Greetings,

This morning we begin with commodities.

1. Crude oil recovered quickly from the Doha-related drop. This is somewhat surprising given the risk of a Saudi-Iran price war as Iran grabs market share in Asia.

Source: Investing.com

Moreover, we had another larger-than-expected increase of US oil in storage, and there is little evidence of a slowing crude inventory build. Near-term fundamentals for oil remain weak.

2. Copper prices hit a 3-week high on softer US dollar and hopes for improved demand from China. 

Source: Investing.com

3. China launched a yuan-based gold fixing (similar to what we currently have in dollars in London) in order to assert more control over the gold market and firm up the convertibility of the yuan. This, combined with weaker USD sent gold higher.

Source: Investing.com

Source: Reuters

4. Silver futures saw the highest close in a year. 

Source: Investing.com

Hedge funds have been moving in and speculative accounts' net silver position rose to new highs.

Source: timingcharts.com

5. The soy market is on fire with frenzied speculative activity. As an aside this should help Argentina, who is a major producer of soybeans.

Source: barchart

Source: barchart

Source: Bloomberg.com

6. The Continuous Commodity Index (broad commodities index) shows a recovery. Is it sustainable?

Source: barchart

7. Continuing with commodities, iron ore and steel prices in China rose again.

Source: barchart

Source: barchart

8. Related to the rising price of iron ore, the Baltic Dry shipping index more than doubled from the lows. It is however still a fraction of the peak level (log scale shown).

Source: stockcharts.com

Turning to China, the ZEW expectations for the Chinese economy rose sharply (see note below the chart). This is consistent with other indicators, including industrial commodity prices (above).

Source:  ZEW

Similarly, the China Financial Conditions Index (from Bloomberg) is the most "stimulative" since 2011. The combination of stimulus and a stalled US dollar rally has helped.

Source: ‏@Callum_Thomas

 

 

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Separately, Bloomberg ran an article on Tuesday showing aging accounts receivables in China's corporate sector. At some point the supply chain becomes strained due to liquidity issues, potentially resulting in a series of failures.

 

Source: Bloomberg.com

Source: Bloomberg.com

Continuing with emerging markets...

1. Argentina finally (and successfully) returned to the dollar debt capital markets. The demand for paper (30y priced at 8%) was strong and bonds exchanged hands at a premium.

Source: BBC

The yield on existing bonds dropped again. This is a significant achievement for Mauricio Macri's administration. Argentina's economy is still in shambles but this debt issuance (combined with the peso free-float) is a major step.

Source: ‏@business 

 Argentina's shares jumped 5% on the day.

Source:  barchart

2. Not to be outdone, Lebanon priced its own debt deal yielding around 7%.

Source: Reuters

3. Chile's corporate sector has been quite resilient in the face of the rapid peso decline a few months back. One of the key reasons according to Fitch Ratings is risk management.

Source: Fitch

4. The Brazilian equity market continued to rally in response to the recent political developments (discussed yesterday.)

Source:  Investing.com

5. According to Goldman, the emerging markets (as a whole) "financial conditions are at the easiest levels since 2012". This trend should stimulate growth. Of course, it's not clear if such conditions would prevail once the US dollar begins rising again in response to Fed's hikes.

Source: Goldman Sachs

Turning to Australia, the Westpac-Melbourne Institute leading index shows the economy losing momentum. The index is the lowest on record, mostly due to a decline in expectations as well as hours worked. This is a bit surprising given a slew of positive economic data from Australia recently.

As discussed yesterday, the Australian dollar rally is not helping.

Source: Investing.com

Now on to Japan where the BOJ seems to be getting ready to buy more equity (via index ETFs). What an amazing investor the BoJ makes - these shares are unlikely to ever hit the market again. A desperate measure by the BoJ?

Source: Reuters

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Separately, here is Japan's government bond yield curve - negative through 15 years.

Source: @SoberLook

The chart below shows the 40yr JGB yield - 0.33% locked up for 40 years.

Related to the above, here is the average of the US, Japan, the UK, and Germany 10yr government bond yields (SJUG).

Source:  @DSjuggerud, h/t Paul Cuatrecasas

In the Eurozone, the German ZEW economic sentiment came in better than expected. 

Source: ZEW

Also, thus far, there is no evidence that the recent pressure on bank share valuations resulted in tighter lending conditions in the Eurozone. Select lender survey results are shown below.

Source: Goldman Sachs

Back in the United States, growth in private residential construction activity stalls.

 

The recent weakness in new housing activity seems to be driven by softer apartment construction volumes.

Separately, here is the US financial conditions index breakdown. The resumption of the dollar rally will quickly tighten conditions again.

Next, we look at a couple of trends in credit.

1. The US HY bond dealer inventories (as a percentage of US HY market cap) are at the lowest levels in decades. This trend has hampered HY bond liquidity.

Source:  @Eurofaultlines

2. The YTD performance of US HY bonds vs. leveraged loans is shown below (total return). HY bonds are up almost 5% in 2016 - time for a pullback?

Source: Ycharts.com

3. Leveraged loan balances hit a record in 2015.

Source:  ‏@Eurofaultlines  

4. Strong corporate loan growth at US smaller banks is making some bank watchers a bit uneasy.

Source:  ‏@AmerBanker 

Source:  ‏@SoberLook

The US M&A volume is off to the worst second quarter since 2009. 

Source: @fastFT

Finally, we have some data on private equity (from PitchBook).

1. The data shows a big increase in the proportion of "add-on" deals (as opposed to new deals).

Source: @PitchBook

2. In 2016, private equity transaction leverage has been the lowest since 2009. The chart below shows the median debt as a percentage of US buyouts.

Source: @PitchBook

3. The chart of PE deals broken out by deal size shows increased activity in the lower middle market space, as valuations improve.

Source: @PitchBook

4. It seems that 98% of US PE funds closed in the first quarter of this year hit or exceeded their fund-raising target. Funds coming to market have been smaller and more targeted.

Source: @PitchBook

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

1.  Foreign aid spending by country.

Source: @StatistaCharts, h/t Jake

2. Disability applications have apparently been decreasing as the jobs market improves. 

Source: ‏‏@imgur, h/t Jake

3.  Waiting until the last minute to file taxes.

Source:‏  @FiveThirtyEight, h/t Jake

4. Cable companies can't keep up with the top media streaming companies.

Source: samuelwbennet.com, h/t Jake

5. Social media usage among those 65 and older has more than tripled since 2010.

Source:‏ ‏‏@pewinternet, h/t Jake