The Daily Shot And Data - August 22, 2016

By Walter Kurtz

Monday, August 22, 2016 10:00 AM EDT

Greetings,

1. Let's begin with the US equity markets where (according to the WSJ) the payout ratio (the proportion of earnings paid out as dividends) is approaching the 2009 high. Is this trend hurting Capex and to some extend US productivity?

Source: @WSJ, ‏@joshdigga

2. Sentiment indicators are showing that bulls are back.

Source: Yardeni Research

3. Here is the percentage of S&P 500 stocks with (trailing) dividend yield that's above the 10-yr Treasury yield.

Source: BofAML

4. Related to the above, some argue that US equity valuations are consistent with current (extraordinarily low) long-term rates.

Source: Richard Bernstein Advisors

5. Here are the low-beta vs. the high-beta components of the S&P500 over the past five years.

Source: Bloomberg Terminal; Function "HMS"

6. Utilities have been underperforming this month as a number of managers shift into more cyclical shares (related to the above).

Source: Ycharts.com

1. Switching to the Eurozone, Italian banks (first chart below) came under pressure again (driven in part by a potential acceleration of Brexit). UniCredit was down 6% on Friday (second chart below).

Source: Investing.com

2. Portugal's longer-dated government bond yield continues to rise.

3. Barclays points out that two-thirds of the SSA (Sovereigns, Supranationals, and Agencies) bond market (organizations such as the World Bank or the European Investment Bank) is trading at negative yields.

Source: Barclays

4. RBS says it will impose negative rates on some major client margin accounts. Euro-based accounts will clearly be impacted. Will RBS lose business as a result?

Source: The Telegraph

1. Switching to the UK, the new government could trigger Article 50 as early as April, accelerating Brexit. It will be interesting to see how negotiations proceed under this tight deadline. Will the UK be forced to cut (already relatively low) corporate taxes to keep firms from moving abroad?

Source: Sunday Express

2. According to BofAML, the Bank of England may be uneasy about accelerating QE from current levels because of the damage to UK's pension funds. Instead, it may cut the overnight rate again.

Source: @fastFT

3. Related to the above, the British pound speculative net shorts hit another record.

Next, a chart on Japan shows net foreign bond investment by Japanese investors (cumulative). Amazing.

Source: Barclays

Turning to the US, the Fed's Fischer said on Sunday that the central bank is "close to hitting job and inflation targets" and it's time to hike rates. The dollar jumped in Sunday trading in response.

Source: Reuters

1. Canadian consumer inflation came in below forecasts (with one area booming).

Source: @globeandmail

2. Retail sales in Canada missed forecasts by a significant margin. Some continue to insist that this is a "blip". Perhaps.

1. Next we go to emerging markets, where Mongolia's rate hike (discussed last week) was one of the largest among central banks in recent history.

Source: @fastFT

2. Fitch affirmed Turkey's "BBB-" rating (avoiding moving to "junk" status) but revised the outlook to "negative".

Source: Fitch Ratings

3. India's FX reserves continue to rise.

4. Modi's choice of new central bank governor was somewhat surprising - many anticipated a more dovish shift. It seems that Rajan's policy will continue.

Source: Nomura, @deepakmohoni, @MattJones2401

Source: BBC

5. Nigeria's authorities are having trouble supporting the currency as it depreciates further (a 7.5% drop on Friday). The chart shows how much naira one dollar buys.

Source: Investing.com

The naira currency forwards show that the market expects further currency declines from the current (345) level.

1. The trend described by the WSJ below is a major (and rising) risk to China's financial markets. Merchant banks' increasing use of these products as a key funding source is dangerous, potentially creating a liquidity problem if the WMP investors pull.

Source: @WSJ, @EMgist

2. Here is a quote from Nancy Lazar (Cornerstone Macro) on China. Grim.

Source: Cornerstone Macro, Caldwell & Orkin, @MarathonWealth

1. In commodity markets, China's iron ore futures rally resumes. BHP Billiton CEO was quoted saying that the worst of the commodity cycle is over. Perhaps.

2. The chart below shows Dutch-settled natural gas price over the past 5 years as LNG pressures European gas prices. The UK gas price trajectory looks similar.

3. US oil rig count rises above 400 for the first time since February.

4. Are speculative accounts starting to unwind the massive net long silver exposure? The hawkish comments from Fischer didn't help as the metal opens below $19/oz on Sunday.

1. In the funding markets, foreign banks have been forced to shift dollar financing sources out of deposits due to looming US money market fund regulation.

2. We had a negative development in the funding markets on Friday that didn't get much media attention. According to the FT, JPMorgan is walking away from being an intermediary in the tri-party repo market. This leaves only the Bank of New York - a dangerous concentration for such a crucial marketplace.

Source: ‏@FTMarkets, h/t @MattGarrett3

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

1. GDP-adjusted Olympic medal count.

Source: @GoogleTrends

2. These are the world's most fragile states based on the Fragile States Index (FSI).

Source: @wef

3. This chart shows patent applications for China, Japan, and the US. It doesn't say anything about the "quality" of intellectual property, but the trend is interesting nonetheless.