The Daily Shot And Data - August 15, 2016

By Walter Kurtz

Monday, August 15, 2016 3:50 PM EDT

Greetings,

1. We begin with the United States where both of the Fed's Q3 GDP nowcast estimates (NY Fed and Atlanta Fed) declined last week. The two are still 1.1% apart.

Source: @AtlantaFed, @NYFedResearch

The latest consensus US Q3 real GDP (assembled by Bloomberg) for the third quarter is 2.5%.

However, the consensus forecast over the following six quarters looks less sanguine. The "low forecast" recession is primarily from one institution.

Source: Bloomberg Terminal, function "ECFC".

2. US retail sales report missed forecasts on Friday, with the ex-auto measure showing a month-over-month decline.

Treasury yields declined in response to weak retail sales.

Moreover, the market-implied probability of a September Fed hike fell.

Source: Bloomberg Terminal; Function "WIRP"

3. US core PPI was much softer than economists had projected. In fact, the year-over-year increase in the core finished goods PPI was the lowest since early 2010 (second chart below).

Furthermore, the U Michigan consumer inflation expectations continue to drift lower. For now, there doesn't appear to be any urgency for the Fed to hike.

4. US business inventories increased more than expected.

Nonetheless, here is a 20-year chart of US business inventory growth (year over year). This trend partially reflects a more efficient inventory management, but it also suggests that US companies are quite jittery.

5. Separately, US loan growth (commercial and household loans) remains remarkably stable in the past couple of years - here is the growth adjusted for accounting changes.

1. Switching to China, the Wall Street Journal points out that the latest emerging markets investment boom is bypassing China. The second chart below shows shares outstanding for a large EM equity ETF, followed by a large China ETF shares outstanding.

Source: @WSJ

2. China's new domestic loan amount fell to 463.6 billion yuan, considerably below forecasts. Growth in the overall loan balances is shown in the second chart below.

Source: ‏Bloomberg LP

3. The divergence between China's narrow and broad money supply growth widens further. At least in part, this is telling us that China's credit expansion is staying within the financial system and not making it into the broader economy. Economists are still debating this point.

Source: Bloomberg Terminal, Function: "HMS"

1. In other emerging markets, Hong Kong's Q2 GDP growth was much stronger than expected and property prices rose. Economists remain skeptical.

2. Brazil's economy showed a slight GDP increase as we continue to see signs of "green shoots".

Economists urge caution on Brazil, however.

Source: Bloomberg

3. Brazil's real fell sharply last week, with the dollar now buying over 3.19 reais. Michel Temer expressed concerns over the currency strength potentially hurting exports.

Source: Reuters

4. India’s inflation has breached the RBI's upper target which is likely to limit any further rate cuts. The new Governor will have a tough time dealing with political pressures to ease.

Source: Goldman Sachs

5. Ukraine's central bank says that the latest currency weakness (a relatively small move) is linked to political tensions (meaning tensions with Russia).

6. Shifting to Central Europe, Romania’s economic growth accelerated to 6% in the second quarter - beating forecasts by a significant margin.

7. Poland remains in deflation.

1. Continuing with the European deflation theme, Slovakia's deflation intensifies (falling below the 2009 lows). The ECB's QE has no visible impact on certain parts of the Eurozone.

2. Similarly, Spain has been stuck in deflation for over two years.

3. And Italy can't seem to shake its deflationary pressures as inflation comes in lower than expected.

4. Speaking of Italy, the nation's GDP growth stalls. Is another recession on the way?

5. German GDP growth beat expectations but remains soft.

6. Here is the real Q2 GDP growth in the Eurozone by country and by contributors.

Source: Natixis, @joshdigga

7. Separately, Italian and Irish 10y yields hit new lows.

1. Turning to the UK, here is the 10y gilts - Bunds spread. This trend has contributed to the euro rallying against the British pound (second chart below).

2. However, shorting the British pound is becoming an extremely crowded trade. The chart below shows the net speculative position in pound futures. The short-covering could get ugly.

1. In the equity markets, the steepening VIX futures curve points to rising risk appetite. Investors remain comfortable shorting vol for quick carry trades.

2. Separately, here are the SNB's top holdings of US-listed shares. Supposedly the central bank is following some index in creating this portfolio, although it's not clear which one.

Source: @MarathonWealth

In credit markets, US High Yield (HY) and Investment Grade (IG) corporate bonds have a nearly identical performance year-to-date.

Source: Ycharts.com

Related to the above, the next chart shows shares outstanding for a large US IG ETF.

1. In commodity markets, US rig count continues to rise gradually. This trend has got to make some in OPEC uneasy about pushing crude prices higher.

The upcoming OPEC meeting sent crude oil prices sharply higher. Some oil analysts remain skeptical about any lasting policy change from the organization.

Copper has been under pressure over the past month. More on this later.

The currency markets are quite focused on dollar-yen as we await the September BoJ meeting. A number of analysts are calling for dollar-yen to fall below par over the next month.

Bitcoin has been under pressure again, falling over 3% in Sunday trading.

Source: bitcoincharts.com

Finally, here is a chart showing the fastest (billion plus) exits for VC-backed companies.

Source: @CBinsights, ‏@JmBadalamenti

Turning to Food for Thought, we have 5 items today:

1. According to the Economist, the US "has nearly 800 bases spread across the world. But most Americans are unaware of them."