The Daily Shot And Data - January 26, 2016

By Walter Kurtz

Tuesday, January 26, 2016 5:47 PM EDT

Oil markets continue to drive global risk sentiment as the correlation between crude and equities rises. For all the yapping going on in Davos, those (supposedly) top finance/economics minds do not seem to have a good explanation for this.

Source: barchart

Source: @Schuldensuehner

No worries. The latest Daily Shot survey will get to the bottom of this. Thanks everyone for your suggestions.

Crude oil is indeed under pressure again, having given up a big portion of Friday's rally. WTI is down almost 3% in after-hours trading (back below $30/bbl).

And as expected, global equity markets are under pressure again. China's Shanghai Composite gave up over 6% in Tuesday trading.

Source: Google

Continuing with China, we have the following developments.

1. According to Bloomberg Intelligence, the latest estimates of capital outflows from China exceeded $1 trillion in 2015.

Source: @DavidInglesTV, @TomOrlik, @timocraighead

2. This trend of outflows seems to continue this week, as the onshore-offshore RMB spread widens again.

3. Here is the latest survey of high-frequency China economy watchers on the nation's GDP growth (and evolution over time).

Source: @TomOrlik, @CapEconChina, @OxfordEconomics, @choyleva

4. Related to the capital outflows, the Hong Kong term interbank rates (HIBOR) remain elevated as liquidity tightens.

5. Hong Kong's equity markets are trading at distressed levels with price-to-book ratio at around 1x. A buying opportunity or a liquidity trap?

Source: @DavidInglesTV

6. One surprising development (discussed last week) is China's steel prices, which continue to rise (even in dollar terms). In fact steel prices are now outperforming iron ore. Is the new fiscal stimulus (particularly rail and infrastructure projects) stimulating demand?

Source: barchart

Source: @IlyaSpivak

7. Coming full circle to energy, China's energy consumption growth has been declining faster than the GDP. This would argue for a demand component of the collapse in oil prices (not just the oversupply). Ironically, the recent market uncertainty is already pressuring global business activity (for example Germany - discussed below), which in turn may further diminish demand for energy.

Source: @pdacosta, WSJ

Continuing with energy, ...

1. It's worth noting that the equity markets seem to discount the significant benefits to the US economy from cheaper fuel prices (diesel and gasoline charts shown below) ...

... as transport shares underperform.

Source: Ycharts.com

2. The FT points out that US crude oil exports to Europe have already started.

Source: @FTMarkets

3. Iraq's oil production hits a new record (perfect timing). Here is a good comparison with Iran's production.

Source: @CapEconEmerging, Capital Economics, h/t Josh

4. This is probably the best chart to explain the dynamics in the energy markets. It shows the long-run vs. the short-run crude oil breakeven levels, which tells us how US shale producers can continue to pump. Also this is what the Saudis are betting on, as the lack of CAPEX in North America will give the Gulf states an advantage over the long-run.

Source: Capital Economics, h/t Josh

Switching to Japan, the nation continues to struggle with labor shortages.

Source: CS, h/t Josh

In the Eurozone, Germany starts the year with a major disappointment in business activity. The Ifo survey missed consensus as market uncertainty takes its toll.

Source: Ifo

German rates are hovering near all-time lows as further monetary easing is now fully expected. The 5-yr Bund yield is shown below.

In fact the Euribor futures are pricing in ECB taking rates deep into negative territory (note that the futures are tr ading significantly above par).

Source: barchart

Draghi now has his marching orders as the area's inflation expectations decline again.

Source: @business

By the way, there is one positive development in the Eurozone. Italian industrial orders jump 12% from a year ago.

Source: Investing.com

Russia's latest economic figures look terrible once again. The 2015 GDP contraction was the worst since 2009, but unlike 2009 the contraction continues for the second year.

Source: @fastFT

And here we have the year-over-year retail sales.

At the global level, the shipping industry is imploding as the Baltic Dry Index hits another low.

Source: stockcharts.com

Bloomberg ran an article on Monday pointing out that it's now cheaper to rent a carrier to transport iron ore than it is to rent a Ferrari.

Source: @business

Returning to the United States, here are some trends we are tracking.

1. The US treasury curve is now the flattest since 2008. Are the bond markets pricing in a recession?

Source: @SoberLook

2. Texas manufacturing activity is collapsing, as the prolonged O&G price weakness takes its toll.

Source: @SoberLook, Dallas Fed

3. Morgan Stanley points to more evidence that the Fed's rate increase may have been ill-timed. Unlike in previous cycles, the move coincides with the start of corporate deleveraging.

Source: Morgan Stanley; h/t Josh

4. So where are we in terms of the economic cycle? Here is the breakdown of key indicators from Oxford Economics.

Source: @OxfordEconomics

Now let's review some trends in the equity markets.

1. The dollar strength, tepid global growth and extreme weakness in the resources sector have all taken a toll on the Caterpillar shares.

Source: Ycharts.com

2. Retail shares continue to underperform. Is the market pricing in a consumer recession.

Source: Ycharts.com

3. US homebuilders are getting pummeled. Are markets anticipating weaker demand for luxury homes? Lumber futures are also down materially this year.

Source: Ycharts.com

Source: barchart

4. US bank shares have been hammered. Once again markets seem to be pricing in weaker demand for credit. The flattening yield curve (shown earlier) is not helping the banking sector.

Source: Ycharts.com

5. Finally, here is what happens when one removes the largest 10 stocks from the S&P500.

Source: @business, h/t Mike

Turning to Food for Thought, we have 1 item this morning:

UFO sightings in the US have been on the rise. Here are the states with the largest number of sightings. This should explain some of the market volatility ...