the united states · 1/22/2019 · the united states 1. industrial production was surprisingly...
TRANSCRIPT
The United States
1. Industrial production was surprisingly strong in December, driven by the manufacturing
sector.
The number of manufacturing sub-sectors that were contracting was the lowest since 2010.
Source: @GregDaco
Capacity utilization continues to recover.
However, forward-looking indicators suggest that manufacturing output will slow
substantially as sentiment sours.
Source: Pantheon Macroeconomics
Source: Moody's Analytics; Read full article
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2. The January U. Michigan Consumer Sentiment report was much weaker than economists
had been forecasting. The government shutdown is taking its toll.
• This index hasn't experienced such a sharp decline in years.
• The expectations component tumbled.
• Fewer respondents in the U.Michigan survey included positive comments about
government economic policy.
Source: @M_McDonough
• Americans are increasingly uneasy about buying big-ticket items such as homes and
automobiles.
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3. The government shutdown is working its way through the economy.
• Goldman's Current Activity Indicator (GDP tracking model) weakened further in January.
The latest decline was driven by soft data such as the U.Michigan Consumer Sentiment Index
(above).
• Consumer confidence indicators declined sharply during the 2013 government shutdown as
well.
Source: Credit Suisse
• Here is the Economic Policy Uncertainty Index.
And this chart shows increased policy uncertainty based on Google search activity.
Source: Arbor Research & Trading; Read full article
• Economists are concerned about delays in tax refunds which tend to be vital for lower-
income households.
Source: Credit Suisse
• The shutdown's impact on the GDP growth continues to worsen.
Source: Scotiabank Economics
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4. Finally, below are a couple of updates on the housing market.
• Homebuilder confidence by region:
Source: Fitch Solutions
• Mortgage originations forecast:
Source: Mortgage Bankers Association
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Canada
1. The headline CPI unexpectedly jumped, but core inflation remains steady.
Source: Scotiabank Economics
Here are the components of the CPI.
Source: Scotiabank Economics
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2. Canada's stock market started the year on a strong note.
Source: @markets; Read full article
3. The recent curve flattening isn't as troubling when adjusted for term premium.
Source: CIBC Capital Markets
4. This chart compares Canadian and US household leverage.
Source: Oxford Economics
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The United Kingdom
1. December retail sales were weaker than expected.
2. Home price appreciation has stalled.
3. This chart shows the impact of Brexit uncertainty on business investment.
Source: CIBC Capital Markets
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The Eurozone
1. Economists continue to downgrade their forecasts for the euro-area 2019 GDP growth.
2. Here is the GDP growth by country for the first three quarters of each year.
Source: @economics, @MaevaDebarge; Read full article
3. Germany's energy CPI has been elevated despite lower oil prices.
Source: Pantheon Macroeconomics
Low water levels in the Rhine made it difficult to deliver fuel from the coast (see story),
keeping prices artificially high. However, the situation has been improving this year, which
should put downward pressure on the headline CPI.
Source: Pantheon Macroeconomics
Below is a longer-dated market-based inflation expectation measure for Germany.
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Asia - Pacific
1. The Reuters Japan Tankan tracking index is deteriorating.
2. South Korea's exports dropped further this month.
The nation's fourth-quarter GDP growth was stronger than expected. However, given the
weakness in South Korea's exports, the current quarter will be substantially softer.
3. Australia's average temperature continues to climb (a warning sign for the rest of the
world).
Source: BBC; Read full article
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China
1. The GDP report was in line with expectations, as the annual growth (second chart) hit the
lowest level in years.
Below are the GDP components.
Source: Credit Suisse
2. Next, we have three other key official indicators.
• Industrial production:
• Fixed investment:
• Retail sales:
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3. Property investment remains robust, and the sector continues to drive economic
momentum.
Source: ANZ Research
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4. Below is an updated debt-to-GDP ratio.
Source: IIF
5. This chart shows the recent growth in China's retail deposits.
Source: TS Lombard
6. The yuan's share of global payments remains minimal.
Source: WSJ.com, h/t Paul Menestrier; Read full article
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Commodities
1. Shares of gold miners have been falling this year as the gold rally fizzles.
2. This chart shows the US agricultural output by commodity.
Source: @FarmPolicy
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Energy
1. The US rig count tumbled as lower oil prices take their toll.
2. The Brent curve moved back into backwardation.
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3. This chart shows the US shale oil production components.
Source: Princeton Energy Advisors
And here is a forecast for the total US oil output, which is expected to exceed the Saudi
production capacity (second chart below).
Source: Longview Economics
Source: @BloombergNRG, @gran; Read full article
4. The Permian crude discount to the US benchmark (Cushing WTI) has been shrinking as
transport capacity improves.
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5. Next, we have Iraq's crude oil exports by destination.
Source: @EIAgov; Read full article
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6. Adding new solar capacity has become more efficient in recent years.
Source: @markets; Read full article
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Equities
1. Sentiment appears to have deteriorated over the weekend amid lack of progress on the
government shutdown. US futures are down in early trading.
2. Here is last week's market activity for select sectors.
• Banks:
• Homebuilders:
• Industrials:
• Transportation (rally driven by rail shares):
• Value vs. growth:
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3. Either the market is wrong about the Fed hikes in 2019 or the rebound in stocks is
overdone.
Source: @RobinBrooksIIF
4. A typical relief rally is 68% of the decline.
Source: Longview Economics
5. Here are the latest consensus earnings and revenue growth forecasts.
Source: Yardeni Research
6. This chart shows sales per employee for the S&P 500 companies.
Source: BofAML, @SamRo
7. The December stock market deleveraging was impressive.
Source: @wolfofwolfst; Read full article
8. Next, we have some updates on market volatility.
• Last quarter's market swings were unusual.
Source: WSJ.com, h/t Paul Menestrier; Read full article
• Relative value volatility funds had a rough year.
Source: @markets; Read full article
• Risk parity funds reduced their exposure last year. Given the persistently high volatility, it
will take some time for them to start increasing their leverage again.
Source: Deutsche Bank Research
• Cross-sector correlations remain elevated.
• VIX futures liquidity quickly dries up as vol rises.
Source: Deutsche Bank Research
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Credit
1. BBB (Baa) corporate debt balances are at record highs.
Source: Moody's Analytics; Read full article
2. Are high-yield flows stabilizing?
Source: Deutsche Bank Research
3. The tightening in high-yield spreads this year has been unusually fast.
Source: @bespokeinvest; Read full article
4. Near-term refinancing risks have risen.
Source: IIF
5. GSE's (Fannie and Freddie) preferred shares rallied this month on talk of reform.
h/t @MattGarrett3
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Rates
1. The US Treasury cash balances at the Fed remain elevated. Releasing some of this cash
could act as a form of monetary easing (by boosting private-sector deposits).
2. This chart shows excess reserves declining much faster than the Fed's balance sheet. The
divergence is due to the growth in bank deposits, which tend to raise reserve requirements
(reducing excess reserves).
Source: TS Lombard
3. Here is a forecast for the fed funds trajectory from Capital Economics.
Source: Capital Economics
4. The FOMC increasingly sees "external risks" to the economy (see comments below).
Source: Natixis
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Global Developments
1. Fund investors are defensively positioned.
Source: BofAML, @DriehausCapital
2. Central bank liquidity declined sharply last November.
Source: CrossBorder Capital
3. Export orders tell us that global export growth will decline further (see South Korea's
exports in the Asia-Pacific section).
Source: NY Fed; Read full article
4. BlackRock's GDP tracker says that global growth has weakened but remains near 2%.
Source: BlackRock; Read full article
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Food for Thought
1. Cost-burdened US households:
Source: Deutsche Bank Research
2. Homes with negative equity by state:
Source: John Burns Real Estate Consulting
3. Cities building most skyscrapers:
Source: @StatistaCharts, @CTBUH; Read full article
4. Additional travel time during peak hours:
Source: WSJ.com, h/t Paul Menestrier; Read full article
5. New immigrants in the US:
Source: WSJ.com, h/t Paul Menestrier; Read full article
6. Huge disparities in prison sentences by different judges:
Source: United States Sentencing Commission; Read full article
7. High school football participation rate by state:
Source: Wells Fargo, @SamRo