The Daily Shot And Data - August 16, 2016
Greetings,
We begin with emerging economies where, driven by fund inflows, several equity markets are heating up.
1. The Russian stock market hit a new record (in RUB).
2. Mexican and Brazilian stock markets have moved sharply higher as well.
3. Even the Shanghai Composite jumped on official talk (according to media reports) of Stock Connect launch (which is not news).
4. Here is the MSCI Emerging Markets (equities) Index compared to the MSCI World Index.
Source: Bloomberg Terminal, Function "HMS"
5. Debt fund flows continue driving emerging Asia yields lower. Here are China's and Malaysia's 10y government bond yields.
6. In fact, year-to-date, emerging markets bond returns are more than double that of the US HY bonds.
Source: Ycharts.com
Inflows into emerging markets debt can be seen in the shares outstanding of this large EM debt ETF.
7. The JP Morgan Emerging Market Currency Index is also rising, though remains far below the averages over the past several years.
8. In EM economic reports, Russia's industrial output growth stalls in July. The "recovery" remains highly uneven.
9. Indonesia's exports (and imports) fell sharply - far worse than expected. The stock market dropped in response but is recovering this morning.
1. Turning to China, the nation's corporate bond yields continue to fall. This trend will make WMP (wealth management products) managers reach for yield/leverage as they "guarantee" 4-5% return (net of their charges and bank fees). These programs combined with falling yields probably present the biggest risk to China's financial system/economy right now.
2. China's corporations, concerned about further RMB devaluation (which will make their loan balances balloon), are paying down foreign debt.
Source: Deutsche Bank
3. Do the commodity markets provide evidence for China's economic rebalancing from investment to consumption?
1. Turning to Japan, dollar-yen is below 101 again showing a lack of confidence in the BoJ's easing in September. It will probably take more than an increase in ETF buying to have an impact on dollar-yen.
3. As the FT points out, "we had another disappointing Japanese GDP reading".
Source: @fastFT
1. Switching to the UK, the British pound continues to drift lower.
2. Longer-dated sterling-denominated investment-grade corporate bonds have doubled in value. Amazing.
Source: @fastFT
In the Eurozone, Ireland remains vulnerable to sterling weakness (euro strength). The nation's exporters benefited tremendously from a strong pound (weak euro) in 2015.
Source: @joshdigga
The tables have now turned as the euro rallies against the pound (making Irish exports to the UK more expensive).
Finland's inflation jumps to the highest level since 2014.
1. Now let's go to the United States where Citi warns of a potential spike in uncertainty from US elections.
Source: Citi
2. US homebuilder sentiment rose more than expected as housing inventory remains tight.
3. The Goldman Sachs US financial conditions index is showing further easing. This bodes (relatively) well for the second half growth.
4. NY manufacturing activity (the Empire Manufacturing Index) was weaker than expected. Moreover, NY factory hiring plans hit the worst level since 2009.
Next, we have a couple of charts from the Canadian Real Estate Association (CREA) showing Canadian house price appreciation by sector/location.
Source: Canadian Real Estate Association (CREA)
Source: Canadian Real Estate Association (CREA)
1. US equity markets hit records again as many investors/analysts continue to question this rally.
2. Here is the VIX futures net non-commercial exposure. A spike in vol could send shockwaves through options as well as cash markets as this position unwinds.
In the funding markets, dollar funding conditions for European banks seem to be (gradually) easing. Here is the EUR/USD cross-currency basis spread.
2. Nonetheless, the US LIBOR-OIS spread is still rising. The reason it's sometimes helpful to use this measure rather than the outright LIBOR level is that the OIS removes any fluctuations related to the Fed hike expectations. The spread shows only the premium banks charge for term financing.
Finally, we look at commodities markets, starting with energy.
1. It seems that Russia may be open to working with OPEC to move away from the current "free for all" production. Oil analysts, however, remain skeptical that a substantive agreement can be reached.
2. Nonetheless, oil prices are up 10% over the past three days.
3. Oil vs. global equities shows a disconnect.
Source: HSBC
4. OPEC's spare capacity seems to be in decline which leaves crude markets vulnerable to disruptions (at least that was the view before the spike in North American production).
Source: HSBC
5. Here is OPEC's crude oil production and forecasts.
Source: HSBC
In non-energy commodity markets, the chart below shows cotton - as another China-driven rally unwinds.
Source: barchart.com
The last chart shows the Liv-ex Fine Wine 50 Index over the past year. Cheers.
h/t: @JmBadalamenti
Turning to Food for Thought, we have 5 items today:
1. America's largest online retailers.
Source: @StatistaCharts, @JmBadalamenti
2. The highest-paid public employee in each state.
3. Voting "for" vs. voting "against".
Source: @paul1kirby
4. This map shows where Google Street View is available.
Source: Google; h/t TwistedSifter.com
4. Ethnic and cultural diversity index.
Source: chartsbin.com
5. Yes, this person probably votes.
Source: @michaelshermer
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