective real rates) continue to tumble.
 
Source: @Not_Jim_Cramer  
 
3. This chart compares the 2020 Fed currency swap balances with the levels we saw after the financial crisis.
 
Source: @WSJ   Read full article  
 
4. So far, neither repo nor effective fed funds rates show any liquidity tightness in money markets.
 
Source: Pavilion Global Markets  


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Global Developments

1. Close to 70% of restaurants globally have reopened, according to OpenTable.
 
Source: Morgan Stanley Research  
 
2. This chart shows the changes in property sales this year.
 
Source: Fitch Ratings  
 
3. Online search activity for commercial real estate has leveled off.
 
Source: Arbor Research & Trading  
 
4. Global manufacturing returned to growth in July.
 
Source: World Economics   Read full article  
Source: @JeffreyKleintop  


——————–

Back to Index

 

Food for Thought

1. Reopening plans at US colleges:
 
Source: Statista  
 
2. MLB TV ratings relative to last season:
 
Source: @WSJ   Read full article  
 
3. Comfort levels with various activities for Millennials and baby boomers:
 
Source: Morning Consult   Read full article  
 
4. US crime statistics for 2020 relative to previous years:
 
Source: The Economist   Read full article  
 
5. Flexible options for employees:
 
Source: @WSJ   Read full article  
 
6. Views on the Confederate flag:
 
Source: Morning Consult   Read full article  
 
7. The 2020 decline in CO2 emissions in perspective:
 
Source: ECB   Read full article  
 
8. US cannabis retail sales estimates:
 
Source: Marijuana Business Daily  
 
9. The most-Googled “why do” question in each state:
 
Source: Mental Floss   Read full article  

——————–


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Pandemic boosts public construction spending

The Daily Shot: 04-Aug-20
The United States
The Eurozone
Europe
Japan
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. The ISM manufacturing PMI report showed US factory activity expanding at a faster pace in July.
 

 
New orders accelerated, while export orders returned to growth (PMI > 50).
 

 
Factory orders point to further gains in the headline ISM index ahead.
 
Source: @Not_Jim_Cramer  
 
However, manufacturing employment remains in contraction territory (2 charts).
 

Source: Pantheon Macroeconomics  
 
Prices paid by factories are no longer declining.
 

 
Separately, the Milwaukee (regional) PMI has not yet returned to growth.
 

——————–

 
2. US construction spending declined for the fourth month in a row in June.
 

 
Year-over-year growth in private construction spending has stalled.
 

 
However, public construction expenditures strengthened, boosted by healthcare.
 

 
FEMA provided some of the funds.
 
Source: FEMA   Read full article  

——————–

 
3. Next, we have some updates on the labor market.
 
Small business employment peaked in late June.
 
Source: Homebase  
 
Because of the sampling periods, the July payrolls report will still incorporate gains in small business jobs.
 
Source: Homebase  
 
PPP small business funding may have significantly curtailed layoffs.
 
Source: S&P Global Market Intelligence  
 
The percentage of Americans experiencing loss of employment income keeps climbing.
 
Source: @wolfofwolfst   Read full article  

——————–

 
4. The Midwest registered the largest increase in business applications.
 
Source: DeepMacro  
 
5. Trucking loads have rebounded sharply but appear to be moderating.
 
Source: Morgan Stanley Research  
 
6. US vehicle sales improved further in July.
 
Source: WARD’s Automotive Group  
 
7. School and daycare closings will create a substantial drag on the nation’s GDP growth.
 
Source: Arbor Research & Trading  


Back to Index

 

The Eurozone

1. European manufacturing is back in growth mode. Earlier, we saw the PMI gains in Germany and France. Below, we have factory activity trends for Italy and Spain.
 
Italy:
Source: World Economics   Read full article  
 
Spain:
Source: World Economics   Read full article  
 
Here is the final PMI at the Eurozone level (firmly in growth territory).
 
Source: World Economics   Read full article  
 
However, just like in the US, employment remains in contraction territory.
 

——————–

 
2. Here are a couple of additional charts on Italy.
 
New car registrations (year-over-year):
 

 
Electricity demand:
 
Source: Morgan Stanley Research  

——————–

 
3. Spain’s second wave appears to be less deadly.
 
Source: Gavekal   
 
4. Sales are rising for German small-cap firms.
 
Source: Pavilion Global Markets  
 
Separately, the increase in investor expectations could provide a further lift for German equities.
 
Source: Pavilion Global Markets  

——————–

 
5. The July CPI bump is likely to be reversed this month.
 
Source: Pantheon Macroeconomics  


Back to Index

 

Europe

1. Sweden’s manufacturing returned to growth.
 

 
2. Norway’s unemployment rate unexpectedly paused in July.
 

 
3. Poland’s factory activity accelerated with the Eurozone.
 
Source: World Economics   Read full article  
 
However, manufacturing in the Czech Republic remains in contraction mode.
 
Source: World Economics   Read full article  
 
Separately, the Czech fiscal situation continues to deteriorate.
 


Back to Index

 

Japan

1. The Tokyo core CPI surprised to the upside.
 

 
2. Last month’s vehicle sales remained 20% below 2019 levels.
 

 
3. The monetary base has been climbing rapidly since the BoJ boosted stimulus.
 


Back to Index

 

Asia – Pacific

1. South Korea’s core CPI is off the lows.
 

 
The nation’s consumer confidence is gradually recovering.
 
Source: ANZ Research  

——————–

 
2. Singapore’s manufacturing returns to growth.
 

 
3. Next, we have some updates on Australia.
 
Consumer confidence:
 

 
Retail sales (upside surprise):
 

 
Retail sales volume (year-over-year):
 
Source: Goldman Sachs  
 
The ASX’s performance from March lows vs. previous recoveries:
 
Source: @DoyleAUD  


Back to Index

 

China

1. According to Markit, manufacturing is expanding at the fastest pace in a decade.
 

 
2. The renminbi has been weakening against the CFETS currency basket (following the dollar lower).
 

 
3. The ChiNext/Shanghai Composite ratio can be viewed as the relative performance of the “new” vs. “old” economy.
 
h/t @sharonchenhm  
 
4. The size of the PBOC’s balance sheet has been relatively stable over the past few years.
 
Source: Goldman Sachs  
 
5. Americans increasingly have an unfavorable view of China.
 
Source: Pew Research Center   Read full article  


Back to Index

 

Emerging Markets

1. Let’s begin with the July manufacturing PMI updates.
 
Brazil (impressive gains):
 
Source: IHS Markit   Read full article  
 
Mexico (deep in contraction mode):
 
Source: World Economics   Read full article  
 
India (still weak):
 
Source: World Economics   Read full article  
 
Russia (yet to stabilize):
 
Source: World Economics   Read full article  
 
Turkey (rapid acceleration):
 
Source: IHS Markit   Read full article  

——————–

 
2. Here are a couple of other updates on Turkey.
 
The lira:
 
Source: @financialtimes   Read full article  
 
Current account:
 
Source: @financialtimes   Read full article  

——————–

 
3. South Africa’s July car sales were still 30% below last year’s levels.
 

 
4. Chile’s economic activity remains depressed.
 

Source: Pantheon Macroeconomics  

——————–

 
5. Argentina’s demand for the US dollar spiked.
 
Source: @markets   Read full article  
 
Will we see a debt restructuring deal soon?
 
Source: @markets   Read full article  

——————–

 
6. A weaker US dollar means outperformance for EM shares (2 charts).
 
Source: @ISABELNET_SA, @BofAML   Read full article  
Source: @StrategasRP  


Back to Index

 

Cryptocurrency

Ethereum’s outperformance has been impressive.
 
Source: @WSJ   Read full article  


Back to Index

 

Energy

1. Exxon and Chevron reported unprecedented losses.
 
Source: @financialtimes   Read full article  
 
2. US natural gas futures spike despite bloated inventories (2nd chart). Foreign demand for LNG is starting to pick up.
 


Back to Index

 

Equities

1. Some of the trends we saw earlier this summer remain intact.
 
Hedge funds’ picks still in favor:
 

 
Investor preference for companies with strong balance sheets:
 

 
Rewarding companies with China exposure:
 

 
Growth vs. value:
 

——————–

 
2. Lowflation has been boosting the growth/value outperformance.
 
Source: MarketDesk Research  
 
3. Here is the updated year-to-date performance attribution.
 
The S&P 500:
 

 
The S&P 600 (small caps):
 

——————–

 
4. Analysts are concerned about rising market concentrations.
 
Source: @Not_Jim_Cramer  
 
5. Investment-grade debt yield has converged with the S&P 500 dividend yield for the first time.
 
Source: @lisaabramowicz1, @TheOneDave  
 
6. The put/call ratio continues to show elevated risk appetite.
 
Source: @danny_kirsch  
 
7. Analysts are boosting S&P 500 quarterly EPS estimates for the first time since Q1 2018.
 
Source: @FactSet   Read full article  
 
8. Is the low-vol factor making a comeback?
 
Source: MarketDesk Research  


Back to Index

 

Credit

1. Banks have tightened credit standards across the board. Demand for credit weakened last quarter except in residential mortgages.
 
Business loans:
 
Source: Federal Reserve Board of Governors  
 
Commercial real estate loans:
 
Source: Federal Reserve Board of Governors  
 
Consumer loans:
 
Source: Federal Reserve Board of Governors  
 
Mortgages:
 
Source: Federal Reserve Board of Governors  
 
However, the latest NACM data shows improved credit demand and credit conditions in the corporate sector.
 
Source: Longview Economics  
Source: Longview Economics  

——————–

 
2. The leveraged loan market covenant quality (lender protections) has deteriorated further.
 
Source: Moody’s Investors Service  
 
Here are the components.
 
Source: Moody’s Investors Service  

——————–

 
3. Large-company bankruptcies have accelerated.
 
Monthly:
 
Source: Koyfin   Read full article  
 
Yearly:
 
Source: Nancy Moran, Bloomberg   Further reading  


Back to Index

 

Rates

1. Here is the attribution of Treasury yield declines over the past month.
 

 
2. This chart shows real yields in Japan, the US, Germany, and the UK.
 
Source: @ISABELNET_SA, @GoldmanSachs  


Back to Index

 

Global Developments

1. Airlines continue to lay off or furlough employees.
 
Source: @business   Read full article  
 
2. Tourism recovery has been uneven.
 
Source: @financialtimes   Read full article  
 
3. Asset managers continue to press their bets against the US dollar.
 
Source: Goldman Sachs  


——————–

Back to Index

 

Food for Thought

1. When will a vaccine become widely available?
 
Market experts:
 
Source: Deutsche Bank Research  
 
Healthcare industry leaders:
 
Source: @LizAnnSonders, @Lazard  
 
2. Vaccine candidates by technology platform and development phase:
 
Source: McKinsey & Company   Read full article  
 
Here is one approach.
 
Source: BBC   Read full article  

——————–

 
3. Face mask mandates:
 
Source: Morgan Stanley Research  
 
Mask effectiveness (2 charts):
 
Source: Danske Bank  
Source: Journal of Hospital Infection, @wef   Read full article  

——————–

 
4. Congressional job approval:
 
Source: Gallup   Read full article  
 
5. Americans’ political ideology:
 
Source: Gallup   Read full article  
 
6. Teens’ use of social media platforms:
 
Source: Statista  
 
7. R&D investment league table:
 
Source: BofA Merrill Lynch Global Research, @TayTayLLP  
 
8. Attempts to land on Mars:
 
Source: @WSJ   Read full article  

——————–


Back to Index


More upside ahead for US vehicle sales

The Daily Shot: 03-Aug-20
The United States
Canada
The United Kingdom
The Eurozone
Japan
Asia – Pacific
China
Emerging Markets
Commodities
Energy
Equities
Credit
Rates
Food for Thought



 

The United States

1. Consumer spending rose sharply in June as households put some of their pandemic savings to work.
 

 
Here is the breakdown by sector.
 
Source: @GregDaco  
 
Incomes declined.
 

 
This chart shows the dollar amounts for income and spending.
 
Source: @WSJ   Read full article  
 
Here are the contributions to the overall change in disposable income from February to June.
 
Source: @ernietedeschi  
 
Separately, the scatterplot below shows the two regimes of household spending vs. the 10yr Treasury yield.
 
Source: BofA Merrill Lynch Global Research  

——————–

 
2. The PCE inflation rate ticked up in June but was below market expectations.
 

 
The core PCE measure, the Fed’s preferred benchmark, is holding below 1%.
 

 
Here is the trimmed mean PCE index from the Dallas Fed.
 

 
Longer-term market-based inflation expectations continue to climb.
 

——————–

 
3. Growth in the US employment cost index slowed last quarter.
 

 
Here is the ‘wages and salaries’ component.
 

——————–

 
4. The updated U. Michigan consumer sentiment index weakened in the latter part of July.
 

 
The index of buying conditions for large household items gave up its June gains.
 

 
Here is the index of expected business conditions in five years.
 

——————–

 
5. The Chicago PMI rebounded sharply last month, suggesting that Midwest manufacturing activity is back in growth mode. We should see substantial gains in the ISM manufacturing index today.
 

 
6. Vehicle sales strengthened in June, …
 

 
… and online search activity points to further gains in July.
 
Source: Pantheon Macroeconomics  
 
Heavy truck sales have been soft.
 

——————–

 
7. The US economic contraction in 2020 has been less severe than what we see in the Eurozone. The unprecedented fiscal stimulus cushioned the US slump.
 
Source: @WSJ   Read full article  
 
Here is Morgan Stanley’s forecast for the US Q3 and Q4 GDP growth.
 
Source: Morgan Stanley Research  

——————–

 
8. The US velocity of money has collapsed. The rapidly rising money supply has been generating far less economic growth (less GDP per unit of new credit).
 

 
9. Finally, we have some high-frequency indicators.
 
Hotel occupancy and revenues:
 
Source: Pantheon Macroeconomics  
 
The Oxford Economics Recovery Tracker:
 
Source: @GregDaco, @OxfordEconomics  
 
New coronavirus cases (peaking):
 

 
Forecasts from Princeton Energy Advisors:
 
Source: Princeton Energy Advisors  


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Canada

1. The economy returned to growth in May but remained almost 14% below last year’s levels.
 

Source: Oxford Economics  

——————–

 
2. Construction permits increased further in June.
 

 
3. Canadian stocks appear oversold relative to the rest of the world.
 
Source: BCA Research  


Back to Index

 

The United Kingdom

1. Home price appreciation rebounded in July on pent-up demand.
 

 
2. The labor market remains fragile.
 
Furloughed employees:
 
Source: Pantheon Macroeconomics  
 
Employment intentions survey:
 
Source: Pantheon Macroeconomics  


Back to Index

 

The Eurozone

1. Let’s begin with the Q2 GDP contraction (Spain took the biggest hit).
 
France:
 

 
Germany:
 

 
Italy:
 

 
Spain:
 

 
Spain’s GDP index:
 
Source: @fwred  
 
The Eurozone (2 charts):
 

Source: Eurostat   Read full article  
 
Summary:
 
Source: @markets   Read full article  
 
We should see a rebound going forward. July euro-area PMIs have recovered sharply, which could set the stage for more robust business activity in Q3.
 
Source: Barclays Research  

——————–

 
2. French and Italian CPI surprised to the upside – driven mostly by delayed summer sales.
 
France:
 

 
Italy (2 charts):
 


 
The Eurozone (3 charts):
 


Source: Eurostat   Read full article  
 
Barclays expects euro-area inflation to maintain some momentum this summer.
 
Source: Barclays Research  

——————–

 
3. Euro-area consumption continued to recover in June.
 
German retail sales:
 

 
French consumer spending:
 

 
Italian retail sales:
 

——————–

 
4. Overall, euro-area economic data have been surprising to the upside. The Citi Economic Surprise Index hit a record high last week.
 

——————–

 
5. Finland is facing another bout of housing deflation.
 

 
6. Speculative accounts, especially asset managers, continue to boost their bets on the euro.
 

 
7. Finally, the Eurosystem balance sheet has now exceeded 60% of the GDP.
 
Source: @TheTerminal, @Schuldensuehner  


Back to Index

 

Japan

1. Housing starts continue to dwindle.
 

 
2. Corporate loan growth soared this year as companies tapped credit lines.
 


Back to Index

 

Asia – Pacific

1. Let’s begin with Taiwan.
 
Year-over-year GDP growth (through Q2):
 

 
Manufacturing PMI (back in growth territory):
 
Source: IHS Markit   Read full article  
 
Tech vs. non-tech exports:
 
Source: Barclays Research  
 
Tech exports vs. South Korea:
 
Source: Gavekal    Read full article  

——————–

 
2. South Korea’s manufacturing contraction slowed in July, but growth remained elusive.
 
Source: IHS Markit   Read full article  
 
3. Australia’s factory activity accelerated last month.
 

 
Australian business credit has been shrinking as firms pay down their credit facilities.
 
Source: ANZ Research  
 
Housing credit growth has been slowing.
 
Source: ANZ Research  


Back to Index

 

China

1. The renminbi continues to climb, …
 

 
… helped by the US-China rate differential (2 charts).
 

Source: ANZ Research  

——————–

 
2. China is moving ahead to create a state-sponsored digital currency.
 
Source: Gavekal    Read full article  
 
3. Outward direct investment in the US has been slowing.
 
Source: ANZ Research  
 
4. Fund inflows remain robust.
 
Source: Goldman Sachs  
 
5. Hong Kong’s fiscal situation has deteriorated.
 


Back to Index

 

Emerging Markets

1. Colombia’s central bank cut rates to record lows.
 
Source: @markets   Read full article  

——————–

 
2. Chile’s factory output remained weak in June.
 

 
Here is Chile’s commercial activity indicator.
 

——————–

 
3. Brazil’s fiscal situation is deteriorating (2 charts).
 
Source: Goldman Sachs  

——————–

 
4. India’s core industries’ output is recovering.
 

 
5. Thailand’s exports slowed further in June.
 

 
6. Turkey is facing portfolio outflows.
 
Source: @WSJ   Read full article  
 
7. South Africa’s trade surplus hit a record high last month.
 

 
8. Finally, let’s run through the EM Asia PMI reports, which mostly point to factory activity contraction in July (albeit at a slower pace).
 
Thailand:
 
Source: IHS Markit   Read full article  
 
Indonesia:
 
Source: IHS Markit   Read full article  
 
The Philippines:
 
Source: IHS Markit   Read full article  
 
Vietnam:
 
Source: IHS Markit   Read full article  


Back to Index

 

Commodities

1. Let’s begin with gold, which hit another record last week.
 
Monthly returns:
 
Source: @business   Read full article  
 
Support from falling real rates in the US:
 
Source: Arbor Research & Trading  
 
London bullion trading volume:
 
Source: Elena Mazneva, @TheTerminal  
 
COMEX physical delivery:
 
Source: @markets   Read full article  
 
Gold fund flows:
 
Source: BofA Merrill Lynch Global Research  

——————–

 
2. Next, we have some trends in copper.
 
Speculative bets:
 

 
LME warehouse monthly inventory changes:
 
h/t @mburtonmetals  
 
Mean-reversion risk:
 
Source: @mikemcglone11  

——————–

 
3. Iron ore and steel prices keep climbing.
 
Iron ore (Singapore):
 

 
Steel rebar (Shanghai):
 

——————–

 
4. Softs have been rebounding.
 
Sugar (there is talk that China and Indonesia will boost imports):
 
Source:  
 
Coffee:
 


Back to Index

 

Energy

1. OPEC+ is about to boost output.
 
Source: @business   Read full article  
Source: @WSJ   Read full article  

——————–

 
2. Cushing, OK oil inventories are now below last year’s levels.
 
Source: CME Group   Read full article  
 
3. This chart shows the relationship between contango and crude oil inventories across time.
 
Source: KAPSARC   Read full article  


Back to Index

 

Equities

1. Q2 earnings forecasts have been too gloomy.
 
Source: Scotiabank Economics  
 
Here is the distribution of earnings and revenue surprises by sector.
 
Source: @FactSet   Read full article  

——————–

 
2. The market response to earnings surprises has been asymmetric (2nd panel).
 
Source: @FactSet   Read full article  
 
3. Could we be looking at a bear-market rally (2 charts)?
 
Source: Kessler Companies  
Source: BofA Merrill Lynch Global Research  

——————–

 
4. Fund managers see US tech stocks as the most crowded trade.
 
Source: BofA Merrill Lynch Global Research, @Callum_Thomas  
 
5. This chart shows the tech mega-caps’ price/sales ratio vs. revenue growth.
 
Source: @jessefelder  
 
6. Here is the ratio of US total market capitalization to the GDP. Part (but not all) of this trend is due to US companies’ growing foreign earnings (outpacing US GDP).
 
Source: @LizAnnSonders, @Bloomberg  
 
7. Small-cap shares (Russell 2000) have been testing resistance.
 


Back to Index

 

Credit

1. US corporate investment-grade yields continue to hit record lows.
 

 
And sub-investment-grade debt yields are heading there as well.
 

——————–

 
2. The US LIBOR-OIS spread shows normalization in the interbank funding markets.
 

 
3. The number of potential fallen angels spiked in the second quarter.
 
Source: Moody’s Investors Service  
 
4. The default rate in private credit (middle-market companies) was up in Q2 (shown by company size).
 
Source: @WSJ   Read full article  
 
5. Non-agency (privately issued) resi mortgage bonds show rising delinquencies.
 
Source: Moody’s Analytics  


Back to Index

 

Rates

1. The 10yr TIPS yield (effective real rate) hit a record low.
 
Source: @TheTerminal  
 
2. US excess reserves have been falling as the Fed’s balance sheet shrunk, and the US Treasury’s deposits at the Fed hit records.
 


——————–

Back to Index

 

Food for Thought

1. Connecticut’s economy has underperformed.
 
Source: @WSJ   Read full article  
 
2. A forecast for US domestic travel:
 
Source: Quill Intelligence  
 
3. US first-time mothers’ age distribution:
 
Source: @financialtimes   Read full article  
 
4. Delayed elections globally:
 
Source: @WSJ   Read full article  
 
5. Wearing face masks:
 
Source: @MorningConsult   Read full article  
 
6. Global migration flows over the past decade:
 
Source: Barclays Research  
 
7. Trump/Biden TV ad spending:
 
Source: @WSJ   Read full article  
 
8. Digital ad revenues, by company:
 
Source: @financialtimes   Read full article  
 
9. Earth’s largest tectonic plates:
 
Source: Universe Today   Read full article  

——————–


Back to Index


Online Job-Seeking Activity Slows

The Daily Shot: 31-Jul-20
The United States
Canada
The Eurozone
Europe
Japan
Asia – Pacific
China
Emerging Markets
Commodities
Equities
Rates
Global Developments
Food for Thought



 

The United States

1. As was widely expected, the second-quarter GDP contraction was severe.
 

 
It was one of the worst quarterly declines over the past century.
 
Source: Deutsche Bank Research  
 
Here are the GDP trajectories for some of the past recessions.
 
Source: Economics and Strategy Group, National Bank of Canada  
 
While private consumption plummetted, the federal government stepped in.
 
Source: Pantheon Macroeconomics  
 
However, the decline in state and local spending has been a drag on GDP growth.
 
Source: BlackRock  
 
Q2 price declines were bigger than expected.
 

 
Economists are forecasting a rebound in Q3.
 

 
High-frequency indicators continue to show modest positive growth. Here is the Goldman Sachs Analyst Index (tracking analysts’ sentiment across industries).
 
Source: Goldman Sachs  
 
This year’s sharp increase in savings should (in theory) boost consumption in the months ahead.
 
Source: Economics and Strategy Group, National Bank of Canada  

——————–

 
2. Uncertainty around growth in the second half of the year remains elevated. Without more stimulus, personal incomes will crater, and consumer spending will follow, according to Alpine Macro.
 
Source: Alpine Macro  
 
And there is work to be done to get to an agreement on the stimulus package.
 
Source: The New York Times   Read full article  

——————–

 
3. Next, we have some updates on the labor market.
 
Total initial jobless claims declined last week to the lowest level since the start of the crisis. But it’s still 2 million new unemployment applications.
 
Source: Oxford Economics  
 
Here are the total continuing claims, with an adjustment from Oxford Economics.
 
Source: Oxford Economics  
 
Online searches for recruiters and human resources have been slowing.
 
Source: Arbor Research & Trading  
 
States with worsening coronavirus outbreaks saw greater declines in online job-seeking activity.
 
Source: Arbor Research & Trading  
 
Despite the turbocharged unemployment benefits, employers saw more applicants per vacancy after the CARES Act. Even in lower-wage occupations (4th quartile), job applications remained elevated.
 
Source: @mioana, @DaphneSkandalis, @DanielBZhao   Read full article  

——————–

 
4. The Bloomberg Consumer Comfort Index shows that improvements in sentiment are on hold for now.
 

 
Here is the buying climate index.
 


Back to Index

 

Canada

1. Business activity for small and medium-sized firms has rebounded sharply.
 

 
Here is the retail sector, for example.
 

——————–

 
2. Surveys point to net job creation in June.
 
Source: Desjardins  


Back to Index

 

The Eurozone

1. Let’s begin with Germany.
 
The GDP tanked in Q2, wiping out ten years of growth (second chart).
 

Source: @AndreasSteno  
 
Net unemployment unexpectedly declined this month.
 

 
Consumer inflation hit zero in July for the first time since 2016.
 

 
Automobile production has been recovering.
 
Source: @WSJ   Read full article  

——————–

 
2. Spain’s deflationary pressures worsened this month.
 

 
3. Portugal’s industrial production picked up last month but remains depressed.
 

 
4. Italian June unemployment rate topped economists’ forecasts.
 

 
5. At the Eurozone level, the unemployment rate ticked higher.
 

 
6. The updated consumer confidence index showed sentiment improvements pausing in July.
 

 
Service-sector confidence is higher but remains depressed.
 

 
Sentiment in manufacturing is rebounding.
 

——————–

 
7. Improving earnings revisions, especially in European cyclical stocks, could be the catalyst for the next leg in the euro rally, according to BCA Research.
 
Source: SunTrust Private Wealth Management  


Back to Index

 

Europe

1. The sharp decline in Sweden’s wage growth poses a problem for Riksbank (disinflationary pressures).
 

 
2. This chart shows the origins of EU asylum seekers.
 
Source: EASO Asylum Report 2020   Read full article  


Back to Index

 

Japan

1. The unemployment rate unexpectedly ticked lower.
 

 
But the jobs-to-applicants ratio continues to tumble.
 

——————–

 
2. Industrial production improved in June.
 

 
3. The BoJ has been more realistic about inflation lately. The 2% target may remain elusive for a long time.
 
Source: @tracyalloway   Read full article  
 
4. Japan’s capital stock (equipment, structures, etc.) has been aging faster than it has been in other advanced economies.
 
Source: Oxford Economics  
 
5. The yen continues to climb.
 


Back to Index

 

Asia – Pacific

1. South Korea’s industrial production rebounded sharply in June.
 

 
2. New Zealand’s consumer confidence ticked lower.
 

 
3. Next, we have some updates on Australia.
 
Private sector credit growth:
 
Source: Goldman Sachs  
 
Producer prices (through Q2):
 

 
Online search for unemployment benefits:
 
Source: ANZ Research  
 
The Aussie dollar:
 


Back to Index

 

China

1. The official PMI indicators show steady growth.
 
Manufacturing:
 

 
Non-manufacturing:
 

——————–

 
2. Container throughput improved further.
 
Source: Goldman Sachs  
 
3. The Shanghai Composite has been consolidating.
 
h/t Sharon Chen  
 
4. Hong Kong’s retail sales bounced from the lows but remain nearly 25% below last year’s levels.
 


Back to Index

 

Emerging Markets

1. Mexico’s GDP plummetted last quarter.
 

 
2. Brazil’s local-currency bond yields continue to fall.
 

 
3. Colombia’s urban unemployment rate is nearing 25%.
 

 
4. Turkey’s domestic bond yields have been rising amid a weaker lira and concerns about higher inflation.
 

 
5. Russia’s F/X and gold reserves are approaching record highs, boosted by the latest rally in gold prices.
 

 
6. Which countries are at risk of being labeled a currency manipulator by the US?
 
Source: ANZ Research  


Back to Index

 

Commodities

1. Assets under management at the largest gold ETF (GLD) hit a record high.
 

 
2. Speculative bets on copper continue to climb.
 

 
3. Coffee prices are rebounding amid improved global demand.
 

 
4. Sentiment remains low, which could support further upside in commodities.
 
Source: BCA Research  


Back to Index

 

Equities

1. The market was impressed with what it heard from the tech mega-cap firms after the close, pushing shares sharply higher.
 
Source: Google  
Source: Google  
 
Here is the Nasdaq 100 ETF (QQQ).
 
Source: Google  

——————–

 
2. The August-September period typically isn’t great for the S&P 500.
 
Source: @ISABELNET_SA, @GoldmanSachs   Read full article  
 
3. Except for tech, buybacks have become a thing of the past in the age of COVID.
 
Source: Deutsche Bank Research  
 
4. Stocks remain attractive relative to Treasury bonds (2 charts).
 
Source: SunTrust Private Wealth Management  
Source: SunTrust Private Wealth Management  

——————–

 
5. Risk-on flows have not matched strong equity returns.
 
Source: Arbor Research & Trading  
 
6. Globally, companies with exposure to China have been outperforming.
 

 
7. This chart shows the total value of US small caps as a percentage of large caps.
 
Source: @JeffWeniger  
 
8. Which are the top exchanges for new stock listings?
 
Source: @WSJ   Read full article  


Back to Index

 

Rates

1. The 10yr Treasury yield is at the lowest level since the start of the crisis.
 
Source: Investing.com  
 
2. The Fed has put Treasury purchases on autopilot.
 

 
3. This scatterplot shows the Treasury volatility index (MOVE) vs. equity volatility (VIX). Rate vol is hitting extreme lows.
 
Source: @TheTerminal  
 
4. Retail investors have been pulling out of money market funds.
 


Back to Index

 

Global Developments

1. It’s been a rough month for the US dollar.
 

 
2. G10 risk-on currencies tend to weaken in August.
 
Source: @DeutscheBank, @ISABELNET_SA  
 
3. Global business activity remains depressed, according to the World Economics SMI report.
 
Source: World Economics  


——————–

Back to Index

 

Food for Thought

1. Retail sales in China and the US:
 
Source: @WSJ   Read full article  
 
2. Worker density by sector:
 
Source: @WSJ   Read full article  
 
3. Transportation recovery trends in the US (by state):
 
Car rentals:
 
Source: Envestnet Yodlee  
 
Taxi services:
 
Source: Envestnet Yodlee  
 
Ridesharing:
 
Source: Envestnet Yodlee  

——————–

 
4. Women running for Congress:
 
Source: FiveThirtyEight   Read full article  
 
5. US youth neither in school nor working:
 
Source: Pew Research Center   Read full article  
 
6. The increase in US carriers’ volume (April – June):
 
Source: @WSJ   Read full article  
 
7. The number of college students in the US:
 
Source: @WSJ   Read full article  
 
8. The ratio of manufacturing employment to total jobs in the US:
 
Source: BofA Merrill Lynch Global Research  
 
9. Bigfoot sightings:
 
Source: Standard Journal   Read full article  

——————–

 
Have a great weekend!


Back to Index


The Distorted Phillips Curve

The Daily Shot: 30-Jul-20
The United States
The United Kingdom
The Eurozone
Europe
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Rates
Global Developments
Food for Thought



 

The United States

1. The Federal Reserve left policy unchanged as it monitors the virus spread. It will be some time before the labor market recovery warrants a rate hike.
 
Source: Piper Sandler   
 
In fact, the market continues to price in the possibility of negative rates next year.
 
Source: Piper Sandler   
 
The US dollar declined further in response to the Fed’s cautious stance.
 
Source: @TheTerminal, @Schuldensuehner  

——————–

 
2. June pending home sales surprised to the upside, climbing to multi-year highs.
 
Source: CNBC   Read full article  

 
Here is the year-over-year change.
 

 
We should see a similar rebound in existing home sales (EHS).
 
Source: Oxford Economics  

——————–

 
3. Mortgage applications remain robust.
 
Applications to purchase a home:
 

 
Refi applications:
 

——————–

 
4. Wholesalers’ inventories continue to shrink (which has been a drag on the GDP).
 

 
5. The Johnson Redbook index of same-store sales remains depressed.
 

 
6. The Household Pulse Survey employment index climbed last week but remained well below the mid-June peak.
 
Source: @ernietedeschi   Read full article  
 
7. Here is the timeline of expiring government support.
 
Source: @bopinion   Read full article  
 
Most of the focus is on the unemployment insurance benefits, which have replaced lost income.
 
Source: Deutsche Bank Research  
 
This map shows where the loss of the extra $600 in unemployment benefits will hurt the most.
 
Source: MagnifyMoney  

——————–

 
8. The Phillips Curve has been distorted because the outsize job losses among low-wage employees resulted in higher average pay for remaining workers.
 
Source: @RobinBrooksIIF, @adam_tooze  
 
9. Next, we have a couple of trends in credit.
 
Business vs. household liabilities:
 
Source: Pantheon Macroeconomics  
 
Revolving vs. non-revolving consumer credit (Americans cut back on credit card debt):
 
Source: Deutsche Bank Research  

——————–

 
10. Signs continue to point to the pandemic peaking.
 
Daily cases (blue) and the first derivative (red):
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
Daily cases and deaths:
 
Source: Pantheon Macroeconomics  
 
Hospitalizations:
 
Source: BofA Merrill Lynch Global Research, @WallStJesus  


Back to Index

 

The United Kingdom

1. Last month’s mortgage applications bounced from extreme lows.
 

 
The overall consumer credit contracted further.
 

——————–

 
2. The broad money supply is up 13% from a year ago, driven by corporate demand for liquidity.
 

Source: Pantheon Macroeconomics  

——————–

 
3. Foot traffic at retail establishments points to a pause in the recovery.
 
Source: @huq_industries   Read full article  
 
4. The pound is back to pre-crisis levels. However, this is more of a “weak dollar” story.
 


Back to Index

 

The Eurozone

1. The euro hit a 2-year high.
 

 
2. French consumer confidence is stuck in low gear.
 

 
Saving intentions have been on the rise among French households.
 
Source: ING  

——————–

 
3. Spain’s retail sales rebounded sharply in June.
 

 
4. Goldman Sachs expects the Eurozone’s economy to outperform next year.
 
Source: Goldman Sachs  
 
5. Next, we have some updates on the euro-area labor markets (as of Q2).
 
Employment growth (hours vs. workers):
 
Source: ECB   Read full article  
 
Unemployment and “short-time” workers with zero hours:
 
Source: ECB   Read full article  
 
High-frequency indicators showing hiring and job postings:
 
Source: ECB   Read full article  
 
Labor force participation (2 charts):
 
Source: ECB   Read full article  
Source: ECB   Read full article  


Back to Index

 

Europe

1. Sweden’s consumer sentiment recovery stalled this month:
 

 
However, industrial confidence continues to improve.
 

 
Sweden’s coronavirus-related deaths have been trending lower.
 
Source: @Trinhnomics  

——————–

 
2. The second wave, especially in Spain, is worrisome.
 
Source: Pantheon Macroeconomics  


Back to Index

 

Asia – Pacific

1. Japan’s June retail sales topped economists’ forecasts.
 

 
2. South Korea’s consumer confidence showed a modest improvement this month.
 

 
Business activity remains soft (per BoK).
 
Manufacturing:
 

 
Non-manufacturing:
 

——————–

 
3. Singapore’s unemployment rate rose sharply in Q2.
 

 
4. Next, we have a couple of updates on Australia.
 
Inflation was subdued in Q2.
 

 
Residential building approvals declined for the fourth month in a row in June.
 


Back to Index

 

China

1. A majority of China’s fiscal boost will come in the second half of the year, according to Alpine Macro.
 
Source: Alpine Macro  
 
2. Mortgage rates remain elevated.
 
Source: Alpine Macro  
 
Nonetheless, borrowing in Tier-II cities has accelerated.
 
Source: Longview Economics  

——————–

 
3. Hong Kong’s economy weakened further in the second quarter – now down 9% from a year ago.
 

 
4. Macau hotel occupancy bounced from extreme lows, but levels are still well below what we saw during the SARS outbreak.
 


Back to Index

 

Emerging Markets

1. Brazil’s loan growth continues to strengthen.
 

 
2. The Chilean peso is approaching this year’s high amid a rebound in industrial metals.
 

 
3. The LatAm economic sentiment index remains depressed.
 
Source: Pantheon Macroeconomics  
 
4. Slowing demand has caused imports to plunge across EM.
 
Source: Quill Intelligence  
 
5. EM stocks formed a golden cross.
 
Source: @markets   Read full article  


Back to Index

 

Cryptocurrency

1. Bitcoin blasted past $11k.
 

 
2. Ethereum has outperformed Bitcoin by some 40% since May.
 


Back to Index

 

Commodities

1. Gold has decoupled from real rates.
 
Source: @ISABELNET_SA, @GoldmanSachs  
 
Gold’s correlation to risk-on and risk-off assets has declined this year.
 
Source: Arbor Research & Trading  

——————–

 
2. The rally in US lumber futures has been impressive.
 


Back to Index

 

Energy

1. Brent crude 20-day realized volatility is at the lowest level of the year.
 
Source: @TheTerminal  
 
2. Will US oil production continue to recover?
 

 
3. US gasoline demand is still relatively soft for this time of the year.
 

 
Jet fuel consumption remains extremely weak.
 
Source: EIA   Read full article  
 
Refinery inputs continue to recover.
 

——————–

 
4. The reduction in gasoline stockpiles has stalled (2nd panel).
 

 
5. US natural gas futures are holding up despite rising inventories.
 


Back to Index

 

Equities

1. Let’s start with another look at tech and the mega-cap shares.
 
The spread between tech capitalization (% of S&P 500) and sales (% of GDP) is not as extreme as it was during the dot-com bubble.
 
Source: @LeutholdGroup, Business Insider   Read full article  
 
Nonetheless, here is the Nasdaq 100/S&P 500 ratio.
 
Source: US Global Investors   Read full article  
 
Upside options bets on the tech mega-caps are at an extreme.
 
Source: @vol_christopher  
 
Active mutual funds’ exposure to mega-cap growth stocks has been declining from very elevated levels.
 
Source: Deutsche Bank Research  
 
Next, we have the contribution of the top five S&P 500 stocks to the S&P 500 earnings (EPS), valuation (P/E), and returns.
 
Source: @ISABELNET_SA, @csresearch  
 
How is the contribution of the top five stocks different now vs. in 2000?
 
Sales growth:
 
Source: @johnauthers, @CreditSuisse  
 
Margins:
 
Source: @johnauthers, @CreditSuisse  
 
Leverage:
 
Source: @johnauthers, @CreditSuisse  

——————–

 
2. Earnings and sales estimates have been too gloomy (2 charts).
 
Source: Deutsche Bank Research  
Source: Deutsche Bank Research  
 
But analysts got it wrong on both sides (an indication of extreme uncertainty).
 
Source: @markets   Read full article  

——————–

 
3. US firms have been raising outlook (2 charts).
 
Source: @LizAnnSonders, @Bloomberg  
Source: @LizAnnSonders, @BankofAmerica  

——————–

 
4. Joe Biden’s recent gains in the betting markets coincide with underperformance in pharma and bank stocks.
 
Source: Jack Ablin, Cresset Wealth Advisors  
Source: Jack Ablin, Cresset Wealth Advisors  

——————–

 
5. Retail trading activity remains elevated.
 
Source: @ISABELNET_SA, @GoldmanSachs  
 
However, the AAII bull-bear spread shows caution among investors.
 

——————–

 
6. Value has outperformed growth for a brief period in June, which coincided with high short interest, according to SPDR Americas Research,
 
Source: SPDR Americas Research, @mattbartolini   Read full article  
 
7. According to Arbor Data Science, online search activity shows a growing interest in correlations and diversification.
 
Source: Arbor Research & Trading  


Back to Index

 

Rates

1. Long-term market-based inflation expectations continue to climb.
 

 
2. Below is the evolution of the Fed’s crisis programs.
 
Source: Morningstar   Read full article  
 
3. Finally, here is the relative size and composition of the Fed’s and ECB’s balance sheets.
 
Source: @fwred  


Back to Index

 

Global Developments

1. This chart shows returns by asset class year-to-date. So far, only sovereign debt is up across the board.
 
Source: Deutsche Bank Research  
 
2. The US dollar is testing its long-term uptrend support.
 
Source: ANZ Research  
 
3. Yield compression has been unprecedented.
 
Source: @financialtimes   Read full article  
 
4. Finally, we have the correlations between consumer confidence and new coronavirus cases for select economies.
 
Source: @JohnCLeer, @MorningConsult   Read full article  


——————–

Back to Index

 

Food for Thought

1. Reopening plans at US colleges:
 
Source: @WSJ   Read full article  
 
2. US cannabis sales vs. other industries and goods:
 
Source: Marijuana Business Factbook (Marijuana Business Daily)   Read full article  
 
3. Most valuable brands in 2020:
 
Source: Statista  
 
4. Textile exports by country:
 
Source: @WSJ   Read full article  
 
5. Food insecurity in the US:
 
Source: @adam_tooze, @business   Read full article  
Source: Feeding America   Read full article  

——————–

 
6. Data on Democrats’ VP pick:
 
National prominence:
 
Source: Morning Consult   Read full article  
 
The betting markets:
 
Source: @PredictIt  

——————–

 
7. Threats facing the US:
 
Source: @pewglobal   Read full article  
 
8. Sales tax by state:
 
Source: @TaxFoundation   Read full article  
 
9. The world’s longest electric cable:
 
Source: @wef   Read full article  

——————–

 
Please note that The Daily Shot will no longer be published by The Wall Street Journal beginning on August 1. The Daily Shot will still be available as an independent publication. If you would like to continue to receive The Daily Shot, you can get more information on how to subscribe here.


 
 
 
 
 
 
 
 
 
Back to Index


Rental Vacancies at Multi-Decade Lows, but Mass Evictions Loom

The Daily Shot: 29-Jul-20
The United States
Canada
The United Kingdom
Europe
Asia – Pacific
China
Emerging Markets
Commodities
Energy
Equities
Alternatives
Credit
Rates
Food for Thought



 

The United States

1. Consumer confidence weakened in July, with the Conference Board’s index surprising to the downside.
 

Source: MarketWatch   Read full article  
 
Expectations deteriorated in Texas and Florida.
 
Source: @BittelJulien  
 
And the Conference Board’s expectations indicator at the national level may decline further.
 
Source: Pantheon Macroeconomics  

——————–

 
The labor differential index (‘jobs plentiful’ – ‘jobs hard to get’) continues to recover.
 

——————–

 
2. The market has been pricing in higher inflation in the coming years, supported by a weaker dollar.
 
Source: BCA Research  
 
And consumer inflation expectations remain elevated.
 

——————–

 
3. The Richmond Fed’s regional factory gauge showed manufacturing activity improving further. This rebound is consistent with the recent trends in other Fed districts.
 

 
Capacity utilization:
 

 
Shipments (current and expected):
 

 
However, factory employment remains fragile.
 

——————–

 
4. Texas-area service and retail-sector activity weakened this month as the pandemic situation worsened.
 
Services:
 

 
Retail:
 

——————–

 
5. Next, we have some updates on housing.
 
Home price appreciation unexpectedly softened in May.
 

 
Google search activity suggests that the housing rebound may be slowing.
 
Source: Arbor Research & Trading  
 
US homeownership rate climbed in Q2 as record-low mortgage rates improved affordability. However, there was a change in the Census Bureau’s data collection methodology, which may explain some (but not all) of the gains.
 

 
Higher homeownership rates translated into faster household formation (again, the data is a bit suspect).
 

 
The US rental vacancy rate dipped to the lowest level since the 1980s.
 
Source:  
 
However, many renter households will face evictions in the months to come.
 
Source: Statista  

——————–

 
6. RV shipments accelerated last month as Americans shun airports and hotels.
 
Source: RV Industry Association   Further reading  
 
7. Next, we have the New York City Recovery Index, which appears to have peaked this month. The second panel shows the latest weekly changes in the index and its components.
 
Source: Investopedia   Read full article  
 
8. Finally, here is the number of retail businesses listed as temporarily or permanently closed.
 
Source: ANZ Research  


Back to Index

 

Canada

1. Consumer confidence continues to rebound.
 

 
2. Here is a forecast for Canada’s employment recovery (from Oxford Economics).
 
Source: Oxford Economics  
 
3. Canada’s 10yr government bond yield hit a new low.
 


Back to Index

 

The United Kingdom

Retail sales have strengthened substantially this summer.
 
The CBI index rebounded sharply in July.
 
Source: Reuters   Read full article  

 
The jump in household goods demand led the recovery in retail sales last month (2 charts).
 
Source: Pantheon Macroeconomics  
Source: ING  


Back to Index

 

Europe

1. Elsewhere in Europe, Spain’s unemployment rate rose less than expected last quarter.
 

 
2. The ECB is pressuring banks to keep dividend payouts on hold for now.
 
Source: @business   Read full article  
 
3. Euro net long speculative positioning continues to climb, …
 
Source: Deutsche Bank Research  
 
… led by asset managers.
 
Source: Deutsche Bank Research  

——————–

 
4. The euro area’s share of global equity mutual fund assets has been declining over the past few years.
 
Source: Goldman Sachs  
 
5. Norway’s retail sales rebounded sharply last month.
 


Back to Index

 

Asia – Pacific

1. The yen continues to strengthen.
 

 
2. Australia’s consumer confidence is deteriorating.
 

 
The charts below show Australia’s payroll trends since the start of the crisis.
 
Source: Goldman Sachs  


Back to Index

 

China

1. The stock rally will entice households and corporates to replace bank deposits with equity assets in their portfolio, according to ANZ Research.
 
Source: ANZ Research  
 
2. Morgan Stanley is forecasting a 7.6% fiscal deficit this year.
 
Source: Morgan Stanley Research  


Back to Index

 

Emerging Markets

1. The Turkish lira came under pressure on Tuesday.
 
Source: CNBC   Read full article  

Source: @financialtimes   Read full article  
 
The stock market took a hit.
 

——————–

 
2. The Russian ruble has been rolling over.
 

 
3. Lebanese bank deposits have collapsed.
 
Source: Quill Intelligence  
 
4. India’s nonperforming loan ratio is expected to hit a multi-decade high.
 
Source: Gavekal   
 
5. Malaysia’s exports rebounded sharply last month.
 

 
The nation’s trade surplus hit a new record.
 

 
USD/MYR is at support.
 

——————–

 
6. Brazil’s job losses appear to be over.
 

 
7. Low income emerging markets face higher debt servicing costs as a percentage of government revenue.
 
Source: Fitch Solutions Macro Research  


Back to Index

 

Commodities

1. Net long speculative futures positioning in gold remains well off its highs.
 
Source: Deutsche Bank Research  
 
2. Growing conditions for US corn and soybeans surged 3 points each last week to 72% good/excellent (the first such increase during late July since 2001).
 
Source: @kannbwx  
 
Here is a note on corn yield from Eric Hunt, Atmospheric and Environmental Research.
 

This chart shows the present value of US corn yield going back to 1986. While we will set a new record this year for corn yield and production, it’s not a record with regard to trend. The darker the red (blue) markers, the more below (above) trend a season was.

 
Source: @DroughtLIS, Atmospheric and Environmental Research, Inc.   


Back to Index

 

Energy

1. 2020 is shaping up to be the worst year on record for energy shares.
 
Source: @WarrenPies  
 
2. The Brent – US dollar inverse correlation is the strongest since 2012.
 
h/t Andrew Janes   
 
3. China’s purchases of US energy products are well below the target set by the phase-one agreement.
 
Source: @adam_tooze, @FT   Read full article  
 
4. Next, we have some updates on coal.
 
US coal production (lowest since 1978):
 
Source: EIA  
 
German and Polish coal production:
 
Source: @adam_tooze, @JamesShotter   Read full article  
 
Coal inventories at US power plants:
 
Source: Will Wade, @TheTerminal  


Back to Index

 

Equities

1. Returns over the past two weeks have strongly favored cyclical growth sectors.
 
Source: Deutsche Bank Research  
 
2. Growth stocks look crowded.
 
Source: JP Morgan, @carlquintanilla  
 
3. Speculative accounts have been reducing their bets on Nasdaq 100 futures.
 

 
4. The Nasdaq 100 put/call ratio continues to show elevated risk appetite.
 
Source: @sentimentrader  
 
5. The overall equity positioning remains low.
 
Source: Deutsche Bank Research  
 
6. US stocks and consumer confidence have diverged.
 
Source: Piper Sandler   
 
7. Big tech dealmaking has been robust this year.
 
Source: @technology   Read full article  
 
8. Here is how stocks trade before and after the announcement of inclusion in the S&P 500.
 
Source: @ISABELNET_SA, @GoldmanSachs  
 
9. Fee compression in ETFs continues.
 
Source: @FactSet   Read full article  


Back to Index

 

Alternatives

1. This chart shows trailing 1-year hedge fund flows by sector.
 
Source: BarclayHedge  
 
2. Managed futures experienced another month of inflows in May.
 
Source: BarclayHedge  
 
3. Institutional investors are boosting their hedge fund holdings.
 
Source: @markets   Read full article  
 
4. Hedge fund fee compression continues:
 
Source: @bbgvisualdata   Read full article  
 
5. How are sovereign wealth funds repositioning their portfolios?
 
Source: @WSJ   Read full article  
 
6. Tech-focused private equity fundraising has been strong this year.
 
Source: @WSJ   Read full article  
 
7. Funding for venture-backed firms has slowed.
 
Source: @WSJ   Read full article  


Back to Index

 

Credit

1. US firms have been paying down their bank credit facilities amid robust capital markets.
 

 
2. Companies have been extending their debt maturities as bond yields collapse (first panel). The second panel shows the amount of US corporate debt maturing in 15+ years.
 
Source: @lisaabramowicz1  
 
3. US corporate bankruptcies are expected to peak in October.
 
Source: Arbor Research & Trading  
 
4. Next, we have oil & gas bankruptcies in North America.
 
Source: Visual Capitalist   Read full article  


Back to Index

 

Rates

1. The 5yr Treasury yield hit a record low.
 

 
And the Treasury curve continues to flatten.
 

 
But risks to the upside (for yields) are building.
 
Source: BCA Research  

——————–

 
2. At what point will the rapidly growing US debt supply begin to put upward pressure on yields?
 
Source: Piper Sandler   
 
3. This chart shows the Treasury term premium.
 

 
4. The 10yr US real yield hit a record low (which has been supporting gold prices).
 

 
5. 10-year Treasury futures volume is back near December lows.
 
Source: FHN Financial  
 
6. The gap between mortgage rates and Treasury yields has been narrowing.
 
Source: Arbor Research & Trading  
 
7. Global negative-yielding debt balances continue to climb.
 
Source: @Schuldensuehner  


——————–

Back to Index

 

Food for Thought

1. Commercial aircraft deliveries:
 
Source: Statista  
 
2. The legal status of casinos in the US:
 
Source: Hoya Capital Real Estate  
 
3. Most profitable US companies:
 
Source: @howmuch_net, @fortune   Read full article  
 
4. What causes evictions?
 
Source: Liberty Street Economics   Read full article  
 
5. Countries with the largest populations:
 
Source: Statista  
 
6. US seniors living with school-age children:
 
Source: @KFF   Read full article  
 
7. The impact of Medicare on financial health:
 
Source: Liberty Street Economics   Read full article  
 
8. Air temperature anomalies:
 
Source: @CopernicusECMWF   Read full article  
 
9. Most-watched Netflix original movies:
 
Source: @chartrdaily  

——————–

 
Please note that The Daily Shot will no longer be published by The Wall Street Journal beginning on August 1. The Daily Shot will still be available as an independent publication. If you would like to continue to receive The Daily Shot, you can get more information on how to subscribe here.


Back to Index


Italy’s and Japan’s Growth Stalled After Debt-to-GDP Ratio Exceeded 100% – a Warning for the U.S.

The Daily Shot: 28-Jul-20
The United States
The Eurozone
Europe
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Global Developments
Food for Thought



 

The United States

1. June was another good month for US durable goods orders. Demand for capital goods, which tends to be a proxy of business investment, topped economists’ forecasts.
 

 
This chart shows the breakdown by sector.
 
Source: Oxford Economics  
 
Here are the year-over-year charts.
 

 
Regional Fed manufacturing surveys suggest that durable goods orders will continue to recover.
 
Source: Capital Economics  

——————–

 
2. Texas-area factory activity has stabilized, according to the Dallas Fed manufacturing survey.
 

 
Capacity utilization:
 

 
Employment:
 

——————–

 
3. Regional Fed surveys suggest that the July ISM report will show an acceleration in factory activity at the national level.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
4. Next, let’s take a look at some high-frequency indicators.
 
ANZ activity tracker:
 
Source: ANZ Research  
 
Driving and restaurant dining:
 
Source: LPL Research  
 
Search activity for child care, virtual classroom, and homeschooling:
 
Source: Arbor Research & Trading  
 
Job postings:
 
Source: FiveThirtyEight   Read full article  
 
Small-business activity in rural areas:
 
Source: Center for American Progress, {ht} @axios   Read full article  

——————–

 
5. According to Goldman Sachs, declines in COVID symptom prevalence seem to be a leading indicator for new cases.
 
Source: Goldman Sachs  
 
Here is the share of states (GDP-weighted) where the number of new COVID cases is rising.
 
Source: ANZ Research  

——————–

 
6. Sectors that were hardest hit in April …
 
Source: Barclays Research  
 
… had some of the strongest retail sales performance in June.
 
Source: Barclays Research  
 
Deutsche Bank expects consumer spending to take more than two years to get back to pre-crisis levels.
 
Source: Deutsche Bank Research  

——————–

 
7. Next, we have some updates on the US fiscal situation.
 
Will the economic growth stall after the US debt-to-GDP ratio exceeds 100% as it did in Italy and Japan?
 
Source: Piper Sandler   
 
Fiscal policy uncertainty remains elevated.
 
Source: Arbor Research & Trading  
 
The next two charts show the composition of crisis-
related fiscal disbursements over time.
 
Source: @LizAnnSonders, @USTreasury, @uscensusbureau, @SBAgov  
Source: Morgan Stanley Research  


Back to Index

 

The Eurozone

1. Germany’s Ifo index surprised to the upside as business expectations continue to rebound.
 
Source: MarketWatch   Read full article  

 
Here is the Ifo index by sector.
 
Source: ifo Institute   
 
Despite the improvement, the dispersion of business expectations remains elevated (a measure of uncertainty).
 
Source: Goldman Sachs  

——————–

 
2. French unemployment climbed sharply this year.
 

 
3. The ECB’s lending survey suggests that credit conditions may tighten once government support expires.
 
Source: Barclays Research  
 
4. Inflation is expected to remain subdued over the next couple of years.
 
Source: Natixis  


Back to Index

 

Europe

1. Elsewhere in Europe, the Swiss National Bank’s FX interventions have exceeded the 2% of GDP threshold this year (two charts).
 
Source: Morgan Stanley Research  
Source: Morgan Stanley Research  
 
EUR/CHF is holding long-term support.
 
Source: @DantesOutlook  

——————–

 
2. The Norwegian krone and the Swedish krona have been strengthening against the euro since March.
 

 
3. The EU ‘joint’ debt issuance will be significant.
 
Source: Gavekal   
 
4. This scatterplot shows the stimulus grants vs. the vulnerability index.
 
Source: ING  
 
5. Finally, we have some data on the coronavirus “second wave” in Europe.
 
Source: The Economist   Read full article  
Source: Commerzbank Research  


Back to Index

 

China

1. Industrial capacity utilization rebounded sharply in the second quarter.
 
Source: National Bureau of Statistics of China   Read full article  
 
2. For now, economic activity remains below last year’s levels.
 
Source: @adam_tooze, @FT   Read full article  
 
3. Office vacancies are climbing.
 
Source: @markets   Read full article  
 
4. According to the ECB, “The sharp fall in Chinese exports of intermediate goods across most destinations in the first quarter of 2020 suggests that Global Value Chains have already been hit widely as a result of the lockdown …”
 
Source: ECB   Read full article  
 
5. Hong Kong’s exports remain soft.
 


Back to Index

 

Emerging Markets

1. Mexico’s trade surplus hit a new record last month as US demand for automobiles recovered.
 

 
2. Turkey’s business confidence has rebounded sharply.
 

 
But capacity utilization is still fragile.
 

——————–

 
3. India’s business activity remained depressed this month, according to the World Economics SMI report.
 
Source: World Economics  
 
4. EM currencies haven’t participated as strongly in the risk-on rally.
 
Source: Pavilion Global Markets  
 
EM FX valuations look cheap, but not as stretched as after the GFC.
 
Source: Morgan Stanley Research  

——————–

 
5. EM dollar-denominated debt yields hit the lowest level since 2013.
 
h/t @LyubovEmWorld  
 
Here is Indonesia’s 5yr yield.
 


Back to Index

 

Cryptocurrency

 
Bitcoin followed gold higher, breaking resistance at $10.5k.
 

 
The correlation between Bitcoin and gold spiked in recent days.
 


Back to Index

 

Commodities

Gold futures hit a record high.
 
Source: @markets   Read full article  
 
US imports of gold have surged this year.
 
Source: Capital Economics  


Back to Index

 

Energy

1. Brent resistance is holding.
 
Source: barchart.com  
 
2. The Brent curve is moving back into contango.
 


Back to Index

 

Equities

1. Let’s start with some valuation charts.
 
The 12-month forward P/E ratio vs. earnings dispersion:
 
Source: Pavilion Global Markets  
 
Valuations of the tech mega-caps vs. the rest of the S&P 500:
 
Source: @ISABELNET_SA, @GoldmanSachs  
 
Real rates and PE multiples:
 
Source: BCA Research, @jsblokland  
 
The market capitalization ratio and the S&P 500 price-to-sales ratio:
 
Source: Yardeni Research  
 
Earnings-per-share declines during recessions:
 
Source: LPL Research  

——————–

 
2. Here is Goldman’s forecast for the S&P 500.
 
Source: @ISABELNET_SA, @GoldmanSachs  
 
3. According to Michael Dick (Mizuho Americas Trading Desk), “The S&P 500 has now closed green 12 of the last 13 Mondays. Here is the aggregate S&P 500 performance by day of the week over that time frame.”
 
Source: Michael Dick, Mizuho Americas Trading Desk  
 
4. Next, we have some data on Robinhood (retail) investor positions.
 
Source: @WSJ   Read full article  
 
5. Here is the 50-day moving average of the put/call ratio index (showing increasing complacency).
 

 
6. S&P 500 stocks with international exposure are outperforming.
 
Source: Pavilion Global Markets  
 
7. “Staying in” sectors are outperforming.
 
Source: Arbor Research & Trading  
 
8. Next, we have some sector performance updates (year-to-date).
 
Utilities:
 

 
REITs:
 

 
Banks:
 

 
Housing:
 

 
Energy:
 

 
Industrials:
 

 
Transportation:
 

 
Semiconductors:
 

 
Biotech:
 

 
Consumer discretionary (helped by Amazon):
 

——————–

 
9. Finally, here are some trends related to the upcoming US elections.
 
The S&P 500 performance around presidential elections:
 
Source: @ISABELNET_SA, @StrategasRP  
 
Volatility rising from July to November during election years:
 
Source: BofA Merrill Lynch Global Research  
 
The October – August VIX futures spread showing rising election risk premium:
 


Back to Index

 

Global Developments

1. Here’s a look at asset class performance year-to-date.
 
Source: BlackRock  
 
2. Below is the G10 central banks’ aggregate balance sheet.
 
Source: VOX EU   Read full article  
 
3. Finally, we have each country’s fiscal stimulus and the GDP contraction in the first half of 2020.
 
Source: @WSJ   Read full article  


——————–

Back to Index

 

Food for Thought

1. Global travel restrictions:
 
Source: Center for Data Innovation   Read full article  
 
2. Cities with the worst traffic congestion:
 
Source: @wef   Read full article  
 
3. College majors with the highest current unemployment rates:
 
Source: Statista  
 
4. The environmental cost of different protein sources:
 
Source: chartr  
 
5. The Philadelphia Fed Partisan Conflict Index:
 
Source: BofA Merrill Lynch Global Research  
 
6. Online grocery shopping:
 
Source: @financialtimes   Read full article  
 
7. US bank branch openings/closings:
 
Source: S&P Global Market Intelligence  
 
8. Handbag sourcing:
 
Source: S&P Global Market Intelligence  
 
9. Ice cream brand preferences:
 
Source: @CivicScience, @benandjerrys   Read full article  

——————–

 
Please note that The Daily Shot will no longer be published by The Wall Street Journal beginning on August 1. The Daily Shot will still be available as an independent publication. If you would like to continue to receive The Daily Shot, you can get more information on how to subscribe here.


Back to Index


Factors Behind the Record-Setting Rally in Gold

The Daily Shot: 27-Jul-20
Commodities
Cryptocurrency
Energy
Equities
Rates
Emerging Markets
China
Asia – Pacific
The Eurozone
The United Kingdom
The United States
Global Developments
Food for Thought



 

Commodities

1. Spot gold broke through the 2011 high this morning.
 

 
Below are some of the drivers of the latest rally.
 
Unprecedented monetary and fiscal stimulus has been boosting inflation expectations. Here is the US 10yr breakeven rate.
 
Source: @lisaabramowicz1  
 
Positioning for higher inflation, investors are pouring capital into inflation-linked Treasuries (TIPS).
 
Source: Arbor Research & Trading  
 
As a result, real rates are moving deeper into negative territory, supporting gold.
 
Source: @TaviCosta  
 
The recent dollar weakness is another factor behind the rally.
 
Source: barchart.com  
 
Will the dollar continue to weaken? Asset managers keep increasing their bets against the US currency.
 
Source: Goldman Sachs  
 
Rising US-China tensions are also boosting demand for gold.
 
Source: BBC   Read full article  
 
Goldman’s geopolitics tension barometer hit a new high.
 
Source: Goldman Sachs, @themarketear  
 
China will be further irritated by the possibility of the US expanding its relationship with Taiwan.
 
Source: The Taipei Times   Read full article  
 
Another factor boosting gold is a concern about a double-dip recession in the US. The drag on the recovery will come from the potential income cliff …
 
Source: @axios   Read full article  
 
… and schools/daycare establishments remaining closed.
 
Source: Barrons   Read full article  
 
As a result, the Fed’s balance sheet will expand further, …
 
Source: @ISABELNET_SA, @GoldmanSachs  
 
… with risks to the upside if the central bank is forced to fill the deficit gap.
 
Source: Deutsche Bank Research  

——————–

 
2. Next, we have some additional updates on precious metals.
 
Adjusted for inflation, gold isn’t near record highs.
 
Source: @acemaxx, @JohnAuthers   Read full article  
 
Technical indicators suggest that the gold rally is stretched.
 
Source: barchart.com  
 
The rally in silver has been impressive.
 

 
Silver hasn’t had a month this strong since the Hunt Brothers tried to corner the market.
 

 
The silver miners ETF (SIL) saw its largest inflows on record.
 
Source: @TaviCosta  

——————–

 
3. Global steel production (ex-China) is gradually recovering but remains well below pre-crisis levels.
 
Source: World Steel Association   
 
4. Speculative accounts have boosted their bets on US soybean futures and cut back their short positions in corn.
 
Source: Fitch Solutions Macro Research  


Back to Index

 

Cryptocurrency

Cryptos are rallying with gold as Bitcoin blasts past $10k. The next resistance level is $10.5K.
 

 
Etherium continues to outperform.
 


Back to Index

 

Energy

1. The US rig count rose last week for the first time since March.
 

 
Production is rebounding.
 
Source: @financialtimes   Read full article  

——————–

 
2. US natural gas rig productivity accelerated as prices fell.
 
Source: @WSJ   Read full article  


Back to Index

 

Equities

1. Insiders have been selling into the rally.
 
Source: @hmeisler, @DiMartinoBooth  
 
The Nasdaq Composite has diverged from insider sentiment.
 
Source: @Not_Jim_Cramer  

——————–

 
2. Market breadth has been weak.
 
Source: @ISABELNET_SA, @GoldmanSachs  
 
3. The NYSE trading volume hit the lowest level since mid-March.
 
Source: @hmeisler  
 
4. The Citi sentiment index is holding in “euphoria” territory.
 
Source: @hmeisler  
 
5. Related to the above, single-stock options volumes are outpacing share trading.
 
Source: @LizAnnSonders, @GoldmanSachs, @OptionMetrics  
 
6. ETF flows into equities have slowed, as bond investment picks up.
 
Source: Arbor Research & Trading  
 
7. The “all-weather portfolio” (25/25/25/25 in stocks, bonds, cash, and gold) is up 18% over the past 90 days.
 
Source: @ISABELNET_SA, @BofAML  
 
8. Tech concentrations are not yet near record highs. It’s the tech mega-caps that are at extreme levels.
 
Source: JP Morgan, @chigrl  
 
9. These charts show earnings and revenue surprises for the Q2 results thus far.
 
Source: @FactSet   Read full article  


Back to Index

 

Rates

1. Treasury implied volatility index (MOVE) hit a record low. Complacency is setting in again.
 

 
2. The surge in the US economic surprise index hasn’t done much to support the long-end of the Treasury yield curve (2 charts).
 
Source: Pavilion Global Markets  

——————–

 
3. The 10yr Treasury yield is holding support.
 
Source: @DantesOutlook  
 
4. The market continues to price in some probability that the Fed will take rates into negative territory.
 

 
What about a rate hike? Here is what economists think.
 
Source: LPL Research  


Back to Index

 

Emerging Markets

1. Mexico’s economic contraction worsened in May. It will take a while to dig out of this hole.
 

 
2. Brazil’s consumer sentiment rebounded in July.
 

 
3. South Africa’s central bank cut rates again last week.
 

 
4. Russia’s central bank has been reducing rates as the economy stalls.
 
Source: @WSJ   Read full article  
 
5. The number of visitors to Turkey held near zero last month.
 

 
Separately, foreign investors have been getting out of local Turkish bonds.
 
Source: @WSJ   Read full article  


Back to Index

 

China

1. Industrial profits continue to rebound.
 

 
2. Money supply growth has been weak relative to historical trends.
 
Source: Pavilion Global Markets  
 
3. China-domiciled funds saw some outflows in recent days.
 
Source: Goldman Sachs  
 
4. Mainland companies dominate Hong Kong’s stock market.
 
Source: @WSJ   Read full article  
 
5. Vacancies in Hong Kong’s shopping districts have been rising.
 
Source: @business   Read full article  


Back to Index

 

Asia – Pacific

1. Taiwan’s stock market is soaring, partially supported by a potential shift in US policy (see the commodities section).
 

 
2. South Korea’s property prices jumped following the Bank of Korea’s rate cuts.
 
Source: Barclays Research  
 
3. Singapore’s industrial production surprised to the downside.
 

 
4. Shipbuilding orders from Asia have slowed.
 
Source: @WSJ   Read full article  
 
5. Australia is facing a substantial income cliff.
 
Source: @Scutty  
 
At the same time, new cases in Victoria keep rising.
 
Source: Goldman Sachs  


Back to Index

 

The Eurozone

1. The July preliminary PMI reports surprised to the upside, with gains driven mostly by services.
 
Germany:
 
Manufacturing (no longer contracting):
 

 
Services:
 

 
Composite output PMI:
 
Source: @IHSMarkitPMI   Read full article  
 
France:
 
Manufacturing (still expanding):
 

 
Services:
 

 
Composite output:
 
Source: @IHSMarkitPMI   Read full article  
 
Eurozone composite PMI:
 
Source: @IHSMarkitPMI   Read full article  

——————–

 
2. The Citi Economic Surprise index hit the highest level in nearly a decade.
 

 
3. The euro is soaring:
 

 
4. Italian consumer sentiment unexpectedly weakened this month.
 

 
Manufacturing confidence is recovering from extreme lows.
 


Back to Index

 

The United Kingdom

1. The UK Markit PMI report also surprised to the upside.
 
Manufacturing:
 

 
Services:
 

 
Composite:
 
Source: @IHSMarkitPMI   Read full article  
 
However, the labor market remains weak.
 
Source: Pantheon Macroeconomics  

——————–

 
2. The UK’s mobility trends are still lagging that of other European economies.
 
Source: ING  
 
3. Support for Scottish independence has risen.
 
Source: @financialtimes   Read full article  


Back to Index

 

The United States

1. Markit manufacturing PMI continues to show expansion (PMI > 50).
 

 
However, the nation’s service-sector activity is still soft.
 

 
The index of new business dipped in July.
 

——————–

 
2. Models point to new coronavirus cases peaking over the next couple of weeks.
 
Source: Princeton Energy Advisors  
 
But the reopening will be uneven.
 
Source: Pantheon Macroeconomics  

——————–

 
3. Business applications are soaring.
 

 
4. Need your credit card limit increased? The latest NY Fed’s survey points to a higher rate of rejections.
 
Source: NY Fed  
 
5. This chart shows consumer spending trends by sector.
 
Source: Deutsche Bank Research  
 
6. New home sales topped economists’ forecasts.
 

Source: HW   Read full article  
 
Here is the trend without seasonal adjustments.
 

 
Seales in the Northeast were especially strong.
 


Back to Index

 

Global Developments

1. Let’s start with the share of COVID fatalities in advanced vs. emerging countries.
 
Source: Philip Schellekens (World Bank)  
 
2. Here is the status of school openings around the world.
 
Source: @PoliticoRyan  
 
3. European business activity is outpacing the US and Japan.
 
Source: @WSJ   Read full article  
 
4. This chart shows central bank rate cuts in 2020 across major economies.
 
Source: Gavekal   
 
5. Growth in the global monetary base is fading.
 
Source: @crossbordercap  


——————–

Back to Index

 

Food for Thought

1. Relative changes in dissatisfaction with democracy (since 1995):
 
Source: @financialtimes   Read full article  
 
2. Recent incidents in the South China Sea:
 
Source: @financialtimes   Read full article  
 
3. COVID-19 deaths in Canada vs. the US (per million people):
 
Source: @MaxCRoser   Read full article  
 
4. Concerns about climate change vs. distance from the coast:
 
Source: @FactTank   Read full article  
 
5. Truckers’ wages:
 
Source: @business   Read full article  
 
6. Industries with the highest unemployment:
 
Source: Statista  
 
7. The demographics of US low-wage workers:
 
Source: @financialtimes   Read full article  
 
8. Food delivery sales:
 
Source: @WSJ   Read full article  
 
9. The Great Lakes system profile:
 
Source: @simongerman600   Read full article  

——————–

 
Please note that The Daily Shot will no longer be published by The Wall Street Journal beginning on August 1. The Daily Shot will still be available as an independent publication. If you would like to continue to receive The Daily Shot, you can get more information on how to subscribe here.


Back to Index


Housing Inventory in the Largest Metro Areas is Shrinking Rapidly

The Daily Shot: 24-Jul-20
The United States
Canada
The United Kingdom
The Eurozone
Europe
Japan
Asia – Pacific
China
Commodities
Energy
Equities
Rates
Global Developments
Food for Thought



 

The United States

1. Unemployment applications remain above 2 million per week.
 
Source: Oxford Economics  
 
Here is the total number of Americans receiving jobless benefits (about 20% of the labor force).
 
Source: @wolfofwolfst   Read full article  

——————–

 
2. The Conference Board’s index of leading indicators improved again in June, but at this point, the result is already stale.
 

 
3. Bloomberg’s consumer sentiment indicator ticked higher, but the improvements in the ‘buying climate’ index (2nd chart) have stalled.
 

 
There is some divergence in Bloomberg’s report between full-time and part-time employees.
 
Source: @TheTerminal  

——————–

 
4. The Kansas City Fed’s regional manufacturing report shows factory activity improving further this month.
 

 
The charts below show the new orders and employment indices.
 


 
The July regional Fed surveys (including the one above) point to further improvements in business activity at the national level (ISM).
 
Source: @Not_Jim_Cramer  

——————–

 
5. Permanent business closures continue to climb.
 
Source: @jessefelder, The Washington Post   Read full article  
 
Restaurants and retail stores have been hit the hardest.
 
Source: The Daily Feather  
 
Business reopenings have stalled.
 
Source: @WSJ   Read full article  

——————–

 
6. The federal government is expected to continue replacing lost income.
 
Source: @joebrusuelas  
 
7. Business activity and improving mobility have been holding the Oxford Economics Recovery Tracker relatively steady – even as the health component worsened.
 
Source: Oxford Economics  
 
By the way, is the number of new cases in the US about to peak?
 

——————–

 
8. The housing market remains resilient.
 
Google search activity for house inspection and appraisal is soaring.
 
Source: Arbor Research & Trading  
 
New listings are almost back to normal.
 
Source: Redfin  
 
The overall housing inventory in the largest metro areas is shrinking rapidly.
 
Source: Arbor Research & Trading  
 
Home improvement sales have remained steady throughout this crisis.
 
Source: Refinitiv  

——————–

 
9. The decline in investment growth could reduce productivity and hence wage growth, according to Deutsche Bank. (2 charts)
 
Source: Deutsche Bank Research  
Source: Deutsche Bank Research  


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Canada

Here are some updates on the loonie.
 
USD/CAD is at long-term resistance, and upside momentum is slowing.
 
Source: @DantesOutlook  
 
The Canadian dollar appears undervalued …
 
Source: Market Ethos, Richardson GMP  
 
… and remains supported by interest rate differentials.
 
Source: Market Ethos, Richardson GMP  
 
CAD is most correlated with the 2-year rate differential.
 
Source: Market Ethos, Richardson GMP  


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The United Kingdom

1. Retail sales rebounded sharply last month, topping expectations.
 

 
2. Consumer confidence improvements stalled this month.
 

 
3. July industrial orders indicator from CBI was soft, but manufacturing sentiment is improving.
 

Source: Reuters   Read full article  
 
Investment intentions rebounded from extreme lows but remain fragile.
 
Source: Pantheon Macroeconomics  

——————–

 
4. Manufacturers expect more layoffs ahead.
 
Source: @financialtimes   Read full article  


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The Eurozone

1. Germany’s consumer confidence improved sharply this month.
 

 
However, at the Eurozone level, the rebound has stalled.
 

——————–

 
2. French business confidence is recovering, but it may be some time before we get to pre-crisis levels.
 

 
3. The Citi Economic Surprise index hit the highest level since early 2018.
 

 
4. The ECB’s asset purchases have been slowing.
 
Source: Barclays Research  
 
5. Germany’s PMI indicators surprised to the upside, showing business activity (both manufacturing and services) back in growth mode (PMI > 50). Services were especially strong this month. More on this next week.


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Europe

Elsewhere in Europe, Sweden’s unemployment rate surprised to the upside.
 
Source: The Local   Read full article  


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Japan

1. The yen has been strengthening as global sentiment turns more cautious.
 

 
2. Unlike the 2008 financial crisis, firms aren’t facing severe lending conditions, although large firms have been operating in a less accommodative environment over the past year or so.
 
Source: Pantheon Macroeconomics  
 
3. Corporate investment plans have not been shelved.
 
Source: Pantheon Macroeconomics  


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Asia – Pacific

1. Taiwan’s stocks are trading near all-time highs, amid capital inflows.
 
Source: @DavidInglesTV  
 
And the Taiwan dollar continues to rally.
 

 
Taiwan’s industrial production topped economists’ forecasts.
 

——————–

 
2. Singapore has been in deflation.
 

 
3. Many Asian firms cut dividends this year.
 
Source: @markets   Read full article  
 
4. Next, we have a couple of updates on Australia.
 
Markit PMI indicators point to accelerating growth in business activity.
 

 
Nonetheless, business confidence has been weak.
 
Source: @MacrobondF   Read full article  


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China

1. The stock market rally has faded.
 

 
China’s currency rebound has stalled as well.
 

——————–

 
2. Pantheon Macroeconomics expects China’s recovery to lose steam in the second half of this year.
 
Source: Pantheon Macroeconomics  
 
But the spike in the M1 money supply suggests a fast start to 2021.
 
Source: Pantheon Macroeconomics  

——————–

 
3. Hong Kong’s stocks have been underperforming.
 
Source: @financialtimes   Read full article  


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Commodities

1. Gold is nearing record highs.
 
Source: @WSJ   Read full article  

——————–

 
2. Fitch Solutions expects further tightness in copper supply.
 
Source: Fitch Solutions Macro Research  


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Energy

1. Investor sentiment has been struggling to rise for Brent oil. (The charts below shows managed money net speculative positions)
 
Source: Fitch Solutions Macro Research  
 
2. WTI crude is testing resistance.
 
Source: Hugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital  
 
3. Crude oil futures volume has deteriorated.
 
Source: @JavierBlas  


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Equities

1. The Nasdaq 100 is underperforming, …
 

 
… with Intel exacerbating Friday’s losses (see story).
 
Source: Google  
 
It’s been a good run for Nasdaq.
 
Source: @jsblokland  

——————–

 
2. Let’s take a look at some valuation trends.
 
Relative to the dot-com bubble, the Nasdaq and tech rally hasn’t been extreme (3 charts).
 
Source: SunTrust Private Wealth Management  
Source: SunTrust Private Wealth Management  
 
Bullish analysts continue to say that we should look past stretched valuations.
 
Source: @ISABELNET_SA, @GoldmanSachs  
 
The S&P 500 dividend yield looks attractive relative to Treasuries.
 

 
But many view Treasuries as overvalued.
 
Source: @ISABELNET_SA, @GoldmanSachs  
 
Another metric to consider is the spread between the S&P 500 earnings yield and the BBB corporate credit (which makes stocks look attractive).
 

 
It’s worth noting that BBB yields are at record lows.
 
Source: @TheTerminal  

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3. Investor surveys continue to show caution. Perhaps wrong investors have been surveyed.
 
Source: BCA Research  
 
68% of investors surveyed by Investopedia expect a market drop in the next three months.
 
Source: Investopedia   Read full article  
 
However, 51% of respondents expect IT to lead market gains over the next five years.
 
Source: Investopedia   Read full article  

——————–

 
4. Dealmaking has rebounded (2 charts).
 
Source: @markets   Read full article  
Source: @axios   Read full article  

——————–

 
5. Are value stocks finally bottoming relative to growth?
 
Source: @topdowncharts   Read full article  
h/t Abhishek Vishnoi  

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6. The ratio of cyclicals to defensives continues to indicate a pause in economic recovery.
 
Source: Gavekal   
 
7. Finally, we have US equity ownership by age.
 
Source: Goldman Sachs, @GunjanJS  


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Rates

1. The Treasury curve is flattening.
 

 
2. Treasury implied volatility index (MOVE) is nearing record lows.
 

 
Traders have discounted volatility in the short end of the curve, convinced that the Fed is on hold for years. Could we get a surprise from the Fed down the road? The 2Y5Y/2Y30Y vol ratio is at an all-time low.
 
Source: Deutsche Bank Research  

——————–

 
3. Inflation expectations continue to climb, even as Treasury yields are holding in place. As a result, real rates keep moving deeper into negative territory.
 
Source: Morgan Stanley Research  
 
4. The Fed is no longer absorbing all the new Treasury supply.
 
Source: Pantheon Macroeconomics  


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Global Developments

1. The dollar index hit a 22-month low.
 
Source: barchart.com  
 
2. Other than the yen and the Swiss franc, G10 currencies are correlated with the S&P 500.
 
Source: Morgan Stanley Research  
 
3. Here is Goldman’s estimate of the global GDP trajectory and its regional components.
 
Source: Goldman Sachs  
 
4. More than one-third of sovereign ratings are on negative outlook, with weakness led by Latin America, the Middle East, and Africa, according to Fitch.
 
Source: Fitch Ratings  
 
The pandemic has led to a rise in sovereign bond rating volatility.
 
Source: Fitch Ratings  


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Food for Thought

1. What percentage of the biggest accounting firms’ revenue comes from audit work?
 
Source: @financialtimes   Read full article  
 
2. North Korea vs. South Korea military stats:
 
Source: @WSJ   Read full article  
 
3. Views on different global security issues:
 
Source: @adam_tooze   Read full article  
 
4. CO2 reductions needed to curtail global warming:
 
Source: IIF  
 
5. The impact of US voter turnout on 2020 presidential elections:
 
Source: Moody’s Analytics  
 
6. Views on immigration:
 
Source: Gallup   Read full article  
 
7. Views on voice technology:
 
Source: @MorningConsult   Read full article  
 
8. Video game streaming:
 
Source: @chartrdaily  
 
9. The survival curve in London and the countryside during the 1730s (80% of Londoners didn’t make it to 45):.
 
Source: @MaxCRoser   Read full article  

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Please note that The Daily Shot will no longer be published by The Wall Street Journal beginning on August 1. The Daily Shot will still be available as an independent publication. If you would like to continue to receive The Daily Shot, you can get more information on how to subscribe here.
 
Have a great weekend!


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U.S. Labor Market Rebound Peaked in Mid-June and Has Been Reversing Since

The Daily Shot: 23-Jul-20
Important Update Regarding The Daily Shot
The United States
Canada
The Eurozone
Europe
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

Important Update Regarding The Daily Shot

The Daily Shot will no longer be published by The Wall Street Journal beginning on August 1. The Daily Shot will still be available as an independent publication. If you would like to continue to receive The Daily Shot, you can get more information on how to subscribe here.


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The United States

1. Let’s begin with the housing market.
 
Existing home sales rose sharply in June.
 

 
Despite the increase, sales are running just above the levels we saw in 2014.
 

 
Here is the year-over-year change.
 

 
This chart shows the regional breakdown.
 
Source: Oxford Economics  
 
Inventories remain at multi-year lows.
 

 
Record-low mortgage rates and brisk loan applications point to further improvements in home sales (2 charts).
 
Source: Piper Sandler   
Source: Pantheon Macroeconomics  

——————–

 
Mortgage applications remain elevated.
 
Home purchase applications:
 

 
Refinance applications:
 

——————–

 
Homebuilder shares are now outperforming year-to-date.
 

——————–

 
2. The Household Pulse Survey (from the Census Bureau) suggests that the labor market rebound peaked in mid-June and has been reversing since.
 
Source: @ernietedeschi, @uscensusbureau   Further reading  
 
3. Measures of consumer sentiment remain subdued.
 
The Morning Consult Index of Consumer Sentiment:
 
Source: Morning Consult   Read full article  
 
The HPS-CS Economic Sentiment Index:
 
Source: @HPSInsight, @CivicScience  
 
By the way, notice the strength in the housing component of the above index (purple).

——————–

 
4. Next, we have some high-frequency indicators of economic activity.
 
Hotel room purchases (weekly changes):
 
Source: @WSJ   Read full article  
 
Restaurant reservations:
 
Source: @Noahpinion, @bopinion   Read full article  
 
The NY Fed’s economic activity index (WEI):
 
Source: @axios   Read full article  

——————–

 
5. Finally, financial Twitter sentiment has been most upbeat on the consumer.
 
Source: Arbor Research & Trading  


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Canada

1. Inflation surprised to the upside.
 
Source: Reuter