The Daily Shot And Data - April 12, 2016

By Walter Kurtz

Tuesday, April 12, 2016 10:30 AM EDT

Greetings,

We begin with the global commodity markets.

1. Metals & mining shares have bounced sharply, outperforming the S&P500 by 43% in 2016.

Source: Ycharts.com

A key driver of this outperformance by the mining firms is the recent rally in iron ore, with the futures in Singapore rising by over 5% on Monday. Vale, a major mining company, seems to be quite bullish iron ore.

Source: barchart

Source: The Australian

2. Steel futures in Shanghai were up 3.5% on Monday, with price increases accelerating.

Source: barchart

As discussed before, part of this rally is driven by a more forceful fiscal stimulus package from Beijing as investment projects in China pick up pace.

Source: @Callum_Thomas, LSR

Rising prices of steel and several other products have now made their way into China's PPI, which rose (month-over-month) for the first time in years. The end of the wholesale deflation in China was also visible in increasing output prices in the PMI reports.

Source: ‏@TomOrlik

3. Another commodity that has been on the rise in China is pork.

Source: ‏@pdacosta

Higher pork prices have kept the food CPI as well as the headline CPI in China (relatively) elevated.

Source: @Sentifi_HK

4. The next chart shows gold mining shares vs. gold over the past year.

Source: Ycharts.com

5. Sugar futures are getting hammered after a month of frenzied buying. There is quite a bit of hot money flowing in and out of this market.

Source: barchart

6. Soybeans rose to the highest level in over 7 months on strong gains in soybean meal prices.

Source: barchart

Next, we have a couple of updates on the energy markets.

1. The chart below shows the US dollar index vs. crude oil. This pattern applies to other commodities as well and it shows that the dollar must be kept in check in order to avoid disinflationary pressures.

Source: barchart

2. Crude rallied further on Monday on the news that Russia's oil production is likely to stay fixed in 2017. Perhaps ...

Source: TASS

3. As discussed yesterday, crude oil curves are flattening.. Here are the futures curves for WTI.

Source: ERC Equipoise

4. The US now has a trade surplus with OPEC nations. It's no wonder these countries are under so much pressure these days.

Source: ‏@WSJecon

Now on to emerging markets for the following updates.

1. According to Credit Suisse, investors are "starting to show interest" in Russia again. Russia's stock market is nearing its record levels (in rubles) as oil prices rise.

2. Romanian deflation worsened last month to record. Part of the recent drop was due to a cut on sales-tax.

3. Analysts are forecasting that Brazil will have implemented a 2% rate cut by the end of 2017. Bond yields continue to decline.

Source: Bloomberg.com

4. Emerging markets fund inflows have been incredibly strong.

Source: BAML, "hard" refers to hard currency debt, for example, Brazilian bonds issued in US dollars.

5. In part as a result of the above, emerging market currencies staged a rally recently. Hopes around an early change in Brazil's government have been supportive for EM currencies as well.

Source: ‏@MktOutperform

Switching to Japan, here are some observations.

1. In spite of all the fancy BoJ stimulus, credit expansion in Japan seems to be slowing.

2. The next chart shows exporters' shares relative to the benchmark index. Take a look at Japan's exporters - so far no tailwinds from Abenomics.

Source: HSBC

3. Inflation expectations in Japan remain near record lows, which is a serious issue for the BoJ.

Source: @GregDaco, h/t Jake

The National Australia Bank survey shows significantly improved business conditions. Australia, it seems, managed to avoid the disaster some other nations experienced as a result of China's slowdown.

Source: ‏@purviso

Turning to the Eurozone, the Italian government has been concerned about the nation's bank shares falling to lows not seen since the Eurozone crisis (and CDS spreads rising). Here is what they decided to do. It's a start but it enough? Bank shares rose on the news.

Source: Reuters

The ECB is trying to repair a rift with German officials caused by the topic of "helicopter money".

Source: Reuters

Elsewhere in Europe, Norway's inflation hit a 5-year high, limiting the central bank's options.

This next chart from the IMF shows the impact of the negative rate policy on lending and deposit rates. In most cases depositors have been spared having to pay to keep their money at the bank.

Source: @IMFNews, h/t Josh

Now let's take a look at the credit markets.

1. Who provides auto loans in the US? Note that large portions of these loans are not held by these institutions but securitized instead.

Source: ‏@NickatFP, h/t Josh

2. Next, we have some interesting data from Fundera on small business lending in the US: Rate (APR), credit score, and time to close.

Source: @fundera

3. UBS is bearish on corporate high-yield debt. The bank says that investors are not getting paid enough to take the risk. The chart below shows the weaker credits' leverage being disproportionally higher.

Source: UBS

Credit losses (and therefore risk) rise exponentially with declining credit ratings (not unique to corporate credit). The compensation for taking that risk does not necessarily increase exponentially however.

Source: UBS

4. US dealer inventories of investment-grade corporate bonds are shown below. This is what some call the Volcker squeeze.

Source: BAML

Finally, we take a look at a couple of updates in the equity markets.

1. There is a big asymmetry in the equity options market - with much more downside being priced in. This has pushed the CS Fear Barometer index (ironically called "CSFB") to new highs. From a contrarian perspective, this a is a bullish sign. A few better-than-expected earnings results could push the market sharply higher.