The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

By Anonymous

To receive the Daily Shot newsletter in your inbox, please sign up at our Email Center. Previous issues of the Daily Shot are available online at DailyShotWSJ.com.

Have questions, feedback or comments? Contact author [email protected]

Twitter: @SoberLook




The Daily Shot: 05-Oct-18
• Administrative Update
• The United States
• Canada
• The Eurozone
• Japan
• China
• Emerging Markets
• Commodities
• Energy
• Equities
• Alternatives
• Credit
• Rates
• Global Developments
• Food for Thought

Administrative Update

Please note that the next Daily Shot will be out on Tuesday, October 9th.


Back to Index

The United States

1. Forecasters expect the official nonfarm payrolls report today to show 180k new jobs created in September.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: WSJ.com, h/t Paul Menestrier; Read full article

Initial unemployment filings suggest that Hurricane Florence did not have a meaningful impact on jobs (certainly nothing like what we saw a year ago).

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

The record-setting spike in the ISM Non-Manufacturing Employment Index (third chart here) points to a 400k jump in payrolls, but most forecasters dismiss this possibility.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: Scotiabank Economics

Economists and investors will be watching for signs of further tightening in the labor market. Is wage growth accelerating? This chart shows small businesses increasingly complaining about the quality of available labor. Are they willing to pay more to attract qualified workers?

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: Deutsche Bank Research

----------------------

2. Economic forecasts point to improvements in productivity, as labor becomes more scarce and expensive.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: Oxford Economics

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: Deutsche Bank Research

3. The August durable goods report was a bit soft.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Capital goods (machinery, equipment, etc.) orders and shipments declined.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

----------------------

4. There are indications that companies are building up inventories to get ahead of the US tariffs on goods from China.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: The Daily Feather

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: WSJ.com, h/t Paul Menestrier; Read full article

----------------------

5. Will the combination of the closing US output gap and tariffs boost inflation further?

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: Fitch Solutions; Read full article

6. Bloomberg's consumer sentiment index continues to climb.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

7. Over the past few decades, household incomes grew faster than the headline reports would suggest. That's because commonly quoted income figures do not adjust for the declining average household size.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: Deutsche Bank Research

8. The 30-year mortgage rate is approaching 5%.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Further reading

This development will moderate the reduction of the Fed's balance sheet by slowing mortgage prepayments and reducing the amortization speed of MBS securities held by the Fed.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Mortgage prepayments are driven by refinancing as well as by existing home sales. Refinancing activity will collapse as rates approach 5%.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

And higher mortgage rates will further slow existing home sales.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Therefore, without initiating securities sales (relying only on maturing and amortizing bonds), the Fed's quantitative tightening (QT) may end up being slower than some had projected. Here is the QT progress thus far.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @wolfofwolfst; Read full article

----------------------

9. The federal government's interest expenses continue to climb. The rising rates will accelerate this trend.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @economics; Read full article


Back to Index

Canada

1. Economic activity appears to have moderated.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Further reading

2. Growth in mortgage debt is now the slowest in years.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @alex_macdonald

3. This chart illustrates the trade relationship between the US and Canada.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: Visual Capitalist ; Read full article


Back to Index

The Eurozone

1. The 30-year yield differential between the US and Germany has blown out.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @business; Read full article

Short-term rate differentials are near the highest levels in decades. Will this trend put further pressure on the euro?

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @jsblokland

2. The Italian government's GDP growth forecasts are way too optimistic.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @ZSchneeweiss, @fergalob; Read full article


Back to Index

Japan

1. With bonus payments out of the way, the labor cash earnings growth returns to more realistic levels.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

2. Household spending surprised to the upside.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot


Back to Index

China

1. The spread between China's and US bond yields has been declining. Will this trend put further pressure on the yuan?

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

2. The hardware hacking story may create a significant drag on China's tech exports.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @BW; Read full article

As an example, here is the share price of Lenovo in Hong Kong.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

3. China's credit impulse is improving as Bejing lubricates the economy to deal with the trade war.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @Dembik_Chris

4. "Self-funding" is now the fastest growing source of real estate financing in China. Where is all that money coming from?

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @ZSchneeweiss, @fergalob; Read full article

5. What are the drivers of China's urbanization?

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: Gavekal 


Back to Index

Emerging Markets

1. We continue to see more of the same trends from earlier in the week, as the Indonesian rupiah (chart below) and the Indian rupee (second chart below) keep drifting lower.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot
The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

The Russian ruble took a hit (chart below) in response to the latest spy story.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot
The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: The Daily Beast; Read full article

The Brazilian real, on the other hand, is recovering as foreign investors jump into the nation's stock market (second chart below).

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot
The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @markets; Read full article

----------------------

2. In other Brazil-related developments, the country's vehicle exports slowed.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

3. India's stock market continues to reverse the recent rally.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

4. The Philippine stock market is also struggling as inflation climbs (second chart below).

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot
The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

5. What is the impact on the CPI of a $10 rise in oil prices for these economies?

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: TS Lombard

6. Argentina's industrial production shows no signs of a rebound.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

7. Mexico's retail sales are recovering amid firmer wage growth.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: Fitch Solutions

8. Turkey's foreign reserves are contracting.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @Brad_Setser

9. Did investors overallocate to emerging markets given the deterioration in sovereign ratings?

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: Nedbank


Back to Index

Commodities

1. With the end of the hurricane season approaching, there is less risk of damage to Florida's orange harvest. Orange juice futures continue to trend lower.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

2. Brazil is taking a share of the soybean export market from the US.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @FarmPolicy


Back to Index

Energy

1. The Brent-WTI spread continues to widen, pointing to transport bottlenecks between Cushing, OK and the Gulf Coast.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Speaking of bottlenecks, Canada is having trouble getting oil to market, as Canadian crude oil discounts to WTI and Brent hit records.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @dmarino4, @JavierBlas, @TheTerminal, @roberttuttle

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @JavierBlas, @TheTerminal, @roberttuttle

----------------------

2. Many oil producers are bullish enough not to hedge their output. As a result, longer-dated crude oil futures are surging with the front contract.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @markets; Read full article

3. The oil-dollar correlation has turned positive.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @ReutersJamie

4. The newly launched Shanghai oil futures are picking up market share.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: Gavekal 


Back to Index

Equities

1. Bank shares finally bounced in response to higher bond yields.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

2. Small caps (Russell 2000) are still lagging the S&P 500.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

3. Consumer stocks continue to tumble.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

4. Tech shares underperformed on Thursday (QQQ = Nasdaq 100).

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

5. Biotech stocks had a rough week. The second chart below shows the daily moves in the Nasdaq Biotech Index.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot
The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @LKrauskopf

6. BDCs, which typically provide debt financing to middle-market companies, are widening their underperformance amid rising bond yields.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

7. This chart shows the spread between the S&P 500 earnings yield and the average investment-grade corporate bond yield (bonds increasingly look attractive relative to stocks).

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @lisaabramowicz1

8. Investors are shying away from sector ETFs.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: Natixis Investment Managers

9. This illustration shows sector market cap (leadership) changes over time.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @ldaalder, @ritholtz


Back to Index

Alternatives

1. Institutions have become a dominant source of capital for hedge funds.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: Skënderbeg Alternative Investments AG

2. Partially as a result of the above trend, hedge fund fees continue to shrink.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: Bloomberg, @sobata416; Read full article

3. The S&P 500 has outperformed most alternatives asset classes over the past decade.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @MarathonWealth; Read full article

4. Fundraising for real estate funds has slowed.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: WSJ.com, h/t Paul Menestrier; Read full article

5. Here is how private equity firms use big data.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: WSJ.com, h/t Paul Menestrier; Read full article

6. The percentage of households who qualify as accredited investors in the US continues to climb.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: WSJ.com, h/t Paul Menestrier; Read full article


Back to Index

Credit

1. Investment-grade bonds tumbled with Treasuries.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

2. Here is the global aggregate corporate bond yield.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @Not_Jim_Cramer

3. This chart shows increased investor demand for short-term corporate bonds.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: Natixis Investment Managers


Back to Index

Rates

1. The multi-decade bull market in bonds has finally ended.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

2. There was a spike in trading activity in the ProShares ETF that bets against long-term Treasuries.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @markets; Read full article

3. The Treasury market implied volatility spiked sharply over the past couple of days.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

4. This chart shows the real fed funds rate vs. the 10yr -1yr Treasury spread.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @BobBrinker, @sfgrannis; Read full article

5. US excess reserves (that banks hold with the Fed) hit the lowest level since 2013 as the Fed's balance sheet shrinks.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

6. Related to #5 above, this indicator shows dollar liquidity tightening and nearing recession-territory levels.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: Longview Economics


Back to Index

Global Developments

1. Forward-looking PMI (business activity) measures continue to trend lower.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: Capital Economics

2. Deeper recessions often follow longer expansions.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: Oxford Economics

3. Finally, here is an illustration of government debt globally. The color represents debt levels as a percentage of the GDP.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: Visual Capitalist ; Read full article

----------------------


Back to Index

Food for Thought

1. The next two charts show historical trends in poverty around the world. The third chart is a forecast out to 2030.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: WSJ.com, h/t Paul Menestrier; Read full article

2. Homicides in Mexico:

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @Stratfor, @stick631; Read full article

3. US drug overdose demographics:

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: CDC

4. Health spending by private employers:

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: Moody's Investors Service

5. Views on the healthcare industry:

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: Gallup; Read full article

6. Congressional approval rates:

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: Gallup; Read full article

7. Women nominees:

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @axios; Read full article

8. The climate change is opening a new shipping route.

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: WSJ.com, h/t Paul Menestrier; Read full article

9. Value of financial assets by generation:

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: WSJ.com, h/t Paul Menestrier; Read full article

10. Most popular words in rap, rock, and country music:

The Daily Shot: The 30-Year Mortgage Rate Approaches 5% - Daily Shot

Source: @DataIsBeautiful

----------------------

Please note that the next Daily Shot will be out on Tuesday, October 9th.

Have a great weekend!

The Daily Shot provides objective and disinterested analysis and commentary regarding macroeconomic and market trends. Other than indirectly through country or sector specific exchange-traded or mutual funds, the author of the Daily Shot does not have any interest in or own any of the individual securities which may be mentioned. The Daily Shot does not provide investment advice or any recommendations regarding particular securities. Nothing in the Daily Shot should be relied upon in making an investment decision, nor considered to be a solicitation to offer or buy any securities.

Back to Index