The Daily Shot: U.S. Inventory-to-Sales Ratio Remains Elevated – Daily Shot

The Daily Shot: U.S. Inventory-to-Sales Ratio Remains Elevated – Daily Shot


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Twitter: @SoberLook

The Daily Shot: 12-Aug-19
Administrative Update
• The United States
• Canada
• The United Kingdom
• The Eurozone
• Asia – Pacific
• China
• Emerging Markets
• Commodities
• Energy
• Equities
• Rates
• Global Developments
• Food for Thought

Administrative Update

1. Please note that the Daily Shot will not be published from August 21st to August 27th.

2. As a reminder, Gmail tends to clip the Daily Shot, usually cutting off the last one or two sections. The best way to see the full newsletter is by clicking “View in web browser” at the top. Reading the Daily Shot in your browser will also help with navigation (the Table of Contents links), which doesn’t work well on Apple devices.


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The United States

1. Let’s begin with the PPI report, which showed slower inflation at the wholesale level (see story). The core PPI (second chart) was below the consensus estimate.


Here is the core PPI less “trade services,” which are essentially business markups (and tend to be volatile). It’s worth noting that slower or even negative producer price inflation is a global phenomenon (here is China’s PPI, for example).


In particular, some industrial products saw slower year-over-year price increases.

Industrial material handling equipment:


Heavy trucks:



2. Several leading indicators, such as manufacturing labor costs and oil prices, point to slower inflation ahead.

Source: Alpine Macro


3. Wholesalers’ inventory-to-sales ratio remains elevated, especially for durable goods.


4. Here is Goldman’s estimate of the trade war’s impact on the GDP (FCI = financial conditions index).

Source: Goldman Sachs


5. With the Fed now halting the contraction of its balance sheet, the overall credit growth is expected to accelerate.

Source: Gavekal 


6. Any further strengthening in the US dollar will pressure risk assets such as stocks and commodities and is likely to be a drag on economic growth.


Source: @markets; Read full article


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1. The employment report was disappointing, with payrolls unexpectedly declining in July.

Total payrolls:


Private payrolls:

Source: @EconguyRosie


The unemployment rate rose.


And the participation rate ticked down.


One positive aspect of the report was the growth in wages, which hit the highest level in a decade (see story). However, given the weakness in hiring, these pay increases don’t look sustainable.



2. New home prices are declining.


3. Housing starts remain robust (chart below), but building permits unexpectedly decreased (second chart).




4. The whole Canadian yield curve is now below the BoC’s overnight rate.

Source: @TaviCosta


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The United Kingdom

1. The GDP unexpectedly contracted in the second quarter.


The UK consumer is keeping the economy from deteriorating further (2 charts below).

Source: Pantheon Macroeconomics



On the other hand, business investment has been soft.



2. Industrial production was weaker than expected.


Construction output also disappointed.


And services are barely growing.



3. Trade activity declined sharply after the Brexit deadline at the end of Q1. The trade balance unexpectedly swung into surplus (third chart below), but economists view this as noise.


4. The pound fell to the lowest level in years after the GDP report.


Here is the euro vs. the pound.


Hedge funds (and other “non-commercial” accounts) continue to raise their bets against the pound. Has this become a crowded trade?


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The Eurozone

1. Let’s begin with Italy, where the likelihood of fresh elections is rising.

Source: @TheEconomist; Read full article


A center-right alliance seems to be the most likely outcome (between Lega and Forza Italia). That, of course, assumes that Salvini and Berlusconi can work together.

Source: Commerzbank Research


The rising political uncertainty put pressure on Italian financial assets.

The 10yr bond spread to Germany:


The Italian stock market:


Bank stocks:


UniCredit shares hit the lowest level in years.



Separately, Italy’s trade surplus remains robust.


Is Italian consumer inflation heading for zero?



2. Germany’s trade surplus was lower than expected.


3. French June manufacturing output was below economists’ forecasts.


4. Finally, Dutch industrial sales fell by more than 10% (from the previous year) for the first time in a decade.


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Asia – Pacific

1. Speculative accounts have unwound their bearish bets against the yen (an indication of increased risk aversion).


2. Here is Bloomberg’s Asia currency index.


3. Singapore’s June retail sales were well below economists’ forecasts.

Source: @ChannelNewsAsia; Read full article


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1. China’s currency is weaker again in Monday trading. Here is the offshore renminbi.


2. Goldman estimates that capital outflows have picked up, although nothing like we saw in 2015.

Source: Goldman Sachs


3. The increased MSCI index weight in Chinese shares hasn’t brought in much foreign investment flow.

Source: @WSJ; Read full article


4. Nonetheless, foreign investors own only 3% of Chinese stocks, suggesting significant room for growth in foreign holdings.

Source: IIF


And foreign institutional investor access to China-A shares via programs such as QFII and RQFII is still limited, as program quotas represent only 3% of the broad market.

Source: IIF



5. The ongoing protests have been taking a toll on Hong Kong’s retailers.

Source: @WSJ; Read full article


Back to Index

Emerging Markets

1. Mexico’s June industrial production was weaker than expected.


2. Argentina’s stock market rallied going into the primary elections.


As of 10 PM EST, it appears that Mauricio Macri has lost, which is a negative outcome for Argentina’s economy. Here is the betting market result.

Source: @PredictIt



3. India’s industrial production is holding up despite global pressures.


4. Will South Africa need an IMF bailout?

Source: @markets; Read full article


Here is the rand.



5. The chart below shows how US sanctions on Russia have been impacting the ruble.

Source: @economics, @sjinlondon; Read full article


6. Online search activity shows an increasing demand for credit/lending across Asia.

Source: Arbor Research & Trading


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1. Iron ore is in bear market territory amid higher inventories and trade tensions.


China’s steel prices are falling as well.



2. The copper market is expected to be in deficit in the next few years.

Source: @WSJ; Read full article


For now, however, speculators are betting against the metal.



3. Hedge funds’ bets on gold continue to climb.


Gold fund inflows spiked last week.

Source: Deutsche Bank Research



4. Cocoa futures keep sinking.


Back to Index


1. Crude oil futures jumped on Friday as the Saudis moved to cut exports. Lower oil stockpiles in Europe also helped.


Source: @business; Read full article



2. The Brent – WTI spread continues to tighten. The drivers are the trade tensions and softer demand in Asia (which impacts Brent more) and falling inventories at Cushing, OK (the settlement hub for NYMEX WTI).




3. The US oil rig count is still drifting lower.


Back to Index


1. Despite the recent market jitters, insiders haven’t been selling.

Source: MarketWatch; Read full article


2. When adjusted for inflation, the S&P 500 has stayed virtually flat for the past 18 months.

Source: Alpine Macro


By the way, here is the S&P 500 priced in ounces of gold.



3. Stocks of companies known for share repurchases continue to widen their underperformance, indicating slower buyback activity.


4. There is an increasing amount of cash on the sidelines.

Source: Deutsche Bank Research


5. Next, we have some sector performance updates from last week.



Retail (walloped by the trade war):




Communication Services:




Oil & Gas Services:


Metals & Mining:



6. Finally, here are a couple of equity factor charts.



Dividend Dogs:


Back to Index


1. The 10yr -2yr Treasury spread hit a multi-year low.


2. Speculators continue to boost their bets on short-term rate futures amid expectations of multiple Fed rate cuts this year.


3. Treasury ETFs didn’t see the capital inflows that usually accompany a rally in bonds.

Source: @benbreitholtz


4. Finally, this chart shows the implied volatility index for rates (MOVE) vs. the Treasury term premium.

Source: Longview Economics


Back to Index

Global Developments

1. The Swiss franc continues to grind higher amid increased global uncertainty and expectations of further easing by the ECB.


2. This chart shows the global cross-sector correlation.

Source: FTN Financial


3. Capital Economics expects global bond yields to rebound from multi-year lows.

Source: Capital Economics



Back to Index

Food for Thought

1. Growth in NYC banking employment:

Source: @financialtimes, @GregDaco; Read full article


2. Credit card burden by state:

Source: @howmuch_net; Read full article


3. Top 10 locations for Chinese buyers of US homes:

Source: Ali Wolf, Meyers Research


4. Tariff revenue (as % of total federal government receipts):

Source: Commerzbank Research


5. The US labor force, by age and type of employer.

Source: Visual Capitalist; Read full article


6. US aid to Pakistan:

Source: @WSJ; Read full article


7. Malnourished people worldwide:

Source: Statista


8. FDNY deaths related to 9/11:

Source: Statista


9. The demographic composition of US voters and nonvoters:

Source: The NY Times; Read full article


10. Evolution of the modern Latin alphabet:

Source: @SteveStuWill; Read full article



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