21 Aug The Economy Show – Virus Recovery, Mobility Data and Back to School

In today’s Economy Show Mark talks about Virus Recovery, Mobility Data and Jobs, Housing data and other things.

The show really provides us with a snapshot of what is happening in the global economy in general and U.S. in particular. I highly recommend watching the Youtube show for the detailed analysis. But i’ll try to focus on some of the key points.

Let’s first talk about the yield curve. The main question that concerns the observers and analysts is that what happens with the 30 and 20 year auction. 10 year was strong but the 20 wasn’t as good as 10; in-fact it wasn’t great. The 30 year was fairly weak in-fact weakest since July 2019. What is called the duration risk has started to creep in. Investors are asking what will our inflation looks like? what about the health of the global economy?  It is the uncertainty that is most disruptive for markets.

Recovery? Things are getting better, but only a tad. Some increase in ridership. Mortgage applications continue to increase. Jobless claims are below million. But consumer comfort will take more time. Restaurant bookings remains positive but electricity demand remains a problem. When relating it with steel production, which is low as well, we can also sense what this recovery at the industrial level looks like – not very positive.

Drilling down on Mobility – California, a big driving state remains relatively low, people are working from home. People are on the whole driving less. States that have seen new spikes have started to recover but activity is still very low.

Virus Fall Out – We are seeing Peaks and roll off in Spain and Italy. Germany has started to give some conflicting indicators, there is a little bit of slow down in terms of economy (Merkel’s comments). Things have started to look better on the exports side, Germany does have big exporting economy so things are getting a little bit better at this front. But China is driving the exports, Japan is doing just fine. German Mileage toll Tracker also gives us a snapshot of where we were in terms of industrial production. There was  ounce but now it has started to come down. This shows there are headwinds and industrial production might reduce too.

Are People going to shop in Europe? Not really. We are still below 20 percent on average. Jobs are an issue. The total recovery seems weak too as we can see from the graph below (this is similar to what we showed in our previous show in terms of global economic activity).

A snapshot of housing market below.

***Mark talks about a very important point from 19:00 minutes to 22:00 minutes about the Cantillon effect relating it to inflation figures.***

Finally, something on Back to School. We can see that 48 percent of the schools are “remote only”, only 28 percent are operating in full in person capacity. the 20 percent hybrid’s are also avoiding opening up completely. Plus, there are many questions such as do you need child care, do you need food subsidies, is online education effective? These are genuine concerns and what Mark calls many “unknowns” – it will continue to hinder a full scale opening.

School was also an essentially food program for many of these children and in the graph below you can see that percentage of  kids who aren’t certain whether they will have dinner at their table on their return to home, continues to grow. This isn’t only due to food inflation but also mainly and largely due to employment. The Weekly Initial vs the Continuing  unemployment numbers explains the difference.  The former fell below  a million after a long time but on a 4 week moving average it is still above that 1 million mark.

Talking about employment let’s have a look at the job postings. 2018 was a growing year, there was expansion, PMI was up. But as the numbers reflect clearly, the gap in 2020 is 20 percent from where we were in 2019. How is this gap going to fill?

Finally, combining all this together we get a very weak consumer sentiment. Index of consumer expectations is at its lowest since 2015. Bad news regarding the demand recovery!

By: Osama Rizvi, oil market analyst for PVN.