I wanted to share two charts that show the collapse of US exports to China for two meat categories: bovines (HTS 0201 & 0202) and poultry (HTS 0207). The data reported below show metric tonnage of exports from the USA to China by water for these products through May. Thoughts: •Top chart shows exports of processed bovines. Bovine animal exports were down 90% year-over-year as of May (just 1,433 tons versus 14,447 tons last May). •The bottom chart shows exports of processed poultry. Poultry exports were down 97.5% year-over-year in May (just 304 tons in May from 12,085 tons last May). •Not pictured, but pork (HTS 0203) shows the same pattern. Pork exports were down 86.6% year-over-year in May (just 1,488 tons in May versus 11,089 tons last May). •For folks whose response is “well, that simply means that these goods can be sold in the USA,” think again. Oftentimes, meat exports are different cuts that US consumers don’t want to eat (e.g., chicken feet). Implication: over the coming months, I expect we will start to see more negative consequences for POTUS’s tariff policies on US exports. The US meat processing sector (bovine, pork, and poultry) is feeling the negative repercussions as it pertains for exports bound for China. Assuming August 1 tariff rates go into effect, I expect we will start to see similar patterns manifest. Remember, roughly 1 out of every 6 or 7 dollars of goods produced by US manufacturers are exported (e.g., 1 out of every 3 pharmaceutical products is exported). As manufacturers can’t magically pivot to producing goods that were imported, loss of export markets will negatively impact manufacturing activity. #shipsandshipping #supplychain #markets #economics #transportation
Economics
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The market’s fortunes reversed this week as Treasury yields fell sharply and the S&P rallied to its best week of the year. What drove this sudden reversal? The bottom line is the market became less concerned that rates will stay higher for longer…for longer. This shift in sentiment started when the Treasury’s refunding announcement came in lower than expected and alleviated some concerns around supply as an ongoing technical headwind. The next domino to fall was the #FOMC meeting and press conference. While the policy decision to keep rates unchanged was in line with expectations, markets found dovish tea leaves in the fact that Chair Powell acknowledged tighter financial conditions. And finally, all eyes turned to today’s #jobs data for confirmation that the economy was slowing in a healthy way. And it delivered just what investors were looking for. Overall, these developments support our view that 1) the Fed tightening cycle is over, 2) the #economy is headed towards a slowdown and softish landing, but not a recession, and 3) Treasury yields will trend lower towards 3.5% by the end of 2024. Read more about what this means for positioning in this week’s regional view.
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◾ The S&P 500 continued to rise this week amid a solid start to the 2Q earnings season. With 59 companies having reported 2Q results, 61% of firms have beaten consensus earnings by more than a standard deviation of estimates, above the historical average of 48%. We forecast the S&P 500 will rise by 10% to 6900 during the next 12 months. ◾ The focus of our client conversations this week returned to tariffs after higher rates were announced on most major trading partners. Our economists now expect the effective US tariff rate will rise to 19% by early 2027, 3 pp higher than their previous forecast. ◾ Investors seem to be looking through tariff hikes and focusing on the outlook for healthy economic and earnings growth in 2026. Consensus earnings revision breadth has recently jumped to the highest level since 2022, and the outperformance of cyclical industries suggests the equity market is pricing an outlook for solid GDP growth despite consensus expectations for sluggish growth in coming quarters. ◾ Recent dollar weakness should provide a small tailwind to S&P 500 earnings. The trade-weighted US dollar has depreciated by 7% YTD and our FX strategists expect a further 4% weakening through year-end. Company 10-K filings indicate that international sales account for 28% of S&P 500 revenues. In our macro model, a 10% decline in the dollar is associated with a boost of roughly 2-3% to S&P 500 EPS, all else equal. ◾ The weakening of the dollar should help support the outperformance of stocks with higher international sales exposure over those with more US sales. The Nasdaq-100 generates 45% of revenues outside of the US while the Russell 2000 derives just 20% of revenues abroad. The GS basket of international-facing stocks (GSXUINTL) has outperformed the basket of domestic-facing stocks (GSXUAMER) by 4 pp YTD. An escalation in the trade conflict represents a key risk to companies with elevated foreign revenues.
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Whether wrapping paper cost a bit more than you remembered or you decided to splurge for the perfect gift, even the best laid holiday spending plans can quickly go awry. You’re not alone if you’ve gotten off track. A recent Bank of America survey found that many shoppers are thinking strategically about shopping, with 35% planning to spend the same amount on holiday purchases as they did in 2022 and 43% planning to spend less than last year. Of those planning to spend less, more than half cited inflation and rising costs as their top reason for reducing holiday costs. Now just how much are Americans expecting to spend on holiday gifts? Based on data from Gallup, the average forecast increased in just one month’s time – from $923 in October to $975 to November. But don’t just throw your budget out the window (that’s a recipe for post-holiday shopping guilt). Instead, think of your budget as a dynamic tool, adjusting it as your circumstances, goals, and priorities change. For more seasonal shopping advice, check out our Better Money Habits list of 10 tips for managing your holiday spending: https://lnkd.in/eDqeMrFa
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Infrastructure and investment, from economic development, climate financing, health and sustainability to housing are critical in conflict areas. But humanitarians lack the resources to execute such large-scale projects, and investors lack experience in delivering projects in humanitarian settings. We need a new way forward. Enter the Advisory Model for Investor + Humanitarian Partnerships, developed by Airbel Impact Lab at the IRC in partnership with DG ECHO. This is a transformational model for #InnovativeFinance, leveraging #humanitarian expertise to scale the impact of investments. In collaboration with partners like DG ECHO at the European Commission, EBRD, Flat6Labs and others, we’re piloting solutions for more inclusive infrastructure. By tapping humanitarians as consultants, and leveraging investment expertise for humanitarian goals, the Advisory Model is a powerful approach to enhance the social impact of investments in conflict zones. These partnerships can take a wide variety of shapes and approaches – the key is that institutions across sectors need to try, build, and scale them. Download our new Advisory Model Partnership Playbook here, and learn more about how humanitarians and investors are partnering for impact. https://lnkd.in/gCW3mk-w
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Can earnings continue to bend without markets breaking? Many investors reengaging after last week’s holiday will take note of the progress that broad-based equity indexes made in the first half of 2023. Unlike Fourth of July fireworks that may explode in the sky from seemingly out of nowhere, this year’s flashy equity gains have a clearly defined spark: moderating inflation leading to less-aggressive monetary policy, combined with economic resilience and better-than-expected Q1 corporate earnings results. As Q2 earnings season kicks off later this week, investors might be wondering whether it will be (a) more dud than dazzle, marked by a third consecutive quarter of contraction, or (b) a sure-fire hit, with revenues and income exceeding consensus forecasts. Analysts have cut guidance in recent weeks, creating a lower bar for potential upside surprises. Of course, that doesn’t necessarily mean we’ll see positive absolute earnings growth. Mixed economic data and the increased likelihood of at least one more Fed rate hike in this monetary policy cycle add to the uncertainty. In this environment, we think balanced equity allocations that seek to selectively add beta while also pursuing downside protection may be the best approach. This week we offer our perspective on adding beta with #emergingmarkets #equities and publicly traded #REITs (real estate investment trusts), and balancing this with downside management via #dividend growth equities. For more on these investment ideas, check out our CIO Weekly Commentary, “Can earnings continue to bend without markets breaking?”: https://lnkd.in/gJKURdAk In light of mixed economic and earnings signals, what balance of equity allocations will you be considering?
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New research from Morgan Stanley reveals the transformative potential of #GenerativeAI in reshaping the job landscape. The study suggests that AI could influence over 40% of occupations in the coming years, potentially resulting in $4.1 trillion in associated costs within the next three years—a seismic shift with profound implications for the global economy. While predicting the precise impact of this transition remains challenging, it is evident that generative AI will increasingly augment or automate various roles. The key to preparedness lies in ensuring that workers have the skills and tools necessary to succeed in this evolving landscape. As AI integration becomes commonplace across industries, organizations investing in employee training for AI utilization are poised to thrive in this new era. Explore their findings for a more in-depth analysis of AI's impact on the labor market.
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This massive amount of leftover Halloween candy in Walmart today tells me everything I need to know about the average American’s budget and reluctance to spend. It’s not just Walmart, of course. My old CNBC colleague, Becky Quick, just interviewed the CEO of Target, Brian Cornell. He said Target has posted *seven consecutive quarters* of declining sales of discretionary items, such as toys and clothes. Sales are down in terms of both dollars and units. “But even in food and beverage categories, over the last few quarters, the units, the number of items they’re buying, has been declining,” he said in the interview. One reason people are spending less on food (including candy) is many folks are maxed out. They have credit card debt — which is at a record $1 trillion dollars — and little to no savings. Mind you: this is happening at a time when interest rates are rising and the costs of goods are up. Despite inflation getting somewhat under control in certain categories, prices still way higher than they were pre-pandemic for most products and services. Add to the mix that real wages haven’t kept pace with inflation and you can see why people are hanging on to their money. I predict it’s going to be a ROUGH holiday season for many retailers. What do you think? Are you planning to spend more than usual, less or about the amount during the holidays? Also, what you doing to manage your finances and navigate this economy? What barriers do you face to achieving your financial goals? Let’s discuss. #personalfinance #savings #money #TheMoneyCoach
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Tuesday’s data on a number of key economic indicators suggested that the plane is about to land with further slowdown in growth and price gains observed in June and July. ⚠ All indicators came in lower than expected, implying that while the economy has remained resilient, it has lost some momentum as the Fed continues to press on the brake with more rate hikes. 🧊 Job openings fell to the lowest since April 2021 while the vacancy-to-unemployed ratio rose slightly to 1.6 in June. Together with a sizable downward revision to May’s opening data, the labor market has loosened quite fast in the last couple of months. ⤵ One key data point that the Fed is also looking at is the quit rate, which fell to 2.4% in June from 2.6% earlier. Job quits have been one of the most important factors that drive wage growth. With quit rates continuing to stabilize, the concern over a wage-price spiral should be put behind us in no time. 🔴 A slight uptick in the ISM manufacturing index was not enough to keep the sector out of contraction territory in July. Prices paid, the subindex for inflation, showed drops in prices for the third straight months, pointing to further disinflation from the goods sector. 🔑 Tuesday’s data supports our base case that July should be the last time we see a rate hike. We have updated our recession probability downwardly to 60%, which means it will be a lot harder to predict which outcome it is going to be as the economic signals moving forward will be both soft-landing-ish and recessionary.
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The Great Resignation is ending and that's good news for the prospects of a soft landing. Lots to run through from the July 2023 #JOLTS report! After two-plus years spent quitting and finding new and better opportunities at elevated rates, US workers are now voluntarily leaving their jobs at the same rate they were prior to the pandemic. This reduction in job-hopping signals that wage growth will continue to cool as employers face less pressure to attract new hires and retain current employees. This trend, plus the decline in job openings and dormant layoffs, is likely to please Fed policymakers. Quitting is coming down because job seekers are finding fewer opportunities—job openings have declined by 1.5 million over the past three months. There were still 23% more job openings at the end of July than there were on the last business day of January 2020, down from the peak of 67% at the end of March 2022. And while job openings continue to outnumber unemployed workers, the ratio of job openings to unemployed workers declined to 1.5 in July, the lowest ratio since September 2021. The labor market is still tight, but continues to loosen. The pullback in quitting is broad-based, with many sectors currently boasting quits rates equal to or below their immediate pre-pandemic levels. Most notably, quitting in two sectors that led the way during the Great Resignation has returned to early 2020 rates. Quitting in the Retail sector in July was equal to the sector’s February 2020 rate, and Leisure and Hospitality’s rate is slightly below that baseline. If quitting has moderated in these industries that experienced so much churn in recent years, then the Great Resignation is definitely behind us. The reduction in quitting and job openings is happening at the same time as layoffs remain low. The layoff rate remains unchanged over the past year and at a level that would have been an all-time low prior to the pandemic. All three of these trends are necessary ingredients for a soft landing in the US labor market, but that soft landing is still not guaranteed. The US labor market remains on solid footing, but demand for labor needs to continue declining as supply rises to meet it, all as inflation continues to cool.