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The Business Cycle is turning up ISM Services PMI Rep: 53.4% ✅ HIGHER THAN EXPECTED ✅ Exp: 51.7% Prev: 50.5% (revised down marginally from 50.6%) The reading for ISM Services PMI came in much higher than expected with services remaining in expansionary territory for Jan 2024 (>50 Level) Whilst ISM Manufacturing PMI came in at 49.1 on the 1st Feb (<50 level) and in contractionary territory, it has made a higher low much like Services PMI. Manufacturing has increased from 46 in July 2023 to 49.1 currently. Services continues to outperform Manufacturing. Both Services and manufacturing appear to be making a series of high lows on the chart which may suggest that this business cycle is starting to turn and curl to the upside. PUKA
U
by PukaCharts
Quantitative Support in the US1. Liquidity and Investments: An increase in M2 typically means there is more liquidity in the economy, as consumers and businesses have more cash or cash-equivalents at their disposal. This excess liquidity can lead to increased investment in stocks, including those in the S&P 500, driving up stock prices. 2. Economic Expectations: A growing money supply can signal that central banks (like the Federal Reserve in the United States) are implementing looser monetary policies, often in response to concerns about economic growth. Lower interest rates and other forms of monetary stimulus can encourage borrowing and investing, leading investors to buy stocks in anticipation of economic recovery or growth, which can push up stock market indices like the SPX. 3. Inflation Expectations: Over the long term, increases in the money supply can lead to inflationary expectations. If investors believe that inflation will rise, they might choose to invest in assets like stocks, which are seen as a hedge against inflation, because companies can raise prices to maintain their revenues and profits in nominal terms. This shift can drive up stock prices, including those in the S&P 500. 4. Risk Appetite: An expanding money supply can also affect investor sentiment and risk appetite. With more money available and potentially lower returns from traditional safe investments (like savings accounts or bonds, which might offer lower interest rates when the money supply is growing), investors may turn to the stock market in search of higher returns, driving up equity prices. S&P can go higher, this depends on the FED Golilocks continues. The economy is not going to crash, why? It's already happened. We had a GFC. Go to university and do any relevant classes to macroeconomics. You will at some point discuss, or study the GFC. This is so we does not happen again. Of-course nothing is going to go terrible during a US election year. Now this does not stop black swan events...
ECONOMICS:USM2Long
by BackQuant
SLOOS Banking Lending Conditions- Released Monday 5th Feb 2024 Please review my prior post for a more detailed breakdown Released quarterly, the Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) is a survey of up to 80 large domestic banks and 24 branches of international banks to gain insight into credit, lending and bank practices. The Federal Reserve issues and collates the voluntary surveys. The surveys generally include 25 questions and a number of special questions about development in banking practices. They cover practices for the previous three months, but also deal with expectations for the coming quarter and year. While some queries are quantitative, most are qualitative. The surveys have come to cover increasingly timely topics, for example, providing the Fed with insight into bank forbearance policies and trends in response to the 2020 economic crisis. Let’s have a look at the culmination of the some of the more important data in chart form The Chart The blue line on the chart plots the results of the SLOOS survey – specifically, the net percentage of polled banks reporting that they’ve tightened their lending standards to commercial and industrial customers. The other lines are specified on the chart and are self explanatory . PUKA
FRED:DRTSCILM
by PukaCharts
MACRO MONDAY 32~The SLOOS~ Is Lending Increasing or decreasing?MACRO MONDAY 32 – The SLOOS Released Monday 5th Feb 2024 (for Q4 2023) Released quarterly, the Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) is a survey of up to 80 large domestic banks and 24 branches of international banks to gain insight into credit, lending standards and bank practices. The Federal Reserve issues and collates these voluntary surveys. The surveys generally include 25 questions and a number of special questions about development in banking practices. They cover practices for the previous three months, but also deal with expectations for the coming quarter and year. While some queries are quantitative, most are qualitative. The surveys have come to cover increasingly timely topics, for example, providing the Fed with insight into bank forbearance policies and trends in response to the 2020 economic crisis. Let’s have a look at the culmination of the some of the more important data from the SLOOS in chart form The Chart The blue line on the chart plots the results of the SLOOS survey – specifically, the net percentage of polled banks reporting that they’ve tightened their lending standards to commercial and industrial customers. I have combined the SLOOS Tightening Lending Standards on the chart with the Unemployment Rate. You can clearly see a pattern of the SLOOS leading the Unemployment Rate and also the broad correlation of their trends. Recessions are in grey. The SLOOS Tightening Lending Standards (blue line) ▫️ Lending standards tightened significantly prior to the onset of each of the last three recessions (See green lines and text on chart). ▫️ When lending conditions tightened by 54% or greater it coincided with the last four recessions. (Represented by the horizontal red dashed line on the chart and the red area at the top) ▫️ On two occasions the 54% level being breached would have been a pre-recession warning; prior to the 1990 recession and 2000 recession providing approx. 3 months advance warning. ▫️ When we breached the c.34% level in Jan 2008 it marked the beginning of that recession. We are currently at 33.9% (for Q3 2023) and were as high as 50% in the reading released in July (for Q2 2023). Above the 34% on the chart is the orange area, an area of increased recession risk but not guaranteed recession. ▫️ Interestingly, every recession ended close to when we exited back out below the 34% level. This makes the 34% level an incredibly useful level to watch for tomorrows release. If we break below the 34% level it would be a very good sign. We could speculate that it could be a sign of a soft landing being more probable and could suggest a soft recessionary period has already come and gone (based solely on this chart continuing on a downward trajectory under 34%). I emphasize “speculate”. U.S. Unemployment Rate (Red Line) ▫️ I have included the U.S. Unemployment Rate in red as in the last three recessions you can see that the unemployment rate took a sudden turn up, just before recession. This is a real trigger warning for recession on the chart. Whilst we have had an uptick in recent months, it has not been to the same degree as these prior warning signals. These prior stark increases were an increases of approx. 0.8% over two to three quarters. Our current increase is not even half of this (3.4% to 3.7% from Jan 2023 to present, a 0.3% increase over 1 year). If we rise up to 4.2% or higher we can start getting a little concerned. ▫️ The Unemployment Rate either based or rose above 4.3% prior to the last three recessions onset. This is another important level to watch in conjunction with the 34% and 54% levels on the SLOOS. All these levels increase or decrease the probability of recession and should infer a more or less risk reductive strategy for markets. In the above we covered the Net percentage of Banks Tightening Standards for Commercial and Industrial Loans to Large and mid-sized firms. The SLOOS provides a similar chart dataset for Tightening Standards for Small Firms, and another similar dataset for Consumer Loans and Credit Cards. I will share a chart in the comments that illustrates all three so that tomorrow we can update you with the new data released for all of them. You are now also better equipped to make your own judgement call based on the history and levels represented in the above chart, all of which is only a guide. Remember all these charts are available on TradingView and you can press play and update yourself as to where we are in terms of zones or levels breached on the charts. Thanks for coming along again PUKA
FRED:DRTSCILM
by PukaCharts
Further Thoughts On A Flexible FOMCAs the dust continues to settle on the FOMC’s first policy decision of the year, and calmer heads prevail after the market choppiness of Wednesday as Chair Powell was speaking, the Committee’s actions, and Powell’s press conference, appear increasingly intriguing and, to give credit where it’s due, clever. Firstly, as markets had expected, the dovish pivot that begun in December – with the inclusion of the word “any” to frame potential further policy tightening – continued, as the Committee shifted guidance to describe future “adjustments” to the target range for the fed funds rate. Clever – signalling to markets that the next move is likely to be a cut, but not going all the way to say so explicitly, while also leaving the door open to a renewed tightening in policy, or at least a more hawkish bent to Fedspeak and delayed easing, were upside inflation risks to emerge. Then, at the press conference, eventually, Powell conceded that a March cut was “not the base case”, even as markets had assigned a greater-than-even chance of the Fed firing the starting gun on the easing cycle at that meeting. Again, clever – pushing back on market rate expectations, to keep financial conditions tight(ish) and bear down on inflation, but providing optionality to cut at that meeting if the economy were to evolve in a poorer way than currently foreseen. On which note, Powell did outline some conditions under which cuts may come sooner than the base case expects – ‘unexpected labour market weakening’ is one, placing greater emphasis than usual on the 2 jobs reports between now and the March FOMC, while financial stability concerns will likely be another. Once more, intelligent policy – giving markets a hint of what the Committee will be paying most attention to in the realm of downside economic risks. Clearly, policy optionality remains the ‘name of the game’ for the FOMC, as was also shown by Powell’s remarks on inflation, in refusing to be drawn on either a level that inflation must reach, or how many more months of disinflationary data the Committee want to see, before cutting rates. Again, clever policy, whereby policymakers – assuming the now-embedded disinflationary trend continues – can, reasonably, at any stage, point to now having enough data to confirm that inflation is sustainably on its way “towards” 2%. That “towards” is important, implying that policymakers are not seeking a particular price measure to dip under the 2% handle. Instead, just needing to be sure that inflation is on its way there, and will stay there, even if policy is made less restrictive via rate cuts. This all leads to a number of conclusions: • This is a flexible FOMC. It is one where policymakers are likely to have the option to cut, and begin the easing cycle, at any point over the next 12 months. It will likely only begin when, and only when, policymakers are convinced that easing will not undo the hard yards of the last two years of rate hikes, and risk a resurgence in price pressures. Powell & Co., as yesterday’s pushback on March cut pricing showed, shan’t be bullied by financial markets • The experience of 2021/22 is still fresh in the Fed’s mind. Policymakers likely remain scarred by having dismissed price pressures as ‘transitory’, only to then need to embark on the fastest tightening cycle in four decades. This will likely lead to the FOMC erring on the side of caution, preferring to stay restrictive for too long, then easing more rapidly, as opposed to easing sooner, and potentially having to pause – or even U-turn on – a cutting cycle • The FOMC are purely data-dependent. If inflation becomes stickier, cuts will be postponed; if the labour market rolls over more rapidly, cuts will be brought forward. The data will inform all as to the likely course policy will take, with the overall trend of said data being substantially more important than one or two individual prints. Market reaction to downside data surprises will be particularly interesting, given the Pavlovian-esque conditioning most participants have undergone to expect a cut as soon as one bad print crosses newswires. As noted above, policymakers will be loathe to overreact to negative news, unless and until it becomes a trend • March is either a nothingburger, or a big cut. Though there are still 6 or so weeks until the next FOMC, it’s relatively obvious that it will lead to rates remaining unchanged, perhaps with a further nod towards easing at the May meeting, or result in a significant cut to the fed funds rate, as a result of dramatic (& unexpected, at this juncture) labour market weakness, significant financial stability concerns (e.g. regional banks/CRE), or another unforeseen black swan event. Were goods inflation to reaccelerate, as services prices remain sticky, the same scenario could also easily pan out at the May meeting, though there is clearly a long way to run before then
FRED:DFEDTARU
by Pepperstone
U.S. Continuing Jobless Claims (Updated Chart & Release)U.S. Continuing Jobless Claims Rep: 1,806k ✅Lower Than Expected ✅ Exp: 1,845k Prev: 1,832k (revised down from 1,834) Whilst the short term lower than expected continuous jobless claims are welcomed the long term trend is one of thee most concerning charts out there. Chart Trend Since Sept 2022 continuing claims increased from 1.302m to 1.806m (500k+). This is significantly concerning trend and suggests that an increasing number of people that become unemployed are remaining unemployed for longer. Recession Watch The chart below has min, avg and max levels on the bottom right to illustrate the levels we would need to hit for increased recession risk. Right now this chart demonstrates we are at max timeframe and close to max levels for an advance recession warning. What are Initial and Continuous claims? Initial Jobless Claims account for only the people that claimed their first week of unemployment benefit whilst Continued Jobless Claims accounts for people who continued to seek their unemployment benefit into week 2 and subsequent weeks. Next up, Philly Fed Manufacturing Index 💪🏻
ECONOMICS:USCJC
by PukaCharts
Macro Monday 31 ~ Dallas Fed Manufacturing Index (Key Levels)Macro Monday 31 U.S. Dallas Fed Manufacturing Index This Index is compiled from a monthly survey conducted by the Federal Reserve Bank of Dallas to assess the health of manufacturing activity in the state of Texas. It provides insight into factors such as production, employment, orders, and prices, offering a snapshot of economic conditions in the region. Why is the Dallas Fed Manufacturing Index Important? ▫️ As stated above the index covers manufacturing activity in the state of Texas, the state of Texas ranks 2nd only to California in factory production & comes in at 1st as an exporter of manufactured goods, thus Texas is an important state for gauging manufacturing & production in the U.S. economy. ▫️ Texas also contributes an incredible c.10% towards the U.S. Manufacturing gross domestic product making the index an important metric to consider towards potential GDP trends in the U.S. ▫️ The Dallas Fed Manufacturing Index (DFMI) is one of several regional manufacturing surveys that feed into the national Purchasing Managers Index (PMI). The PMI is released later this week on Thursday 1st Feb thus the DFMI on Monday will give us an early indication of the potential direction of the PMI later in the week. FYI, I will be covering the PMI for you on Thursday so stay tuned for that. How to read the index? A reading above 0 indicates an expansion of the factory activity compared to the previous month; below 0 represents a contraction; while 0 indicates no change. The Chart The chart only dates back to 2005 so we have a limited dataset however we can still see definitive levels of importance and trends over this shorter historic backdrop. A few findings from the chart: The + 36.8 Level Since December 2005 any time we have hit the +36.8 level on the chart it has typically represented a peak in manufacturing and production signaling that a decline would likely follow. This has occurred 3 times and each time within 20 – 23 months of this +36.8 peak we had a recession or a financial crisis. 1) December 2005 21 Months later we had the Great Financial Crisis. 2) June 2018 20 months later we had the COVID-19 Crash. 3) April 2021 23 months later the U.S Banking Crisis occurred in March 2023 resulting in 3 small to mid size banks failing. - The remaining banks being saved by the Bank Term Funding Program (BTFP) which appears to have successfully contained the contagion for now. The BTFP is ceasing in March 2024 👀 ▫️ We can see above that in the event we reach the +36.8 level in the future, history informs us that within 20 – 23 months major economic issues will likely present. If we had known this back in April 2022. After April 2022 the S&P500 fell 15% to its recent lows. ▫️ The National Bureau of Economic Research (NBER) could declare the current period we are in as a soft recession. For the last six recessions, on average, the announcement of when a recession started was declared 8 months after the fact meaning we will would only get confirmation of a recession once we are 6 - 8 months into it. Its worth noting that some recessions were confirmed by the NBER after the recession was over. - 36.8 Level A reading below the -36.8 level has historically confirmed a recession. We have not hit this level since the COVID-19 Crash with May 2020 being the last time we have been at this level. Periods in Contractionary Territory There have been 2 previous periods where we have remained in contractionary territory for greater than 6 months. These are worth reviewing as we have been in contractionary territory for the 20 months now (April 2022 - Present). 1) Sept 2007 – Nov 2009: We fell into contractionary territory during the Great Financial Crisis for 26 months. From 2009 to 2016 the index seemed week oscillating around the 0 level and not really breaking out into persistent expansionary territory until 2017 forward. 2) Jan 2015 – Oct 2016: We fell into contractionary territory for 21 months however there was no recession. 3) Apr 2022 – Present: We are currently on month 20 of contraction. Now this could be just like point 2 above whereby we recover to expansionary territory in month 21 or 22 (Jan - Feb 2024) however if we do not, we are moving towards a timeline similar to point 1 which was the 26 month Great Financial Crisis. Q1 of 2024 will be very revealing in terms of what we can expect next. In the event we end up in contraction for 26 months or if we hit the -36.8 level we can presume, based on history, that we likely have a recession on our hands. And, if we recover into expansionary territory maybe we have got away with it this time 🙂 You can clearly see that the Dallas Fed Manufacturing Index is significant for assessing the U.S. economy because it provides timely insights into the health of one of the nation's key economic sectors: manufacturing & production. Since Texas is a major hub for manufacturing activity, trends observed in the Dallas Fed index can offer valuable indications of broader economic trends. It is one of several regional indices that contributes to a comprehensive understanding of the manufacturing landscape, aiding policymakers, investors such as ourselves, and businesses in making informed decisions about the state of the economy. The current economic environment just gets more and more interesting every week Thanks for coming along again folks 🫡 PUKA
ECONOMICS:USDFMI
by PukaCharts
U.S Core PCE Price Index (MoM)ECONOMICS:USCPCEPIMM Core PCE prices in the US, which exclude food and energy, rose by 0.2% from the previous month in December of 2023, aligned with market estimates, and picking up slightly from the 0.1% increase in November. From the previous year, Core PCE prices edged 2.9% higher, undershooting market estimates of 3% to mark the lowest reading since February 2021. The data extended the disinflation trend in prices measured by the Federal Reserve’s preferred gauge, consistent with previous signals of rate cuts to be delivered this year. Regarding the whole national PCE that includes energy and food, prices rose by 0.2% from the prior month and 2.6% from the prior year, consistent with expectations. Prices for goods rose by less than 0.1% from 2022, while those for services remained elevated at 3.9%. source: U.S. Bureau of Economic Analysis
ECONOMICS:USCPCEPIMM
by Mr_J__fx
The Phillips Curve with SPY(Inflation/Unemployment)I had read something on the, "Phillips Curve" From Investopedia "The concept behind the Phillips curve states the change in unemployment within an economy has a predictable effect on price inflation. The inverse relationship between unemployment and inflation is depicted as a downward sloping, concave curve, with inflation on the Y-axis and unemployment on the X-axis. Increasing inflation decreases unemployment, and vice versa. Alternatively, a focus on decreasing unemployment also increases inflation, and vice versa. 3 The belief in the 1960s was that any fiscal stimulus would increase aggregate demand and initiate the following effects. Labor demand increases, the pool of unemployed workers subsequently decreases and companies increase wages to compete and attract a smaller talent pool. The corporate cost of wages increases and companies pass along those costs to consumers in the form of price increases. This belief system caused many governments to adopt a "stop-go" strategy where a target rate of inflation was established, and fiscal and monetary policies were used to expand or contract the economy to achieve the target rate. However, the stable trade-off between inflation and unemployment broke down in the 1970s with the rise of stagflation, calling into question the validity of the Phillips curve" I just wanted to get a grasp of the concept myself
FRED:UNEMPLOY
by JustAHunch
RECESSION PROABILITY SIGNIFICANTLY INCREASES JAN - JUN 202410Y/2Y Yield Spread & Unemployment Rate Originally shared back in July 2023 (see below charts) Its interesting to see that the yield curve is rising fast (up towards the 0 level) We are reaching into dangerous recessionary territory. No guarantees, just a significantly increased probability. Continuous jobless claims are reaching pre-recession warning levels in both time and volume. Meaning more and more people are becoming unemployed and remaining unemployed for longer. More info in links below. The average interest rate pause timeframe is closing in fast at June 2024 also(Contained in Charts below also). Its time to pay very close attention. The initial 6 months of this year Stay safe out there PUKA
FRED:T10Y2Y
by PukaCharts
U.S. Core PCE Comes in Lower than Expected U.S Core PCE (FEDS FAVOURITE METRIC) Rep: 2.9% ✅ Lower Than Expected ✅ Exp: 3.0% Prev: 3.2% U.S. Headline PCE Rep: 2.6% ✅ In Line with Expectations ✅ Exp: 2.6% Prev: 2.6% Historical Core PCE Norms On the chart you can see that since 1990 the typical Core PCE range is between 1 - 3% (red dotted lines on chart). We are slowly getting back down into this more historically moderate level. We have just fallen below the 3% level and down into the historically moderate zone for PCE levels. The Federal Reserve have advised that Core PCE is expected to decline to 2.2% by 2025 & finally reach its 2% target in 2026. At this rate we might reach 2% a little sooner than that. For the full breakdown of the Core and Headline PCE and to know the differences between PCE and CPI, please review the Macro Monday I previously released which explains it all (in the comments below). PUKA
ECONOMICS:USCPCEPIAC
by PukaCharts
ECB maintains interest rate at 4.50% but for how long? History of prior EU Rate pauses: 4 months | Oct 00 - Apr 01 12 months | Jun 07 - Jun 08 3 months | Jul - Oct 2011 4 months | Sept 2023 - Present ⏳SO FAR⏳ At least they could say that this is not the shortest one ever now that we are into month 4. Historical Average: 6 months (March 2024) Interestingly this is when the Bank Term Funding Program in the US is ending which was providing liquidity to the banks. It might be a case of one foset gets turned off and another gets turned on. PUKA
ECONOMICS:EUINTR
by PukaCharts
The risk manager – putting the US Treasury’s QRA on the radar While the US500 and NAS100 juggernaut rolls on and the VIX index remains under 13%, we ask what could derail this risk rally. One event which has shown form through 2023 as a market mover is the US Treasury’s QRA (Quarterly Refunding Announcement). For background the ‘QRA’ – or Quarterly Refinancing Announcement – is where the US Treasury Department announce and quantify its financing needs for the quarter ahead, as well as the composition and breakdown of T-bill and bond issuance. In effect, the QRA could be a complete non-event for markets, or conversely result in a repeat of the powerful moves that we saw in both episodes in August and November - where the US Treasury’s (UST) QRA marked major turning points and trending conditions across bond, equity, and FX markets. In the art of risk management, the QRA is an event worth monitoring. Dates for the risk diary On 29 January the UST announce its financing estimates for the period ahead. 2 days later (31 Jan) we get the breakdown of issuance and USD amount per maturity that they plan to target – this is key. Coincidentally, just to spice things up, the breakdown of the USTs bond issuance falls on the same day as the FOMC meeting. The August 2023 QRA case study In August 2023 the US Treasury detailed they would finance its ballooning fiscal deficit by issuing a greater amount of longer-term US Treasuries than what was expected. With the Fed no longer a buyer of US Treasuries and Japan and China reducing its UST holdings, the highly price-sensitive private sector was asked to take down the increased bond supply. The result was a sharp sell-off in the US 10yr Treasury, with yields rising from 4% to 5%. As US bond yields soared the S&P500 fell from 4600 to 4100, while the USD index (DXY) rallied by over 5%. The November 2023 QRA case study Turn to the following QRA in November 2023 and the US Treasury was keen to curb the sell-off in Treasuries, and a rising interest expense bill - subsequently announcing they would finance its fiscal shortfall away from longer-term bonds and towards US T-bills (debt instruments with maturities of less than 12 months). While we can also attribute some of the move in markets to the Fed ‘pivot’ and rising expectations of a rate-cutting cycle, amid a soft landing – the move towards ultra short-term T-bill issuance saw the US 10yr yield trend to 3.78%, largely driven by term premium falling from +40bp to -45bp. Subsequently, the DXY fell 6% and the S&P500 rallied 16%. Watch RRP balances The RRP facility is an important monetary policy tool for the Fed, as it sets a floor on short-term interest rates (repo, money markets). With money market funds holding a preference to buy US T-bills at govt auctions, over investing in the RRP facility, we’ve seen a consistent drawdown in the level of the RRP facility to $639.56b (search this on TradingView under code – RRPONTSYD). There are growing concerns that should RRP balances fall below $200b it may start to cause real stress in market funding rates, which as we saw in 2019 would have significantly negative implications for broad market sentiment. Many consider SOFR (Secured Overnight Finance rate) to be the most important market rate of all, as it represents the cost of short-term financing. If SOFR rates move higher than the level the Fed pays banks to park their excess reserves on their balance sheet (currently 5.4%) – a tool used to put a ceiling on short-term rates - it would show the Fed’s monetary policy levers are no longer functioning efficiently, and that the funding channels are broken. Traders can monitor this on TradingView by using the code FRED:SOFR-FRED:IORB – should this push above 0bp and certainly above 10bp it will get great attention. Break it down So, the concern is if the UST keep its current funding needs to be skewed towards T-bills, then RRP balances will likely fall to worrying levels, funding costs could blow out and equities will take a bath with the USD rallying on safe-haven flows. Conversely, if the US Treasury move to skew its borrowing needs towards long-term Treasury issuance, then term premium would rise and US 10yr Treasury yields would move higher, again taking the USD higher and equity lower – a re-run of the bearish moves we saw between August and October. This is a very simplistic breakdown of what is a highly technical concept, but the mix of debt funding could cause some short-term gyrations and it potential result in an earlier end to QT. Given the US deficit is a growing market and political issue, how it’s funded matters for markets - One for the radar.
FRED:SOFR
by Pepperstone
EURO Area Consumer Confidence - Confidence SLUMPSEURO Area Consumer Confidence - ECONOMICS:EUCCI The lower the minus figure on this chart the better the confidence is in the EU area (closer to zero the better). Rep: -16.10 🚨 Worse than Expected🚨 Exp: -14.30 Pre: -15.00 The Chart ▫️ We have a long term general downtrend in EU Consumer Confidence since 1985. ▫️ Prior to recessions we formed lower highs (red arrows on the chart) ▫️ We have not made a new all time high since Jan 2000 ▫️ Confidence has currently stalled and turned slightly lower coming in lower than expectations of -14.3 and instead coming in at -16.10. What's driving the data and how to read it? The Consumer Economic Sentiment Indicator (Consumer ESI) gauges the optimism levels among consumers in the EU. Conducted through phone surveys, the indicator encompasses 23,000 households, with variable sample sizes across the region. The survey includes questions on the current economic and financial conditions, savings intentions, and expectations related to consumer price indexes, the general economic situation, and major purchases of durable goods. The Consumer ESI is measured on a scale from -100 to 100, where -100 represents an extreme lack of confidence, 0 signifies neutrality, and 100 indicates an extreme level of confidence. Final Word The ESI indicator provides valuable insights into consumer sentiment, reflecting perceptions and expectations that can influence economic behavior and decision-making in the EU. Consumer sentiment is low in Europe with sentiment remaining below March 2022 levels with little sign of recovery as it stands coming in lower than expectations. Obviously with the ongoing conflict in Ukraine, EU migrant crisis and Germany having full year of GDP decline for 2023 (Europe's largest economy), one can understand why the sentiment is so low. WE can watch for a turning point and a new high lower than -15 for a change in the right direction. PUKA
ECONOMICS:EUCCI
by PukaCharts
Macro Monday 30~U.S. Net Treasury International Capital FlowsMacro Monday 30 U.S. Net Treasury International Capital Flows In essence the U.S. Net Treasury International Capital Flows (US TIC Flows) refer to the movement of funds into or out of the United States through the purchase or sale of U.S. Treasury securities by foreign investors and governments. These flows of capital are an essential component of the overall balance of payments, reflecting the financial transactions between the United States and the rest of the world. What does the data represent exactly? The U.S. Treasury International Capital (TIC) system is compiled by the U.S. Department of the Treasury and provides information on cross-border financial transactions. The TIC data include details on purchases and sales of various U.S. financial assets and liabilities, such as Treasury securities, corporate bonds, equities, and banking flows. In simple terms the Foreign Purchases of U.S. Securities (inflows) are taken away from the U.S. Purchases of Foreign Securities (outflows) to present a overall net figure. The net result of these two components determines whether there is a net inflow or outflow of capital. What are the drivers of positive & negative flows? Positive Flows (>0 on chart) POSITIVE FLOWS in U.S Net Treasury International Capital result from factors such as attractive U.S. interest rates, a stable domestic economy, and global uncertainty that drives foreign investors to seek the safety of U.S. Treasury securities. During these periods, there is a net inflow of capital into the United States pressing the number higher above zero. Negative Flows (<0 on chart) Conversely, NEGATIVE FLOWS occur when other countries offer higher returns, there are concerns about the U.S. economic outlook, or global risk aversion prompts investors to repatriate funds. Exchange rate movements also play a role, as a stronger U.S. dollar can make U.S. assets less appealing. The interplay of the above mentioned factors influences the direction of international capital flows, which impacts the balance of purchases and sales of U.S. Treasury securities by foreign and domestic investor. Now that we have a general sense of what’s driving the data, and what makes an overall net positive and or net negative flow, let’s have a look at the chart. The Chart ✅ Since Jan 2019 there has been an upward trend in Treasury Inflows into the U.S (Black Arrow). ❌This upward trend had one sudden interruption causing a decline from Mar - May 2023 going from positive inflows of $114B to negative outflows of $159.4B, the timing of which coincided with the 2023 U.S Banking Crisis where three small-to-mid size U.S. banks failed. ✅ Since the Banking Crisis in May 2023 Treasury Capital flows have moved from overall negative outflows of $159.4B to overall positive inflows of $260.2B. A major turn around and reversion to the long term trend. ✅The recent surge in positive inflows to $260.2B are the highest recorded since August 2022 ($275B) In summary inflows to U.S Treasuries have been in an general uptrend since January 2019 with one brief interruption from Mar – May 2023 and inflows have increased significantly in recent months and look like they may be about to take out the Aug 2022 highs. Recession Patterns 1. More isolated recessions that were not globally systemic events led to positive net inflows into the U.S. Treasury however larger global events led to outflows from U.S. Treasuries, particularly if those global events involved the U.S. engaging in foreign conflicts. ▫️ During the DotCom Crash (No. 3 on the chart) – The tech sector was badly hit but it was not necessarily a global recession with the associated geopolitical turmoil. Foreign investors sought safety in the U.S. Treasury Market during this time. ▫️ Similarly during the brief Gulf War Recession (No. 4 on the chart) you can see that initially, there was increased net inflows however in Jan 1991 inflows sharply turned to outflows which coincided with the U.S. led invasion of Kuwait (a response to Iraq’s invasion of Kuwait). This was considered a global event and thus led to an exodus of outflows and repatriation of funds from the U.S Treasury Market. ▫️ More recently during the Great Financial Crisis (no. 2 on the chart) and the COVID-19 Crash (No. 1 on the chart) there was a significant outflow from U.S. Treasuries due to the magnitude of these global events. You can imagine foreign market participants clawing funds back into their respective countries to batten the hatches and get into a defensive financial position with global systemic risks high. Better to have a bird in the hand than two in the bush when the bush is on fire. ▫️One other pattern worth mentioning is highlighted in yellow on the chart with an A, B and C. Prior to the Great Financial Crisis and COVID-19 crashes we first had a reduction in overall U.S. Net Treasuries of $373B (A on chart) and $393B (B on chart), respectively. Within 13 to 16 months of both treasure drawdowns we had a recession. We recently had a drop of $437B (C on chart) which ended in May 2023. If history repeats and we had a recession within 13-16 months of this happening, this would be sometime between June and Sept 2024. An alternative view would be that the increase in declines from $373B (A) to $393B (B) to $437B (C) may correspond with the shortening timeframes from 16 months(A) to 13 months(B) to potentially 10 months(C) for the current $437B drop (C on the chart). This would suggest March/April 2024 as a potential recession timeframe (based on the historic reductive time pattern). The U.S. Net Treasury International Capital Flows is a fascinating chart to keep an eye on and should be added to the economic data armory as it will help us interpret what is really going on in the treasury market (there is a lot of false narratives out there ATM). It is also useful in informing us on what the global perspective is in terms of systemic risk vs isolated risk, and also from a historic recessionary standpoint offers value. The best investors in the world call the bond market the market of truth but I have found it hard to find a chart that illustrates this through a global lens UNTIL today. This chart captures that beautifully. Thanks for coming along again PUKA
ECONOMICS:USCFLong
by PukaCharts
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