Chart of the Week and Weekly Report Highlights

This week: Review of Core Views, Treasury Yields, Credit Spreads, Copper tactical indicators, US Dollar, Commodities, inflation, stocks vs bonds, expected returns

Jul 05, 2022

This email gives a look at what was in the latest Weekly Insights report

The Weekly Insights Report is part of our entry-level service: summarizing the key points, ideas and charts from our institutional research service.

Chart of the Week - From Not Enough to Too Much

Backlog Backdown and Inventory Increase: This is one of the most intriguing charts on my desk at the moment, it shows our composite global PMI backlogs indicator falling to the lowest level in almost 2 years… meanwhile inventories are surging to record levels.

Part of this may well be a transition from the old “Just in Time“ method of inventory management, which was one of many reasons/vulnerabilities that contributed to the chaos and disarray of the pandemic supply chain hell… to more of a “Just in Case“ inventory management strategy.

The slump in backlogs likely reflects an element of simply working through things, reopening, retooling and reinvigorating supply lines, but as I have said all along — if there is no demand then there is no backlogs. So demand is also key.

And in this chart that notion is affirmed in some respects with the surge in inventories: part of this may indeed be overcompensating for “yesterday’s battle”, but equally, this is the type of thing you expect to see when demand comes to a sudden stop…

Inventories pile up, factory orders plunge, and backlogs are no longer an issue. The next step is a growth slowdown, and disinflationary impulse. Any questions?

Key Point: Backlogs are backing down, and inventories are surging.

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Topics covered in the latest Weekly Insights Report

Aside from the chart above, we looked at several other charts, and took a bite out of some really important macro/asset allocation issues of the moment:

Review of core views: highlights from our quarterly strategy pack.
Treasury Yields: treasury yields falling through first support level.
Credit Spreads: spreads widening across the board, some significant moves.
Copper Sentiment: shake-out in positioning as industrial metals plunge.
US Dollar: USD looks to be on the cusp of breaking out on multiple fronts.
Commodities: weakness emerging as risks shift.
Stocks vs Bonds: the odds favor one but not the other.
Capital Market Assumptions: a look at the history of our expected returns.

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Thanks for your interest. Feedback and thoughts welcome.

Sincerely,
Callum Thomas
Head of Research and Founder at Topdown Charts

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