Greetings,

Today we begin with the UK where the Brexit betting market probability has risen. Moreover, the Telegraph's latest poll average now shows even odds.

Source: @Oddschecker

Source: The Telegraph

The CDS-implied UK probability of default is still minuscule, but it shows rising investor concern over Brexit.

Source: Deutsche Bank

The British pound correlation with the UK sovereign CDS spread has risen as well (weaker GBP, higher CDS spread).

Source:  ‏BAML

The Merrill Lynch April investor survey now puts Brexit as the number one concern over the next 12 months.

Source: BAML

Note that China's "hard landing" scenario is now much less of a concern in the survey above. One reason behind this change in sentiment is the evidence that China's stimulus is kicking in. As discussed previously, the nation's fixed-asset investment accelerated recently. Note that new investment seems to be focused on property and infrastructure. We also see property prices jump.

Source: GS

Signs of increased stimulus are visible in China's imports of key raw materials: here is iron ore and copper.

Source: Citi

It's important to point out that to some extent China is still missing the "rebalancing" of the economy. The nation is still addicted to stimulus and investment-based growth.

 

Source: BBC

Turning to Japan, the futures speculative accounts' net long yen exposure hit the highest level in recent years. This is a risk-off trade (the yen is viewed as a "safe-haven" currency).

As the Doha meeting ends with no deal on oil production freeze, those going long the yen got it right. Monday will start in a risk-off mode.

Source: CNBC

Dollar-yen opened lower (yen is higher) on Sunday night in response to the Doha outcome.

Source: barchart

In another Japan-related development, the 10yr government bond yield hit a new all-time low - firmly in negative territory. The Nikkei opens down almost 3% as the combination of the drop in oil prices and Japan's deadly earthquake pressures the markets.

 

Source: Investing.com

Given the relative strength of economic data out of Australia recently, is the RBA done with rate cuts for now? Most economists would say yes.

 

Source:  Deutsche Bank

Forecasts for select Eurozone nations show uneven GDP growth going forward. Spain and Ireland (not shown) stand out, although Spanish GDP growth is expected to slow.

Source:Citi

Now we have a few observations on emerging markets.

1. As of Sunday night, Brazil´s lower house of Congress started its impeachment vote session. While chaotic and fraught with uncertainty, the process shows that Brazil's democratic institutions remain strong (unlike many other emerging economies).

Source: @snolen, ‏@BenjAlvarez1

2. India's FX reserves hit a new record. Rajan (the head of India's central bank) is trying to build a "fortress" before the Fed resumes rate hikes.

3. Israel remains in deflation.

Back in the United States, we have a number of updates to cover.

1. Based on last week's CPI report, Merrill Lynch predicts the next PCE inflation print (Fed's favorite measure) to be 0.1%. The FOMC would consider this to be too low to initiate further rate hikes. Futures are now pricing the probability of one or more rate hikes in 2016 at just above even odds.

Source:  BAML

2. The treasury curve is still near the "flattest" level since the recession. The market has little confidence in US growth accelerating anytime soon.

3. The University of Michigan US consumer sentiment declined for the 4th straight month. Consumer expectations weakened as a result of weak wage growth and the presidential elections (supposedly).

 

4. US industrial production growth and capacity utilization missed economists' forecasts - again. Both measures are at the weakest level since 2010.

 

US consumer goods output declined as the stuff from abroad became cheaper. Falling prices on US goods also made the proceeds from domestic production look weaker on a year-over-year basis.

The mining sector saw an unprecedented year-on-year contraction in output - the largest in recent history.

Some blame it all on the weather. The US utilization of electricity generation capacity (seasonally adjusted) is the lowest in recent history.

Utilities have certainly detracted from the overall industrial production figures.

5. In a positive development for the US, the NY region manufacturing index (Empire) beat consensus.

Stronger orders, employment, and other factors have stabilized as NY manufacturing sector returns to expansion (for now).

 

6. Looking at US credit, corporate loans on banks' balance sheets are growing at 11% per year. There is little evidence of any credit tightening at this time.

Total real estate loans on banks' balance sheets are now above the peak (reached in 2009). Commercial real estate loan growth has been particularly strong.

 

On the other hand, US home equity loan balances continue to decline. Some of this is due to refinancing of home equity debt into term mortgages. 

In a final note on the US economy, mortgage debt outstanding remains below the peak.

Switching to energy, here are some updates. 

1. The WTI crude oil futures gapped down 6.5% on Sunday night in response to the Doha impasse.

Source: barchart

And the S&P futures are down 12 points in response to oil prices.

Source: barchart

2. It seems that crude oil - equity correlation has been breaking down in recent weeks. Are we going to return to a tighter correlation this week?

Source: barchart

3. Ben Bernanke had a blog post on the oil-equities correlation issue. He suggests that both markets are driven by risks to global aggregate demand, and the relationship is not just a recent phenomenon. Perhaps. Of course, many who trade both markets would tell you that the day-to-day market movements have never been this tightly correlated as what we've seen over the past few months.

Source: h/t @CASANOVA_JF

4. Taking a longer-term look at energy, a sharp rise in electric vehicle demand could create another severe imbalance in oil markets. Such an outcome, however, is less likely if the prices of fossil fuels remain very low.

Source: BAML

Turning to Food for Thought, we have 5 items this morning:

1. Tax ID theft.

Source: ‏ ‏@business

2. Percent of the population aged 10-24.

Source: ‏@conradhackett

3. Drug-resistant infections will become a major health problem in the near future.

Source: ‏@wef, @ReviewonAMR, @StatistaCharts

4. Government spending as a percentage of the GDP - by country.

Source:  ‏@paul1kirby 

5. The cost of collecting taxes varies substantially by country.

Source:‏ ‏@paul1kirby, @qz