Let's begin with China, where the latest trade data shows a large discrepancy between what China supposedly imports from Hong Kong and what Hong Kong exports to China.

Source: @tracyalloway

As explained by the FT below, this is a form of capital outflow from China. With Beijing clamping down on other forms of capital withdrawals, cheating on trade invoices becomes the only viable channel by which significant amounts of capital can be moved offshore.

Source: @FT

---

Meanwhile, China's stock market continues to sell off (in spite of the rally in the US on Tuesday).

---

On a more positive note, China's equity market is deleveraging, as margin loan balances continue to decline.

Source: @valuewalk

---

The nation's industrial profits are still falling as the economic "rebalancing" takes place. Perhaps.

Source: @stevefeiss

---

Related to the above, China continues to export large amounts of excess refined fuel, as domestic demand growth stalls. This is the last thing the global energy markets need now.

Source: @business

By the way, some argue that China has created a "feedback loop" with crude oil via weaker currency.

Source: @ScottFarnham

Let's continue with the energy markets where we had the largest weekly US crude oil inventory build since last April. Oil futures fell in response.

Source: Investing.com

The market remains extremely jittery. Here is the crude oil implied volatility index over the past 5 years.

Source: Google

Moreover, crude oil bearish bets continue to increase. This is potentially becoming a rather crowded trade.

Source: @JavierBlas2, @business

As discussed before, the correlation between crude oil and equities remains elevated.

Source: @FT

We'll have the results of our survey on the topic out tomorrow. In the meantime here is an explanation from a Daily Shot reader. A number of other responses/comments were quite similar to the one below.

---

Another explanation offered by Citi (via FT) is that in the current market environment correlations are extraordinarily high within the equity markets. 

Source: @FT

That means that the correlation between energy names and the rest of the stock market is quite high, making the relationship with the energy market strong as well. The chart below shows energy shares (XLE) moving in tandem with the S&P500 (SPY).

Source: @SoberLook

Since we are discussing equities, here are some more updates on the market.

1. Below is the Google Trends search frequency for the phrase "bear markets". A similar pattern exists for "sell stocks" and "sell everything". A contrarian indicator?

Source: Google Trends

2. Why hasn't VIX jumped by the same amount it did back in August? Here is an interesting explanation from SocGen (via Tracy Alloway). In the first half of last year it was fashionable to run a short VIX futures position, making money on the carry (contango). The summer China surprise caused a nasty unwind of that trade.

Source: @tracyalloway, SocGen

Source: @tracyalloway, SocGen

3.  Strong US dollar is hurting corporate profits more than it has in recent years.

Source: @paul_dobson, @business 

4. BAML points out that the non-commodities corporate earnings (without all the "adjustments") are experiencing the worst declines since 2009.

Source: @sobata416, @LJKawa 

5. JPMorgan argues that the decline in equity market liquidity combined with monetary policy uncertainty will keep volatility elevated.

Source: JPMorgan

6. Another explanation for the market selloff and higher volatility comes from Matt King of Citi who argues that the selloff in risk assets is related to net declines in central bank assets. The reason for central bank asset declines is the massive drop in FX reserves in emerging economies.

Source: Citi

Speaking of emerging economies, ...

1. Brazil's stock market is at the lows not since since early 2009.

2. The chart below shows how "low for longer" presents a serious problem for Saudi Arabia's government budget and FX reserve sustainability. Massive spending cuts will be required.

Source: @steve_hanke, @sobata416, BAML

3. Singapore industrial production misses forecasts.

Source: Investing.com

Turning to the Eurozone, here are a couple of developments.

1. The French 2yr government bond yield is pushing deeper into the red.

2. The Eurosystem (ECB) balance sheet continues to rise sharply. It will be interesting to see if the ECB decides to accelerate, extend or expand this program.

Source: ECB

Back in the United States, the service sector growth slowed substantially in January as market volatility creates increased uncertainty.

Source: Markit

The above trend also shows up in the Philly Fed non-manufacturing index.

Moreover, the Texas service sector is struggling as a result of the weakness in the energy markets. Economists are adjusting their Q1 GDP growth - after what is likely to be a terrible Q4 result.

Source: Investing.com

---

In the housing market, prices continue to rise much faster than wages. If wages don't pick up soon, the housing market appreciation should slow.

Also as discussed yesterday, one of the reasons US homebuilder shares are struggling has to do with fresh weakness in the luxury home market.

Source: @business, Bloomberg.com

The Conference Board US consumer confidence exceeded forecasts as gasoline prices fall sharply. But is it sustainable? Will it result in stronger retail sales?

Source: Investing.com

According to Goldman, the recent stock market sell-off will create a material drag on consumption in 2016 (negating the above trend). 

Source: Goldman Sachs

We are already seeing some of this slowdown in the Johnson Redbook Retail Sales Index.

Source: Investing.com

---

The Conference Board consumer inflation expectations fall to the lowest level since 2007 (mostly as a result of lower gasoline prices). Once again, making a case for rate hikes in the next few months could prove challenging for the FOMC.

Source: @boes_

In US fixed income markets, the treasury curve continues to flatten. 

Source: @SoberLook

---

Options on LIBOR futures indicate that markets are assigning a greater than 10% probability of negative rates in the US by the end of 2017 (over 10% probability that futures will trade above par as we saw yesterday with the Euribor futures).

Source: @boes_ 

Source: @boes_ 

Now let's switch to credit where we look at several rends. 

1. While HY leverage has risen materially recently, interest coverage has been quite strong.

Source: @MatsGlettenberg 

2. Here is Citi's credit cycle clock (updated).

3. The next chart shows US vs EU HY spreads. Is this mostly energy driven? 

Source:  The Daily Speculator

Finally we have a couple of slides on hedge funds.

1. Are we seeing the rise of "artificially intelligent" hedge funds with lower fees and more consistent returns?

Source: WIRED, h/t @MattGarrett3 

2. Declining Asia hedge fund launch frequency shows the challenges faced by the industry.

Source: @mcdonaldsarahj, Bloomberg.com, @businesss

Turning to Food for Thought, we have 5 items this morning:

1. Interesting stats on GOP supporters and education levels.

Source: @NickTimiraos, WSJ

2. According to Bloomberg, the CFA certification pass rates have risen as more candidates from mainland China,India, Hong Kong and Singapore take the exam.

Source: @business

3. The Chipotle E.coli fiasco by state. 

Source: @YahooFinance, h/t Jake

4. Medicare spending will double in the next decade. This is not going to end well.

Source: @KaiserFamFound 

5. According to Nature, top-selling medications in the US fail to improve the conditions for the majority of patients. Incredible ...

Source: @paul1kirby, @nature