The Daily Shot And Data - April 21, 2016

By Walter Kurtz

Thursday, April 21, 2016 9:31 AM EDT

We begin with the United States where we continue to hear talk of a June (yes, 2016) Fed rate hike. Here is a note from Macquarie.

Source: Macquarie

In addition to strength in the labor markets, some point to improvements in US financial conditions, which by some accounts are back to August 2015 levels. After all, tight financial conditions were one of the key reasons for the pause.

Source: ‏@enlundm

However, to a large extent, US financial conditions are driven by the US dollar. Any signs of an earlier rate hike will push the dollar higher and tighten the financial conditions again, potentially prompting more yuan depreciation against USD. Some would argue that such an outcome is just fine and suggest that the US can weather tighter financial conditions without impacting the labor markets or igniting deflationary pressures. Perhaps.

By the way, is it possible that the momentum in US labor markets isn't what we've come to expect recently? Here is the Fed's Labor Market Conditions Index.

h/t @Steen_Jakobsen:

US existing home sales rebounded, potentially signaling a strong spring season. Inventories remain tight.

Source: Reuters

The dislocation in the energy markets is starting to take a toll on a number of communities in Texas. The overall oil and gas payrolls continue to fall.

h/t @MarathonWealth

And here is the Houston area economic conditions index for example.

Switching to the UK, a number of British firms are concerned about a significant loss of foreign investment in a Brexit scenario.

Source: HSBC

With foreign investment at risk, Brexit could be quite painful due to the UK's record current account imbalance. See the note from the FT below.

Source: Citi

Source: @FT

UK jobless claims unexpectedly rose last month and some claim that this is related to the Brexit uncertainty. Perhaps.

Source: the Guardian

Here are a few observations on the Eurozone.

1. German PPI decline continues to worsen.

Source: Investing.com

2. Related to the above, the Eurozone market-implied inflation expectations are still near the lows, in spite of higher oil prices.

Source: Citi

3. Fixed income investors are fleeing the Eurozone in response to historically low and often negative rates.

Source: ‏@Callum_Thomas, DB

Now on to Japan where the Nikkei is up another 2.5%. The BOJ better come through with that increase in index ETF buying or else ...

Source: Google

Another day, another auto company scandal. This time it's Mitsubishi. Shares plunge 15%.

Source: BBC

Source: MarketWatch

The 30y JGB yield dips below 30bp for the first time. Is the whole curve going below zero?

ANZ-Property Council survey suggests softer Australian property markets ahead. It's time.

Source: ‏@ANZ_Research

We now shift to China where ...

1. ... corporate spreads on weaker credits rise again (remember "A-rated" has a different meaning in China). This is a dangerous development because of the extensive corporate bond usage in China's wealth management products (WMPs) which "guarantee" a fixed return to retail investors. Also, investor liquidity terms are far shorter than the maturity of most of these bonds.

Source: Nomura

2. The yuan continues to depreciate on a trade-weighted basis. This eases China's financial conditions and is stimulative for the economy.

Source: Morgan Stanley

Now on to commodities where all the action is these days.

1. Iron ore was up 5% on Wednesday, reaching the highest level in 10 months. This rally is based mostly on China stimulus bets. However, analysts are suggesting that the decline in iron ore breakevens (all-in cost) will slow. There is only so much that new technology can accomplish at this point.

Source: barchart

2. Related to the above, the cash (physical) metals index continues to improve.

Source: barchart

3. Hot money from hedge funds is pouring into grains as futures spike again. Here is corn, wheat, soy, and oats. Could this boost headline inflation figures in the near-term?

Source: barchart

1. Continuing to the energy markets, crude oil futures were up again. More irrational exuberance?

Source: barchart

2. The rally was driven by larger than expected declines in US production as well as more talk of resuming "oil output freeze" meeting - this one came from Iraq. Every dollar per barrel is a big deal at this point - so why not talk it up?

US crude oil production finally drops below 9 million bpd. However, with prices in the mid $40s, these declines could slow.

Source: @SoberLook, EIA

3. Here is the Natixis projection of global oil balances in 2016. OPEC will still be producing more than their customers need.

Source: Natixis, h/t Josh

4. US gasoline demand remains robust for this time of the year.

5. Related to the above, BP's refining margin is quite healthy.

Source: ‏@JKempEnergy

Now we have a few comments on credit and equity markets.

1. According to Credit Suisse, "CDX High Yield Volatility approaches multi-year lows... Just 2 months ago we were at multi-year highs". This shows how delicate the balance is between tight and loose financial conditions - sentiment can shift on a dime.

Source: Credit Suisse

2. There is still quite a bit of risk priced into financials' credit.

Source: BAML

3. However, help is on the way from the equity markets as Bank shares outperform sharply this week.

Source: Ycharts.com

4. This next chart shows the proforma vs. GAAP earnings for the S&P500. As the M&A activity slows, will these fall more in line?

Source: Morgan Stanley

Finally, on to emerging markets where we have a number of developments.

1. Argentina may be added to the JPM emerging markets bond index. That would be quite an achievement in a very short time.

Source: @FT

2. Argentina's new dollar financing was the largest ever emerging market bond sale.

Source: ‏@Dealogic, WSJ

3. Brazil's labor market continues to deteriorate.

Source: Goldman Sachs

4. Nonetheless, Brazil's 10yr domestic government bond yield fell below 13% again and sovereign CDS spreads tightened.

Source: @Markit

5. The Russian stock market is approaching record levels (in rubles).

6. Turkey’s central bank head proceeded to ease policy within 24 hours after taking the job. Some continue to be concerned about the central bank becoming less independent over time.

The Turkish lira rises in response to the rate cut. A relief rally?

Source: barchart (chart shows lira strengthening with the dollar being able to buy fewer liras).

7. Emerging markets economic surprise index jumps. Once again, note that the easier financial conditions drove this increase. An early Fed hike could quickly reverse this trend - those piling into EM assets should take notice.

Source: Macquarie

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

1. The first chart shows the share of "severely deprived" people in select EU nations. One country stands out.