The Daily Shot: The U.S. Fiscal Policy Is No Longer Stimulative – Daily Shot

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Twitter: @SoberLook




The Daily Shot: 16-Oct-19
The United States
Canada
The United Kingdom
The Eurozone
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Energy
Equities
Rates
Global Developments
Food for Thought

The United States

1. Inflation expectations continue to moderate, giving the Fed more room to ease. The probability of a rate cut at the end of the month is holding at around 73%. Here is the NY Fed’s inflation expectations index.

 

2. Americans remain uneasy about the economy. Will the US-China interim trade deal improve the situation?

Source: @MSN_CS_ESI; Read full article

 

3. While household leverage (debt-to-income) is low compared to pre-recession levels, we should pay more attention to financial obligations, which include rent. The green line below shows that households’ total financial liabilities are now much larger relative to debt obligations.

Source: Morgan Stanley Research

 

4. Next, we have a couple of updates on the labor market.

Steel jobs are down 55% since 1990, while steel output is roughly flat.

Source: @business

 

The GM strike has become a substantial drag on US payrolls growth.

Source: @WSJ; Read full article

 

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5. The US fiscal policy is no longer stimulative and perhaps even restrictive, as the impact of tax cuts and new spending initiatives fades.

Source: Alpine Macro

 


Back to Index

Canada

1. Bond yields have risen sharply in recent days amid strength in the labor market.

 

Here is the spread between Canadian and US government bond yields.

 

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2. Existing home sales were below market expectations in September.

 


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The United Kingdom

1. Hopes for a Brexit deal have been running high. Is the optimism overdone?

Source: The Guardian; Read full article

 

It’s been a good week for the pound.

 

 

The CME pound futures volume spiked.

Source: @TheTerminal

 

The FTSE 250 continues to outperform.

 

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2. The employment report was disappointing as the economy shed 56k jobs in the three months through the end of August.

 

Source: Pantheon Macroeconomics

 

The automotive industry has been shedding jobs.

Source: The Guardian; Read full article

 

Job vacancies continue to moderate, which will be a drag on employment gains going forward.

Source: @financialtimes; Read full article

 

Source: Pantheon Macroeconomics

 

The unemployment rate ticked higher.

 

Wage growth remains robust, but real pay is still not back to the pre-crisis peak (third chart).

 

Source: @financialtimes; Read full article

 

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3. The top 1% of earners are paying a rising share of taxes.

Source: @WSJ; Read full article

 

4. Credit quality is declining for UK consumer services companies.

Source: Credit Benchmark

 

5. Foreign investors own more than a quarter of the gilt market.

Source: @financialtimes; Read full article

 


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The Eurozone

1. Germany’s ZEW index showed a worsening assessment of current conditions but some stabilization in growth expectations.

 

2. Domestic demand has been a drag on growth in Germany, France, and Spain. Italy has been hit with external demand weakness.

Source: Goldman Sachs

 


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Asia – Pacific

1. Japanese equities outperformed global peers in September.

Source: BlackRock Investment Institute 

 

2. South Korea’s central bank cut rates again as economic outlook darkens.

 

3. Australia’s consumer sentiment has softened in recent weeks. Here is the index of “future economic conditions.”

Source: ANZ Research

 

4. New Zealand’s home sales have been improving.

 


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China

1. China’s consumer inflation continues to grind higher as a result of rising food prices.

 

 

Pork prices are up 69% from a year ago, which is pushing beef prices higher as well.

 

Without the pork CPI component, consumer inflation has been weakening.

Source: ANZ Research

 

Here is the core CPI.

 

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2. Producer price inflation has moved deeper into negative territory, which is pressuring industrial profits.

 

3. The renminbi is giving up some of the earlier gains (the offshore yuan shown below).

 

4. September loan growth surprised to the upside. The second chart shows the year-to-date trends.

 

Here is the aggregate financing.

 

Growth in China’s broad money supply (M2) ticked higher.

 

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5. “Backdoor” capital outflows continue.

Source: @WSJ; Read full article

 

6. This chart compares China’s retail sales to the US equivalent (in dollar terms). Some of the effect is due to a weaker renminbi, but not all of it.

Source: @WSJ; Read full article

 


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Emerging Markets

1. The Brazilian real declined this week amid some political “friction.”

Source: Reuters; Read full article

 

 

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2. India’s trade activity has been weakening.

 

Separately, the RBI’s rate cuts have not yet shown up in the real economy.

Source: Gavekal 

 

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3. Saudi stocks are in bear-market territory.

 

Source: @markets; Read full article

 


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Cryptocurrency

1. Ripple’s XRP is outperforming its crypto peers as the company unveiled a partnership with a Mexican cryptocurrency exchange Bitso (which should bring XRP more liquidity).

Source: FinViz

 

XRP is testing resistance.

 

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2. Over the past year, Bitcoin’s correlation to the US dollar turned negative, …

 

… as the cryptocurrency started trading a bit more like gold.

 


Back to Index

Energy

1. US crack spreads have widened recently, boosting refinery margins.

 

Here is the share price of Valero Energy, which focuses on refinery operations.

 

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2. In recent decades, gasoline has become a smaller portion of US consumer spending.

Source: BCA Research

 


Back to Index

Equities

1. The current rally has been relatively narrow as the overall US market lags the largest firms. The charts below show the relative performance of the Russell 3000 index and the S&P 500 equal-weighted index.

 

Less than half of the NYSE stocks trade above the 200-day moving average.

 

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2. The greenback’s strength and a shift in valuations have been a drag on dollar-denominated returns of firms based outside of the US.

Source: Capital Economics

 

3. Total dividends and buybacks have risen above free cash flow levels again.

Source: Capital Group; Read full article

 

4. This chart shows the S&P 500 consensus earnings estimates for 2019 (by quarter).

Source: Yardeni Research

 

5. Macro indicators point to downside risks for revenues (3 charts below).

Source: Yardeni Research

 

Source: Yardeni Research

 

6. Next, we have some sector updates.

Banks:

 

Utilities and REITs:

 

Retail:

 

Biotech:

 

Aerospace:

 

Transportation:

 

Semiconductors:

 

Tech:

 

The tech sector ETF (XLK) reached new highs relative to the S&P 500 ETF (SPY).

 

AI-focused companies are underperforming global tech markets.

Source: Factor Research

 

ARKK, the AI-heavy “innovation” ETF, is underperforming the broader tech sector.

 


Back to Index

Rates

1. The Treasury curve continues to steepen.

 

2. The Fed’s bill purchases (boosting reserves) are a longer-term “replacement” for the repo financing.

Source: Gavekal 

 

With the Fed buying T-bills, the 3-month spread to OIS moved back into negative territory.

 

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3. This chart shows the relative performance of the 20+ year Treasury ETF (TLT) vs. the S&P 500 ETF (SPY).

 

4. Do macro US indicators signal higher Treasury yields?

Source: @HogfeldtJohanna

 


Back to Index

Global Developments

1. Let’s start with a couple of updates on the US dollar.

The dollar index is testing support.

 

But traders remain upbeat on the dollar.

 

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2. F/X volatility has diverged from the global uncertainty index.

Source: TD Securities

 

3. This chart shows the IMF’s GDP projections.

Source: @markets; Read full article

 

4. Here are the contributions to global growth.

Source: IMF; Read full article

 

5. Will easier financial conditions boost economic growth?

Source: TD Securities

 

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Back to Index

Food for Thought

1. Working beyond the age of 65:

Source: Statista

 

2. The 20th-century transition in US transportation/logistics employment:

Source: @JKempEnergy

 

3. US crime rates:

Source: The Marshall Project; Read full article

 

4. Manhattan housing market:

Source: @WSJ; Read full article

 

5. Income inequality survey:

Source: @CivicScience

 

6. How commuting has changed since 2010:

Source: @_cingraham; Read full article

 

7. Food- and grocery-delivery market share:

Source: @WSJ; Read full article

 

8. US egg prices:

Source: @WSJ; Read full article

 

9. Battery production capacity by region:

Source: @WSJ; Read full article

 

10. Wine imports:

Source: Statista

 

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