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Lots of bad vibe stuff hitting the headlines yesterday. Not just the Bank of England's early warning contrarian alert system... 👇
Just stuff everywhere that undeniably points to a drastically slowing economy...
Let's start in China. The story of pent-up demand and a roaring recovery just hasn't materialised. Well, it did a bit, but mainly within China, and it's faded.
The only thing in demand is... savings bonds 👇
China's increasingly urgent efforts to tip its mountain of savings into the economy are running up against depositors shy of all but the safest investments, in the latest sign that weak confidence is holding back post-pandemic spending and growth.
Television pictures this week showed early-morning queues at banks in Beijing for buying treasury savings bonds, while newspapers carried stories of young investors riding trains and buses to far-flung branches seeking the highest deposit rates.
Bankers told Reuters they ran out of bonds soon after opening.
Chinese inflation hit a 2 year low, and PPI slipped into PROPER deflationary territory at -3.6%!
The weak consumer price rise reinforces the signals from this week's trade data suggesting domestic demand remains lacklustre, while the deflationary impulse in producer prices underlines the strains on factories - a double-whammy for the world's second-biggest economy as it tries to shake off the COVID-induced damage.
Pre-pandemic, this would typically mean China produces very cheap goods and exports the deflation to everyone else. If the demand isn't there though...
"Amid a weakening post-Covid recovery, the PBOC’s guidance to cut deposit rates, ongoing disinflation, falling market rates and the Fed signalling a potential pause, we continue to believe a PBOC policy lending rate cut is becoming more likely,"
We've been unbelievers of the China hype for some time now... 👇
It's been even grimmer than expected so far. Next up 👇
56% plunge in first-quarter net profit, (some of which is attributable to a bad investment in Sharp), lagging forecasts in its biggest quarterly fall in three years, and said visibility for the full year was "limited"
Just round the corner, South Korea think tank cuts 2023 growth forecast due to poor exports
South Korea's top government research body has cut its economic growth forecast for this year to 1.5% from its earlier view of 1.8%, saying a deeper and longer export slump than previously expected is likely to offset resilient private consumption.
Lower export demand is evident. And backed up by US trucking data...
An unusually broad-based downturn in goods flows that has affected even the most resilient of customer segments — consumer packaged goods and food and beverage — has freight brokers scrambling to differentiate themselves and compete for less available freight.
Tyson Foods’ stock plunged by more than 16% after it announced that it lost money in the first quarter of 2023, couldn’t manage to grow beef and pork volumes even after cutting prices and lowered its estimates for revenue growth to “flat to 1%” for the year.
According to one broker who spoke to FreightWaves, a large food conglomerate is moving 8-10% fewer loads just by consolidating smaller shipments into full truckloads; a decrease in vendor order flow was responsible for a further 5-7% reduction in volume.
Jobless claims ticked higher yet again...
Now at the highest since October 2021, broadening to other sectors (not just tech firms) and likely to worsen as credit tightening takes effect... 👇
Non Farm Payrolls have been overstating job gains recently too
ING: The April labour report shows a strong headline US payrolls figure, but major revisions really cloud the narrative on this.
Non-farm payrolls rose 253k versus the 185k consensus, but there were a net 149k of downward revisions to the past couple of months spread pretty evenly between February and March.
Private payrolls rose 230k versus the 160k consensus, but this "beat" was completely offset by a 66k downward revision to March (123k versus 189k initially reported).
Zip Recruiter says the pullback in hiring is "unlike anything we've seen in our 13 years of doing business" 👇
Microsoft's pulling back too. No salary raises this year
"We will maintain our bonus and stock award budget again this year, however, we will not overfund to the extent we did last year, bringing it closer to our historical averages,"
Wage gains are rolling over
Credit card delinquencies continue to tick higher...
Weak lumber pricing really isn't confirming the narrative around the homebuilders and their 'amazingly strong demand' 👇
Related: The homebuilders are still priced for perfection but DHI & LEN stubbornly refuse to break to new highs 👇
To top it all off we've got the banking crisis melting into the debt ceiling. Banks have been replacing deposits with more expensive borrowing 👇
And loads of them are technically insolvent. More headlines like these should ensure the great American public retain confidence in their 'sound and resilient' banking system, right? 👇
The debt ceiling debate will be an absolute shitshow, rumbling along in the background while sporadically reminding everyone that the country is run by imbeciles 👇
Don't worry! Buybacks will save the stock market! Goldman 👇
Based on our top-down models, which assume the US economy decelerates but avoids a recession in 2023, we estimate buybacks and cash M&A will fall by 15% and 5%, respectively.
That's a pretty big assumption. The buyback slowdown is already underway...
And if there's a genuine recession, it's going to be a lot worse than that...
During the four recessions since 1990, cash M&A typically fell by 60% and buybacks fell by 46%.
In a recession scenario, we expect all cash spending would suffer, but primarily buybacks and cash M&A. Cash M&A and buybacks are the most volatile uses of cash.
So far this year, buyback authorisations are tracking at -9%...
The S&P 500 continues to levitate just below 4200. Maybe it's entirely rational to think that the US stock market will be fine. That the economy's rolling over quickly along with inflation, so the Fed will be forced to cut rates sooner and stimulate the economy before the damage is too widespread.
There’s danger ahead if—when recessionary dynamics take hold—central bankers have yet to pivot. However if they do shift in time, Perkins says expect the market to behave much as it did in the early 90s, when it fell 10% and then rallied hard. And that, he says, really wasn’t so bad.
There's definitely an argument in favour of this. That central bankers really can't wait to take their hawkish costumes off, reveal their true dovish selves, and cut rates just in time to save us...
I hope that's true. But it's also reflexive. They can't really do that until dovishness can be justified by genuine pain.
Generally I'm an optimist (although recent notes might make you doubt that!). There are always risks to be managed and navigated. Right now, it just looks like there are too many risks, too many ways for panic to spread. Too much optimism baked in.
Markets may keep saying "I'll do it my way" for a bit longer. To me, it looks more like we're about to "face the final curtain" that comes at the end of every rate hike cycle.
AI hype can only get us so far...
However, the bigger stock market correction might be found in Europe...
JP Morgan says it's time for EU equity longs to lock in those gains and head home... 👇
We believe that the time has come to close the trade of OW Eurozone vs the US.
... from the low last September to last week, Eurozone equities have advanced as much as 30% vs the US. We outlined two weeks ago the likely turn, and think that one should be locking in these gains, especially if our current sector and style views of more Defensive leadership keep gaining traction - Eurozone has always been a global Cyclical Value play.
The best of the improvement in Eurozone activity is likely behind us, CESI just turned negative. In contrast to potentially peaking growth momentum, ECB is likely to stay hawkish, due to persistent inflation, implying that Growth - Policy tradeoff is likely to deteriorate. The region still screens cheap, but it historically acted as a high beta play on the way down, when discounting past US recessions.
Unless China delivers a meaningful fiscal stimulus in the near term, it is unlikely that it will be a positive catalyst for European equities from here.
This chart from DWS supports that case (although they'd disagree) 👇
The Dax is still hanging in there, but on the strength of what?
Order books are still full to bursting (backwards looking) despite weakening incoming orders (forward looking)
DWS is positive on the Dax outlook and think it will outperform the global benchmark this year...
But as long as these numbers (new orders) don’t form a new trend, they support our economic picture for this year: no boom, no crash, rather a lackluster cycle.
However, this would not explain why the Dax is trading close to its historic high. A better explanation could come from the development of profits: they hit a record high in the past year.
So, focus on the past, extrapolate the existing profit trends (despite new orders contracting) and everything will be fine?