The Daily Shot And Data - April 27, 2016
Greetings,
We begin in China where the government stimulus is making its way through the economy. We can see China's budget deficit worsening as the government finances various new projects.
Source: Morgan Stanley
Below are a few areas where the stimulus is now visible.
Source: Macquarie
Moreover, the PBoC-orchestrated lower interest rates are helping home sales.
Source: Macquarie
But nowhere is the stimulus effort more visible than in commodity futures, which have been hit by frenzied speculation. Below is Credit Suisse commenting on the topic.
Source:Credit Suisse
Here we have the aluminum futures in Shanghai for example.
Source: barchart
Source: Bloomberg
In fact, China's regulators have become concerned about this spike in activity and imposed some curbs.
Source: @fastFT
Source: barchart
The big question now is how long will Bejing continue with this stimulus? After all, these investments by the government don't resolve any fundamental issues in Chana's economy, kicking the can down the road instead. In fact, this worsens the moral hazard problem and makes the nation's economy even more dependent on investment. A number economists believe the program will be short-lived for precisely this reason.
Here is a comment from Merrill Lynch.
Source: @BofAML
Morgan Stanley's view is consistent with the comments above.
Source: Morgan Stanley
In other developments in China, the short-term wealth management products (WMPs) yield is highly elevated vs. money market rates. Note that these products invest in longer-dated corporate bonds while "guaranteeing" a fixed return on a short-term product (3-months for example) - a significant asset-liability mismatch. The way the program stays afloat is by having new investors coming in to replace those who redeem. This feels just a bit "Ponzi-ish".
Source: Macquarie
Mainland's fake imports from Hong Kong have been elevated as capital moved offshore.
Source: Natixis
Natixis sees the fake trade volume between HK and Mainland "pause" for a while as the rate differential between CNY (the onshore yuan) and CNH (the offshore yuan) shrinks.
Source: Natixis
Source: Natixis
Japanese equity fund flows turned negative recently. This is surprising, given that many analysts are convinced the BoJ will accelerate its purchases of equity ETFs.
Source: Deutsche Bank
Australian CPI came in well below forecasts. In fact in Q1 prices actually fell - the first bout of deflation in seven years. The Aussie dollar tanked in response. More RBA easing on the way?
Source: barchart
In the Eurozone, we see the ECB (Eurosystem) balance sheet approaching the 2012 (3y LTRO-induced) peak.
Source: ECB
Turning to emerging markets, here are a few developments.
1. Hungary cut its benchmark interest rate to record low.
2. Speaking of records, Brazil's consumer confidence hits a record low. The political situation isn't helping.
3. According to the IMF, Bahrain's fiscal deficit is expected to reach nearly 20% of the GDP this year. Addiction to oil gone bad ...
Source: @JavierBlas2
4. Emerging markets' local currency corporate bond volume continues to expand.
Source: @IIF, h/t Jake
Back in the United States, future economic expectations of both consumers and businesses have fallen. Many of the issues on the business side (second chart below) are related to the US dollar rally over the last couple of years, which has damaged the manufacturing sector. However, some suggest that the weakness in these surveys reflects the uncertainty generated by the US presidential elections.
Source: Natixis
Source: @MarkitEconomics
Here are a couple of headlines for example.
Source: WSJ
Source: Bloomberg
US durable goods orders came in below expectations as investment remains weak. By the way, this lethargic investment at least partially explains weak labor productivity growth, with companies often cutting Capex needed to improve efficiency.
Similarly, here are US manufacturers' shipments.
Separately, the spread in consumer confidence between younger and older Americans has been rising. Some attribute this to zero rates punishing savers who tend to be older. Perhaps.
Source: @GaveKalCapital
Switching to US markets, here is a chart of equities vs. treasuries. Something's got to give.
Source: Citi
So far it's the treasuries that are selling off, with the 10-yr yield back above 1.9%.
Source: Investing.com
The next chart shows metal prices vs. forward inflation expectations. Once again, something has got to give.
Source: Credit Suisse
In another seeming dislocation, the Ted Spread and VIX seem to have diverged. Some view the TED spread as a measure of tightness in the funding markets (this one is likely driven by new money market regulations - discussed previously). The equity markets don't seem to care.
Source: Ycharts.com, h/t Jake
The quarterly report from Apple was weaker than expected, sending shares down 8%. Is this a turning point for the firm?
Source: Google
Source: @StatistaCharts, h/t Jake
In the energy markets, Nymex crude futures jumped as the API report shows a small inventory draw where an increase was expected. Sentiment remains quite bullish even as near-term fundamentals are weak.
Finally, estimates for the US CLO issuance this year have been revised down. Equity and junior tranches have been rather difficult to place in part due to one of the CLO vehicles recently skipping equity distributions as downgrades/write-downs in the portfolio increase.
Source: @lcdnews, @apark_
Turning to Food for Thought, we have 5 items this morning:
1. The evolution of political polarization in the United States (updated).
Source: @pewresearch
2. Here is one quick way to damage your local economy.
Source: @taxfoundation, @JaredWalczak, @jdhenchman
3. US VP nomination odds.
Source: @PredictWise
4. Severe obesity amomg American kids is rising rapidly.
Source: @voxdotcom, h/t Jake
5. Where do US diplomats get hazard pay?
Source: @StatistaCharts, h/t Jake
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