06112021 :: Friday finance

A partial digest:

  • Which market didn’t seem to care about the big bad “inflation” wolf? US Treasuries. Yields have been falling as if because of the latest CPI data, 5% YoY.

    In turn, the NASDAQ and similar gained for the week ending June 11, while gold fell. It is possible that, (gasp!), the Fed might be taken seriously after all regarding the assessment that high inflation figures will be fleeting.

  • Quick read for the week ending June 11:

    • Yields fell for most of the week and finished considerably down.

    • The DXY gained to close things out.

    • Oil continued to rise.

      CALL: No change; near to semi-intermediate term, prices could rise further given supply shocks, OPEC+ micromanagement, inflation expectations, "recovery," and more fiscal spending, among other things. Longer term, it's a dying industry.
      [tracking: XLE, GGN]
    • The S&P Global Clean Energy index finished slightly up.

    • Gold ended up mostly flat to slightly down.

      CALL: In the very near term, it must be acknowledged that gold has the uncertain potential to rise further as traders who call the competence of the Fed and US Treasury into question drive prices higher. Beyond the very near term, however, no change; the expectation remains for ever-lower valuations moving forward. Looking for an eventual floor around $1,200/oz.
      [tracking: JDST, GGN, GDX, GLD, SLV, ZSL, GLL]
    • Commodities were mixed to up.

    • The St. Louis Fed Financial Stress Index (STLFSI2) for the week ending June 4 ticked further down to -1.0062 from -0.9691 the week prior. It remains well below zero, or the stress the economy experiences under “normal financial market conditions.”

    • Total crypto market cap was $1.481 trillion as of June 11, meaning outflows of $198 billion since last reading.

  • Flows for the week ending June 9, per Refinitiv Lipper data:1

    • Global money market funds witnessed further inflows for the fifth straight week, this time of a smaller $8.1 billion.

    • Global bond funds realized another $12.2 billion of inflows.

    • Global equities saw outflows of $12.8 billion, though the net negative was due to money leaving US funds; EU and Asian equities gained.

    • US money markets saw outflows this time of $5.34 billion.

    • US bond funds realized inflows again of $7.24 billion. Taxable bonds saw inflows of a smaller $3.34 billion; munis, $452 million; inflation protection bonds, approximately $1 billion.

    • US equities saw large outflows totaling $17.6 billion. Growth lost an even larger amount of $8.7 billion, while value reversed course and lost $4.2 billion. Real-estate attracted a fair amount of capital, however, at $1.14 billion of inflows.

    • Emerging market stocks realized outflows of $207 million, while EM bonds witnessed inflows again of $1.2 billion.

    • Precious metals saw larger inflows of $281 million, while energy lost $250 million.

  • Initial jobless claims in the US for the week ending June 5 declined to 376k (SA) from an unrevised 385k for the week prior. One year ago, we saw 1.537 million. We are now in the one year ago timeframe where the US has been square in the grips of the pandemic. The four week moving average decreased to 402.5k.

    To add to this, over 71k on an unadjusted basis applied for PUA, down from the previous week’s downwardly revised 73k+.

    As of May 22, 15.350 million people (UA) were still claiming unemployment benefits of some kind, down over 95k from the week prior. In the comparable week one year ago, the US witnessed nearly 30.021 million people claiming unemployment insurance from all programs together.

    Most UI benefits programs saw declines from the previous week.

    15+ million people still claiming UI benefits is still cause for concern.

    That said, some with employment are quitting their current jobs in favor of remote work guarantees.

  • Mortgage applications fell a blended 3.1% (SA) for the week ending June 4, due to a decrease of 5% in refis overshadowing an increase of 0.3% in homebuyer applications. ARM activity increased to 3.9% of all applications from 3.7% the week prior.

    MBA’s choice for a 30Y fixed benchmark decreased two basis points to 3.15%. The simple national average as reported by Freddie Mac (via FRED) for June 10 fell to 2.96% on the 30Y fixed, down three basis points from that reported the previous week.

    At the same time, the forbearance rate as of May 30 fell ever so slightly to 4.16% as additional households made their exit in one way or another. Exits, the good, the bad, and the ugly, slowly progressed as we marked roughly 14-15 months of being beset by the pandemic in the US.

    The share of households that exited with loan deferrals or partial claims increased, as did the portion exiting with loan or trial loan modifications and the segment re-entering mortgage forbearance. This latter percentage climbed for the fourth consecutive week, indicating that people are struggling more and more to exit—and stay out of—forbearance.

    At the same time, the group that continues to make their monthly payments during their forbearance period fell again.

    MBA estimates that 2.1 million households remain in a state of mortgage forbearance.

    Meanwhile, mortgage credit availability grew again for the month of May, meaning a further relaxing of lending standards.

    Additionally, the industry—through a “broad” coalition—apparently wishes to bring the national eviction moratorium to an end as soon as June 30, turning up the heat on the Biden-Harris administration and struggling renters.

    CALL: On hold. The trend of megalandlords increasingly making Americans perpetual renters rather than owners of property complicates the housing market picture. However, the bias here will likely lean back towards an incoming housing market correction.
    [tracking: DRV, XLRE, SPG, VNO, WPG, NLY]
  • Used car trends: The latest Carvana car count as of June 11 rose 2.82% to 45,393 vehicles from 44,150 the week prior. The four-week moving average came in at 43,803. Meanwhile, the CarGurus average price index continued rising, this time by 1.11% to $26,601 from $26,309. This is a new high for the index since said data collection began for this newsletter in November of last year.

    Of interest is that prices keep rising (red line below) even as inventory swells, as evidenced by the four-week moving average rising over the last seven weeks (yellow line below). That’s a developing mismatch.

  • Sovereign matters:

    • S&P upgraded Australia’s outlook to stable from negative on account of the country’s recovery vis-a-vis the global pandemic, as well as the agency’s confidence in the nation’s capacity to realize a reduction of its fiscal deficit as a percent of GDP over time.

    • Lack of market activity over Huarong’s bonds cast a further shadow over the bank’s prospects.

    [tracking: EDC]
  • The current state of equity: Rematerializing the indigenous.

  • During the pandemic alone, the US has now witnessed 229,418 fatalities strictly classified as “pneumonia” with no attribution to COVID-19 on the death certificates, per CDC excess deaths data as of June 11. This equates to an average of 434 people per day since the start of 2020. As the CDC points out, many of these could be miscategorized COVID-19 fatalities going unrecognized in official tallies, meaning we’re undercounting. This, in addition to the official coronavirus death toll of 599,510, puts the probable COVID-19 death figure somewhere north of 725k.

    Across all causes of death, we suffered 119% of the deaths in 2020 that we would have expected in non-pandemic times given historical trends. Along with other situations where COVID-19 was not designated as a cause of death but where SARS-CoV-2 likely triggered a condition or exacerbated a preexisting one—heart disease, hypertension, diabetes, dementia—the “real” fatality count is probably much higher.2

    When the average of “pneumonia” deaths per day begins to decline significantly and consistently, perhaps we can start saying that we might be gaining the upper hand on SARS-CoV-2. We’re not there yet.

  • NPR reported that 42.6% of the US population was fully vaccinated as of June 10. That puts the US vaccination rate at 1.4%/week since last reading, meaning the pace has slowed considerably.

    Vaccines still seem to be offering protection against variants, and the bribes are on to get the public to bite.

    Certain states are increasingly turning away from reporting their COVID-19 data, which concerns some public health professionals and may make planning more precarious for event organizers, among others.

Footnotes

1

For global flows, see here; US flows, here.

2

Valenta, Philip. “Death by COVID-19 Hides in Plain Sight.” HedgeHound (June 29, 2020). The research includes the methodology behind the figures presented here every week, as well as information on historical pneumonia trends and death categorization in the US during the global pandemic. It was last updated on December 4, 2020.