Greetings,

Let's begin with the UK where the Bank of England once again shifted the inflation forecast lower. The expected time of the BoE's rate hike has been extended sharply as a result.

Source: ‏@pdacosta, @BV

Moreover, the market is now pricing in a material probability of a rate cut.

Source: @pdacosta, @BV

At the same time, HBOS says that UK house prices are growing at nearly 10% per year -an interesting dilemma for the BoE. The reason for the house price increases is mostly lack of supply, as the country faces a housing shortage.

Source: Investing.com

Turning to Germany, the nation's factory orders report was rather disappointing. Draghi will be jawboning the euro lower to help the situation. Given the recent weakness in the US however, it's not clear it will work this time. More on the euro shortly.

Daily Shot's Matt Garrett (@MattGarrett3) also brought up the fact that Germany should be watching the deteriorating situation with Deutsche Bank. Here are some market data points on the bank.

1. Share price (US listed).

Source: Ycharts.com

2. Preferred securities.

Source: Yahoo

3. Coco (contingent convertibles).

Source: @Sunchartist

4. CDS spread.

Source: @Sunchartist

Given Deutsche Bank's significant global presence, this needs to be addressed quickly. The markets are telling DB it needs to raise more capital.

Note that while the situation with DB is troublesome, a number of other global banking groups are under pressure. The markets are pricing in weak demand for credit and investment banking activities. Here is an example: Credit Suisse had its first loss since 2008 - a short-seller's delight.

Source: Google

Will this unease with the banking sector performance put more pressure on the broader markets? Is there risk of a liquidity event?

Speaking of bank shares here is the Greek banking index hitting new lows this week.

Source: Investing.com

So far the lending rates across the Eurozone have been declining as the "monetary transmission" finally took hold. Is this about to end given the increased pressure on banks?

Source: ‏@acemaxx 

Now we take a look at the currency markets where the US dollar has finally changed course (for now). Let's see what happens after the US employment report today - a critical piece of economic data.

Source: ‏Investing.com

Dollar-yen fell below 117 (yen strengthened) as the currency traders get whipsawed.

Source: ‏Investing.com

As a result of the yen firming (above), the Nikkei gave up all the BoJ-induced rally and then some.

And since we are talking about Japan, here is an update on the 5yr JGB yield. Amazing.

As an aside, this next chart shows where we have negative yields across the yield curve for select economies.

Source:  ‏@pdacosta, FT

The euro shot past $1.12 on US economic weakness. This is a serious challenge for the ECB, boosting the probability of further easing in the Eurozone. It certainly doesn't help in improving the slowing growth in German factory activity (discussed above). 

Source: Investing.com

The Australian dollar also moved higher as commodity markets firmed up.

Source: Investing.com

The PBoC had used this opportunity of a weaker US dollar to stabilize the yuan. Here are the daily PBoC RMB settings.

Source: @fastFT

Switching to commodities, this next chart shows iron ore futures in Singapore - here we go again.

Source: barchart

In fact, below is the S&P metals and mining index overt the past week.

Source: Ycharts.com

Another commodity experiencing a bounce is platinum (chart below). Copper, aluminum and several other metals turned higher in recent days as well.

Source: barchart

Back in the United States we've had several less-than-stellar economic releases.

1. US productivity growth remains quite slow.

2. Manufacturers' new orders report disappoints. This is not what the FOMC had in mind when they started raising rates.

3. Here us US manufacturers' inventories-to-shipments ratio.

4. There has been a pickup in layoffs last month but it doesn't look too threatening (yet). Jobs were lost in retail and energy.

Source: Investing.com

 

Source: Challenger, Gray & Christmas

5. Here is an interesting indicator of economic activity: Norfolk Southern's carload volume % change.

Source: Railshare

In the credit markets, Merrill's CCC bond index yield is now above 20% for the first time since 2009 as defaults loom.

Next we have the CCC-BB spread: the yield dispersion between the most and the least "risky" groups in the HY index. 

US leveraged loan funds saw a 28th straight weekly capital outflow.

Source:  ‏@lcdnews, @mfuller2009

Now let's go over a few items globally.

1. Swiss property markets are doing well in spite of the deflation.

Chart: ‏@acemaxx, @UBS 

2. ‏Who is most exposed to China?

Source: @acemaxx,  @MorganStanley

3. Below is another way to think about liquidity and the oil-equities correlation.

Source: @EMgist

4. Finland's economy is struggling.

Source:  ‏@pdacosta

5. Here are the factors contributing to Brazil's ugly GDP contraction.

Source:  ‏ECB,  ‏@pdacosta

5. Editas Medicine was the first US IPO in over a month as the mess in the market put listing plans on hold.

Source:   @PitchBook 

Finally, here we have LinkedIn shares after hours. Ouch.

Source: NASDAQ

Turning to Food for Thought, we have 4 items this morning:

1. This is a bit surprising. Renewable energy increases in US power generation capacity far exceeded that of natural gas. How much of this is better technology vs. the tax benefits?

Source: ‏@alisonciaccio, @BloombergNEF, @BloombergBrief

2. It's interesting to see what the Iowa caucus did to the GOP nomination odds. 

Source: @Betfair, h/t Jake

3.  The world's most violent cities.

Source:  @EconBizFin, h/t Jake

4. State budgets vs state population. Who stands out?

Source: mischafisher.com, h/t Jake